HUTCHMED (China)
Annual Report 2022

Plain-text annual report

BOARD OF DIRECTORS Executive Directors TO Chi Keung, Simon, BSc, ACGI, MBA Chairman Weiguo SU, BSc, PhD Chief Executive Officer and Chief Scientific Officer CHENG Chig Fung, Johnny, BEc, CA Chief Financial Officer Non-executive Directors Dan ELDAR, BA, MA, MA, PhD Edith SHIH, BSE, MA, MA, EdM, Solicitor, FCG(CS, CGP), HKFCG(CS, CGP)(PE) Lefei SUN, BSc, MA Independent Non-executive Directors Paul Rutherford CARTER, BA, FCMA Senior Independent Director Karen Jean FERRANTE, MD, BSc Graeme Allan JACK, BCom, CA(ANZ), FHKICPA MOK Shu Kam, Tony, BMSc, MD, FRCPC, FHKCP, FHKAM, FRCP(Edin), FASCO AUDIT COMMITTEE Graeme Allan JACK (Chairman) Paul Rutherford CARTER Karen Jean FERRANTE NOMINATION COMMITTEE MOK Shu Kam, Tony (Chairman) Graeme Allan JACK TO Chi Keung, Simon REMUNERATION COMMITTEE Paul Rutherford CARTER (Chairman) Graeme Allan JACK TO Chi Keung, Simon TECHNICAL COMMITTEE Karen Jean FERRANTE (Chairman) Paul Rutherford CARTER MOK Shu Kam, Tony Weiguo SU Lefei SUN TO Chi Keung, Simon SUSTAINABILITY COMMITTEE Edith SHIH (Chairman) CHENG Chig Fung, Johnny MOK Shu Kam, Tony COMPANY SECRETARY Edith SHIH NOMINATED ADVISER Panmure Gordon (UK) Limited CORPORATE BROKERS Panmure Gordon (UK) Limited HSBC Bank plc AUDITOR PricewaterhouseCoopers CORPORATE INFORMATION Corporate Information Chairman’s Statement Chief Executive Officer’s Report 2022 Full Year Results and Business Updates 2022 Full Year Financial Results Financial Summary Operations Review Oncology/Immunology Other Ventures Use of Non-GAAP Financial Measures and Reconciliation Group Capital Resources Other Information Information on Directors Information on Senior Management Directors’ Report Corporate Governance Report Independent Auditor’s Report Consolidated Financial Statements Form 20-F References and Abbreviations Information for Shareholders 6 7 8 15 17 20 20 33 34 36 41 43 50 52 74 100 104 153 434 CONTENTS4 BUILDING A GLOBAL SCIENCE-FOCUSED BIOPHARMA COMPANY FROM AN ESTABLISHED BASE IN CHINAKEY HIGHLIGHTS STRATEGY UPDATE • Portfolio prioritization to drive near-term value creation • Global partnering approach to bring innovative medicines to patients outside of China • Global vision and patient commitment unchanged PRODUCTS & PIPELINE • FRESCO-2 Phase III MRCT1 of fruquintinib in refractory metastatic CRC2 met primary endpoint, rolling submission of NDA3 to U.S. FDA4 initiated • Fruquintinib FRUTIGA Phase III gastric cancer study in China met PFS5 endpoint, supplemental NDA in preparation • Global SAVANNAH Phase II of savolitinib plus TAGRISSO® combo demonstrated improved response rate in MET6-high patients, additional cohort re-opened for enrolling for potential accelerated approval • Over 15 registration/registration-intent studies ongoing with six products • Sovleplenib and amdizalisib registration studies fully enrolled • ORPATHYS® (savolitinib) to be included in NRDL7 effective March 1, 2023 CHINA COMMERCIAL DELIVERY • Oncology/Immunology revenues up 37% (41% CER8) in line with guidance • Combined in-market sales9 up 70% for ELUNATE®, SULANDA® and ORPATHYS® • Well-positioned on the path to a profitable and sustainable business All amounts are expressed in U.S. dollars unless otherwise stated. HUTCHMED (China) Limited 2022 Annual Report 5 “ I am proud of the progress that we at HUTCHMED have made during 2022 ” SIMON TO, CHAIRMAN This work is already bearing fruit, as indicated not only by the increase in revenues, but also the positive clinical and regulatory progress we have made with fruquintinib – culminating in the successful, post- period licensing agreement with Takeda10, marking a significant delivery against the Company’s strategy. This out-licensing ensures we remain true to the overall goal of our business of safeguarding access to our innovative medicines to patients globally. Further, our partnerships provide significant financial momentum while we focus on revenue growth from increased product sales in China. This strategy of revenue growth and strategic partnerships places us well on the path to a sustainable business. It is this path which will allow us to continue our expansion, as demonstrated by HUTCHMED’s continued delivery in China where our oncology commercial team has reached about 900 people to support greater access to our medicines; our ongoing development of savolitinib, which became our third product on the NRDL; and the continued ability of our business to develop medicines towards global markets. It is through this ability that 6 6 we expect to see multiple New Drug Applications being made not only in China but with key regulators around the world as we look to extend our ability to bring potentially life changing medicines to patients around the world. 2022 has been a key turning point for HUTCHMED, but I believe it will enable us to truly reach our goal of becoming a global biopharmaceutical company. Simon To Chairman February 28, 2023 CHAIRMAN’S STATEMENT“ 2022 was a pivotal year for ” HUTCHMED WEIGUO SU, CHIEF EXECUTIVE OFFICER AND CHIEF SCIENTIFIC OFFICER Challenged by difficult market conditions, the team worked incredibly hard to position HUTCHMED for success today as well as for a promising future. In November, we announced a new strategy that focuses on accelerating our path to a sustainable and profitable business, which involves a reprioritization of pipeline assets and a partnership approach for bringing our innovative medicines more efficiently to patients outside of China. We believe that this new strategy has unlocked greater value in the Company and we are already seeing a positive impact from this approach. In early 2023 we announced a significant licensing deal with Takeda for the global development, commercialization and manufacturing of fruquintinib, outside of China. We are pleased to have attracted such a strong partner and to place fruquintinib in the hands of a company with the scale, expertise, resources and commitment to maximize its success globally, as we believe we are already doing in China. The expected proceeds from the deal notably extends our cash runway, and the additional bandwidth allows us to continue to pursue value- driving opportunities from our internal pipeline while supporting our commercial growth in China. The Takeda deal perfectly exemplifies our global partnership approach and showcases our commitment to fulfilling our promises, swiftly and effectively. assets through clinical development and towards patients. Ultimately, this is how we will accelerate our path to a sustainable business over the long term. As part of our pipeline prioritization, we have reduced some funding to select international clinical programs and we look to further develop of some of these programs through partnerships. Specifically, these changes affect amdizalisib, HMPL-306 and HMPL- 760 international clinical programs. We will continue the surufatinib clinical program in Japan where a bridging study is fully recruited. Going forward, HUTCHMED still intends to continue to run early phase development programs for select drug candidates in the U.S., EU and Japan including sovleplenib where we believe our compounds are differentiated from a global perspective. This does not impact our commitment to patients, which, if anything, has intensified as we sharpen our focus on a smaller set of programs that we believe have the most immediate patient impact. I am proud of what the team has achieved this year amidst very difficult times for the sector, and feel very positive about our outlook. This approach goes hand in hand with the strategic prioritization of our pipeline. This includes focusing our development efforts on late-stage Weiguo Su Chief Executive Officer and Chief Scientific Officer February 28, 2023 HUTCHMED (China) Limited 2022 Annual Report 7 CHIEF EXECUTIVE OFFICER’S REPORTCOMMERCIAL OPERATIONS • • • • Total revenues increased 20% (24% CER) to $426.4 million in 2022 (2021: $356.1m), driven by commercial progress on our three in-house developed oncology drugs in China; Oncology/Immunology consolidated revenues up 37% (41% CER) to $163.8 million (2021: $119.6m); ELUNATE® (fruquintinib) in-market sales in 2022 increased 32% to $93.5 million (2021: $71.0m), reflecting its expanding lead in market share, particularly in tier 2 and 3 cities; SULANDA® (surufatinib) in-market sales in 2022 increased 178% to $32.3 million (2021: $11.6m), reflecting its first time NRDL inclusion which started in January 2022; • • • ORPATHYS® (savolitinib) in-market sales in 2022 increased 159% to $41.2 million (2021: $15.9m) following its launch in the second half of 2021 through AstraZeneca’s11 extensive oncology commercial organization. Rapid initial self-pay uptake due to being the first-in-class selective MET inhibitor in China, expect continued uptake to be supported by NRDL inclusion starting March 1, 2023; TAZVERIK® (tazemetostat) successfully launched in Hainan province in China in June 2022; and Successful management of commercial operations to expand coverage of oncology hospitals and physicians despite challenges of pandemic-related lockdowns in the first half of 2022. $’millions ELUNATE® SULANDA® ORPATHYS® TAZVERIK® Product Sales Other R&D12 services income Milestone payment Total Oncology/ Immunology 2022 $93.5 $32.3 $41.2 $0.1 $167.1 In-market Sales* 2021 % Change $71.0 $11.6 $15.9 – $98.5 +32% +178% +159% – +70% 2022 $69.9 $32.3 $22.3 $0.1 $124.6 $24.2 $15.0 $163.8 Consolidated Revenue** 2021 % Change $53.5 $11.6 $11.3 – $76.4 $18.2 $25.0 $119.6 +31% +178% +97% – +63% +33% -40% +37% * = For ELUNATE® and ORPATHYS®, represents total sales to third parties as provided by Lilly13 and AstraZeneca, respectively; and ELUNATE® sales to other third parties as invoiced by HUTCHMED. ** = For ELUNATE®, represents manufacturing fees, commercial service fees and royalties paid by Lilly, to HUTCHMED, and sales to other third parties invoiced by HUTCHMED; for ORPATHYS® represents manufacturing fees and royalties paid by AstraZeneca; for SULANDA® and TAZVERIK®, represents the Company’s sales of the products to third parties. 8 2022 FULL YEAR RESULTS & BUSINESS UPDATESREGULATORY UPDATES China • • • Received Breakthrough Therapy Designation in China for sovleplenib (HMPL-523) in January 2022 for the treatment of ITP14; Received approval for TAZVERIK® in the Hainan Boao Lecheng International Medical Tourism Pilot Zone in May 2022 for the treatment of certain patients with epithelioid sarcoma or follicular lymphoma; and Received Macau approvals for ELUNATE® and SULANDA®, the first drugs approved in the territory based on China NMPA15 approval, following regulatory updates in Macau. Ex-China • • • Fruquintinib rolling NDA submission to U.S. FDA initiated in December 2022 for the treatment of refractory CRC. The U.S. FDA granted Fast Track Designation for the development of fruquintinib for the treatment of patients with metastatic CRC in June 2020, enabling the company to submit sections of the NDA on a rolling basis; Fruquintinib submissions to the EMA16 and the Japanese PMDA17 to follow the completion of the US NDA submission; all expected to be completed in 2023; Savolitinib granted Fast Track Designation by the FDA for the combination treatment with TAGRISSO® of NSCLC18 patients harboring MET overexpression and/or amplification following progression on TAGRISSO®; and • Surufatinib U.S. NDA and EMA MAA19 withdrawn: o o o A Complete Response Letter regarding the US NDA (CRL) was issued in April 2022 by the U.S. FDA, citing the requirement of a multi-regional clinical trial in a more representative patient population. Following the Letter, the U.S. NDA was withdrawn in January 2023; the MAA was withdrawn in August 2022, following interactions with EMA reviewers which suggested that there is a low probability of a positive opinion; In Japan, the bridging study is continuing and a pre-NDA PMDA consultation is targeted for the first half of 2023; and Pandemic-related issues concerning inspection access contributed to FDA and EMA actions. HUTCHMED (China) Limited 2022 Annual Report 9 CLINICAL DEVELOPMENT ACTIVITIES in 2022 Savolitinib (ORPATHYS® in China), a highly selective oral inhibitor of MET being developed broadly across MET-driven patient populations in lung, gastric and PRCC20 Presentation of SAVANNAH global Phase II study data showing improved response rates with increasing levels of MET aberration for the TAGRISSO® combination (NCT03778229) in NSCLC patients harboring EGFR21 mutation and MET amplification or overexpression at WCLC22 2022. Overall results demonstrated strong ORR23, DoR24 and PFS among patients with higher MET levels, particularly among those with no prior chemotherapy; Aligned with FDA for the pivotal Phase II study for accelerated approval of the TAGRISSO® combination for NSCLC MET patients following progression on TAGRISSO®, and began enrolling; Initiated SAFFRON, a global, pivotal Phase III study of the TAGRISSO® combination (NCT05261399), which triggered a $15 million milestone payment. Enrolled patients will have MET levels consistent with the higher MET level patient groups in SAVANNAH and have had no prior chemotherapy; Enrolling SACHI, a pivotal Phase III study of the TAGRISSO® combination in China for NSCLC patients with MET amplification following progression on EGFR inhibitor treatment (NCT05015608); Enrolling SANOVO, a pivotal Phase III study of the TAGRISSO® combination in China in NSCLC patients harboring EGFR mutation and MET overexpression, comparing the combination with TAGRISSO® monotherapy (NCT05009836); Potential upcoming clinical and regulatory milestones for savolitinib: • • Convert the gastric cancer Phase II study to a registration trial, following discussion with NMPA in the first half of 2023; and Complete enrollment of SAVANNAH pivotal Phase II study. Fruquintinib (ELUNATE® in China), a highly selective oral inhibitor of VEGFR27 1/2/3 designed to improve kinase selectivity to minimize off-target toxicity and thereby improve tolerability; approved and launched in China • • • Presented positive results of the global Phase III FRESCO-2 registration trial (NCT04322539) in 691 refractory metastatic CRC patients, recruited from 14 countries including U.S., EU, Japan and Australia at ESMO28 in September 2022. Treatment with fruquintinib resulted in a statistically significant and clinically meaningful increase in the primary endpoint of OS and the key secondary endpoint of PFS compared to placebo; Presented preliminary data from the U.S. Phase Ib monotherapy study of fruquintinib in patients with refractory metastatic CRC (NCT03251378) at 2022 ASCO GI29; and Reported top-line results of the FRUTIGA China Phase III registration study (NCT03223376) in 703 advanced gastric cancer patients. The study met one of the primary endpoints of statistically significant improvement in PFS, which is clinically meaningful. The other primary endpoint of OS was not statistically significant. There were statistically significant improvements in secondary endpoints including ORR and DCR30, and improved DoR; and • Initiated China Phase III study of combination with PD-131 inhibitor sintilimab in RCC32 (NCT05522231). Presented final Phase II OS25 in patients with MET exon 14 skipping alteration NSCLC at ELCC26 2022 (NCT02897479); Potential upcoming clinical and regulatory milestones for fruquintinib: Enrolling the confirmatory China Phase IIIb study in MET exon 14 skipping altered NSCLC in both first-line and second-line and above patients (NCT04923945); Enrolling SAMETA, a global Phase III study in MET-driven PRCC of the IMFINZI® combination comparing to sunitinib (NCT05043090); Enrolled a China Phase II study in gastric cancer patients who have failed at least one line of systemic treatment (NCT04923932); and Initiated SOUND, a China Phase II study of the IMFINZI® combination in EGFR wild-type NSCLC patients with MET alterations (NCT05374603). • • • • • Submit a supplementary NDA to the NMPA for fruquintinib in combination with paclitaxel in the treatment of advanced gastric cancer in H1 2023, supported by results of the FRUTIGA study; Complete recruitment of a Phase II registration enabling study for endometrial cancer of fruquintinib in combination with PD-1 inhibitor sintilimab around mid-2023 (NCT03903705); Submit FRUTIGA results for presentation at a scientific conference; Submit for presentation further Phase II data of fruquintinib with PD-1 inhibitors; and Publication of FRESCO-2 results in a peer-reviewed scientific journal. • • • • • • • • • • 10 2022 FULL YEAR RESULTS & BUSINESS UPDATESSurufatinib (SULANDA® in China), an oral inhibitor of VEGFR, FGFR33 and CSF-1R34 designed to inhibit tumor angiogenesis and promote the body’s immune response against tumor cells via tumor associated macrophage regulation; approved and launched in China Tazemetostat (TAZVERIK® in the U.S., Japan and the Hainan Pilot Zone), a first-in-class, oral inhibitor of EZH2 licensed from Ipsen41 subsidiary Epizyme42 in China • • • Initiated a China bridging study in follicular lymphoma in July 2022 for conditional registration based on U.S. approvals (NCT05467943); Ipsen presented updated data from the Phase Ib portion of the global SYMPHONY-1 Phase III trial at ASH43 (NCT04224493) of tazemetostat combined with lenalidomide and rituximab (R²) in patients with relapsed or refractory follicular lymphoma after at least one prior line of therapy; and Initiated the China portion of the global SYMPHONY-1 Phase III trial in September 2022. Earlier stage investigational drug candidates In addition to the six drug candidates being developed in over 15 registration studies above, HUTCHMED is developing six further oncology candidates in early stage clinical trials. These are HMPL-306, a highly selective oral inhibitor of IDH1/244 designed to address resistance to currently marketed IDH inhibitors; HMPL-760, a highly selective, third-generation oral inhibitor of BTK45 with improved potency versus first generation BTK inhibitors against both wild type & C481S mutant enzymes; HMPL-453, a highly selective oral inhibitor of FGFR 1/2/3; HMPL-295, a highly selective oral inhibitor of ERK46 in the MAPK pathway47 with the potential to address intrinsic or acquired resistance from upstream mechanisms such as RAS-RAF-MEK; HMPL-653, an oral, highly selective, and potent CSF-1R inhibitor designed to target CSF-1R driven tumors as a monotherapy or in combinations; and HMPL-A83, a differentiated, red blood cell sparing CD47 monoclonal antibody. Subject to data and consultation with the CDE48, several of these earlier stage drug candidates have potential to move into registration trials in 2023 and early 2024. We have recently agreed a registration enabling trial design for HMPL-453 for the treatment of IHCC49 with the CDE and preparations are underway to start the study. Results supporting this decision will be submitted for scientific presentation in 2023. • • Presented a pooled analysis of safety data from the SANET-p and SANET-ep studies at the 2022 ASCO35 annual meetings; and Presented data from the Phase Ib/II global tislelizumab combination study at NANETS36 2022. Potential upcoming clinical and regulatory milestones for surufatinib: • Complete bridging study in NET37 patients in Japan (NCT05077384) in the first half of 2023 and discuss results with the Japanese PMDA. Sovleplenib (HMPL-523), an investigative and highly selective oral inhibitor of Syk38, an important component of the Fc receptor and B-cell receptor signaling pathway • Fully enrolled ESLIM-01 China Phase III study in primary ITP (NCT03951623) in December 2022. Potential upcoming clinical milestones for sovleplenib: • • Report top-line results from ESLIM-01 China Phase III in the second half of 2023; and Complete Phase II Proof-of-Concept study in warm AIHA39 in China and decide on whether to proceed into Phase III. Amdizalisib (HMPL-689), an investigative and highly selective oral inhibitor of PI3Kδ40 designed to address the gastrointestinal and hepatotoxicity associated with currently approved and clinical-stage PI3Kδ inhibitors • • Completed recruitment of patients for China registration Phase II study for the treatment of follicular lymphoma (with Breakthrough Therapy Designation) in February 2023 (NCT04849351); and Initiated China combination trial with tazemetostat in February 2023 (NCT05713110). Potential upcoming clinical and regulatory milestones for amdizalisib: • Report top-line results from the China registration Phase II study for the treatment of follicular lymphoma in H2 2023. HUTCHMED (China) Limited 2022 Annual Report 11 COLLABORATION UPDATES IMPACT OF COVID-19 Takeda Exclusive Worldwide License for Fruquintinib Outside China Subject to customary closing conditions, including completion of antitrust regulatory reviews: • • Takeda will become responsible for development, manufacturing and commercialization in all indications and territories outside of mainland China, Hong Kong and Macau; and HUTCHMED will be eligible to receive up to $1.13 billion, including $400 million upfront on closing of the agreement and up to $730 million in additional potential payments relating to regulatory, development and commercial sales milestones, as well as royalties on net sales. Inmagene candidates discovered by HUTCHMED Two Phase I trials initiated in Australia and the U.S. on two HUTCHMED drug candidates being developed by Inmagene: IMG-007, an investigative OX40 antagonistic monoclonal antibody designed to selectively shut down OX40+ T cell function; and IMG-004, a reversible, non-covalent, highly selective oral BTK inhibitor designed to target immunological diseases. OTHER VENTURES Other Ventures include our profitable prescription drug marketing and distribution platforms • • • Other Ventures consolidated revenues increased by 11% (15% at CER) to $262.6 million (2021: $236.5m); SHPL50 non-consolidated joint venture revenues increased by 11% (14% at CER) to $370.6 million (2021: $332.6m); Consolidated net income attributable to HUTCHMED from our Other Ventures increased by 16% (17% at CER) to $54.6 million (2021: $47.3m which excluded $95.6m related to HBYS51), which was primarily due to the net income contributed from SHPL of $49.9 million (2021: $44.7m); and • We continue to review divestment and equity capital market options and we have started the process for a share reform of the SHPL joint venture. 12 COVID-19 had some impact on our research, clinical studies and our commercial activities in 2022, particularly with respect to hospital lockdowns, travel restrictions, and shipping difficulties. Clinical sites in Shanghai were particularly impacted during April and May 2022. Measures were put in place to reduce the impact of such restrictions to the extent possible, including online patient follow-up and the retention of core research teams on-site to maintain critical activities, with business returning to normal in June. Restrictive measures related to the COVID-19 pandemic have gradually been lifted in China starting from December 2022, and we expect the travel, social and economic activities to normalize. SUSTAINABILITY HUTCHMED has made continued progress in its commitment to the long- term sustainability of its businesses and communities in which it conducts business, including: • • • • • • Enhanced disclosures, including publishing our second Sustainability Report, and publishing eight new governance and sustainability-related policies and statements; Strengthened governance, including establishing a four-tier governance framework to facilitate oversight and implementation of sustainability issues; Committed to 11 short-to long-term sustainability goals and targets, incorporated sustainability KPIs on goals and targets into management’s performance-based remuneration; Comprehensive stakeholder engagement conducted with over 2,400 key internal and external stakeholders involving quantitative and qualitative assessments, and a materiality analysis to help identify the most material sustainability issues to the Company; Enhanced sustainability awareness building in over 20 meetings/ sessions during the year amongst the general staff, the Sustainability Working Group, senior management, the Sustainability Committee and the Board; and Climate risks action, including an assessment to identify climate- related risks and opportunities for the Company, and following the recommended disclosure framework of the Task Force on Climate- related Financial Disclosures (TCFD). We believe all these efforts will guide us towards a more sustainable future. The 2022 Sustainability Report will be published alongside our 2022 Annual Report in due course and will include further information on HUTCHMED sustainability initiatives and their performance. 2022 FULL YEAR RESULTS & BUSINESS UPDATESU.S. ACCOUNTING OVERSIGHT As had been expected, in 2022 the U.S. Securities and Exchange Commission (SEC) named over 170 China-based companies, including HUTCHMED, to its conclusive list of public companies identified as having retained a registered public accounting firm that the Public Company Accounting Oversight Board (“PCAOB”) is unable to inspect or investigate completely. However, on December 15, 2022, the PCAOB announced that it was able to inspect and investigate completely registered public accounting firms headquartered in mainland China and Hong Kong and vacated its prior determination that it was unable to inspect or investigate them completely. As a result, we do not expect to be identified as a Commission-Identified Issuer for the fiscal year ended December 31, 2022 after we file our annual report on Form 20-F for such fiscal year. This has had no impact on the business operations of the Company. HUTCHMED (China) Limited 2022 Annual Report 13 Cash, Cash Equivalents and Short-Term Investments were $631.0 million as of December 31, 2022 compared to $1,011.7 million as of December 31, 2021. Revenues for the year ended December 31, 2022 were $426.4 million compared to $356.1 million in 2021. • • Adjusted Group (non-GAAP52) net cash flows excluding financing activities in 2022 were-$297.9 million (2021:-$73.5m) mainly due to increased spending on Oncology/Immunology R&D; and Net cash used in financing activities in 2022 totaled $82.8 million (2021: net cash generated from financing activities of $650.0m primarily from the offering of shares on HKEX53) mainly due to the repayments of bank borrowings, dividends paid to non-controlling shareholders of subsidiaries and purchases of ADSs54 by a trustee for the settlement of equity awards. • Oncology/Immunology consolidated revenues increased 37% (41% at CER) to $163.8 million (2021: $119.6m) resulting from: ELUNATE® revenues increased 31% to $69.9 million (2021: $53.5m) in manufacturing revenues, promotion and marketing service revenues and royalties, as our in-house sales team increased in-market sales 32% to $93.5 million (2021: $71.0m), as provided by Lilly; SULANDA® revenues increased 178% to $32.3 million (2021: $11.6m), after inclusion on the NRDL starting in January 2022; ORPATHYS® revenues increased 97% to $22.3 million (2021: $11.3m), in manufacturing revenues and royalties following its launch in the second half of 2021. AstraZeneca reported $41.2 million in- market sales (2021: $15.9m) of ORPATHYS® in 2022; TAZVERIK® revenues of $0.1 million following its successful launch in Hainan province in June 2022; Milestone payment of $15.0 million (2021: $25.0m milestone payment upon first sale of ORPATHYS® in China), to us by AstraZeneca, related to the initiation of SAFFRON; and Other R&D services income of $24.2 million (2021: $18.2m), which were primarily fees from AstraZeneca and Lilly for the management of development activities in China. • Other Ventures consolidated revenues increased 11% (15% at CER) to $262.6 million (2021: $236.5m), mainly due to higher sales of prescription drugs. This excludes the strong 11% (14% at CER) growth in non-consolidated revenues at SHPL of $370.6 million (2021: $332.6m). HUTCHMED (China) Limited 2022 Annual Report 15 2022 FULL YEAR FINANCIAL RESULTSNet Expenses for the year ended December 31, 2022 were $787.2 million compared to $550.7 million in 2021. Net Loss attributable to HUTCHMED for the year ended December 31, 2022 was $360.8 million compared to $194.6 million in 2021. • The net loss attributable to HUTCHMED in 2022 was $0.43 per ordinary share/$2.13 per ADS, compared to net loss attributable to HUTCHMED of $0.25 per ordinary share/$1.23 per ADS in 2021. • • • • Costs of Revenues were $311.1 million (2021: $258.2m), the majority of which were the cost of third-party prescription drug products marketed through our profitable Other Ventures, as well as costs associated with ELUNATE®, including the provision of promotion and marketing services to Lilly, and the costs for SULANDA® and ORPATHYS® which commenced commercial sales in July 2021; R&D Expenses were $386.9 million (2021: $299.1m), which increased mainly as a result of an expansion in the active development of our novel oncology drug candidates. Our international clinical and regulatory operations in the U.S. and Europe incurred expenses of $170.9 million (2021: $140.1m), while R&D expenses in China were $216.0 million (2021: $159.0m); SG&A Expenses55 were $136.1 million (2021: $127.1m), which increased primarily due to higher staff costs and selling expenses to support the expansion of our Oncology/Immunology commercial operations; and Other Items generated net income of $46.9 million (2021: $133.7m), which decreased primarily due to a one-off gain of $82.9 million in 2021 related to the divestment of HBYS. 16 2022 FULL YEAR FINANCIAL RESULTSCONDENSED CONSOLIDATED BALANCE SHEETS DATA (in $’000) Assets Cash and cash equivalents and short-term investments Accounts receivable Other current assets Property, plant and equipment Investments in equity investees Other non-current assets Total assets Liabilities and shareholders’ equity Accounts payable Other payables, accruals and advance receipts Bank borrowings Other liabilities Total liabilities Company’s shareholders’ equity Non-controlling interests Total liabilities and shareholders’ equity As of December 31, 2022 630,996 97,988 110,904 75,947 73,777 39,833 2021 1,011,700 83,580 116,796 41,275 76,479 42,831 1,029,445 1,372,661 71,115 264,621 18,104 38,735 392,575 610,367 26,503 41,177 210,839 26,905 54,226 333,147 986,893 52,621 1,029,445 1,372,661 HUTCHMED (China) Limited 2022 Annual Report 17 FINANCIAL SUMMARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS DATA (in $’000, except share and per share data) Revenues: Oncology/Immunology – Marketed Products Oncology/Immunology – R&D Oncology/Immunology consolidated revenues Other Ventures Total revenues Operating expenses: Costs of revenues Research and development expenses Selling and general administrative expenses Total operating expenses Gain on divestment of an equity investee Other expense, net Loss before income taxes and equity in earnings of equity investees Income tax benefit/(expense) Equity in earnings of equity investees, net of tax Net loss Less: Net income attributable to non-controlling interests Net loss attributable to HUTCHMED Year Ended December 31, 2022 2021 124,642 39,202 163,844 262,565 426,409 (311,103) (386,893) (136,106) (834,102) (407,693) – (2,729) (410,422) 283 49,753 (360,386) (449) (360,835) 76,429 43,181 119,610 236,518 356,128 (258,234) (299,086) (127,125) (684,445) (328,317) 121,310 (8,733) (215,740) (11,918) 60,617 (167,041) (27,607) (194,648) Losses per share attributable to HUTCHMED – basic and diluted (US$ per share) Number of shares used in per share calculation – basic and diluted Losses per ADS attributable to HUTCHMED – basic and diluted (US$ per ADS) Number of ADSs used in per share calculation – basic and diluted (0.43) 847,143,540 (2.13) 169,428,708 (0.25) 792,684,524 (1.23) 158,536,905 18 FINANCIAL SUMMARY We discover, develop, manufacture and market targeted therapies and immunotherapies for the treatment of cancer and immunological diseases through a fully integrated team of approximately 960 scientists and staff (December 31, 2021: ~820), and an in-house oncology commercial organization of over 870 staff (December 31, 2021: ~630). In January 2022, ELUNATE® was approved in the Macau Special Administrative Region, our first drug to be approved in the territory and the first based on NMPA approval, following the latest update to the Macau provisions on new drug importation which allow drugs approved in one or more specified jurisdictions to be authorized for use in Macau. We have advanced 13 oncology drug candidates into clinical trials in China, with four also in active clinical development in the U.S. and Europe. Our first three drug candidates, fruquintinib, surufatinib and savolitinib, have all been approved and launched in China and the fourth, tazemetostat, has been approved and launched in Hainan Pilot Zone and submitted for registration in Hong Kong. MARKETED PRODUCT SALES Fruquintinib (ELUNATE® in China) ELUNATE® is approved for the treatment of third-line metastatic CRC for which there is an approximate incidence of 83,000 new patients per year in China. We estimate that in 2022, approximately 32,000 (2021: approximately 22,000) new patients were treated with ELUNATE® in China resulting in in-market sales of $93.5 million, up 32% versus 2021 ($71.0 million). ELUNATE® surpassed regorafenib in prescription numbers for late stage CRC at the end of 2021 and that lead has continued to grow in 2022. Under the terms of our agreement with Lilly, HUTCHMED manages all on-the-ground medical detailing, promotion and local and regional marketing activities for ELUNATE® in China. We consolidate as revenues approximately 70-80% of ELUNATE® in-market sales from manufacturing fees, service fees and royalties paid to us by Lilly. In 2022, we consolidated $69.9 million in revenue for ELUNATE®, equal to 74.8% of in-market sales. Following negotiations with the China NHSA56, ELUNATE® continues to be included in the NRDL for a new two-year term starting in January 2022. For this renewal, we agreed to a discount of 5% relative to the 2021 NRDL price. Surufatinib (SULANDA® in China) SULANDA® was launched in China in 2021 for the treatment of all advanced NETs for which there is an approximate incidence of 34,000 new patients per year in China. In 2021, SULANDA® was sold as a self-pay drug. We used means-tested early access and patient access programs to help patients afford SULANDA®. Despite these access programs, duration of treatment was often affected by the economic constraints of patients. Following negotiations with the China NHSA, SULANDA® was included in the NRDL starting in January 2022 at a 52% discount on our main 50mg dosage form, relative to the 2021 self-pay price. Under the NRDL, actual out-of- pocket costs for patients in 2022 represented approximately 15-20% of the 2021 self-pay price. As a result of inclusion in the NRDL and our continued marketing activities, patient access to SULANDA®, as well as duration of treatment, have been expanding with total sales in 2022 increasing by 178% to $32.3 million (2021: $11.6 million). In 2022, approximately 12,000 new patients were treated with SULANDA®, representing approximately 2.5 times the approximately 4,800 new patients in 2021. There are two therapies for advanced NETs approved and NRDL reimbursed in China: SUTENT® for the treatment of pNET57 (approximately 10% of NET), and AFINITOR® in broadly the same indication as SULANDA®. In April 2022, SULANDA® was approved in the Macau Special Administrative Region. 20 OPERATIONS REVIEW – ONCOLOGY/IMMUNOLOGYSavolitinib (ORPATHYS® in China) In late June 2021, ORPATHYS® became the first-in-class selective MET inhibitor to be approved in China. Our partner, AstraZeneca, then launched ORPATHYS® in mid-July 2021, less than three weeks after its conditional approval by the NMPA for patients with MET exon 14 skipping alteration NSCLC. More than a third of the world’s lung cancer patients are in China. Among those with NSCLC globally, approximately 2-3% have tumors with MET exon 14 skipping alterations. In 2021 and 2022, ORPATHYS® was sold as a self-pay drug. AstraZeneca introduced a patient access program in late 2021 which subsidizes use of ORPATHYS®, through progressive disease. In-market sales for ORPATHYS® grew by 159% in 2022 to $41.2 million (2021: $15.9m) resulting in our consolidation of $22.3 million (2021: $11.3m) in revenues from manufacturing fees and royalties in 2022. Following negotiations with the China NHSA in January 2023, starting on March 1, 2023, ORPATHYS® will be included in the updated NRDL, broadening patient access to this medicine. Market understanding of the need for MET testing has improved significantly, with ORPATHYS®’s brand share more than doubling since the end of 2021 in the rapidly growing targeted therapy area. In the National Health Commission’s Treatment Guidelines for Primary Lung Cancer 2022 and the China Medical Association Oncology Committee Lung Cancer Group’s China Medical Association Guideline for Clinical Diagnosis and Treatment of Lung Cancer, ORPATHYS® was identified as the only targeted therapy recommended for MET exon 14 patients, while similar guideline from CSCO58 also recommended ORPATHYS® as the standard of care for such patients. ORPATHYS® is the first and only selective MET inhibitor on the market in China. XALKORI® is an approved multi-kinase inhibitor of ALK and ROS1 with modest MET activity. Several selective MET inhibitors are in development in China, but none are currently expected to reach the market before 2023. Tazemetostat (TAZVERIK® in Hainan, China; the U.S. and Japan) In May 2022, tazemetostat was approved by the Health Commission and Medical Products Administration of Hainan Province to be used in the Hainan Boao Lecheng International Medical Tourism Pilot Zone (Hainan Pilot Zone), under the Clinically Urgently Needed Imported Drugs scheme, for the treatment of certain patients with epithelioid sarcoma and follicular lymphoma consistent with the label as approved by the FDA. Launched in 2013 and located in China, the Hainan Pilot Zone is a destination for international medical tourism and global hub for scientific innovation, welcoming 83,900 medical tourists in 2020, according to official data. Following inclusion in the 2022 CSCO guidelines for epithelioid carcinoma, three patients began treatment in 2022, with the first patient having remained on medication for over six months. In December 2022, a market authorization application was submitted in Hong Kong. RESEARCH & DEVELOPMENT HUTCHMED announced its strategy in November 2022 aimed at accelerating its path to profitability and establishing a long-term sustainable business, by prioritizing late-stage and registrational studies to bring the most advanced drug candidates through regulatory approval as they are most likely to drive near-term value, particularly the global regulatory approvals and partnership of fruquintinib outside of China. Selected programs will be considered as candidates for out-licensing opportunities, particularly outside of China, with some early phase U.S./ EU-related studies deprioritized until then, enabling the Company to focus internal resources on its later-stage drug candidates. These studies include surufatinib (outside Japan and China), amdizalisib, HMPL- 760 and HMPL-306. Surufatinib, amdizalisib, HMPL-760, HMPL-306 and sovleplenib are all considered as candidates for out-licensing outside of China. HUTCHMED intends to continue to run early phase development programs for selected drug candidates in U.S., EU and Japan where we believe we can differentiate from a global perspective. HUTCHMED (China) Limited 2022 Annual Report 21 Update on MET altered, EGFR wild type NSCLC in China – The June 2021 monotherapy approval by the NMPA was based on positive results from a Phase II trial conducted in China in patients with NSCLC with MET exon 14 skipping alterations (NCT02897479). Final OS and subgroup analysis was presented for this trial at ELCC 2022 and published in the journal JTO Clinical and Research Reports. The updated results further confirmed the favorable benefit of savolitinib in these patients and in each subgroup and the acceptable safety profile. In addition to this trial and the confirmatory study in this patient population (NCT04923945), the SOUND Phase II trial is an open-label, interventional, multicenter, exploratory Phase II study to evaluate savolitinib combined with IMFINZI® in EGFR/ALK/ROS1 wild-type, locally advanced or metastatic NSCLC patients with MET aberrations (NCT05374603). The primary endpoint is PFS. Update on combination therapies in EGFR TKI-resistant NSCLC – MET-aberration is a major mechanism for acquired resistance to both first/second-generation EGFR TKIs as well as third-generation EGFR TKIs like TAGRISSO®. Among patients who experience disease progression post-TAGRISSO® treatment, approximately 15-50% present with MET aberration. The prevalence of MET amplification and overexpression may differ depending on the sample type, detection method and assay cut- off used. Savolitinib has been studied extensively in these patients in the TATTON and SAVANNAH studies. The encouraging results led to the initiation and planning of three Phase III studies: SACHI and SANOVO were initiated in China in 2021, and the global, pivotal Phase III SAFFRON study is currently open for enrollment. In January 2023, the U.S. FDA designated as a Fast Track development program the investigation of savolitinib for use in combination with TAGRISSO® for the treatment of patients with locally advanced or metastatic NSCLC whose tumors have MET overexpression and/or amplification, as detected by an FDA-approved test, and who have had disease progression during or following prior TAGRISSO®. SAVANNAH (NCT03778229) – This global Phase II study in patients who have progressed following TAGRISSO® due to MET amplification or overexpression has three dose cohorts of savolitinib combined with TAGRISSO®. In addition to continuing TAGRISSO® treatment, patients received savolitinib 300mg QD, 300mg BID, or 600mg QD. The study reopened for enrollment to further reinforce the strength of data, initially presented at WCLC 2022. Recruitment is expected to be completed in the second half of 2023. We continue to evaluate the possibility of using the SAVANNAH study as the basis for U.S. accelerated approval. Savolitinib (ORPATHYS® in China) Savolitinib is an oral, potent, and highly selective oral inhibitor of MET. In global partnership with AstraZeneca, savolitinib is being studied in NSCLC, PRCC and gastric cancer clinical trials with over 1,500 patients to date, both as a monotherapy and in combinations. In February 2022, a $15 million milestone payment from AstraZeneca was triggered by the initiation of start-up activities for the SAFFRON study. In total, AstraZeneca has paid HUTCHMED $85 million of the total $140 million in upfront payments, development and approvals milestones that are potentially payable under the relevant license and collaboration agreement. Savolitinib – Lung cancer: MET plays an important role in NSCLC. Savolitinib has made significant development progress in lung cancer, completing NMPA NDA review, gaining approval and successfully launching as a monotherapy in China. It is also now in multiple late stage registrational studies as a combination therapy. The table below shows a summary of the clinical studies for savolitinib in lung cancer patients. Sites Phase Status/Plan NCT # NCT02897479 China II Registration Approved & launched in 2021; Final OS analysis at ELCC 2022 China III Confirmatory Ongoing since 2021 NCT04923945 China II Ongoing since 2022 NCT05374603 Global II Registration- intent Global III Ongoing; Data that supported Phase IIIs at WCLC 2022 Ongoing since 2022 NCT03778229 NCT05261399 China III Ongoing since 2021 NCT05015608 China III Ongoing since 2021 NCT05009836 Treatment Savolitinib monotherapy Name, Line, Patient Focus MET exon 14 skipping alterations Savolitinib monotherapy MET exon 14 skipping alterations Savolitinib + IMFINZI® Savolitinib + TAGRISSO® Savolitinib + TAGRISSO® Savolitinib + TAGRISSO® Savolitinib + TAGRISSO® SOUND: MET-driven, EGFR wild type SAVANNAH: 2L/3L EGFRm+59; TAGRISSO® refractory; MET+ SAFFRON: 2L/3L EGFRm+; TAGRISSO® refractory; MET+ SACHI: 2L EGFR TKI60 refractory NSCLC; MET+ SANOVO: Naïve patients with EGFRm & MET+ 22 OPERATIONS REVIEW – ONCOLOGY/IMMUNOLOGYThe first presentation was at 2022 WCLC. These results were based on an analysis of 193 efficacy evaluable patients who received savolitinib 300mg once daily plus TAGRISSO® 80mg once daily at data cut-off date of August 27, 2021. Qualifying MET aberrations were FISH5+61 or IHC50+62. Importantly, additional analysis using a higher cut-off level of MET aberration were presented. The higher cut-off levels for MET aberration are FISH10+63 and/or IHC90+64. The prevalence of this higher cut-off levels of MET aberration was 34% of patients centrally tested for enrollment in this study versus 62% at the lower, qualifying cut-off level. Results showed a trend toward improved response rates with increasing level of MET aberration. Across all patients in this analysis, ORR was 32% (95% CI: 26-39%), median DoR was 8.3 months (95% CI: 6.9-9.7 months), and median PFS was 5.3 months (95% CI: 4.2-5.8 months). These results are consistent with the TATTON and ORCHARD global studies. Among the 108 SAVANNAH patients who met the criteria for higher cut-off levels of MET aberration, ORR was 49% (95% CI: 39-59%), median DoR was 9.3 months (95% CI: 7.6-10.6 months), and median PFS was 7.1 months (95% CI: 5.3-8.0 months). Importantly, among the 87 patients who did not receive prior chemotherapy, ORR was 52% (95% CI: 41-63%), median DoR was 9.6 months (95% CI: 7.6-14.9 months), and median PFS was 7.2 months (95% CI: 4.7-9.2 months). The safety profile of savolitinib plus TAGRISSO® was consistent with the known profiles of the combination and each treatment alone. Note: *Evaluable for efficacy defined as dosed patients with measurable disease at baseline who had ≥2 on-treatment RECIST scans. Excludes eight patients with invalid or missing test results for IHC90+ and/or FISH10+ status, these patients were excluded from the subgroup analyses based on MET levels. n = number of patients; ORR = objective response rate; mDoR = median duration of response; mPFS = median progression-free survival; CI = confidence interval; mo. = months; Source: WCLC 2022 Abstract # EP08.02-140. SAFFRON (NCT05261399) – Findings based on SAVANNAH and the TATTON studies supported the initiation of the SAFFRON global Phase III study in patients with EGFR-mutated, MET-driven, locally advanced or metastatic NSCLC whose disease progressed on first-or second-line treatment with TAGRISSO® as the most recent therapy, with no prior chemotherapy in the metastatic setting allowed. Patients are prospectively selected for the higher level of MET aberration of FISH10+ and/or IHC90+. The SAFFRON study will evaluate the efficacy and safety of savolitinib in combination with TAGRISSO® compared to pemetrexed plus platinum doublet- chemotherapy, the current standard-of-care treatment in this setting. The primary endpoint of the study is PFS. Enrollment of SAVANNAH is being prioritized until it is fully enrolled. Two registrational studies are ongoing in China in EGFR mutated NSCLC with MET aberrations: the SANOVO (NCT05009836) study in treatment naïve patients, and SACHI (NCT05015608) study in patients whose disease progressed following treatment with any first-line EGFR TKI. Both trials are expected to complete enrollment in 2024. MET Biomarker-based Preliminary Efficacy Analysis in SAVANNAH: Efficacy outcomes by IHC and/or FISH status* Savolitinib – Kidney cancer: MET is a key genetic driver in papillary RCC, and emerging evidence suggests that combining immunotherapies with a MET inhibitor could enhance anti-tumor activity. PRCC is a subtype of kidney cancer, representing about 15% of patients, with no treatments approved for patients with tumors that harbor MET-driven alterations. We have conducted multiple global studies of savolitinib in PRCC patients, including the SAVOIR monotherapy and CALYPSO combination therapy global Phase II trials, that both demonstrated highly encouraging results. These results led to the initiation of a global Phase III, the SAMETA study, in 2021. N=185* (cid:31)(cid:30)(cid:30)(cid:29)(cid:28) (cid:27)(cid:26) METE -TTTTTTTT-----high (cid:25)(cid:24)(cid:23)(cid:22)(cid:30)(cid:21) (cid:20)(cid:19)(cid:18)(cid:17)(cid:16)(cid:15) (cid:14)(cid:25)(cid:13)(cid:24)(cid:12)(cid:30)(cid:21) MET-low (cid:25)(cid:24)(cid:23)(cid:11)(cid:30) (cid:10)(cid:22)(cid:30) (cid:20)(cid:19)(cid:18)(cid:17)(cid:16)(cid:15) (cid:14)(cid:25)(cid:13)(cid:24) (cid:11) (cid:9)(cid:12)(cid:30) Prevalence among patients screened 34% 28% Prior Chemo 20% No prior chemo subset Number of patients n=108 n=87 18% n=77 No prior chemo subset n=63 ORR, [95% CI] 49% [39–59] 52% %%52% 5 11111111–––––63] 41– [41 9% [4–18] 10% [4–20] mDoR, [95% CI] mPFS [95% CI] , 9.3 mo. [7.6 –10.6] 7.1 mo. [5.3 –8.0] 9.6 mo. mo.m6 m .6 9 [7.6 [77.6666 –1144.9] 66 14.9] 7 6 – 7.2 mo. mo.m2 m .2 7. 77 ––––9.2] 4.7 – [4.7 6.9 mo. [4.1 –16.9] 2.8 mo. [2.6 –4.3] 7.3 mo. [4.1 –NC] 2.8 mo. [1.8 –4.2] HUTCHMED (China) Limited 2022 Annual Report 23 The table below shows a summary of the clinical study for savolitinib in kidney cancer patients. We are partnered with Lilly in China and have agreed to partner with Takeda outside of China. The table below shows a summary of the clinical studies for fruquintinib. Treatment Savolitinib + IMFINZI® Name, Line, Patient Focus SAMETA: MET-driven, unresectable and locally advanced or metastatic PRCC Sites Phase Status/Plan NCT # Global III Ongoing since 2021 NCT05043090 Treatment Fruquintinib monotherapy Name, Line, Patient Focus FRESCO-2: metastatic CRC Fruquintinib monotherapy CRC; TN65 & HR+66/ Her2-67 breast cancer III U.S./ Europe/ Japan/ Aus. U.S. I/Ib Sites Phase Status/Plan NCT # U.S., EU, Japan filings to complete in 2023; Results at ESMO 2022 CRC data at ASCO GI 2022. Close to completion Ongoing since 2021; Fully enrolled; Submitting data to conference in H2 2023 Approved and launched in 2018 Supplemental NDA to be filed in H1 2023 Fully enrolled; Data at European Journal of Cancer 181 (2023) 26-37 Ongoing since 2021; Ib data at CSCO 2021 NCT04322539 NCT03251378 NCT04577963 NCT02314819 NCT03223376 NCT04179084 NCT03903705 Fruquintinib + tislelizumab (PD-1) MSS68-CRC U.S. Ib/II FRESCO: ≥ 3L CRC; chemotherapy refractory FRUTIGA: 2L gastric cancer China III China III CRC China II Endometrial cancer China II registration- intent Fruquintinib monotherapy Fruquintinib + paclitaxel Fruquintinib + TYVYT® (PD-1) Fruquintinib + TYVYT® (PD-1) Fruquintinib + TYVYT® (PD-1) Fruquintinib + TYVYT® (PD-1) Fruquintinib + TYVYT® (PD-1) Fruquintinib + TYVYT® (PD-1) Fruquintinib + TYVYT® (PD-1) RCC RCC China Ib/II NCT03903705 Fully enrolled; 1L & 2L data submission in 2023 China III Ongoing since 2022 NCT05522231 Gastrointestinal tumors China Ib/II NSCLC China Ib/II Cervical cancer China Ib/II NCT03903705 NCT03903705 NCT03903705 Fully enrolled; Data submission in 2023 Fully enrolled; Data submission in 2023 if mature Fully enrolled; Data submission in 2023 if mature Fruquintinib + tislelizumab (PD-1) CRC Korea/ China Ib/II Fully enrolled NCT04716634 Savolitinib – Gastric cancer: MET-driven gastric cancer has a very poor prognosis. Multiple Phase II studies have been conducted in Asia to study savolitinib in MET-driven gastric cancer, of which approximately 5% of all gastric cancer patients, demonstrated promising efficacy, including VIKTORY. The VIKTORY study reported a 50% ORR with savolitinib monotherapy in gastric cancer patients whose tumors harbor MET amplification. Treatment Savolitinib Name, Line, Patient Focus 2L+ gastric cancer with MET amplification. Two-stage, single-arm study Sites Phase Status/Plan NCT # NCT04923932 China II registration- intent Ongoing since 2021; Consult CDE on registration- intent in H1 2023 Fruquintinib (ELUNATE® in China) Fruquintinib is a novel, selective, oral inhibitor of VEGFR 1/2/3 kinases that was designed to improve kinase selectivity to minimize off-target toxicity and thereby improve efficacy and tolerability. Fruquintinib has been studied in clinical trials with about 5,000 patients to date, both as a monotherapy and in combination with other agents. Aside from its first approved indication of third-line CRC (in China), studies of fruquintinib combined with various checkpoint inhibitors (including TYVYT®, geptanolimab and tislelizumab) are underway, some of which presented encouraging data in 2021. Registration-intent studies combined with chemotherapy (FRUTIGA study in gastric cancer) or checkpoint inhibitors (TYVYT® combo, in endometrial cancer and RCC) are ongoing in China. 24 OPERATIONS REVIEW – ONCOLOGY/IMMUNOLOGYFruquintinib – CRC updates: FRESCO-2 (NCT04322539) – Positive results from this double-blind, placebo-controlled, global Phase III study in 691 patients with refractory metastatic CRC were presented at ESMO 2022. The study demonstrated that treatment with fruquintinib resulted in a statistically significant and clinically meaningful increase in OS and the key secondary endpoint of PFS compared to treatment with placebo. Specifically, the median OS was 7.4 months for the 461 patients treated with fruquintinib compared to 4.8 months for the 230 patients in the placebo group (HR 0.66; 95% CI 0.55– 0.80; p<0.001). Median PFS was 3.7 months with fruquintinib compared to 1.8 months with placebo (HR 0.32; 95% CI 0.27–0.39; p<0.001). DCR was 55.5% with fruquintinib compared to 16.1% with placebo. The safety profile of fruquintinib in FRESCO-2 was consistent with previously reported fruquintinib studies. Grade 3 or above adverse events occurred in 62.7% of patients who received fruquintinib, compared to 50.4% of patients who received placebo. Grade 3 or above adverse events that occurred in more than 5% of patients who received fruquintinib were hypertension (13.6% vs. 0.9% in the placebo group), asthenia (7.7% vs. 3.9% in the placebo group) and hand-foot syndrome (6.4% vs. 0% in the placebo group). Filing of a rolling submission of a NDA was initiated in December 2022, and expected to be completed in the first half of 2023. MAA filing to the EMA and NDA filing to the PMDA are expected to follow in 2023. U.S. Phase I/Ib CRC cohorts (NCT03251378) – Preliminary efficacy and safety data of fruquintinib in patients with refractory, metastatic CRC were presented at ASCO GI in early 2022. The study provided proof-of-concept evidence to initiate the FRESCO-2 study. Consistent results across late-stage settings in two pivotal Phase III studies FRESCO-2 [1] Global Phase III FRESCO [2] China Phase III Fruquintinib (n=461) Placebo (n=230) Fruquintinib (n=278) Placebo (n=138) 97% >100% 52% 9% 39% 96% >100% 53% 8% 40% 30% ~25% 0% 0% 0% 30% ~25% 0% 0% 0% 7.4 [6.7 -8.2] +2.6 4.8 [4.0 -5.8] 9.3 [8.2 -10.5] +2.7 6.6 [5.9 -8.1] 0.66 (0.55 -0.80, p<0.001) 0.65 (0.51 -0.83, p<0.001) 3.7 [3.5 -3.8] +1.9 1.8 [1.8 -1.9] 3.7 [3.7 -4.6] +1.9 1.8 [1.8 -1.8] 0.32 (0.27 -0.39, p<0.001) 0.26 (0.21 -0.34, p<0.001) Prior Treatement VEGFi EGFRi as % of RASwt TAS-102 Regorafenib Both TAS-102 & rego mOS, month [95% CI] HR (95% CI, p -value) mPFS, month [95% CI] HR (95% CI, p -value) DCR 55.5% 16.1% 62.2% 12.3% data cut-off date : June 24, 2022 January 17, 2017 Note: n = number of patients; VEGFi = VEGF inhibitor; EGFRi = EGFR inhibitor; RASwt = RAS wild-type; mOS = median overall survival; mPFS = median progression-free survival; CI = confidence interval; mo. = months; Source: [1] ESMO 2022, LAB25. Dasari NA, Lonardi S et al. LBA25 – FRESCO-2: A global phase III multiregional clinical trial (MRCT) evaluating the efficacy and safety of fruquintinib in patients with refractory metastatic colorectal cancer. 12 Sep 2022, Proffered Paper session 2: GI, lower digestive Session. Annals of Oncology (2022) 33 (suppl_7): S808-S869. 10.1016/annonc/annonc1089; [2] Li J, et al. Effect of Fruquintinib vs Placebo on Overall Survival in Patients With Previously Treated Metastatic Colorectal Cancer: The FRESCO Randomized Clinical Trial. JAMA. 2018;319(24):2486-2496. doi:10.1001/jama.2018.7855. HUTCHMED (China) Limited 2022 Annual Report 25 Fruquintinib – Gastric cancer: Fruquintinib – Exploratory development: In China, we support an investigator initiated trial program for fruquintinib, and there are about 30 of such trials ongoing in various solid tumor settings. Fruquintinib – Partnership with Takeda: In January 2023, HUTCHMED entered into an agreement whereby Takeda will receive an exclusive worldwide license to develop and commercialize fruquintinib in all indications and territories outside of mainland China, Hong Kong and Macau, where it is marketed and will continue to be marketed by HUTCHMED in partnership with Lilly. Subject to the terms of the agreement, HUTCHMED will be eligible to receive up to US$1.13 billion, including US$400 million upfront on closing of the agreement, and up to US$730 million in additional potential payments relating to regulatory, development and commercial sales milestones, as well as royalties on net sales. The deal is subject to customary closing conditions, including completion of antitrust regulatory reviews. Following these clearances, Takeda will become solely responsible for the development and commercialization of fruquintinib in all the included territories. Surufatinib (SULANDA® in China) Surufatinib is a novel, oral angio-immuno kinase inhibitor that selectively inhibits the tyrosine kinase activity associated with VEGFR and FGFR, both shown to be involved in tumor angiogenesis, and CSF-1R, which plays a key role in regulating tumor-associated macrophages, promoting the body’s immune response against tumor cells. Surufatinib has been studied in clinical trials with around 1,200 patients to date, both as a monotherapy and in combinations, and is approved in China. HUTCHMED currently retains all rights to surufatinib worldwide. Initial approvals for surufatinib in China are for the treatment of advanced NET patients. NETs present in the body’s organ system with fragmented epidemiology. About 58% of NETs originate in the gastrointestinal tract and pancreas, 27% in the lung or bronchus, and a further 15% in other organs or unknown origins. Surufatinib’s ability to inhibit angiogenesis, block the accumulation of tumor associated macrophages and promote infiltration of effector T cells into tumors could help improve the anti-tumor activity of PD-1 antibodies. Several combination studies with PD-1 antibodies have shown promising data. FRUTIGA (NCT03223376) – This randomized, double-blind, Phase III study in China to evaluate fruquintinib combined with paclitaxel compared with paclitaxel monotherapy, for second-line treatment of advanced gastric cancer, enrolled approximately 700 patients in July 2022. Its co-primary endpoints are PFS and OS. The trial met the PFS endpoint at a statistically and clinically meaningful level. The OS endpoint was not statistically significant per the pre-specified statistical plan, although there was an improvement in median OS. Fruquintinib also demonstrated a statistically significant improvement in secondary endpoints including ORR, DCR and DoR. The safety profile of fruquintinib in FRUTIGA was consistent with previously reported studies. Full detailed results are subject to ongoing analysis and are expected to be disclosed at an upcoming scientific meeting. Fruquintinib – Combinations with checkpoint inhibitors: Advanced endometrial cancer registration-intent cohort of TYVYT® combination (NCT03903705) – Platinum-based systemic chemotherapy is the standard first-line treatment for advanced endometrial cancer. However, patients who progress following first-line chemotherapy have limited treatment options, and the prognosis remains poor. Initially presented at CSCO 2021, data in this endometrial cancer cohort is encouraging. We agreed with the NMPA to expand this cohort into a single-arm registrational Phase II study. The cohort is targeting to enroll over 130 patients. Advanced metastatic renal cell carcinoma (NCT05522231) – In first-line clear-cell renal cell carcinoma (“ccRCC”), clinical benefits have been demonstrated for the combination of antiangiogenic therapy and immunotherapy. However, there is limited evidence on the benefits of this combination in the second-line setting. Phase II data disclosed at CSCO 2021 showed encouraging anti-tumor efficacy and durability in these patients. A Phase III trial of fruquintinib in combination with TYVYT® as second-line treatment for locally advanced or metastatic RCC was initiated in October 2022. The study is a randomized, open-label, active-controlled study to evaluate the efficacy and safety of fruquintinib in combination with TYVYT® versus axitinib or everolimus monotherapy for the second-line treatment of advanced RCC. The primary endpoint is PFS. Approximately 260 patients will be enrolled in the study. Tislelizumab combinations (NCT04577963 & NCT04716634) – In August 2021, we initiated an open-label, multi-center, non-randomized Phase Ib/ II study in the U.S. to assess fruquintinib in combination with tislelizumab in patients with MSS-CRC. The Phase II study in China and Korea for fruquintinib in combination with tislelizumab is being led by BeiGene for the treatment of advanced or metastatic, unresectable CRC. 26 OPERATIONS REVIEW – ONCOLOGY/IMMUNOLOGYA summary of the clinical studies of surufatinib is shown in the table below. Name, Line, Patient Focus NETs NETs Solid tumors SANET-ep: epNET69 SANET-p: pNET SURTORI-01: 2L NEC70 Sites Phase Status/Plan NCT # Ib/II Bridging Completed NCT02549937 U.S. & Europe Japan Bridging Ib/II U.S./ Europe China III China III NCT05077384 NCT04579757 NCT02588170 NCT02589821 Ongoing since 2021 Since 2021; Enrollment stopped Approved; Launched in 2021 Approved; Launched in 2021; Pooled analysis at ASCO 2022 China III Ongoing since 2021 NCT05015621 NENs71 China II Biliary tract cancer China SCLC73 China Solid tumors China II II II NCT04169672 Fully enrolled; Data at ASCO 2021 & ESMO IO72 2021 Fully enrolled NCT04169672 Ongoing since 2022 NCT05509699 Fully enrolled NCT04169672 Treatment Surufatinib monotherapy Surufatinib monotherapy Surufatinib + tislelizumab (PD-1) Surufatinib monotherapy Surufatinib monotherapy Surufatinib + TUOYI® (PD-1) Surufatinib + TUOYI® (PD-1) Surufatinib + TUOYI® (PD-1) Surufatinib + TUOYI® (PD-1) Surufatinib + TUOYI® (PD-1) Surufatinib – Monotherapy in NET updates: U.S. NDA and EMA MAA – Surufatinib received FDA Fast Track Designations in April 2020 for the treatment of pNETs and epNETs. Orphan Drug Designation for pNETs was granted in November 2019. In a May 2020 pre-NDA meeting, we reached an agreement with the FDA that the two positive Phase III studies of surufatinib in patients with pNETs and epNETs in China, along with the bridging trial in the U.S. could form the basis to support a U.S. NDA submission. The FDA accepted the filing of the NDA in June 2021. However, in April 2022, we received a Complete Response Letter from the FDA regarding the NDA for surufatinib for the treatment of pNETs and epNETs. Based on interactions with the FDA and EMA, a new multi-regional clinical trial (MRCT) would be required to move forward with this program in the U.S. and Europe. We will continue to explore conducting a multi-regional clinical trial with a partner that would support approval in U.S. and Europe. Japan Bridging Study to Support Registration for Advanced NET (NCT05077384) – Based on dialogue with the Japanese PMDA, it was agreed that the Japanese NDA would include results from a 34-patient, registration-enabling bridging study in Japan to complement the existing data package. The trial was initiated in September 2021 and results are expected in the first half of 2023. We plan to engage with the PMDA when these results are available. Surufatinib – Combination therapy with checkpoint inhibitors: A Phase II China study (NCT04169672) combining surufatinib with TUOYI® enrolled patients in nine solid tumor types, including NENs, biliary tract cancer, gastric cancer, thyroid cancer, SCLC, soft tissue sarcoma, endometrial cancer, esophageal cancer and NSCLC. These have led to the initiation in September 2021 of the first Phase III trial combining surufatinib with a PD-1 antibody, the SURTORI-01 study in NEC and a Phase II study in SCLC in 2022. We de-prioritized and stopped recruitment into an open-label, Phase Ib/II study of surufatinib in combination with BeiGene’s tislelizumab in the U.S. and Europe. The study was to evaluate the safety, tolerability, pharmacokinetics and efficacy in patients with multiple advanced solid tumors (NCT04579757). Surufatinib – Exploratory development: In China, we support an investigator initiated trial program for surufatinib, with about 50 of such trials in various solid tumor settings being conducted for both combination and single agent regimens. These trials explore and answer important medical questions in addition to our own company-sponsored clinical trials. Hematological Malignancies Candidates HUTCHMED currently has six investigational drug candidates targeting hematological malig nan cies in clinical development. Amdizalisib (targeting PI3Kδ), sovleplenib (HMPL-523, targeting Syk) and HMPL-760 (targeting BTK) are being studied in several trials against B-cell dominant malignancies. In addition to the three B-cell receptor pathway inhibitors, HUTCHMED is also develop ing HMPL-306 (targeting IDH1 and IDH2), tazemetostat (a methyl trans ferase inhibitor of EZH2) and HMPL-A83 (an anti-CD47 monoclonal antibody). Sovleplenib (HMPL-523) Sovleplenib is a novel, selective, oral inhibitor targeting Syk, for the treatment of hematological malignancies and immune diseases. Syk is a component in Fc receptor and B-cell receptor signaling pathway. In 2021, we initiated a Phase III study in China for primary ITP, for which it has received Breakthrough Therapy Designation, and presented data on both primary ITP and hematological malignancies at ASH 2021. HUTCHMED currently retains all rights to sovleplenib worldwide. The table below shows a summary of the clinical studies for sovleplenib. HUTCHMED (China) Limited 2022 Annual Report 27 NCT05029635 China Ib Treatment Amdizalisib monotherapy Name, Line, Patient Focus Indolent NHL, peripheral T-cell lymphomas Sites Phase Status/Plan NCT # NCT03779113 Amdizalisib monotherapy NCT05535933 3L Relapsed/ refractory follicular lymphoma 2L Relapsed/ refractory marginal zone lymphoma Indolent NHL China China II registration- intent II registration- intent I/Ib U.S./ Europe Amdizalisib monotherapy Amdizalisib monotherapy Ongoing; Expansion data presented at ESMO 2021 Fully enrolled; Breakthrough Therapy Designation Ongoing since Apr 2021 NCT03128164 NCT04849351 NCT04849351 De-prioritized NCT03786926 Phase II registration-intent trial (NCT04849351) – In April 2021, we commenced a registration-intent, single-arm, open-label Phase II trial in China in approximately 100 patients with relapsed/refractory follicular lymphoma and approximately 80 patients with relapsed/refractory marginal zone lymphoma, two subtypes of non-Hodgkin’s lymphoma. The primary endpoint is ORR. The trial is being conducted in over 35 sites in China, has fully enrolled the follicular lymphoma cohort and is expected to complete enrollment for the marginal zone lymphoma cohort around mid-year. Tazemetostat In August 2021, we entered into a strategic collaboration with Epizyme, a subsidiary of Ipsen, to research, develop, manufacture and commercialize tazemetostat in Greater China, including the mainland, Hong Kong, Macau and Taiwan. Tazemetostat is an inhibitor of EZH2 developed by Ipsen that is approved by the U.S. FDA for the treatment of certain epithelioid sarcoma and follicular lymphoma patients. It received accelerated approval from the FDA based on ORR and DoR in January and June 2020 for epithelioid sarcoma and follicular lymphoma, respectively. We are developing and plan to seek approval for tazemetostat in various hematological and solid tumors, in Greater China. We are participating in Ipsen’s SYMPHONY-1 (EZH-302) study, leading it in Greater China. We will generally be responsible for funding all clinical trials of tazemetostat in Greater China, including the portion of global trials conducted there. We are responsible for the research, manufacturing and commercialization of tazemetostat in Greater China. Treatment Name, Line, Patient Focus Sites Phase Status/Plan NCT # Sovleplenib monotherapy ESLIM-01: ≥ 2L ITP China III Sovleplenib monotherapy Indolent NHL74 I/Ib U.S./ Europe Sovleplenib monotherapy Warm AIHA China II/III Fully enrolled; Breakthrough Therapy Designation Ongoing; Prelim. data at ASH 2021 Ongoing since 2022; Phase III decision in 2023 pending Phase II results ESLIM-01 (Evaluation of Sovleplenib for immunological diseases–01, NCT05029635) – In October 2021, we initiated a randomized, double- blinded, placebo-controlled Phase III trial in China of sovleplenib in approximately 180 adult patients with primary ITP who have received at least one prior line of standard therapy. ITP is an autoimmune disorder that can lead to increased risk of bleeding. The primary endpoint of the study is the durable response rate. In January 2022, the NMPA granted Breakthrough Therapy Designation for this indication. Enrollment was completed in December 2022. China Phase II/III in warm AIHA – This is a randomized, double-blind, placebo-controlled Phase II/III study to evaluate the efficacy, safety, tolerability, and pharmacokinetics of sovleplenib in the treatment of warm AIHA. AIHA is the result of destruction of red blood cells due to the production of antibodies against red blood cells which bind to antigens on the red blood cell membrane in autoimmune disorders. If the results of the Phase II stage of the study indicate sufficiently satisfactory efficacy and safety, the Phase III stage will be initiated. The China IND was approved in July 2022. The first patient was enrolled in September 2022. The enrollment of Phase II part of the study is expected to be completed in 2023, and lead to a decision on whether to initiate Phase III. Amdizalisib (HMPL-689) Amdizalisib is a novel, highly selective oral inhibitor targeting the isoform PI3Kδ, a key component in the B-cell receptor signaling pathway. Amdizalisib’s pharmacokinetic properties have been found to be favorable with good oral absorption, moderate tissue distribution and low clearance in preclinical studies. We also expect that amdizalisib will have low risk of drug accumulation and drug-drug interactions, supporting feasibility of development in combination with other medicines. The first of such activities is in combination with tazemetostat. HUTCHMED currently retains all rights to amdizalisib worldwide. The table below shows a summary of the clinical studies for amdizalisib. 28 OPERATIONS REVIEW – ONCOLOGY/IMMUNOLOGYThe table below shows a summary of the clinical studies for tazemetostat. Sites Phase Status/Plan NCT # Hainan N/A – Hainan Pilot Zone N/A Approved; Launched in 2022 Treatment Tazemetostat monotherapy Name, Line, Patient Focus Metastatic or locally advanced epithelioid sarcoma; Relapsed/ refractory 3L+ follicular lymphoma China Phase II bridging study in relapsed/refractory follicular lymphoma (NCT05467943) – In July 2022, we initiated a multicenter, open-label, Phase II study to evaluate the efficacy, safety and pharmacokinetics of tazemetostat for the treatment of patients with relapsed/refractory follicular lymphoma intended to support conditional registration in China. The primary objective is to evaluate the efficacy of tazemetostat in patients with EZH2 mutation (Cohort 1). The secondary objectives are to evaluate the efficacy of tazemetostat in patients with EZH2 wild- type (Cohort 2) and to evaluate the safety and the pharmacokinetics of tazemetostat. Enrollment of cohort 2 is complete and cohort 1 is ongoing. Tazemetostat + lenalidomide + rituximab (R²) SYMPHONY-1: 2L follicular lymphoma Global Ib/III Tazemetostat monotherapy Relapsed/ refractory 3L+ follicular lymphoma China II registration- intent (bridging) Ongoing; PhIb data at ASH 2022; China portion of global Ph III started H2 2022 Ongoing since July 2022 NCT04224493 China Phase II combination study in relapsed/refractory follicular lymphoma (NCT05713110) – This is a multicenter, open-label, Phase II study to evaluate the safety, tolerability and preliminary anti-tumor efficacy of tazemetostat in combination with amdizalisib in patients with R/R lymphoma. The first patient was dosed in February 2023. NCT05467943 HMPL-306 Tazemetostat + amdizalisib Lymphoma sub- types China II Ongoing since Feb 2023 NCT05713110 SYMPHONY-1 (NCT04224493) – This is a global, multicenter, randomized, double-blind, active-controlled, 3-stage, biomarker-enriched, Phase Ib/III study of tazemetostat in combination with R² in patients with relapsed or refractory follicular lymphoma after at least one prior line of therapy. Ipsen conducted the Phase Ib portion of the study in 2021, which determined the recommended Phase III dose and also demonstrated potential efficacy in second-line follicular lymphoma. The safety profile of the combination was consistent with the previously reported safety information in the U.S. prescribing information for both tazemetostat and R², respectively. An interim analysis of the Phase Ib portion of the study, based on 44 follicular lymphoma patients as of June 14, 2022, was presented at ASH 2022. The safety profile of the tazemetostat and R² combination was consistent with the prescribing information for both tazemetostat and R², respectively. Additionally, there was no clear dose response for treatment- emergent adverse events (TEAEs) or dose modifications. Of 41 evaluable patients, ORR was 97.6% with 51.2% complete response rate. Median PFS and DoR were not yet reached with a median follow-up of 11.2 months. In the Phase III portion of the trial, approximately 500 patients are randomly assigned to receive the recommended Phase III dose of tazemetostat + R² or placebo + R². The study will also include a maintenance arm with tazemetostat or placebo following the first year of treatment with tazemetostat + R² or placebo + R². The first patient was enrolled in May 2022 and the first China patient was enrolled in September 2022. HMPL-306 is a novel dual-inhibitor of IDH1 and IDH2 enzymes. IDH1 and IDH2 mutations have been implicated as drivers of certain hematological malignancies, gliomas and solid tumors, particularly among acute myeloid leukemia patients. HUTCHMED currently retains all rights to HMPL-306 worldwide. The table below shows a summary of the clinical studies for HMPL-306. Treatment Name, Line, Patient Focus HMPL-306 monotherapy Hematological malignancies HMPL-306 monotherapy Solid tumors including but not limited to gliomas, chondrosarcomas or cholangiocarcinomas HMPL-306 monotherapy Hematological malignancies HMPL-760 Sites Phase Status/Plan NCT # China I U.S. U.S. I I NCT04272957 NCT04762602 Ongoing since 2020; RP2D determined Ongoing since 2021; nominate RP2D in 2023. NCT04764474 Ongoing since 2021; nominate RP2D in 2023 HMPL-760 is an investigational, non-covalent, third-generation BTK inhibitor. It is a highly potent, selective, and reversible inhibitor with long target engagement against BTK, including wild-type and C481S-mutated BTK. China Phase I studies opened in early 2022 will include relapsed or refractory B-cell non-Hodgkin’s lymphoma or CLL75 patients with or without a prior regimen containing a BTK inhibitor. HUTCHMED currently retains all rights to HMPL-760 worldwide. HUTCHMED (China) Limited 2022 Annual Report 29 Ongoing since 2020; Data submission planned in 2023; Preparing registration study Ongoing since 2022 Ongoing since 2022 Treatment Name, Line, Patient Focus Sites Phase Status/Plan NCT # HMPL-760 monotherapy CLL, SLL76, other B-NHL China HMPL-760 monotherapy CLL, SLL, other NHL U.S. I I Ongoing since Jan 2022 NCT05190068 De-prioritized NCT05176691 HMPL-453 HMPL-453 is a novel, selective, oral inhibitor targeting FGFR 1/2/3. Aberrant FGFR signaling is associated with tumor growth, promotion of angiogenesis, as well as resistance to anti-tumor therapies. Approximately 10-15% of IHCC patients have tumors harboring FGFR2 fusion. HUTCHMED currently retains all rights to HMPL-453 worldwide. The table below shows a summary of the clinical studies for HMPL-453. Treatment HMPL-453 monotherapy Name, Line, Patient Focus 2L Cholangiocarcinoma (IHCC with FGFR fusion) Sites Phase Status/Plan NCT # China II NCT04353375 Treatment HMPL-295 monotherapy Name, Line, Patient Focus Sites Phase Status/Plan NCT # Solid tumors China I Ongoing since 2021 NCT04908046 HMPL-653 HMPL-653 is a novel, highly selective, and potent CSF-1R inhibitor designed to target CSF-1R driven tumors as a monotherapy or in combination with other drugs. We initiated a China Phase I study in January 2022. HUTCHMED currently retains all rights to HMPL-653 worldwide. CSF-1R is usually expressed on the surface of macrophages and can promote growth and differentiation of macrophages. Studies have shown that blocking the CSF-1R signaling pathway could effectively modulate the tumor microenvironment, relieve tumor immunosuppression, and synergize with other anti-cancer therapies such as immune checkpoint inhibitors to achieve tumor inhibition. It has been demonstrated in several clinical studies that CSF-1R inhibitors could treat tenosynovial giant cell tumors, and treat a variety of malignancies combined with immuno- oncology or other therapeutic agents. Currently no CSF-1R inhibitor has been approved in China. HMPL-453 + chemotherapies HMPL-453 +TUOYI® (PD-1) Multiple China I/II Multiple China I/II NCT05173142 NCT05173142 Treatment HMPL-653 monotherapy Name, Line, Patient Focus Solid tumors & tenosynovial giant cell tumors Sites Phase Status/Plan NCT # China I NCT05190068 Ongoing since Jan 2022; ~110 expected to be enrolled After consultation with the CDE, a monotherapy registration trial design has been agreed, and preparations are underway. HMPL-A83 HMPL-295 HMPL-295 is a novel ERK inhibitor. ERK is a downstream component of the RAS-RAF-MEK-ERK signaling cascade (MAPK pathway). This is our first of multiple candidates in discovery targeting the MAPK pathway. A China Phase I study was initiated in July 2021. HUTCHMED currently retains all rights to HMPL-295 worldwide. HMPL-A83 is an investigational IgG4-type humanized anti-CD47 monoclonal antibody that exhibits high affinity for CD47. HMPL-A83 blocks CD47 binding to Signal regulatory protein (SIRP) α and disrupts the “do not eat me” signal that cancer cells use to shield themselves from the immune system. HUTCHMED currently retains all rights to HMPL-A83 worldwide. RAS-MAPK pathway is dysregulated in cancer, in which mutations or non- genetic events hyper-activate the pathway in up to 50% of cancers. RAS and RAF predict worse clinical prognosis in a wide variety of tumor types, mediate resistance to targeted therapies, and decrease the response to the approved standards of care, namely, targeted therapy and immunotherapy. ERK inhibition has the potential to overcome or avoid the intrinsic or acquired resistance from the inhibition of RAS, RAF and MEK upstream mechanisms. In preclinical studies, HMPL-A83 demonstrated a high affinity for CD47 antigen on tumor cells and strong phagocytosis induction of multiple tumor cells, as well as weak affinity for red blood cells and no induction of hemagglutination, implying low risk of anemia, a potential event of special interest. HMPL-A83 has also demonstrated strong anti-tumor activity in multiple animal models. Treatment HMPL-A83 monotherapy Name, Line, Patient Focus Advanced malignant neoplasms Sites Phase Status/Plan NCT # China I Ongoing since July 2022 NCT05429008 30 OPERATIONS REVIEW – ONCOLOGY/IMMUNOLOGYImmunology Collaboration with Inmagene MANUFACTURING We continue to use contract manufacturing organizations in China to produce our clinical and commercial API77 supplies. For manufacturing drug products, we currently use a combination of contract manufacturers and our internal manufacturing facility. We have a drug product facility in Suzhou which manufactures both clinical and commercial supplies for some of our products. We are building a new drug product facility in Pudong, Shanghai, which will increase our novel drug product manufacturing capacity by over five times. The construction and qualification of the Shanghai facility is expected to be completed in mid- 2023 and technology transfer will start for some projects into the facility in late 2023. We expect to manufacture clinical supplies from the new facility starting in 2023 and commercial supplies around 2025 after the necessary regulatory filings and approvals. We completed technology transfer for the API and drug product of amdizalisib and sovleplenib into the selected commercial manufacturing facilities in preparation for potential NDA filings. Process validation for these products (both API and drug product) is expected to complete in 2023. We completed the NDA enabling work related to manufacturing for the global launch of fruquintinib at the commercial manufacturing sites. Process validation for API of this product has been completed, and process validation for drug product will be completed in the second half of 2023 in time for potential approval and launch. In January 2021, we entered into a strategic partnership with Inmagene, a clinical development stage company with a focus on immunological diseases, to further develop four novel preclinical drug candidates we discovered for the potential treatment of multiple immunological diseases. Under the terms of the agreement, we granted Inmagene exclusive options to such drug candidates solely for the treatment of immunological diseases. Funded by Inmagene, we work together to move the drug candidates towards IND. If successful, Inmagene will then advance the drug candidates through global clinical development. INDs for the first two compounds were submitted in 2022. Treatment IMG-007 (OX40 monoclonal antibody) Name, Line, Patient Focus Healthy volunteers; adults with moderate to severe atopic dermatitis Sites Phase Status/Plan NCT # Global I Ongoing since 2022 NCT05353972 IMG-004 (BTK inhibitor) Healthy volunteers Global I Ongoing since 2022 NCT05349097 IMG-007 in atopic dermatitis – This is a novel antagonistic monoclonal antibody targeting the OX40 receptor. OX40 is a costimulatory receptor member of the tumor necrosis factor receptor (TNFR) superfamily expressed predominantly on activated T cells. The Phase I study in healthy volunteers was initiated in July 2022 in Australia. IMG-004 in immunological diseases – This is a non-covalent, reversible small molecule inhibitor targeting BTK. Designed specifically for inflammatory and autoimmune diseases that usually require long-term treatment, IMG-004 is potent, highly selective and brain permeable. The Phase I study in healthy volunteers in the U.S. was initiated in August 2022. HUTCHMED (China) Limited 2022 Annual Report 31 Our Other Ventures include drug marketing and distribution platforms covering about 290 cities and towns in China with over 2,900 mainly manufacturing and commercial personnel. Built over the past 20 years, it primarily focuses on prescription drugs and science-based nutrition products through several joint ventures and subsidiary companies. In 2022, our Other Ventures delivered encouraging growth with consolidated revenues up 11% (15% at CER) to $262.6 million (2021: $236.5m). Consolidated net income attributable to HUTCHMED from our Other Ventures increased by 16% (17% at CER) to $54.6 million (2021: $47.3m, excluding net income attributable to HUTCHMED of $7.1m contributed from HBYS which was disposed in September 2021; $82.9m from the divestment of HBYS and $5.6m from land compensation, before withholding tax). Hutchison Sinopharm78: Our prescription drugs commercial services business, which in addition to providing certain commercial services for our own products, provides services to third-party pharmaceutical companies in China, grew sales by 16% (21% at CER) to $237.3 million in 2022 (2021: $204.1m). In 2021, the Hong Kong International Arbitration Centre made a final award in favor of Hutchison Sinopharm against Luye79 in the amount of RMB253.2 million ($36.4 million), plus costs and interest (the “Award”), in connection with the termination of Hutchison Sinopharm’s right to distribute SEROQUEL® in China. In June 2022, Luye provided a bank guarantee of up to RMB286.0 million to cover the Award, pending the outcome of an application by Luye to the High Court of Hong Kong to set aside the Award. On July 26, 2022, Luye’s application to set aside the Award was dismissed by the High Court with costs awarded in favor of Hutchison Sinopharm. On October 7, 2022, Luye filed a Notice of Appeal to the Court of Appeal regarding the dismissal and was accepted on November 8, 2022. A Court of Appeal hearing date has been set for June 2023. SHPL: Our own-brand prescription drugs business, operated through our non- consolidated joint venture SHPL, grew sales by 11% (14% at CER) to $370.6 million (2021: $332.6m). This sales growth and favorable product mix led to an increase of 12% (13% at CER) in net income attributable to HUTCHMED to $49.9 million (2021: $44.7m). The SHPL operation is large-scale, with a commercial team of about 2,300 staff managing the medical detailing and marketing of its products not just in hospitals in provincial capitals and medium-sized cities, but also in the majority of county-level hospitals in China. SHPL’s Good Manufacturing Practice-certified factory holds 74 drug product manufacturing licenses and is operated by about 550 manufacturing staff. SXBX80 pill: SHPL’s main product is SXBX pill, an oral vasodilator prescription therapy for coronary artery disease. SXBX pill is the third largest botanical prescription drug in this indication in China, with a national market share in January to December 2022 of 21.0% (2021: 19.6%). Sales increased by 11% (14% at CER) to $341.6 million in 2022 (2021: $307.1m). SXBX pill is protected by a formulation patent that expires in 2029, but also retains certain state protection that extends indefinitely, and is one of less than two dozen proprietary prescription drugs represented on China’s National Essential Medicines List (NEML). Inclusion on this list means that all Chinese state-owned health care institutions are required to carry it. SXBX pill is fully reimbursed in all China. We continue to review divestment and equity capital market options and we have started the process for a share reform of the SHPL joint venture. Dividends: Our share of SHPL’s profits are passed to the HUTCHMED Group through dividend payments. In 2022, dividends of $43.7 million (2021: $49.9m) were paid from SHPL to the HUTCHMED Group level with aggregate dividends received by HUTCHMED since inception of over $280 million. Weiguo Su Chief Executive Officer and Chief Scientific Officer February 28, 2023 HUTCHMED (China) Limited 2022 Annual Report 33 OPERATIONS REVIEW – OTHER VENTURESUSE OF NON-GAAP FINANCIAL MEASURES AND RECONCILIATION In addition to financial information prepared in accordance with U.S. GAAP, this announcement also contains certain non-GAAP financial measures based on management’s view of performance including: used for translation may have a significant effect on our reported results. We believe the presentation at CER provides useful and meaningful information because it facilitates period-to-period comparisons of our results and increases the transparency of our underlying performance. • • Adjusted Group net cash flows excluding financing activities CER Reconciliation of GAAP change in net cash used in operating activities to Adjusted Group net cash flows excluding financing activities: $’millions Net cash used in operating activities Net cash generated from/(used in) investing activities Effect of exchange rate changes on cash and cash equivalents Excludes: Deposits in short-term investments 2022 2021 (268.6) (204.2) 296.6 (306.3) (9.5) 1,202.0 2.4 1,356.0 (921.4) Excludes: Proceeds from short-term investments (1,518.4) Adjusted Group net cash flows excluding financing activities (297.9) (73.5) Management uses such measures internally for planning and forecasting purposes and to measure the HUTCHMED Group’s overall performance. We believe these adjusted financial measures provide useful and meaningful information to us and investors because they enhance investors’ understanding of the continuing operating performance of our business and facilitate the comparison of performance between past and future periods. These adjusted financial measures are non-GAAP measures and should be considered in addition to, but not as a substitute for, the information prepared in accordance with U.S. GAAP. Other companies may define these measures in different ways. Adjusted Group net cash flows excluding financing activities: We exclude deposits in and proceeds from short-term investments for the period, and exclude the net cash generated from financing activities for the period to derive our adjusted Group net cash flows excluding financing activities. We believe the presentation of adjusted Group net cash flows excluding financing activities provides useful and meaningful information about the change in our cash resources excluding those from financing activities which may present significant period-to-period differences. CER: We remove the effects of currency movements from period-to- period comparisons by retranslating the current period’s performance at previous period’s foreign currency exchange rates. Because we have significant operations in China, the RMB to U.S. dollar exchange rates 34 USE OF NON-GAAP FINANCIAL MEASURES AND RECONCILIATION Reconciliation of GAAP revenues and net income attributable to HUTCHMED to CER: $’millions (except %) Year Ended Change Amount Change % December December Exchange Exchange 31, 2022 31, 2021 Actual CER effect Actual CER effect Consolidated revenues — Oncology/Immunology 163.8 119.6 — Other Ventures^ 262.6 236.5 44.2 26.1 48.9 (4.7) 37% 41% 36.4 (10.3) 11% 15% -4% -4% ^ Includes: — Hutchison Sinopharm — prescription drugs Non-consolidated joint venture revenues — SHPL — SXBX pill Consolidated net income attributable to HUTCHMED — Other Ventures — Consolidated entities — Equity investees — SHPL — HBYS (Note) Excludes net income attributable to HUTCHMED contributed from HBYS and one-time gains — Other Ventures — Consolidated entities — Equity investees — SHPL 237.3 204.1 33.2 43.2 (10.0) 16% 21% -5% 370.6 341.6 332.6 307.1 38.0 34.5 47.1 42.7 (9.1) (8.2) 11% 11% 14% 14% 54.6 4.7 49.9 49.9 – 54.6 4.7 49.9 49.9 142.9 2.6 140.3 44.7 95.6 47.3 2.6 44.7 44.7 (88.3) 2.1 (90.4) 5.2 (95.6) (87.7) 2.3 (90.0) 5.6 (95.6) 7.3 2.1 5.2 5.2 7.9 2.3 5.6 5.6 (0.6) (0.2) (0.4) (0.4) – (0.6) (0.2) (0.4) (0.4) -62% 86% -64% 12% -100% 16% 86% 12% 12% -61% 89% -64% 13% -100% 17% 89% 13% 13% -3% -3% -1% -3% – -1% – -1% -3% -1% -1% Note: On September 28, 2021, the Group completed the divestment of HBYS and the net income attributable to HUTCHMED contributed from HBYS was $7.1 million for the period ended September 28, 2021. For the year ended December 31, 2021, one-time gains include gain on divestment of $82.9 million and land compensation gain of $5.6 million. HUTCHMED (China) Limited 2022 Annual Report 35 LIQUIDITY AND CAPITAL RESOURCES To date, we have taken a multi-source approach to fund our operations, including through cash flows generated and dividend payments from our Oncology/Immunology and Other Ventures operations, service and milestone and upfront payments from our collaboration partners, bank borrowings, investments from third parties, proceeds from our listings on various stock exchanges and follow-on offerings. Our Oncology/Immunology operations have historically not generated significant profits and have operated at a net loss, as creating potential global first-in-class or best-in-class drug candidates requires a significant investment of resources over a prolonged period of time. As such, we incurred net losses of $360.8 million for the year ended December 31, 2022 and net losses of $194.6 million for the year ended December 31, 2021. As of December 31, 2022, we had cash and cash equivalents and short- term investments of $631.0 million and unutilized bank facilities of $140.3 million. As of December 31, 2022, we had $18.1 million in bank borrowings. Certain of our subsidiaries and joint ventures, including those registered as wholly foreign-owned enterprises in China, are required to set aside at least 10.0% of their after-tax profits to their general reserves until such reserves reach 50.0% of their registered capital. In addition, certain of our joint ventures are required to allocate certain of their after-tax profits as determined in accordance with related regulations and their respective articles of association to the reserve funds, upon approval of the board. Profit appropriated to the reserve funds for our subsidiaries and joint ventures incorporated in the PRC was approximately $318,000 and $89,000 for the years ended December 31, 2022 and 2021, respectively. In addition, as a result of PRC regulations restricting dividend distributions from such reserve funds and from a company’s registered capital, our PRC subsidiaries are restricted in their ability to transfer a certain amount of their net assets to us as cash dividends, loans or advances. This restricted portion amounted to $0.1 million as of December 31, 2022. 36 In addition, our non-consolidated joint venture, SHPL, held an aggregate of $33.9 million in cash and cash equivalents and no bank borrowings as of December 31, 2022. Such cash and cash equivalents are only accessible by us through dividend payments from the joint venture. The level of dividends declared by the joint venture is subject to agreement each year between us and our joint venture partner based on the profitability and working capital needs of the joint venture. CASH FLOW Cash Flow Data: Net cash used in operating activities Net cash generated from/(used in) investing activities Net cash (used in)/generated from financing activities Net (decrease)/increase in cash and cash equivalents Effect of exchange rate changes Year Ended December 31, 2022 2021 (in $’000) (268,599) (204,223) 296,588 (306,320) (82,763) 650,028 (54,774) 139,485 (9,490) 2,427 Cash and cash equivalents at beginning of the year 377,542 235,630 Cash and cash equivalents at end of the year 313,278 377,542 Net Cash used in Operating Activities Net cash used in operating activities was $204.2 million for the year ended December 31, 2021, compared to net cash used in operating activities of $268.6 million for the year ended December 31, 2022. The net change of $64.4 million was primarily attributable to higher operating expenses of $149.7 million from $684.4 million for the year ended December 31, 2021 to $834.1 million for the year ended December 31, 2022. The foregoing was partially offset by an increase in revenue of $70.3 million from $356.1 million for the year ended December 31, 2021 to $426.4 million for the year ended December 31, 2022 and an increase in changes of working capital of $26.2 million from $32.5 million for the year ended December 31, 2021 to $58.7 million for the year ended December 31, 2022. GROUP CAPITAL RESOURCES Net Cash generated from/(used in) Investing Activities Net cash used in investing activities was $306.3 million for the year ended December 31, 2021, compared to net cash generated from investing activities of $296.6 million for the year ended December 31, 2022. The net change of $602.9 million was primarily attributable to short-term investments which had net deposits of $434.6 million for the year ended December 31, 2021 as compared to net withdrawals of $316.4 million for the year ended December 31, 2022. The net change was partially offset by the proceeds received from divestment of an equity investee of $159.1 million during the year ended December 31, 2021, compared to a dividend of $16.5 million received from divestment of the same equity investee during the year ended December 31, 2022. Net Cash (used in)/generated from Financing Activities Net cash generated from financing activities was $650.0 million for the year ended December 31, 2021, compared to net cash used in financing activities of $82.8 million for the year ended December 31, 2022. The net change of $732.8 million was mainly attributable to net proceeds from issuances of shares of $685.4 million from a private placement in April 2021 and our public offering on the HKEX with over-allotment option exercised in full in June and July, 2021. The net change was also attributable to an increase in purchases of ADSs of $20.8 million by a trustee for the settlement of equity awards of the Company which totaled $27.3 million for the year ended December 31, 2021 as compared to $48.1 million for the year ended December 31, 2022, as well as an increase in dividends paid to non-controlling shareholders of subsidiaries of $15.7 million from $9.9 million for the year ended December 31, 2021 to $25.6 million for the year ended December 31, 2022. LOAN FACILITIES In May 2019, our subsidiary entered into a credit facility arrangement with HSBC81 for the provision of unsecured credit facilities in the aggregate amount of HK$400.0 million ($51.3 million). The 3-year credit facilities include (i) a HK$210.0 million ($26.9 million) term loan facility and (ii) a HK$190.0 million ($24.4 million) revolving loan facility, both with an interest rate at HIBOR82 plus 0.85% per annum. These credit facilities are guaranteed by us and include certain financial covenant requirements. The term loan was drawn in October 2019 and was repaid in May 2022. The revolving loan facility also expired in May 2022. In August 2020, our subsidiary entered into a 24-month revolving loan facility with Deutsche Bank AG83 in the amount of HK$117.0 million ($15.0 million) with an interest rate at HIBOR plus 4.5% per annum. This revolving facility is guaranteed by us and includes certain financial covenant requirements. The revolving loan facility expired in August 2022. In October 2021, our subsidiary entered into a 10-year fixed asset loan facility agreement with Bank of China Limited for the provision of a secured credit facility in the amount of RMB754.9 million ($108.4 million) with an annual interest rate at the 5-year China Loan Prime Rate less 0.80% (which was supplemented in June 2022). This credit facility is guaranteed by another subsidiary of the Group, and secured by the underlying leasehold land and buildings, and includes certain financial covenant requirements. As of December 31, 2022, RMB126.1 million ($18.1 million) was utilized from the fixed asset loan facility. In May 2022, our subsidiary entered into a 12-month revolving loan facility with HSBC in the amount of HK$390.0 million ($50.0 million) with an interest rate at HIBOR plus 0.5% per annum. This revolving facility is guaranteed by us. As of December 31, 2022, no amount was drawn from the revolving loan facility. Our non-consolidated joint venture SHPL had no bank borrowings outstanding as of December 31, 2022. HUTCHMED (China) Limited 2022 Annual Report 37 CONTRACTUAL OBLIGATIONS AND COMMITMENTS The following table sets forth our contractual obligations as of December 31, 2022. Our purchase obligations relate to property, plant and equipment that are contracted for but not yet paid. Our lease obligations primarily comprise future aggregate minimum lease payments in respect of various factories, warehouses, offices and other assets under non-cancellable lease agreements. Bank borrowings Interest on bank borrowings Purchase obligations Lease obligations SHPL Payment Due by Period (in $’000) Total Less than 1 Year 1-3 Years 3-5 Years More than 5 Years 18,104 4,294 22,130 10,122 54,650 – 318 20,323 4,498 25,139 360 1,273 1,807 4,149 7,589 1,918 1,200 – 1,360 4,478 15,826 1,503 – 115 17,444 The following table sets forth the contractual obligations of our non-consolidated joint venture SHPL as of December 31, 2022. SHPL’s purchase obligations comprise capital commitments for property, plant and equipment contracted for but not yet paid. SHPL’s lease obligations primarily comprise future aggregate minimum lease payments in respect of various offices under non-cancellable lease agreements. Purchase obligations Lease obligations FOREIGN EXCHANGE RISK Payment Due by Period (in $’000) Total Less than 1 Year 1-3 Years 3-5 Years More than 5 Years 1,307 2,243 3,550 1,307 826 2,133 – 1,417 1,417 – – – – – – A substantial portion of our revenues and expenses are denominated in renminbi, and our consolidated financial statements are presented in U.S. dollars. We do not believe that we currently have any significant direct foreign exchange risk and have not used any derivative financial instruments to hedge our exposure to such risk. In general, our exposure to foreign exchange risks is limited. The value of the renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions. The conversion of renminbi into foreign currencies, including U.S. dollars, has been based on rates set by the PBOC84. If we decide to convert renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the renminbi would have a negative effect on the U.S. dollar amounts available to us. On the other hand, if we need to convert U.S. dollars into renminbi for business purposes, e.g. capital expenditures and working capital, appreciation of the renminbi against the U.S. dollar would have a negative effect on the renminbi amounts we would receive from the conversion. In addition, for certain cash and bank balances deposited with banks in the PRC, if we decide to convert them into foreign currencies, they are subject to the rules and regulations of foreign exchange control promulgated by the PRC government. 38 GROUP CAPITAL RESOURCES CREDIT RISK SIGNIFICANT INVESTMENTS HELD Substantially all of our bank deposits are in major financial institutions, which we believe are of high credit quality. We limit the amount of credit exposure to any single financial institution. We make periodic assessments of the recoverability of trade and other receivables and amounts due from related parties. Our historical experience in collection of receivables falls within the recorded allowances, and we believe that we have made adequate provision for uncollectible receivables. INTEREST RATE RISK We have no significant interest-bearing assets except for bank deposits. Our exposure to changes in interest rates is mainly attributable to our bank borrowings, which bear interest at floating interest rates and expose us to cash flow interest rate risk. We have not used any interest rate swaps to hedge our exposure to interest rate risk. We have performed sensitivity analysis for the effects on our results for the period from changes in interest rates on floating rate borrowings. The sensitivity to interest rates used is based on the market forecasts available at the end of the reporting period and under the economic environments in which we operate, with other variables held constant. According to the analysis, the impact on our net loss of a 1.0% interest rate shift would be a maximum increase/ decrease of $0.1 million for the year ended December 31, 2022. OFF-BALANCE SHEET ARRANGEMENTS We did not have during the years presented, and we do not currently have, any material off-balance sheet arrangements. CONTINGENT LIABILITIES Other than as disclosed in note 15 to the full year financial statements, the Group does not have any other significant commitments or contingent liabilities. GEARING RATIO The gearing ratio of the Group, which was calculated by dividing total interest-bearing loans by total equity, was 2.8% as of December 31, 2022, an increase from 2.6% as of December 31, 2021. The increase was primarily attributable to the decrease in equity due to the increase in net loss during the year. Except for our investment in a non-consolidated joint venture SHPL with a carrying value of $73.5 million including details below and those as disclosed in note 11 to the full year financial statements, we did not hold any other significant investments in the equity of any other companies as of December 31, 2022. Place of Nominal Value Equity Interest establishment of Registered Attributable to and operations Capital the Group Principal activities (in RMB’000) PRC 229,000 50% Manufacture and distribution of prescription drug products Our own-brand prescription drugs business under our Other Ventures is operated through SHPL. Dividends received from SHPL for the year ended December 31, 2022 were $43.7 million. FUTURE PLANS FOR MATERIAL INVESTMENTS AND CAPITAL ASSETS Note 15 to the full year financial statements discloses our planned expenditures on capital assets as of December 31, 2022. We are building a new drug product facility in Shanghai, China, and will make additional investments in capital assets accordingly. MATERIAL ACQUISITIONS AND DISPOSALS OF SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES During the year ended December 31, 2022, we did not have any other material acquisitions and disposals of subsidiaries, associates and joint ventures. HUTCHMED (China) Limited 2022 Annual Report 39 PLEDGE OF ASSETS Our 10-year fixed asset loan facility agreement with Bank of China Limited is secured by the underlying leasehold land and buildings. RMB126.1 million ($18.1 million) was utilized from the fixed asset loan facility as of December 31, 2022. INFLATION In recent years, China has not experienced significant inflation, and thus inflation has not had a material impact on our results of operations. According to the National Bureau of Statistics of China, the Consumer Price Index in China increased by 0.2%, 1.5% and 1.8% in 2020, 2021 and 2022, respectively. Although we have not been materially affected by inflation in the past, we can provide no assurance that we will not be affected in the future by higher rates of inflation in China. FINAL DIVIDEND The Board does not recommend any final dividend for the year ended December 31, 2022. 40 GROUP CAPITAL RESOURCESSUSTAINABILITY As an innovative, commercial-stage biopharmaceutical company, the Company embraces sustainability at the core of how it operates. Over the past two decades and on an ongoing basis, the Company is working hard to contribute to the enhancement of healthcare systems by continuously providing quality and accessible drugs. As the world adapted to the changes brought about by the COVID-19 pandemic, it has highlighted the importance of incorporating sustainability factors into our strategy. The Company embarked on its sustainability journey in 2020 by making voluntary disclosures in its inaugural Sustainability Report to demonstrate its efforts, and establishing a board level Sustainability Committee in 2021 to support the Board of Directors in fulfilling their responsibilities. The second Sustainability Report for 2021, with enhanced disclosures, was published in May 2022 and the third Sustainability Report for 2022 will be published alongside our 2022 Annual Report in due course. Over the course of 2022, we have rolled out a number of substantial sustainability initiatives, including renewing our focus on sustainability material topics with the engagement of stakeholders, establishing 11 short- to long-term sustainability goals and targets, stepping up efforts in sustainability governance by establishing a four-tier governance framework to facilitate oversight and implementation of sustainability issues within the Company, having sustainability KPIs on goals and targets incorporated to management’s performance and remunerations, and conducting our first climate-related risk assessment. The Company believes that all these efforts will guide it towards a more sustainable future. Please refer to the 2022 Sustainability Report for further information on the sustainability initiatives and their performance. CLOSURE OF REGISTER OF MEMBERS The register of members of the Company will be closed from Tuesday, May 9, 2023 to Friday, May 12, 2023, both days inclusive, during which period no transfer of shares will be effected, to determine shareholders’ entitlement to attend and vote at the 2023 Annual General Meeting (or at any adjournment or postponement thereof). All share certificates with completed transfer forms, either overleaf or separately, must be lodged with (a) the Hong Kong Branch Share Registrar of the Company, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong, no later than 4:30 pm Hong Kong time on Monday, May 8, 2023 or (b) the Principal Share Registrar of the Company, Computershare Investor Services (Jersey) Limited c/o Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol, BS99 6ZY, United Kingdom, no later than 4:30 pm London time on Monday, May 8, 2023. HUMAN RESOURCES As at December 31, 2022, the Group employed approximately 2,030 (December 31, 2021: ~1,760) full time staff members. Staff costs for the year ended December 31, 2022, including directors’ emoluments, totaled $227.2 million (2021: $180.2 million). The Group fully recognizes the importance of high-quality human resources in sustaining market leadership. Salary and benefits are kept at competitive levels, while individual performance is rewarded within the general framework of the salary, bonus and incentive system of the Group, which is reviewed annually. Employees are provided with a wide range of benefits that include medical coverage, provident funds and retirement plans, and long-service awards. The Group stresses the importance of staff development and provides training programs on an ongoing basis. Employees are also encouraged to play an active role in community care activities. HUTCHMED (China) Limited 2022 Annual Report 41 OTHER INFORMATIONUSE OF NET PROCEEDS On June 30, 2021, the Company issued 104,000,000 new ordinary shares for total gross proceeds of approximately $534.7 million from the listing and offering of the Company’s ordinary shares on HKEX. On July 15, 2021, the over-allotment option was fully exercised and the Company issued an aggregate of 15,600,000 ordinary shares for total gross proceeds of approximately $80.2 million. The intended use of total net proceeds of approximately $585.2 million from the offering and the over-allotment option for the purposes and in the amounts (adjusted on pro rata basis based on the actual net proceeds) as disclosed in the prospectus issued by the Company dated June 18, 2021 is as below: Use of Proceeds Advance our late-stage clinical programs for savolitinib, surufatinib, fruquintinib, amdizalisib and sovleplenib through registration trials and potential NDA submissions Support further proof-of-concept studies and fund the continued expansion of our product portfolio in cancer and immunological diseases through internal research, including the development cost of early-clinical and preclinical-stage pipeline drug candidates Further strengthen our integrated capabilities across commercialization, clinical and regulatory and manufacturing Fund potential global business development and strategic acquisition opportunities to complement our internal research and development activities and enhance our current drug candidate pipeline Working capital, expanding internal capabilities globally and in China and general corporate purposes Percentage of Total Net Proceeds (%) 50% Approximate Amount ($’millions) 292.7 Actual Usage up to December 31, 2022 ($’millions) 292.7 Unutilized Net Proceeds as of December 31, 2022 ($’millions) – Expected Timeline for Utilization of Proceeds (note) Fully utilized 10% 58.5 58.5 – Fully utilized 20% 15% 5% 100% 117.1 87.8 29.1 585.2 81.7 32.4 29.1 494.4 35.4 55.4 2023 2023 – Fully utilized 90.8 Note: There was no change in the intended use of net proceeds as previously disclosed, and the Company plans to gradually utilize the remaining net proceeds in accordance with such intended purposes depending on actual market conditions and business needs, which is expected to be substantially utilized by the end of year 2023. AUDIT REPORT ON THE ANNUAL FINANCIAL STATEMENTS The consolidated financial statements of the Company and its subsidiary companies for the year ended December 31, 2022 prepared in accordance with accounting principles generally accepted in the U.S. have been audited by the Company’s auditors, PricewaterhouseCoopers. The unqualified auditor’s report is set out on pages 100 to 103 of this annual report. The consolidated financial statements of the Company and its subsidiary companies for the year ended December 31, 2022 have also been reviewed by the Audit Committee of the Company. IMPORTANT EVENTS AFTER THE REPORTING DATE Save as disclosed above, no important events affecting the Company occurred since December 31, 2022 and up to the date of this annual report. 42 OTHER INFORMATION BIOGRAPHICAL DETAILS OF DIRECTORS TO Chi Keung, Simon Weiguo SU Executive Director and Chairman Mr To, aged 71, has been a Director since 2000 and an Executive Director and Chairman of the Company since 2006. He is also a member of the Nomination Committee, Remuneration Committee and Technical Committee of the Company. He is the managing director of Hutchison Whampoa (China) Limited (“Hutchison China”) and has been with Hutchison China for over 40 years, building its business from a small trading company to a multi-billion dollar investment group. He has negotiated major transactions with multinational corporations such as Procter & Gamble, Lockheed, Pirelli, Beiersdorf, United Airlines, and British Airways. He is currently a non-executive director of Gama Aviation Plc and formerly served as independent non-executive director on the boards of China Southern Airlines Company Limited and Air China Limited. In addition, Mr To is a director of certain substantial shareholders (within the meaning of the Securities and Futures Ordinance) of the Company and certain companies controlled by substantial shareholders of the Company. Mr To’s career in China spans more than 45 years. He is the original founder of the China healthcare business of Hutchison Whampoa Limited (currently a subsidiary of CK Hutchison Holdings Limited(“CKHH”)) and has been instrumental in its acquisitions made to date. He received a Bachelor’s degree in Mechanical Engineering from Imperial College, London and a Master in Business Administration from Stanford University’s Graduate School of Business. Executive Director, Chief Executive Officer and Chief Scientific Officer Dr Su, aged 65, has been an Executive Director since 2017 and Chief Executive Officer of the Company since March 4, 2022. He is also Chief Scientific Officer of the Company since 2012. He is also a member of Technical Committee of the Company. Dr Su has headed all drug discovery and research since he joined the Company, including master-minding the scientific strategy of the Company, being a key leader of the Oncology/ Immunology operations, and responsible for the discovery of each and every small molecule drug candidate in our pipeline. Prior to joining the Company in 2005, Dr Su worked with the U.S. research and development department of Pfizer, Inc. (“Pfizer”). In 2017, Dr Su was granted the prestigious award by the China Pharmaceutical Innovation and Research Development Association (PhIRDA) as one of the Most Influential Drug R&D Leaders in China. Dr Su received a Bachelor of Science degree in Chemistry from Fudan University in Shanghai and completed a PhD and Post-Doctoral Fellowship in Chemistry at Harvard University under the guidance of Nobel Laureate Professor E. J. Corey. HUTCHMED (China) Limited 2022 Annual Report 43 INFORMATION ON DIRECTORSCHENG Chig Fung, Johnny Edith SHIH Executive Director and Chief Financial Officer Mr Cheng, aged 56, has been an Executive Director since 2011 and Chief Financial Officer of the Company since 2008. He is a member of the Sustainability Committee of the Company. Prior to joining the Company, Mr Cheng was Vice President, Finance of Bristol Myers Squibb in China and was a director of Sino-American Shanghai Squibb Pharmaceuticals Ltd. and Bristol-Myers Squibb (China) Investment Co. Ltd. in Shanghai between late 2006 and 2008. Mr Cheng started his career as an auditor with Price Waterhouse (currently PricewaterhouseCoopers) in Australia and then KPMG in Beijing before spending eight years with Nestlé China where he was in charge of a number of finance and control functions in various operations. Mr Cheng received a Bachelor of Economics, Accounting Major from the University of Adelaide and is a member of Chartered Accountants Australia and New Zealand. Dan ELDAR Non-executive Director Dr Eldar, aged 69, has been a Non-executive Director of the Company since 2016. He has more than 30 years of experience as a senior executive, leading global operations in telecommunications, water, biotech and healthcare. He is an executive director of Hutchison Water Israel Ltd which focuses on large scale projects including desalination, wastewater treatment and water reuse. He was formerly an independent non-executive director of Leumi Card Ltd., a subsidiary of Bank Leumi Le-Israel B.M., one of Israel’s leading credit card companies. Dr Eldar received a Doctor of Philosophy degree in Government from Harvard University, Master of Arts degree in Government from Harvard University, Master of Arts degree in Political Science and Public Administration from the Hebrew University of Jerusalem and a Bachelor of Arts degree in Political Science from the Hebrew University of Jerusalem. Non-executive Director and Company Secretary Ms Shih, aged 71, has been a Non-executive Director since 2006, the Company Secretary of the Company and the company secretary of Group companies since 2000. She is also chairman of the Sustainability Committee of the Company. She has over 35 years of experience in legal, regulatory, corporate finance, compliance and corporate governance fields. She is also executive director and company secretary of CKHH. She has been with the Cheung Kong (Holdings) Limited (“CKH”) group since 1989 and with Hutchison Whampoa Limited (“HWL”) since 1991. Both CKH and HWL were formerly listed on The Stock Exchange of Hong Kong Limited and became wholly-owned subsidiaries of CKHH in 2015. She has acted in various capacities within the HWL group, including head group general counsel and company secretary of HWL as well as director and company secretary of HWL subsidiaries and associated companies. Ms Shih is in addition a non-executive director of Hutchison Telecommunications Hong Kong Holdings Limited, Hutchison Port Holdings Management Pte. Limited as the trustee-manager of Hutchison Port Holdings Trust and a commissioner of PT Duta Intidaya Tbk. In addition, Ms Shih is a director of certain substantial shareholders (within the meaning of the Securities and Futures Ordinance) of the Company and certain companies controlled by certain substantial shareholders of the Company. The aforementioned companies are either subsidiaries or associated companies of CKHH of which Ms Shih has oversight as a director of CKHH. She is a past international president and current member of the Council of The Chartered Governance Institute (“CGI”) as well as a past president and current honorary advisor of The Hong Kong Chartered Governance Institute (“HKCGI”) and current chairperson of its nomination committee. Further, she is also chairman of the Process Review Panel for the Accounting and Financial Reporting Council (formerly known as the Financial Reporting Council) and a member of the Securities and Futures Appeals Tribunal and of the Executive Committee and Council of The Hong Kong Management Association. Ms Shih is a solicitor qualified in England and Wales, Hong Kong and Victoria, Australia and a fellow of both the CGI and HKCGI, holding Chartered Secretary and Chartered Governance Professional dual designations. She holds a Bachelor of Science degree and a Master of Arts degree from the University of the Philippines as well as a Master of Arts degree and a Master of Education degree from Columbia University, New York. 44 INFORMATION ON DIRECTORSLefei SUN Non-executive Director Mr Sun, aged 43, has been a Non-executive Director of the Company since 2022. He is also a member of the Technical Committee of the Company. He has been the managing director and head of China healthcare for General Atlantic since 2018, in charge of private equity investment and portfolio management in healthcare and life sciences sectors. Before joining General Atlantic, Mr Sun was the founding partner of Huatai Healthcare Іnvestment Fund, successfully leading the investment in Mindray Medical, which is listed on Shenzhen Stock Exchange. Mr Sun is also a director of Adagene Іnc. and Genesis MedTech Group Inc. He was formerly a director of CANbridge Pharmaceuticals Іnc. and Ocumension Therapeutics Іnc. Mr Sun holds a Bachelor of Science degree in Mathematics and Physics from Tsinghua University. He also holds a Master of Arts degree in neuroscience from the Johns Hopkins University. Paul Rutherford CARTER Senior Independent Non-executive Director Mr Carter, aged 62, has been a senior Independent Non-executive Director of the Company since 2017. He is also chairman of the Remuneration Committee and a member of the Audit Committee and Technical Committee of the Company. He has more than 26 years of experience in the pharmaceutical industry. From 2006 to 2016, Mr Carter served in various senior executive roles at Gilead Sciences, Inc. (“Gilead”), a research-based biopharmaceutical company, with the last position as executive vice president, commercial operations. In this role, Mr Carter headed the worldwide commercial organization responsible for the launch and commercialization of all of the products of Gilead. He also worked as a senior executive at GlaxoSmithKline Plc. He is currently a director of Immatics N.V. and VectivBio Holding AG. He is the chairman of Evox Therapeutics and a retained advisor to several firms active in the life sciences sector. He was formerly a director of Alder BioPharmaceuticals, Inc. and Mallinckrodt plc. Mr Carter received a degree in Business Studies from the Ealing School of Business and Management (now merged into University of West London) and is a Fellow of the Chartered Institute of Management Accountants in the United Kingdom. HUTCHMED (China) Limited 2022 Annual Report 45 Karen Jean FERRANTE Graeme Allan JACK Independent Non-executive Director Independent Non-executive Director Mr Jack, aged 72, has been an Independent Non-executive Director of the Company since 2017. He is also chairman of the Audit Committee and a member of the Nomination Committee and Remuneration Committee of the Company. He has more than 40 years of experience in finance and audit. He retired as partner of PricewaterhouseCoopers in 2006 after a distinguished career with the firm for over 33 years. He is currently an independent non-executive director of The Greenbrier Companies, Inc. (an international supplier of equipment and services to the freight rail transportation markets) and Hutchison Port Holdings Management Pte. Limited as the trustee-manager of Hutchison Port Holdings Trust (a developer and operator of deep water container terminals). He was formerly a director of COSCO SHIPPING Development Co., Ltd. (formerly known as “China Shipping Container Lines Company Limited”, an integrated financial services platform principally engaged in vessel and container leasing). Mr Jack received a Bachelor of Commerce degree from University of New South Wales, Australia and is a Fellow of the Hong Kong Institute of Certified Public Accountants and an Associate of Chartered Accountants Australia and New Zealand. Dr Ferrante, aged 65, has been an Independent Non-executive Director of the Company since 2017. She is also chairman of the Technical Committee and a member of the Audit Committee of the Company. She has more than 26 years of experience in the pharmaceutical industry. She was the former chief medical officer and head of research and development of Tokai Pharmaceuticals, Inc., a biopharmaceutical company focused on developing and commercializing innovative therapies for prostate cancer and other hormonally driven diseases. Dr Ferrante previously held senior positions at Millennium Pharmaceuticals, Inc. and its parent company, Takeda Pharmaceutical Company Limited, including chief medical officer and most recently as oncology therapeutic area and Cambridge USA site head. She had also held positions of increasing responsibility at Pfizer, with the last position as vice president, oncology development. Dr Ferrante is currently a member of the board of directors of MacroGenics, Inc., and Cogent Biosciences, Inc. (formerly Unum Therapeutics Inc.). Dr Ferrante was previously a director of Baxalta Incorporated until it was acquired by Shire plc in 2016 and a director of Progenics Pharmaceuticals, Inc., until it was acquired by Lantheus Holdings, Inc. in 2020. She was previously a member of the Scientific Advisory Board of Trillium Therapeutics Inc. until it was acquired by Pfizer in November 2021. She was also a past member of the Scientific Advisory Board of Kazia Therapeutics Limited. Dr Ferrante is an author of a number of papers in the field of oncology, an active participant in academic and professional associations and symposia and holder of several patents. Dr Ferrante received a Bachelor of Science degree in Chemistry and Biology from Providence College and a Doctor of Medicine from Georgetown University. 46 INFORMATION ON DIRECTORSMOK Shu Kam, Tony Independent Non-executive Director Professor Mok, aged 62, has been an Independent Non-executive Director of the Company since 2017. He is also chairman of the Nomination Committee and a member of the Sustainability Committee and Technical Committee of the Company. Professor Mok has more than 31 years of experience in clinical oncology with his main research interest focusing on biomarker and molecular targeted therapy in lung cancer. He is currently Li Shu Fan Medical Foundation named professor and chairman of department of clinical oncology at The Chinese University of Hong Kong. Professor Mok has contributed to over 250 articles in international peer reviewed journals, as well as multiple editorials and textbooks. In October 2018, Professor Mok was the first Chinese to be bestowed with the European Society for Medical Oncology (ESMO) Lifetime Achievement Award, one of the most prestigious international honors and recognitions given to cancer researchers, for his contribution to and leadership in lung cancer research worldwide. Professor Mok is a non-executive director of AstraZeneca PLC, a non-executive independent director of Lunit USA Inc. and a member of the scientific advisory board of Prenetics Global Limited (“Prenetics”). He is co-founder of Sanomics Limited (acquired by ACT Genomics Holdings Ltd. in November 2021) and Aurora Tele-Oncology Limited. He was formerly a board director of the American Society of Clinical Oncology (“ASCO”), a steering committee member of the Chinese Society of Clinical Oncology, past president of the International Association for the Study of Lung Cancer, and the chairman of the board of ACT Genomics Holdings Ltd. until it was acquired by Prenetics in December 2022. Professor Mok is also closely affiliated with the oncology community in China and has been awarded an Honorary Professorship at Guangdong Province People’s Hospital, Guest Professorship at Peking Union Medical College Hospital and Visiting Professorship at Shanghai Jiao Tong University. He received his Bachelor of Medical Science degree and a Doctor of Medicine from University of Alberta, Canada. He is also a fellow of the Royal College of Physicians and Surgeons of Canada, Hong Kong College of Physicians, Hong Kong Academy of Medicine, Royal College of Physicians of Edinburgh and ASCO. CHANGES IN INFORMATION OF DIRECTORS Pursuant to Rule 13.51B(1) of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”), the changes in information of Directors of the Company, as notified to the Company, subsequent to the date of the 2022 Interim Report are set out below: Directors TO Chi Keung, Simon MOK Shu Kam, Tony Details of Changes Ceased to be the non-executive chairman of Gama Aviation Plc on July 13, 2022 and remaining as a non-executive director (a) (b) Ceased to be the chairman of the board of ACT Genomics Holdings Ltd. in December 2022 Appointed to the scientific advisory board of Prenetics Global Limited on January 1, 2023 HUTCHMED (China) Limited 2022 Annual Report 47 DIRECTORS’ INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES As at December 31, 2022, the interests and short positions of the Directors and chief executives of the Company in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) (the “SFO”)) which were notified to the Company and The Stock Exchange of Hong Kong Limited (the “HKEX”) pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which the Directors and chief executives of the Company were deemed or taken to have under such provisions of the SFO), or which were recorded in the register required to be kept by the Company pursuant to Section 352 of the SFO, or as otherwise notified to the Company and the HKEX pursuant to the Code on Dealings in Shares by Directors adopted by the Company (the “Share Dealings Code”) were as follows: Interests and short positions in the shares, underlying shares and debentures of the Company Long positions in the shares and underlying shares of the Company Directors TO Chi Keung, Simon Weiguo SU CHENG Chig Fung, Johnny Dan ELDAR Capacity Nature of Interests Number of Shares/ Underlying Shares Held Beneficial owner Interest of spouse Beneficial owner Beneficiary of a trust Beneficial owner Beneficiary of a trust Beneficial owner Beneficiary of a trust Personal interest Family interest Personal interest Personal interest Personal interest Personal interest Personal interest Personal interest 1,020,000 1,446,185 (1) 7,442,645 (2) 719,880 (3) 3,743,455 (4) 190,470 (5) 97,620 (6) 53,040 (7) Approximate % Total of Shareholding 2,466,185 0.29% 8,162,525 0.94% 3,933,925 0.45% 150,660 0.02% 0.14% Edith SHIH Beneficial owner Personal interest 1,200,000 (8) 1,200,000 Paul Rutherford CARTER Karen Jean FERRANTE Graeme Allan JACK MOK Shu Kam, Tony Beneficial owner Beneficiary of a trust Beneficial owner Beneficiary of a trust Beneficial owner Interest of spouse Beneficiary of a trust Beneficial owner Beneficiary of a trust Personal interest Personal interest Personal interest Personal interest Personal interest Family interest Personal interest Personal interest Personal interest 63,845 (9) 45,080( 10) 61,130 (11) 48,675 (12) 33,655 (13) 15,000 (14) 53,040 (15) 83,665 (16) 53,040 (17) 108,925 0.01% 109,805 0.01% 101,695 0.01% 136,705 0.02% 48 INFORMATION ON DIRECTORS Notes: (1) (2) The spouse of Mr To Chi Keung, Simon is interested in 780,000 ordinary shares (“Shares”) and 133,237 American depositary shares (“ADSs”, each representing five Shares) in the Company as beneficiary of trusts. Mr To Chi Keung, Simon is the settlor of the same trusts in which his spouse has interests. Includes (1) 93,087 ADSs held by Dr Weiguo Su, (2) entitlement of Dr Weiguo Su to receive up to 5,000,000 Shares pursuant to the exercise of options granted to him under the 2015 Share Option Scheme of the Company (the “2015 Share Option Scheme”), subject to the vesting conditions of those options, and (3) entitlement of Dr Weiguo Su to receive up to 395,442 ADSs pursuant to the exercise of options granted to him, subject to the vesting conditions of those options. Details of the interests of Dr Weiguo Su in the options are set out on page 61. (3) Dr Weiguo Su is interested in 143,976 ADSs as beneficiary of a trust pursuant to a Long Term Incentive Plan (“LTIP”), subject to vesting conditions. (4) Includes (1) 2,561,460 Shares and 18,599 ADSs held by Mr Cheng Chig Fung, Johnny, (2) entitlement of Mr Cheng Chig Fung, Johnny to receive up to 217,800 ADSs pursuant to the exercise of options granted to him under the 2015 Share Option Scheme, subject to the vesting conditions of those options. Details of the interests of Mr Cheng Chig Fung, Johnny in the options are set out on page 61. (5) Mr Cheng Chig Fung, Johnny is interested in 38,094 ADSs as beneficiary of a trust pursuant to LTIP, subject to vesting conditions. (6) Includes 19,000 Shares and 15,724 ADSs held by Dr Dan Eldar. (7) Dr Dan Eldar is interested in 10,608 ADSs as beneficiary of a trust pursuant to LTIP, subject to vesting conditions. (8) Includes 700,000 Shares and 100,000 ADSs held by Ms Edith Shih. (9) Includes 35,240 Shares and 5,721 ADSs held by Mr Paul Rutherford Carter. (10) Mr Paul Rutherford Carter is interested in 9,016 ADSs as beneficiary of a trust pursuant to LTIP, subject to vesting conditions. (11) Represents 12,226 ADSs held by Dr Karen Jean Ferrante. (12) Dr Karen Jean Ferrante is interested in 9,735 ADSs as beneficiary of a trust pursuant to LTIP, subject to vesting conditions. (13) Represents 6,731 ADSs held by Mr Graeme Allan Jack. (14) The spouse of Mr Graeme Allan Jack is interested in 3,000 ADSs. (15) Mr Graeme Allan Jack is interested in 10,608 ADSs as beneficiary of a trust pursuant to LTIP, subject to vesting conditions. (16) Represents 16,733 ADSs held by Professor Mok Shu Kam, Tony. (17) Professor Mok Shu Kam, Tony is interested in 10,608 ADSs as beneficiary of a trust pursuant to LTIP, subject to vesting conditions. Save as disclosed above, as at December 31, 2022, none of the Directors or chief executives of the Company and their respective associates had any interest or short position in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) as recorded in the register required to be kept by the Company pursuant to Section 352 of the SFO, or as otherwise notified to the Company and the HKEX pursuant to the Share Dealings Code. DIRECTORS’ INTERESTS IN COMPETING BUSINESS During the year ended December 31, 2022, none of the Directors had any interests in certain businesses (apart from the business of the Company or its subsidiaries) which competes or is likely to compete, either directly or indirectly, with the principal businesses of the Company or its subsidiaries conducted during the year, which would require disclosure under Rule 8.10(2) of the Listing Rules. HUTCHMED (China) Limited 2022 Annual Report 49 BIOGRAPHICAL DETAILS OF SENIOR MANAGEMENT Michael Ming SHI Karen Jane ATKIN Executive Vice President and Chief Operating Officer Dr Atkin, aged 57, is the Executive Vice President and Chief Operating Officer of the Company. Prior to joining the Company in 2021, Dr Atkin spent 24 years at AstraZeneca in senior medical, regulatory, pharmacovigilance, R&D and commercial leadership roles, including as senior vice president of medical for biopharmaceuticals, vice president of the global infection, neuroscience and autoimmunity therapy area and the established brand business, country president of Indonesia and led China R&D for over four years. Dr Atkin is also a registered physician with advanced level qualifications in internal medicine and pharmaceutical medicine. Dr Atkin holds three Bachelor’s degrees in Physiology, Medicine and Surgery, respectively, from University College London. She graduated with a First Class Honors degree in Medicine, holds a Master of Business Administration from the Open University, is a member of the Royal College of Physicians and a fellow of the Faculty of Pharmaceutical Medicine in the UK. Executive Vice President, Head of R&D and Chief Medical Officer Dr Shi, aged 57, is the Executive Vice President, Head of R&D and Chief Medical Officer of the Company. He oversees the drug discovery and development of the Company from strategy to execution. Prior to joining the Company in 2022, Dr Shi was the Global Head of R&D and Chief Medical Officer at Transcenta Holding Limited where he helped build a strong global research and development organization across China and the U.S. and advanced seven programs into clinical development and multiple preclinical candidate nominations. Before that, Dr Shi worked at Novartis for over 15 years, where he held various senior leadership positions including global program clinical head in clinical development. He played key leadership roles in the clinical development of multiple novel oncology/hematology products from clinical proof-of-concept to successful execution of global pivotal trials, product registration and life- cycle management. Dr Shi is a member of the American Society of Clinical Oncology, European Society of Medical Oncology, American Society of Hematology, American Association for Cancer Research, Sino-American Pharmaceutical Association and an executive committee member of the US-China Anticancer Association (USCACA). Dr Shi also worked as the program director of genetics variation at National Institutes of Health (“NIH”) under the direct supervision of former NIH director, Dr Francis Collins and was an adjunct assistant professor at the University of Michigan Medical School. Dr Shi holds a PhD in Molecular Pharmacology and Toxicology from the University of Southern California, and conducted postdoctoral research at the Harvard Medical School. He received his medical education from Peking Union Medical College. 50 INFORMATION ON SENIOR MANAGEMENTZhenping WU Hong CHEN Senior Vice President and Chief Commercial Officer (China) Mr Chen, aged, 52, is the Senior Vice President and Chief Commercial Officer (China) of the Company. Prior to joining the Company in 2011, Mr Chen spent 12 years with Bristol-Myers Squibb and was last serving as its national sales & marketing director in China. Mr Chen received a Bachelor’s degree in Medicine from Nanjing Medical University and an EMBA from Cheung Kong Graduate School of Business. Charles George Rupert NIXON Group General Counsel Mr Nixon, aged 53, has been Group General Counsel of the Company since May 2015 and has worked with the Company since 2006. Prior to joining the Company, Mr Nixon was group senior legal counsel for Hutchison Whampoa Limited (previously a listed company in Hong Kong and after a restructuring, a subsidiary of CK Hutchison Holdings Limited) in both Hong Kong and London and prior to that senior legal counsel for Three UK, the mobile phone operator. Mr Nixon has been with the CK Hutchison Group since 2001. Mr Nixon received an LLB (Hons) from Middlesex University and is a qualified solicitor in England & Wales with over 30 years of experience. Executive Vice President, Pharmaceutical Sciences and Manufacturing Dr Wu, aged 63, joined the Company in 2008 and is the Executive Vice President of Pharmaceutical Sciences and Manufacturing of the Company. Dr Wu has over 29 years of experience in drug discovery and development. His past positions include senior director of pharmaceutical sciences at Phenomix Corporation, a U.S.-based biotechnology company, director of pharmaceutical development at Pfizer Global Research & Development in California (formerly Agouron Pharmaceuticals) and a group leader at Roche at its Palo Alto site. He is a past chairman and president of the board of the Sino-American Biotechnology and Pharmaceutical Association. Dr Wu received a PhD from the University of Hong Kong and a Master in Business Administration from the University of California at Irvine. Mark Kin Hung LEE Senior Vice President, Corporate Finance and Development Mr Lee, aged 45, is the Senior Vice President of Corporate Finance and Development of the Company. He began working in healthcare investment banking in the United States and Europe in 1998 and joined the Company in 2009. Based in the New York and London offices of Credit Suisse, Mr Lee was involved in the execution and origination of mergers, acquisitions, public and private financings and corporate strategy for life science companies such as AstraZeneca, Bristol-Myers Squibb and Genzyme, as well as others medical product and service companies. Mr Lee received his Bachelor’s degree in Biochemical Engineering with First Class Honors from University College London, where he was awarded a Dean’s Commendation. He also received a Master of Business Administration from the Massachusetts Institute of Technology’s Sloan School of Management. May Qingmei WANG Senior Vice President, Business Development and Strategic Alliances Dr Wang, aged 59, is the Senior Vice President of Business Development and Strategic Alliances of the Company. Prior to joining the Company in 2010, Dr Wang spent 16 years with Eli Lilly where she was the head of Eli Lilly’s Asian Biology Research and responsible for establishing and managing research collaborations in China and across Asia. Dr Wang holds numerous patents, has published more than 50 peer-reviewed articles and has given dozens of seminars and plenary lectures. Dr Wang received a PhD in Biochemistry from Purdue University. HUTCHMED (China) Limited 2022 Annual Report 51 The Directors have pleasure in submitting to shareholders their report and the audited financial statements for the year ended December 31, 2022. DIVIDENDS No interim dividend for the year ended December 31, 2022 was declared and the Directors do not recommend the payment of a final dividend for the year ended December 31, 2022. RESERVES Movements in the reserves of the Group during the year ended December 31, 2022 are set out in the Consolidated Statements of Changes in Shareholders’ Equity on page 107. CHARITABLE DONATIONS Donations to charitable organizations by the Group during the year ended December 31, 2022 amounted to approximately US$2.70 million (2021 – approximately US$1.89 million). PROPERTY, PLANT AND EQUIPMENT Particulars of the movements of property, plant and equipment of the Group are set out in note 9 to the Consolidated Financial Statements. SHARE CAPITAL The share capital of the Company is set out in the Consolidated Balance Sheets on page 104. Details of the ordinary shares of the Company (“Shares”) are set out in note 16 to the Consolidated Financial Statements. PRINCIPAL ACTIVITIES The principal activity of the Company is that of a holding company of a biopharmaceutical group with operations in China, the U.S. and Europe. It is focused on the research, development, manufacture and marketing of pharmaceutical products. BUSINESS REVIEW A fair review of the business of the Company and its subsidiaries (the “Group”) as required under Schedule 5 to the Companies Ordinance (Chapter 622 of the Laws of Hong Kong), comprising a discussion and analysis of the Group’s performance during the year, a description of the principal risks and uncertainties facing the Group, particulars of important events affecting the Group that have occurred since the end of the financial year 2022 (if any) as well as an indication of likely future development in the business of the Group are provided in the sections “Chairman’s Statement”, “Chief Executive Officer’s Report”, “2022 Full Year Results and Business Updates”, “2022 Full Year Financial Results”, “Financial Summary” and “Operations Review” on pages 6 to 33 and “Risk Management, Internal Control and Legal & Regulatory Compliance” section in the Corporate Governance Report on pages 82 to 90 of this annual report. Discussions on the Group’s environmental policies and performance, the Group’s compliance with the relevant laws and regulations that have a significant impact on the Group as well as an account of the Group’s key relationships with its stakeholders that have a significant impact on the Group and on which the Group’s success depends, are provided in the “Sustainability” section on pages 97 to 99 in the “Corporate Governance Report”. All such discussions form part of this report. Further details are set out in the standalone 2022 Sustainability Report. RESULTS The Consolidated Statements of Operations are set out on page 105 and show the Group’s results for the year ended December 31, 2022. 52 DIRECTORS’ REPORTDIRECTORS The Directors of the Company as of December 31, 2022 were: Executive Directors: TO Chi Keung, Simon Weiguo SU CHENG Chig Fung, Johnny Non-executive Directors: Dan ELDAR Edith SHIH Lefei SUN Independent Non-executive Directors: Paul Rutherford CARTER Karen Jean FERRANTE Graeme Allan JACK MOK Shu Kam, Tony The following changes to the Board composition were effected during 2022 and prior to the date of this report: (i) (ii) Mr Christian Lawrence Hogg retired as Executive Director and Chief Executive Officer on March 4, 2022; Dr Weiguo Su was appointed as Chief Executive Officer, in addition to his roles as Executive Director and Chief Scientific Officer on March 4, 2022; and (iii) Mr Lefei Sun was appointed as Non-executive Director on May 16, 2022. Mr Christian Lawrence Hogg has confirmed that he has no disagreement with the Board and nothing relating to the affairs of the Company needed to be brought to the attention of the shareholders of the Company. Mr Lefei Sun, who was appointed on May 16, 2022, will hold office until the forthcoming annual general meeting (the “2023 AGM”) pursuant to Article 89(3) of the Articles of Association of the Company and, being eligible, will offer himself for re-election at the 2023 AGM. The Company’s Articles of Association requires not less than one-third of the Directors to retire by rotation at each annual general meeting, and a retiring Director is eligible for re-election. To follow the market practice in the United Kingdom whereby all directors are subject to annual re-election, Mr To Chi Keung, Simon, Dr Weiguo Su, Mr Cheng Chig Fung, Johnny, Dr Dan Eldar, Ms Edith Shih, Mr Lefei Sun, Mr Paul Rutherford Carter, Mr Graeme Allan Jack and Professor Mok Shu Kam, Tony will all retire at the 2023 AGM and, being eligible, will offer themselves for re-election by shareholders. Dr Karen Jean Ferrante will retire at the 2023 AGM and will not offer herself for re-election at the 2023 AGM. The Company has received written confirmation from all Independent Non-executive Directors regarding their independence as required under Rule 3.13 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “HK Listing Rules”) as well as Rule 5605(a)(2) of the Nasdaq Listing Rules. The Board considers all the Independent Non-executive Directors to be independent. The Directors’ biographical details are set out on pages 43 to 47. DIRECTORS’ SERVICE CONTRACT None of the Directors of the Company who are proposed for re-election at the 2023 AGM has a service contract with the Company not terminable by the Company within one year without payment of compensation (other than statutory compensation). DIRECTORS’ MATERIAL INTERESTS IN SIGNIFICANT TRANSACTIONS, ARRANGEMENTS OR CONTRACTS There were no transactions, arrangements or contracts that are of significance subsisting during or at the end of the year in which a Director of the Company or an entity connected with a Director is or was materially interested, whether directly or indirectly. CONTINUING CONNECTED TRANSACTIONS 1. Supply of Products by the Group to A.S. Watson Group and Provision of Associated Marketing Services by A.S. Watson Group From time to time, the Group may supply products to A.S. Watson Holdings Limited (“A.S. Watson”), an indirect subsidiary of CK Hutchison Holdings Limited (“CKHH”), and/or its subsidiaries (“A.S. Watson Group”), including the retail grocery and pharmacy chains, Park N Shop (HK) Ltd. (“PARKnSHOP”) and A.S. Watson Retail (HK) Ltd (“Watsons”), which are owned and operated by A.S. Watson. In connection with the supply and sale of the products by the Group, A.S. Watson Group may also from time to time provide marketing services associated with the products to the Group. The Company entered into a framework products supply and marketing services agreement with A.S. Watson (the “A.S. Watson Framework Connected Transactions Agreement”) on June 15, 2021 to govern all existing and future supply of products by the Group to A.S. Watson Group and the associated provision of marketing services by A.S. Watson Group to the Group. HUTCHMED (China) Limited 2022 Annual Report 53 The A.S. Watson Framework Connected Transactions Agreement expires on December 31, 2023 and is automatically renewable for a successive period of three years thereafter, subject to compliance with the applicable provisions of the HK Listing Rules, unless terminated earlier by not less than one month’s prior notice or otherwise in accordance with the terms of the A.S. Watson Framework Connected Transactions Agreement. In relation to the supply of products by the Group, it is expected that the maximum annual transaction amount receivable by the Group from A.S. Watson Group for the financial years 2021, 2022 and 2023 will not exceed US$12.46 million, US$14.95 million and US$17.94 million, respectively. In relation to the provision of associated marketing services by A.S. Watson Group to the Group, it is expected that the maximum annual transaction amount payable by the Group to A.S. Watson Group for the financial years 2021, 2022 and 2023 will not exceed US$1.25 million, US$1.50 million and US$1.79 million, respectively. As A.S. Watson is a subsidiary of CKHH, it is a connected person of the Company by virtue of being an associate of a substantial shareholder of the Company, and the supply of products by the Group to A.S. Watson Group and the provision of associated marketing services by A.S. Watson Group to the Group constitutes continuing connected transactions of the Company. 2. Product Labeling Services The Company has entered into the A.S. Watson Framework Connected Transactions Agreement with A.S. Watson (as described above), which provides for the provision of product labeling services by A.S. Watson Group, whereby Hutchison Hain Organic (Hong Kong) Limited (“HHOHK”), a wholly-owned subsidiary of a consolidated joint venture of the Company, engaged PARKnSHOP to provide product labeling services for products supplied by HHOHK to PARKnSHOP, a retail grocery chain owned and operated by the A.S. Watson Group. It is expected that the maximum annual transaction amount payable by the Group to A.S. Watson Group for the financial years 2021, 2022 and 2023 will not exceed US$0.66 million, US$0.79 million and US$0.95 million, respectively. 54 3. Provision of Travel Services The Company entered into a framework travel services agreement with Hutchison Travel Limited (“Hutchison Travel”) on June 15, 2021 (the “Framework Travel Services Agreement”) whereby Hutchison Travel and/or its subsidiaries (together, the “Hutchison Travel Group”) provide travel services (e.g. bookings and reservations for air tickets) to the Group and charge the Group services fees based on market prices. The Framework Travel Services Agreement governs all existing and future provision of travel services by Hutchison Travel Group to the Group. The Framework Travel Services Agreement expires on December 31, 2023 and is automatically renewable for a successive period of three years thereafter, subject to compliance with the applicable provisions of the HK Listing Rules, unless terminated earlier by not less than one month’s prior notice or otherwise in accordance with the terms of the Framework Travel Services Agreement. It is expected that the maximum annual service fees payable by the Group to Hutchison Travel Group for the financial years 2021, 2022 and 2023 will not exceed US$1.00 million, US$1.50 million and US$2.25 million, respectively. As Hutchison Travel is a subsidiary of CKHH, it is a connected person of the Company by virtue of being an associate of a substantial shareholder of the Company, the supply of travel services by Hutchison Travel Group to the Group constitutes continuing connected transactions of the Company. 4. Hain Products Supply Agreement As part of the commercial reasons for the establishment of HHOHK, and pursuant to the terms of the joint venture agreement entered into between The Hain Celestial Group, Inc. (“Hain Celestial”) and Hutchison Organic Holdings Limited, a wholly-owned subsidiary of the Company, on October 8, 2009 (the “Hain JV Agreement”), a Hain Products Supply Agreement (the “Hain Products Supply Agreement”) was entered into between Hain Celestial and HHOHK on October 27, 2009 (as amended and supplemented on July 1, 2011), pursuant to which Hain Celestial appointed HHOHK to market, distribute and sell the products within the current brands of Hain Celestial in certain territories and agreed to supply such products in connection with the appointment. The supply price for each product will be an amount equal to Hain Celestial’s standard cost plus a margin of 10%, or such other percentage that is equal to Hain Celestial’s sales margin for intercompany sales among its group companies plus 2%. The standard cost will consist of the actual cost of the raw materials, packaging materials, manufacturing expenses, amortization of DIRECTORS’ REPORTmold and die expenses, variation and logistics. HHOHK will also reimburse Hain Celestial for any necessary licensing fees in relation to the third-party endorsement incurred in connection with the supply of the products to HHOHK. Unless terminated in accordance with the Hain Products Supply Agreement, the Hain Products Supply Agreement became effective on the date of signing and will continue in full force and effect so long as the Hain JV agreement is in full force and effect. Pursuant to the Hain Products Supply Agreement, either party may terminate the Hain Products Supply Agreement if, among other things, (i) the other party files a petition of any type as to its bankruptcy, be declared bankrupt or become insolvent, or (ii) the other party is in material breach of the Hain Products Supply Agreement and shall have failed to cure such breach within 30 days of receipt of written notice thereof. It is expected that the maximum annual transaction amount to be recorded by the Group from Hain Celestial for the financial years 2021, 2022 and 2023 will not exceed US$23.14 million, US$27.76 million and US$33.32 million, respectively. Hutchison Hain Organic Holdings Limited (“Hutchison Hain Organic”) is a consolidated joint venture of the Company and therefore a subsidiary of the Company under the HK Listing Rules. As Hain Celestial holds 50% of the interest in Hutchison Hain Organic, Hain Celestial is a connected person of the Company by virtue of being a substantial shareholder of a subsidiary of the Company. Accordingly, the transactions under the Hain Products Supply Agreement constitutes continuing connected transactions of the Company under the HK Listing Rules. 5. Framework Sinopharm Products Supply and Purchase Agreement Hutchison Whampoa Sinopharm Pharmaceuticals (Shanghai) Company Limited has been supplying/purchasing prescription drugs to/from Sinopharm Group Co. Ltd., (“Sinopharm”) and/or its associates. The Company entered into a framework products supply and purchase agreement with Sinopharm (the “Framework Sinopharm Products Supply and Purchase Agreement”) on June 15, 2021 to govern all existing and future (i) supply of products by the Group to Sinopharm and/or its associates and (ii) purchase of products by the Group from Sinopharm and/or its associates. The Framework Sinopharm Products Supply and Purchase Agreement expires on December 31, 2023 and is automatically renewable for a successive period of three years thereafter, subject to compliance with the applicable provisions of the HK Listing Rules, unless terminated earlier by not less than one month’s prior notice or otherwise in accordance with the terms of the Framework Sinopharm Products Supply and Purchase Agreement. In relation to the supplying of products by the Group, it is expected that the maximum annual transaction amount receivable by the Group from Sinopharm and/or its associates for the financial years 2021, 2022 and 2023 will not exceed US$134.50 million, US$236.75 million and US$335.78 million, respectively. In relation to the purchase of products by the Group, it is expected that the maximum annual transaction amount payable by the Group to Sinopharm and/or its associates for the financial years 2021, 2022 and 2023 will not exceed US$4.08 million, US$4.90 million and US$5.88 million, respectively. As Sinopharm is a substantial shareholder of a subsidiary of the Company, it is a connected person of the Company and the supply to and purchase from Sinopharm of products by the Group constitutes continuing connected transactions of the Company. 6. HBYS Brand License Royalty Agreement Hutchison Chinese Medicine Holding Limited (“HCMHL”, a subsidiary of the Company) entered into a brand license royalty agreement (“HBYS Brand License Royalty Agreement”), pursuant to which HCMHL will pay to Hutchison Whampoa Enterprises Limited (“HWEL”, a subsidiary of CKHH) an annual fee of HK$12 million in consideration of the grant of the royalty-free right to use the “Hutchison Whampoa” related trade marks and logos by HWEL to Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited (“HBYS”) and certain of its subsidiaries, which commenced on the completion date of sale of the entire interest in HBYS by the Company (i.e. September 28, 2021) and up to and including December 31, 2023. Subject to compliance with the requirements of the HK Listing Rules or, alternatively, any waivers obtained from strict compliance with such requirements, upon expiration of the initial term or subsequent renewal term, the agreement is automatically renewed for a successive period of three years thereafter (or such other period permitted under the HK Listing Rules). The royalty payable by HCMHL under the HBYS Brand License Royalty Agreement for each year ending December 31 for the duration of the HBYS Brand License Royalty Agreement will be HK$12 million (around US$1.54 million). The aggregate royalty payable under the HBYS Brand License Royalty Agreement (including any renewal thereof) shall not be more than HK$120 million, even if the HBYS Brand License Royalty Agreement is not terminated and continues to be renewed after 10 years. As HWEL is a subsidiary of CKHH, it is a connected person of the Company by virtue of being an associate of a substantial shareholder of the Company and the license granted under the HBYS Brand License Royalty Agreement constitutes a continuing connected transaction of the Company. HUTCHMED (China) Limited 2022 Annual Report 55 The Group believes that the entering into of the A.S. Watson Framework Connected Transactions Agreement, the Framework Travel Services Agreement, the Hain Products Supply Agreement, the Framework Sinopharm Products Supply and Purchase Agreement and the HBYS Brand License Royalty Agreement (collectively the “2022 CCTs”) will help to achieve business continuity and efficiency. The annual caps of the 2022 CCTs in respect of the year ended December 31, 2022 and the corresponding aggregate transaction amounts for the year are set out below: 2022 CCTs (1) (a) (b) (2) (3) (4) (5) (a) (b) (6) Supply of products by the Group under the A.S. Watson Framework Connected Transactions Agreement Provision of marketing services by A.S. Watson Group under the A.S. Watson Framework Connected Transactions Agreement Provision of product labeling services by A.S. Watson Group under the A.S. Watson Framework Connected Transactions Agreement Provision of travel services by Hutchison Travel Group under the Framework Travel Services Agreement Provision of marketing, distribution and sale services by the Group under the Hain Products Supply Agreement Supply of products by the Group under the Framework Sinopharm Products Supply and Purchase Agreement Purchase of products by the Group under the Framework Sinopharm Products Supply and Purchase Agreement HBYS Brand License Royalty Agreement Aggregate amount for year ended December 31, 2022 (US$ millions) Cap Amount (US$ millions) 3.61 0.23 0.16 Nil 7.55 69.42 2.43 1.54 14.95 1.50 0.79 1.50 27.76 236.75 4.90 1.54 The internal audit of the Group has reviewed the 2022 CCTs for the year ended December 31, 2022 and the relevant internal control procedures in respect of the negotiation, review, approval, agreement management, reporting, consolidation and monitoring process of the 2022 CCTs, and is of the view that the 2022 CCTs were conducted in accordance with the terms of the relevant agreements (including the pricing policy/mechanism thereunder), and that the internal control procedures in respect of the 2022 CCTs are sound and effective. All the Independent Non-executive Directors of the Company, having reviewed the 2022 CCTs for the year ended December 31, 2022 and the findings provided by the Group’s internal audit, confirmed that such transactions had been entered into (a) in the ordinary and usual course of business of the Group; (b) on normal commercial terms or better; and (c) according to the respective agreements governing them on terms that are fair and reasonable and in the interests of the shareholders of the Company as a whole. The Company has engaged its external auditor, PricewaterhouseCoopers, to report on the 2022 CCTs for the year ended December 31, 2022 in accordance with Hong Kong Standard on Assurance Engagements 3000 (Revised) “Assurance Engagements Other Than Audits or Reviews of Historical Financial Information” and with reference to Practice Note 740 “Auditor’s Letter on 2022 CCTs under the Hong Kong Listing Rules” issued by the Hong Kong Institute of Certified Public Accountants. Based on the work performed, the external auditor of the Company has confirmed in its letter to the Board that nothing has come to its attention which causes it to believe that: (i) the 2022 CCTs have not been approved by the Board; (ii) for transactions involving the provision of goods or services by the Group, they were not, in all material respects, in accordance with the pricing policies of the Group; (iii) the transactions were not entered into, in all material respects, in accordance with the relevant agreements governing such transactions; and (iv) with respect to the aggregate amount of each of the 2022 CCTs, the 2022 CCTs have exceeded the annual cap as set by the Company. Related party transactions of the Group during the year ended December 31, 2022 are described in note 23 to the financial statements. Except as disclosed above, none of such related party transactions constitutes a non-exempted connected transaction under the HK Listing Rules. 56 DIRECTORS’ REPORT PERMITTED INDEMNITY PROVISIONS The Articles of Association provides that the Directors shall be indemnified and secured harmless out of the assets and profits of the Company from and against all actions, costs, charges, losses, damages and expenses which they shall or may incur or sustain by or by reason of any act done, concurred in or omitted in or about the execution of their duty. Directors liability insurance is in place for the Directors of the Company and its subsidiaries in respect of potential costs and liabilities arising from claims that may be brought against the Directors. The relevant provisions in the Articles of Association and the Directors’ liability insurance were in force during the financial year ended December 31, 2022 and as of the date of this report. DIRECTORS’ AND CHIEF EXECUTIVES’ INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES Directors’ and chief executives’ interests and short positions in shares, underlying shares and debentures are set out in the section “Information on Directors” on pages 48 to 49. INTERESTS AND SHORT POSITIONS OF SHAREHOLDERS DISCLOSEABLE UNDER THE SECURITIES AND FUTURES ORDINANCE So far as the Directors and the chief executives of the Company are aware, as at December 31, 2022, other than the interests of the Directors and the chief executives of the Company as disclosed in the section titled “Directors’ Interests and Short Positions in Shares, Underlying Shares and Debentures” under “Information on Directors”, the following persons had interests or short positions in the shares or 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 Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) (the “SFO”), or which were recorded in the register required to be kept by the Company under Section 336 of the SFO, or as otherwise notified to the Company and The Stock Exchange of Hong Kong Limited (“HKEX”) under Part XV of the SFO: Interests and short positions of substantial shareholders in the shares and underlying shares of the Company Long positions and short positions in the shares of the Company Names CKHH(1) Capacity Number of Shares Held/Interested Approximate% of Shareholding Total Interest of controlled corporations 332,574,650 332,574,650 CK Hutchison Global Investments Limited (“CKHGIL”)(1) Interest of controlled corporations 332,574,650 332,574,650 Hutchison Whampoa (China) Limited (“HWCL”)(1) Interest of controlled corporations 332,526,710 332,526,710 Hutchison Healthcare Holdings Limited (“HHHL”)(1) Beneficial owner 332,478,770 332,478,770 38.46% 38.46% 38.45% 38.45% Note: (1) CKHH wholly owns CKHGIL, which holds more than one-third of the issued share capital of HWCL, which wholly owns HHHL. Accordingly, for the purpose of Part XV of the SFO, HWCL is deemed to be interested in the Shares HHHL holds and is deemed to be interested in the Company; CKHGIL is deemed to be interested in the Shares HWCL holds and is deemed to be interested in the Company; and CKHH is deemed to be interested in the Shares CKHGIL holds and is deemed to be interested in the Company. (i) 332,478,770 Shares are held by HHHL; (ii) 2,397 ADSs (each representing five Shares) are held by Hutchison Capital Holdings Limited (“HCHL”); (iii) 2,397 ADSs are held by Genius Wisdom Limited (“GWL”); (iv) 7,191 ADSs will be transferred to HCHL upon vesting of the non-performance based LTIP of Mr To Chi Keung, Simon, subject to vesting conditions; and (v) 7,191 ADSs will be transferred to GWL upon vesting of the non-performance based LTIP of Ms Edith Shih, subject to vesting conditions. HHHL, HCHL and GWL are indirect wholly owned subsidiaries of CKHH. For the purposes of the SFO, CKHH is deemed to be interested in a total of 332,574,650 Shares held by HHHL, HCHL and GWL for the purpose of Part XV of the SFO. Save as disclosed above, as at December 31, 2022, no other person (other than the Directors and chief executives of the Company) had any interest or short position in the shares or underlying shares of the Company as recorded in the register required to be kept by the Company under Section 336 of the SFO, or as otherwise notified to the Company and the HKEX for the purpose of Part XV of the SFO. HUTCHMED (China) Limited 2022 Annual Report 57 Scheme Administration – the Remuneration Committee of the Company consists of Mr Paul Rutherford Carter, Mr Graeme Allan Jack and Mr To Chi Keung, Simon, with Mr Paul Rutherford Carter serving as chairman of the committee. The Remuneration Committee is responsible for considering all material elements of remuneration policy and recommends to the Board the remuneration and incentives of the Directors and key employees with reference to independent remuneration research and professional advice. The Remuneration Committee meets formally at least once each year and otherwise as required and makes recommendations to the Board of Directors on the framework for executive remuneration and on proposals for the granting of share options and other equity incentives. The Board is responsible for implementing these recommendations and agreeing the remuneration packages of individual Executive Directors. No Director is permitted to participate in discussions or decisions concerning his/her own remuneration. Directors are also abstained from voting in respect of his/her own proposed share awards/remuneration, such that no Director is involved in determining his or her own share awards/ remuneration. (3) Eligible Person – share options may be granted to a “2015 Eligible Person”, being any person who is (or will be on and following the date of offer of the relevant option) a non-executive director (excluding any independent non-executive directors) or an employee or a director holding salaried office or employment under a contract with the Company, its listed parent company and any of its subsidiaries or affiliates, and any holding company, subsidiaries or affiliates of the Company or other companies which the Board determines will be subject to the 2015 Share Option Scheme, who is notified by the Board that he or she is an eligible person. (4) No Payment for the Option other than Exercise Price – share option holders are not required to pay for the grant of any share option other than the exercise price for exercising the options. EQUITY-LINKED AGREEMENTS (2) No equity-linked agreements that will or may result in the Company issuing shares nor require the Company to enter into an agreement that will or may result in the Company issuing shares was entered into by the Company during the year or subsisted at the end of the year. SHARE OPTION SCHEMES AND DIRECTORS’ RIGHTS TO ACQUIRE SHARES (i) Share option scheme adopted in 2015 by the Company To replace the share option scheme adopted on June 4, 2005 which expired on June 3, 2016 and since this date no further options have been granted under the 2005 Share Option Scheme (see further details below), the Company conditionally adopted a share option scheme on annual general meeting held on April 24, 2015 which was amended on April 27, 2020 (the “2015 Share Option Scheme”). The 2015 Share Option Scheme shall be valid until May 12, 2026. Pursuant to the 2015 Share Option Scheme, the Board of Directors of the Company may, at its discretion, offer any employees and directors (including Executive and Non-executive Directors but excluding Independent Non-executive Directors) of the Company, holding companies of the Company and any of their subsidiaries or affiliates, and subsidiaries or affiliates of the Company share options to subscribe for shares of the Company. Among the Board, only Executive Directors of the Company, Dr Weiguo Su and Mr Cheng Chig Fung, Johnny, have been granted share options under the 2015 Share Option Scheme. A summary of the 2015 Share Option Scheme is as follows: (1) Purpose of the Scheme – the purpose of the 2015 Share Option Scheme is to provide the Company with a flexible means of either retaining, incentivizing, rewarding, remunerating, compensating and/or providing benefits to 2015 Eligible Persons (as defined below). 58 DIRECTORS’ REPORT(5) No Holding Period but Vesting Schedule Applies – unless otherwise determined by the Board and stated in the offer of the grant of share options to a 2015 Eligible Person, there is no minimum period required under the 2015 Share Option Scheme for the holding of a share option but there are vesting periods which apply to the share option before which it cannot be exercised. (6) Exercise Price – subject to any adjustment according to the rules of the 2015 Share Option Scheme, the exercise price shall be, in respect of any share option, the 2015 Market Value (as defined below) of the shares as at the offer date, where “2015 Market Value” on any particular day means: (a) where the shares of the same class are admitted to trading on any stock exchange, the higher of: (i) (ii) the average of the closing prices of the shares on the five dealing days immediately preceding the offer date; the closing price of the shares as stated on a recognized stock exchange’s daily quotations sheet of such shares on the offer date; and (iii) the nominal value of the shares; or (b) where the shares of the same class are not admitted to trading on any recognized stock exchange, the value of a share is determined in such manner as the Board considers reasonable according to objective criteria. (7) Scheme Limit – the maximum number of shares which may be allotted and issued pursuant to the 2015 Share Option Scheme is subject to the following: (a) the total number of shares which may be issued upon the exercise of all options to be granted under the 2015 Share Option Scheme must not in aggregate exceed 4% of the shares in issue as at May 13, 2016, being the date on which the 2015 Share Option Scheme was approved by the shareholders of the Company in a general meeting (the “Scheme Limit”). On April 27, 2020, rules of the 2015 Share Option Scheme was amended to increase the Scheme Limit to 5% of the shares in issue as at the adoption date. The Scheme Limit was also refreshed to 34,528,738 shares, representing about 5% of the shares in issue as at April 27, 2020. Share options lapsed in accordance with the terms of the 2015 Share Option Scheme will not be counted for the purpose of calculating the Scheme Limit; HUTCHMED (China) Limited 2022 Annual Report 59 (b) the Board may refresh the Scheme Limit by reference to the issued share capital of the Company then prevailing with the approval of the shareholders of its listed parent company, if required, under the HK Listing Rules in a general meeting, provided that the total number of the shares which may be issued upon the exercise of share options to be granted under the 2015 Share Option Scheme and any options under any other share option schemes of the Company under the limit as refreshed shall not exceed 10% of the shares in issue at the date on which shareholders of the listed parent company approve the refreshed limit (where applicable). Share options previously granted under the 2015 Share Option Scheme and any other share option schemes of the Company (including those outstanding, canceled, lapsed in accordance with the terms of the relevant scheme, or exercised options) will not be counted for the purpose of calculating the limit as refreshed. As at January 1, 2022 (being the beginning of the financial year) and December 31, 2022 (being the end of the financial year), the total number of the shares available for grant under the 2015 Share Option Scheme were 11,771,818 and 4,090,998 respectively. As at February 28, 2023 (being the date of this annual report), the total number of the shares available for issue under the 2015 Share Option Scheme (including the share options granted but yet to be exercised) was 48,236,458, representing approximately 5.58% of the total number of shares in issue; (c) share options may be granted to any 2015 Eligible Person(s) specifically identified by the Board which would cause the Scheme Limit (including, for the avoidance of doubt, any such limit as refreshed under paragraph (7)(b) above) to be exceeded, but only with the approval of the shareholders of the Company in a general meeting (and by the shareholders of the listed parent company, if required under the HK Listing Rules), and subject always to paragraphs (7)(d) and (8) below and restrictions on grant to key individuals under the 2015 Share Option Scheme; and (d) the total number of shares which may be issued upon exercise of all outstanding share options granted and not yet exercised under the 2015 Share Option Scheme, and under any other share option scheme of the Company must not exceed 10% of the shares in issue from time to time. Limit of each Eligible Person – the Board shall not grant any share options (the “Relevant Company Options”) to any 2015 Eligible Person which, if exercised, would result in such person becoming entitled to subscribe for such number of shares as, when aggregated with the total number of shares already issued or to be issued to him/her under all share options (including both exercised and outstanding share options) granted to him/her in the 12-month period up to, and including, the offer date of the Relevant Company Options, exceeds 1% of the shares in issue at such date; but notwithstanding the aforesaid, the Board may grant the Relevant Company Options to any 2015 Eligible Person(s) which would cause the aforesaid limit to be exceeded, but only with the approval of the shareholders of the listed parent company in a general meeting (with such 2015 Eligible Person and his/her associates abstaining from voting) and subject to paragraph (7)(d) above. (8) Subject to and in accordance with the rules of the 2015 Share Option Scheme, a share option may be exercised during a period which is notified at the offer date of the share option, such period will not exceed the period of 10 years from such offer date. 60 DIRECTORS’ REPORTParticulars of share options outstanding under the 2015 Share Option Scheme at the beginning and at the end of the year 2022 and share options granted, exercised, canceled or lapsed under the 2015 Share Option Scheme during 2022 were as follows: Number of share options held as at January 1, 2022 Granted during the year ended December 31, 2022 Exercised during the year ended December 31, 2022 Date of grant of share options Lapsed/ canceled during the year ended December 31, 2022 Number of share options held as at December 31, 2022 Exercise period of share options Exercise price of share options Price of Share prior to the grant date of share options prior to the exercise date of share options – – – – – – – – – – Name or category of participants Director Christian Lawrence HOGG (1) Apr 28, 2020 (3) Dec, 14 2020 (3) Mar 26, 2021 (3) 1,291,700 (=258,340 ADS) 39,610 (=7,922 ADS) 868,900 (=173,780 ADS) Weiguo SU Jun 15, 2016 (2) 3,000,000 Mar 27, 2017 (3) 1,000,000 Mar 19, 2018 (3) 1,000,000 789,700 (=157,940 ADS) 18,960 (=3,792 ADS) 282,400 (=56,480 ADS) 24,930 (=4,986 ADS) Apr 28, 2020 (3) Dec 14, 2020 (3) Mar 26, 2021 (3) Dec 14, 2021 (3) May 23, 2022 (5) Apr 28, 2020 (3) Mar 26, 2021 (3) May 23, 2022 (3) CHENG Chig Fung, Johnny – 861,220 (=172,244 ADS) 401,900 (=80,380 ADS) 240,500 (=48,100 ADS) – – – 446,600 (=89,320 ADS) – – – – – – – – – – – – – – (968,775) (=193,755 ADS) 322,925 (=64,585 ADS) Apr 28, 2020 to Apr 27, 2030 (29,710) (=5,942 ADS) 9,900 (=1,980 ADS) Dec 14, 2020 to Dec 13, 2030 (868,900) (=173,780 ADS) – – – – – – – – – – – – 3,000,000 1,000,000 1,000,000 Mar 26, 2021 to Mar 25, 2031 Jun 15, 2016 to Dec 19, 2023 Mar 27, 2017 to Mar 26, 2027 Mar 19, 2018 to Mar 18, 2028 789,700 (=157,940 ADS) Apr 28, 2020 to Apr 27, 2030 18,960 (=3,792 ADS) Dec 14, 2020 to Dec 13, 2030 282,400 (=56,480 ADS) Mar 26, 2021 to Mar 25, 2031 24,930 (=4,986 ADS) Dec 14, 2021 to Dec 13, 2031 861,220 (=172,244 ADS) May 23, 2022 to May 22, 2032 401,900 (=80,380 ADS) Apr 28, 2020 to Apr 27, 2030 240,500 (=48,100 ADS) Mar 26, 2021 to Mar 25, 2031 446,600 (=89,320 ADS) May 23, 2022 to May 22, 2032 US$22.090 per ADS US$29.000 per ADS US$27.940 per ADS £1.970 per share £3.105 per share £4.974 per share US$22.090 per ADS US$29.000 per ADS US$27.940 per ADS US$35.210 per ADS US$10.750 per ADS US$22.090 per ADS US$27.940 per ADS US$10.750 per ADS US$21.920 per ADS US$28.160 per ADS US$27.640 per ADS (4) (4) (4) £1.975 per share £3.000 per share £4.890 per share US$21.920 per ADS US$28.160 per ADS US$27.640 per ADS US$35.064 per ADS US$10.910 per ADS US$21.920 per ADS US$27.640 per ADS US$10.910 per ADS N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A HUTCHMED (China) Limited 2022 Annual Report 61 Number of share options held as at January 1, 2022 Granted during the year ended December 31, 2022 Exercised during the year ended December 31, 2022 Date of grant of share options Lapsed/ canceled during the year ended December 31, 2022 Number of share options held as at December 31, 2022 (200,000) – 2,736,860 Name or category of participants Employees in aggregate – – – – – – – – – – – – – – – Jun 15, 2016 (2) 2,936,860 Apr 20, 2018 (3) 4,343,500 Jun 6, 2018 (3) 122,450 Aug 6, 2018 (3) 630,000 Oct 19, 2018 (3) 255,000 May 21, 2019 (3) 100,000 Oct 9, 2019 (3) 1,240,000 Dec 11, 2019 (3) 400,000 Apr 20, 2020 (3) 575,000 6,870,500 (=1,374,100 ADS) 465,000 (=93,000 ADS) 1,327,010 (=265,402 ADS) 6,391,600 (=1,278,320 ADS) 1,086,000 (=217,200 ADS) 784,010 (=156,802 ADS) Apr 28, 2020 (3) Aug 11, 2020 (3) Dec 14, 2020 (3) Mar 26, 2021 (3) Sep 1, 2021 (3) Dec 14, 2021 (3) May 23, 2022 (3) Sep 13, 2022 (3) Exercise period of share options Jun 15, 2016 to Dec 19, 2023 Apr 20, 2018 to Apr 19, 2028 Jun 6, 2018 to Jun 5, 2028 Aug 6, 2018 to Aug 5, 2028 Oct 19, 2018 to Oct 18, 2028 May 21, 2019 to May 20, 2029 Oct 9, 2019 to Oct 8, 2029 Dec 11, 2019 to Dec 10, 2029 Apr 20, 2020 to Apr 19, 2030 Apr 28, 2020 to Apr 27, 2030 Aug 11, 2020 to Aug 10,2030 (502,740) 3,840,760 – 122,450 (255,000) 375,000 – – 255,000 100,000 (100,000) 1,140,000 – 400,000 (390,000) 185,000 (394,800) (=78,960 ADS) 6,475,700 (=1,295,140 ADS) 335,000 (=67,000 ADS) (130,000) (=26,000 ADS) (125,000) (=25,000 ADS) 1,202,010 (=240,402 ADS) Dec 14, 2020 to Dec 13, 2030 (940,600) (=188,120 ADS) 5,451,000 (=1,090,200 ADS) Mar 26, 2021 to Mar 25, 2031 (255,000) (=51,000 ADS) 831,000 (=166,200 ADS) Sep 1, 2021 to Aug 31, 2031 – 784,010 (=156,802 ADS) Dec 14, 2021 to Dec 13, 2031 (145,000) (=29,000 ADS) 4,478,000 (=895,600 ADS) May 23, 2022 to May 22, 2032 – 1,750,000 (= 350,000 ADS) Sep 13, 2022 to Sep 12, 2032 – – – – – – – – – – – – – – – – Price of Share Exercise price of share options prior to the grant date of share options prior to the exercise date of share options £1.970 per share £4.645 per share £4.166 per share £4.860 per share £4.610 per share £4.220 per share £2.978 per share £3.592 per share £3.340 per share US$22.090 per ADS US$32.820 per ADS US$29.000 per ADS US$27.940 per ADS US$39.740 per ADS US$35.210 per ADS US$10.750 per ADS US$13.140 per ADS (4) (4) (4) (4) (4) (4) £1.975 per share £4.590 per share £4.110 per share £5.000 per share £4.600 per share £4.175 per share £2.950 per share £3.600 per share £3.060 per share US$21.920 per ADS US$32.320 per ADS US$28.160 per ADS US$27.640 per ADS US$37.564 per ADS US$35.064 per ADS US$10.910 per ADS US$13.077 per ADS (6) £2.110 per share N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A – – 4,623,000 (=924,600 ADS) 1,750,000 (= 350,000 ADS) Total: 36,485,530 7,680,820 (200,000) (5,105,525) 38,860,825 62 DIRECTORS’ REPORT Effective from May 30, 2019, each ordinary share of US$1.00 each of the Company was subdivided into 10 new Shares of US$0.10 each (the “Share Subdivision”). Accordingly, adjustments have been made to the number of share options by multiplying the number by 10 and to the share price and exercise price by dividing the price by 10 pursuant to the terms of the 2015 Share Option Scheme. The share options granted on or after April 28, 2020 were in the form of ADS and the relevant exercise prices were stated in US dollars per ADS. For disclosure purposes, these share options are presented in the form of Shares. Each ADS represents five Shares. Notes: (1) (2) (3) (4) (5) Mr Christian Lawrence Hogg retired as Executive Director and Chief Executive Officer of the Company on March 4, 2022. The share options granted are exercisable subject to, amongst other relevant vesting criteria, the vesting schedule of approximately 50% on the day after the acceptance of the offer, approximately 25% on December 20, 2016 and approximately 25% on December 20, 2017. The share options granted are exercisable subject to, amongst other relevant vesting criteria, the vesting schedule of 25% on each of the first, second, third and fourth anniversaries of the date of grant of share options. The stated prices were the adjusted prices as a result of the Share Subdivision. The prices prior to the adjustment were closing prices of the shares quoted on AIM on the trading day immediately prior to the respective dates of grant of share options. The exercise of the share options is conditional upon the fulfilment of certain performance targets relating to the Group over the financial years 2022 to 2024 (the “Performance Targets”). The number of share options to be exercisable will be determined on the date of announcement of the annual results of the Company for the financial year ending December 31, 2024 (the “2024 Results Announcement”). Vesting will occur two business days after the 2024 Results Announcement. The Performance Targets have been determined by the Board and specified in the grant letter of Dr Weiguo Su. To the extent that the Performance Targets have not been met, the relevant number of share options granted to Dr Weiguo Su will lapse. (6) The stated price was the closing price of the Shares immediately before the date on which the share options were exercised. (ii) Share option scheme adopted in 2005 by the Company – expired on June 3, 2016 The Company conditionally adopted a share option scheme on June 4, 2005 which was amended on March 21, 2007 (the “2005 Share Option Scheme”). The 2005 Share Option Scheme had a term of 10 years. It expired on June 3, 2016 and no further share option can be granted. Pursuant to the 2005 Share Option Scheme, the Board of Directors of the Company may, at its discretion, offer any employees and directors (including Executive and Non-executive Directors but excluding Independent Non-executive Directors) of the Company, holding companies of the Company and any of their subsidiaries or affiliates, and subsidiaries or affiliates of the Company share options to subscribe for shares of the Company. Among the Board, only Dr Weiguo Su and Mr Cheng Chig Fung, Johnny, being Executive Directors of the Company, received share options under the 2005 Share Option Scheme. A summary of the 2005 Share Option Scheme is as follows: (1) (2) (3) Purpose of the Scheme – the purpose of the 2005 Share Option Scheme is to provide the Company with a flexible means of either retaining, incentivizing, rewarding, remunerating, compensating and/or providing benefits to 2005 Eligible Persons (as defined below). Scheme Administration – the Remuneration Committee of the Company consists of Mr Paul Rutherford Carter, Mr Graeme Allan Jack and Mr To Chi Keung, Simon, with Mr Paul Rutherford Carter serving as chairman of the committee. The Remuneration Committee is responsible for considering all material elements of remuneration policy and recommends to the Board the remuneration and incentives of the Directors and key employees with reference to independent remuneration research and professional advice. The Remuneration Committee meets formally at least once each year and otherwise as required and makes recommendations to the Board of Directors on the framework for executive remuneration and on proposals for the granting of share options and other equity incentives. The Board is responsible for implementing these recommendations and agreeing the remuneration packages of individual Executive Directors. No Director is permitted to participate in discussions or decisions concerning his/her own remuneration. Directors are also abstained from voting in respect of his/her own proposed share awards, such that no Director is involved in determining his/her own share awards. Eligible Person – share options may be granted to a “2005 Eligible Person”, being any person who is (or will be on and following the date of offer of the relevant option) a non-executive director (other than an independent non-executive director) or an employee or a director holding salaried office or employment under a contract with the Company, its listed parent company and any of its subsidiaries or affiliate, and any holding company, subsidiaries or affiliates of the Company or other companies which the Board determines will be subject to the 2005 Share Option Scheme, who is notified by the Board that he or she is an eligible person. Actual participation is at the discretion of the Board. (4) No Payment for the Option other than Exercise Price – share option holders are not required to pay for the grant of any share option other than the exercise price for exercising the options. HUTCHMED (China) Limited 2022 Annual Report 63 (5) No Holding Period but Vesting Schedule Applies – unless otherwise determined by the Board and stated in the offer of the grant of share options to a 2005 Eligible Person, there is no minimum period required under the 2005 Share Option Scheme for the holding of a share option before it can be exercised but there are vesting period which apply to the share option before which it cannot be exercised. (6) Exercise Price – subject to any adjustment according to the rules of the 2005 Share Option Scheme, the exercise price shall be: (a) (b) in the case of the one-time initial grants of share options by the Company under the 2005 Share Option Scheme to founders and non-founders prior to the Listing (as defined below), the price determined by the Board and notified to the relevant share option holder; and in respect of any other share option, the 2005 Market Value (as defined below) of the shares as at the offer date, where “2005 Market Value” on any particular day on or after the Listing means the higher of: (i) (ii) the average of the closing prices of the shares on the five dealing days immediately preceding the offer date; the closing price of the shares as stated on a recognized stock exchange’s daily quotations sheet of such shares on the offer date; and (iii) the nominal value of the shares. (7) Scheme Limit – the maximum number of the shares which may be allotted and issued pursuant to the 2005 Share Option Scheme is subject to the following: (8) (a) (b) the total number of the shares which may be issued upon the exercise of all share options to be granted under all share option schemes of the Company must not in aggregate exceed 5% of the shares in issue on the date on which the shares are listed for trading on a recognized stock exchange (including the AIM) (the “Listing”); the Board may refresh and recalculate the limit in paragraph (7)(a) above by reference to the issued share capital of the Company then prevailing with the approval of the shareholders of its listed parent company, if required, under the HK Listing Rules in a general meeting, provided that the total number of the shares issued and issuable pursuant to the exercise 64 of share options under all share option schemes of the Company may not exceed 10% of the issued ordinary share capital on the date of the approval of the refreshed limit. Share options previously granted under the 2005 Share Option Scheme and any other employee share schemes of the Company (including those outstanding, canceled, lapsed or exercised) will not be counted for the purpose of calculating the limit as refreshed. As at February 28, 2023 (being the date of this annual report), the total number of shares available for issue under the 2005 Share Option Scheme (including the share options granted but yet to be exercised) was 660,570, representing approximately 0.08% of the total number of the shares in issue; (c) (d) share options may be granted to any 2005 Eligible Person(s) specifically identified by the Board in excess of the limit, including the refreshed limit, under paragraphs (7)(a) and (7)(b) above, with the approval of the shareholders of the Company in a general meeting and by the shareholders of the listed parent company, if required under the HK Listing Rules, and subject to paragraphs (7)(d) and (8) below and restrictions on grant to key individuals under the 2005 Share Option Scheme; and the total number of shares which may be issued upon the exercise of all outstanding share options granted and yet to be exercised under the 2005 Share Option Scheme and under any other share option scheme of the Company must not exceed 10% of the shares in issue from time to time. Limit of each Eligible Person – no 2005 Eligible Person may be granted a share option if, as a result, the total number of the shares over which that 2005 Eligible Person holds share options granted in the previous 12 months, when added to the number of shares, the subject of the proposed grant, would exceed 1% of the issued ordinary share capital of the Company on that date; but notwithstanding the aforesaid, share options may be granted to any 2005 Eligible Person(s) which would cause the aforesaid limit to be exceeded, but only with the approval of the shareholders of the listed parent company in a general meeting (with such 2005 Eligible Person and his/her associates abstaining from voting) and subject to paragraph (7)(d)above. Subject to and in accordance with the rules of the 2005 Share Option Scheme, a share option may be exercised during a period which is notified at the offer date of the share option, such period will not exceed the period of 10 years from such offer date. DIRECTORS’ REPORTParticulars of share options outstanding under the 2005 Share Option Scheme at the beginning and at the end of the year 2022 and share options granted, exercised, canceled or lapsed under the 2005 Share Option Scheme during 2022 were as follows: Number of share options Granted during the Exercised during the Lapsed/ canceled during the Number of share options held as at year ended year ended year ended held as at Date of grant of January 1, December 31, December 31, December 31, December 31, Exercise period of Exercise price of prior to the grant date of share options Dec 20, 2013 (1) 2022 705,060 705,060 2022 – – 2022 (44,490) (44,490) 2022 2022 share options share options share options – – 660,570 Dec 20, 2013 to Dec 19, 2023 £0.6100 per share £0.6130 (2) per share 660,570 Price of Share prior to the exercise date of share options (3) £1.6700 per share Category of participants Employees in aggregate Total: The Share Subdivision is also applicable to the 2005 Share Option Scheme. Notes: (1) (2) The share options granted are exercisable subject to, amongst other relevant vesting criteria, the vesting schedule of 25% on each of the first, second, third and fourth anniversaries of the date of grant of share options. The stated price was the adjusted price as a result of the Share Subdivision. The price prior to the adjustment was closing price of the shares quoted on AIM on the trading day immediately prior to the respective date of grant of share options. (3) The stated price was the closing price of the Shares immediately before the date on which the share options were exercised. As at December 31, 2022, the Company had 38,860,825 share options and 660,570 share options outstanding under the 2015 Share Option Scheme and the 2005 Share Option Scheme, respectively. The fair values of share options in the form of ADS granted during the period, determined using the Polynomial Model were as follows: Value of each share option in the form of ADS (weighted average) US$4.24 Significant inputs into the valuation model (weighted average): Exercise price Share price at effective grant date Expected volatility Risk-free interest rate Contractual life of share options Expected dividend yield US$11.29 US$11.09 46.71% 2.98% 10 years 0% The volatility of the underlying stock during the life of the share options was estimated with reference to the historical volatility prior to the issuance of share options. Changes in such subjective input assumptions could affect the fair value estimate. The number of ordinary shares that may be issued in respect of options granted under the 2015 Share Option Scheme during the 2022 financial year divided by the weighted average number of ordinary shares in issue for the year was 0.91%. As the 2005 Share Option Scheme expired on June 3, 2016, no options were granted under the 2005 Share Option Scheme during the year. HUTCHMED (China) Limited 2022 Annual Report 65 LONG TERM INCENTIVE PLAN The Company adopted a Long Term Incentive Plan (“LTIP”) on April 24, 2015. The purposes of the LTIP are to attract skilled and experienced personnel, to incentivize them to remain with the Company and to motivate them to strive for the future development and expansion of the Company. The Company grants awards under the LTIP (the “LTIP Award(s)”) to participating directors or employees giving them a conditional right to receive Shares of the Company or the equivalent ADS or cash payment (collectively the “Awarded Shares”) to be purchased by an independent third party trustee (the “Trustee”) in the market up to a cash amount. Such LTIP awards are not satisfied out of new Shares, as is the case with the share options. A summary of the LTIP is as follows: (1) (2) Participants – any employee of the Company and its subsidiaries and affiliates of the Company and any director of the Company and its subsidiaries, who the board of directors of the Company (the “Board”) considers in its absolute discretion have contributed or will contribute to the Group will be eligible to participate in the LTIP (the “Participants”). Computershare Trustees (Jersey) Limited (the “Trustee”) has been appointed by the Company to assist with the administration and vesting of the LTIP Awards. Plan Administration – the Remuneration Committee meets and makes recommendations to the Board of Directors on proposals for the granting of LTIP Awards. The Board of Directors is responsible for implementing these recommendations. No Director is permitted to participate in discussions concerning his/her own LTIP Awards. Directors are also abstained from voting in respect of his/her own proposed LTIP Awards, such that no Director is involved in determining his/her own LTIP Awards. Any Awarded Shares bought to satisfy any LTIP Award are purchased by the Trustee of the LTIP, and such Awarded Shares are held by the Trustee on behalf of the awardee until the LTIP Awards have vested. Summary of the Different Types of LTIP Awards LTIP Award – Non-performance Trustee and held by Trustee Awarded Shares Bought by Participants – Eligibility Based/Performance Based until vested Vesting Period/Schedule Salaried Executive Directors (including Chief Annual performance based award, Cash amount determined based 100% vests around three Executive Officer, Chief Financial Officer, Chief tied to annual performance targets on achievement of annual years after the date of Scientific Officer) and employees performance targets, used by grant Trustee to buy Awarded Shares in the market Chairman, Non-executive Directors and Non-performance based award Cash amount awarded used by Mainly 25% of the LTIP Independent Non-executive Directors and certain employees Trustee to buy shares in the Awards vests annually in market equal amounts over a four- year period (3) No Payment for the LTIP Award – No payment is required by the Participants for the LTIP Awards. Vesting of LTIP Awards – vesting will depend upon continued employment of the award holder with the Group and will otherwise be at the discretion of the Board of Directors of the Company. Such LTIP Awards can be either performance based awards or non-performance based awards. For awards to salaried Executive Directors and employees, these are mainly performance based awards and typically 100% vests around three years after the date of grant. In relation to any awards to the Independent Non-executive Directors, these are strictly non-performance based awards and typically vest 25% annually in equal amounts over a four-year period. Performance Based LTIP Awards – in relation to salaried Executive Directors and employees, the Company grants performance based awards which are subject to change based on annual performance targets which vary by award, and may include targets for shareholder returns, financings, revenues, net profit after taxes and the achievement of clinical and regulatory milestones. Upon determination of the annual performance targets, the Company will pay a determined monetary amount, up to the maximum cash amount based on the actual achievement of the performance target specified in the LTIP Award, to the Trustee to purchase the Awarded Shares. These type of annual performance based awards typically vest 100% three years after the date of grant. (4) (5) 66 DIRECTORS’ REPORT (6) LTIP Limit – At the annual general meeting of the Company held on April 27, 2022, the scheme mandate limit under the LTIP was refreshed to 43,226,542 Shares, representing 5% of the shares in issue as at April 27, 2022. As at February 28, 2023 (being the date of this annual report), 37,240,062 Shares, representing 4.31% of the shares in issue, remains available under the scheme mandate limit. There is no maximum entitlement of each Participant specified under the LTIP. (7) Remaining term of the LTIP – The LTIP shall be valid for a period commencing on the adoption date on April 24, 2015 and expiring on the 10th anniversary. Therefore, it has a remaining term of approximately 2 years as at the date of this report. Particulars of LTIP Awards balance at the beginning and at the end of the year 2022 and LTIP Awards granted, vested, canceled or lapsed under the LTIP during 2022 are as follows: Maximum amount stipulated in the LTIP Awards Date of grant of Maximum amount stipulated in the LTIP Awards granted Unvested LTIP Awards during the during the during the as at year ended year ended year ended Lapsed/ Unvested Vested canceled LTIP Awards as at Price of ADS prior to the grant date Price of ADS prior to the vesting date of LTIP Performance as at date of January 1, December 31, December 31, December 31, December 31, Awards period (1) grant 2022 (2) 2022 2022 (3) 2022 2022 Vesting Period of LTIP Awards of LTIP Awards (4) LTIP Awards (5) Apr 20, 2020 N/A (7) US$200,000 7,191 ADS – (2,397 ADS) – 4,794 ADS 25% of LTIP Awards N/A US$17.38 vesting on each of Apr 20, 2021, Apr 20, 2022, Apr 20, 2023, Apr 20, 2024 Oct 20, 2021 N/A (7) US$250,000 7,751 ADS – (1,937 ADS) – 5,814 ADS 25% of LTIP Awards N/A US$8.45 Name or category of Participants Director TO Chi Keung, Simon (6) Christian Lawrence HOGG (8) Weiguo SU Apr 20, 2020 Apr 20, 2020 Mar 15, 2017 Apr 20, 2020 Apr 20, 2020 Mar 26, 2021 N/A (7) US$209,446 10,734 ADS 2020 2019 US$1,580,193 56,634 ADS US$366,255 3,754 ADS N/A (7) US$293,004 15,016 ADS 2020 2021 US$1,407,120 50,431 ADS US$1,622,123 93,545 ADS – – – – – – May 23, 2022 2022 US$3,232,845 To be US$3,232,845 determined (9) (10,734 ADS) – (3,754 ADS) (15,016 ADS) – – – – – – – – – – vesting on each of Oct 20, 2022, Oct 20, 2023, Oct 20, 2024, Oct 20, 2025 Mar 8, 2022 Mar 3, 2023 Mar 8, 2022 Mar 8, 2022 Mar 3, 2023 All LTIP Awards will vest in Feb/Mar 2024 – 56,634 ADS – – 50,431 ADS 93,545 ADS N/A N/A N/A N/A N/A N/A – All LTIP Awards will US$9.58 vest in Feb/Mar 2025 US$18.71 N/A US$18.71 US$18.71 N/A N/A N/A HUTCHMED (China) Limited 2022 Annual Report 67 Maximum amount stipulated in the LTIP Awards granted Unvested LTIP Maximum amount stipulated in the LTIP Awards Date of grant of Lapsed/ Unvested Vested canceled Awards during the during the during the as at year ended year ended year ended LTIP Performance as at date of January 1, December 31, December 31, December 31, December 31, Awards period (1) grant 2022 (2) 2022 2022 (3) 2022 Name or category of Participants CHENG Chig Fung, Apr 20, 2020 N/A (7) US$81,923 4,198 ADS Johnny Apr 20, 2020 Mar 26, 2021 2020 2021 US$640,443 22,953 ADS US$657,211 15,141 ADS – – – May 23, 2022 2022 US$680,242 To be US$680,242 determined (9) (4,198 ADS) – – – Dan ELDAR Apr 20, 2020 N/A (7) US$200,000 7,191ADS – (2,397 ADS) – – – – – LTIP Awards as at 2022 – 22,953 ADS 15,141 ADS Price of ADS prior to the grant date Vesting Period of LTIP Awards of LTIP Awards (4) Mar 8, 2022 Mar 3, 2023 All LTIP Awards will vest in Feb/Mar 2024 N/A N/A N/A Price of ADS prior to the vesting date of LTIP Awards (5) US$18.71 N/A N/A N/A – All LTIP Awards will US$9.58 vest in Feb/Mar 2025 4,794 ADS 25% of LTIP Awards N/A US$17.38 vesting on each of Apr 20, 2021, Apr 20, 2022, Apr 20, 2023, Apr 20, 2024 Oct 20, 2021 N/A (7) US$250,000 7,751 ADS – (1,937 ADS) – 5,814 ADS 25% of LTIP Awards N/A US$8.45 vesting on each of Oct 20, 2022, Oct 20, 2023, Oct 20, 2024, Oct 20, 2025 Edith SHIH (10) Apr 20, 2020 N/A (7) US$200,000 7,191 ADS – (2,397 ADS) – 4,794 ADS 25% of LTIP Awards N/A US$17.38 vesting on each of Apr 20, 2021, Apr 20, 2022, Apr 20, 2023, Apr 20, 2024 Oct 20, 2021 N/A (7) US$250,000 7,751 ADS – (1,937 ADS) – 5,814 ADS 25% of LTIP Awards N/A US$8.45 vesting on each of Oct 20, 2022, Oct 20, 2023, Oct 20, 2024, Oct 20, 2025 68 DIRECTORS’ REPORT Maximum amount stipulated in the LTIP Awards Date of grant of Maximum amount stipulated in the LTIP Awards granted Unvested LTIP Awards during the during the during the as at year ended year ended year ended Lapsed/ Unvested Vested canceled LTIP Awards as at Price of ADS prior to the grant date Price of ADS prior to the vesting date of LTIP Performance as at date of January 1, December 31, December 31, December 31, December 31, Awards period (1) grant 2022 (2) 2022 2022 (3) 2022 2022 Vesting Period of LTIP Awards of LTIP Awards (4) LTIP Awards (5) Name or category of Participants Paul Rutherford Apr 20, 2020 N/A (7) US$200,000 (11) 6,112 ADS – (2,037 ADS) – 4,075 ADS 25% of LTIP Awards N/A US$17.38 CARTER Karen Jean FERRANTE vesting on each of Apr 20, 2021, Apr 20, 2022, Apr 20, 2023, Apr 20, 2024 Oct 20, 2021 N/A (7) US$250,000 (12) 6,588 ADS – (1,647 ADS) – 4,941 ADS 25% of LTIP Awards N/A US$8.45 vesting on each of Oct 20, 2022, Oct 20, 2023, Oct 20, 2024, Oct 20, 2025 Apr 20, 2020 N/A (7) US$200,000 7,191 ADS – (2,397 ADS) – 4,794 ADS 25% of LTIP Awards N/A US$17.38 vesting on each of Apr 20, 2021, Apr 20, 2022, Apr 20, 2023, Apr 20, 2024 Oct 20, 2021 N/A (7) US$250,000 (12) 6,588 ADS – (1,647 ADS) – 4,941 ADS 25% of LTIP Awards N/A US$8.45 vesting on each of Oct 20, 2022, Oct 20, 2023, Oct 20, 2024, Oct 20, 2025 Graeme Allan JACK Apr 20, 2020 N/A (7) US$200,000 7,191 ADS – (2,397 ADS) – 4,794 ADS 25% of LTIP Awards N/A US$17.38 Oct 20, 2021 N/A (7) US$250,000 7,751 ADS – (1,937 ADS) – 5,814 ADS 25% of LTIP Awards N/A US$8.45 vesting on each of Apr 20, 2021, Apr 20, 2022, Apr 20, 2023, Apr 20, 2024 vesting on each of Oct 20, 2022, Oct 20, 2023, Oct 20, 2024, Oct 20, 2025 HUTCHMED (China) Limited 2022 Annual Report 69 Maximum amount stipulated in the LTIP Awards Date of grant of Maximum amount stipulated in the LTIP Awards granted Unvested LTIP Awards during the during the during the as at year ended year ended year ended Lapsed/ Unvested Vested canceled LTIP Awards as at Price of ADS prior to the grant date Price of ADS prior to the vesting date of LTIP Performance as at date of January 1, December 31, December 31, December 31, December 31, Awards period (1) grant 2022 (2) 2022 2022 (3) 2022 2022 Vesting Period of LTIP Awards of LTIP Awards (4) LTIP Awards (5) Name or category of Participants MOK Shu Kam, Tony Apr 20, 2020 N/A (7) US$200,000 7,191 ADS – (2,397 ADS) – 4,794 ADS 25% of LTIP Awards N/A US$17.38 Oct 20, 2021 N/A (7) US$250,000 7,751 ADS – (1,937 ADS) – 5,814 ADS 25% of LTIP Awards N/A US$8.45 vesting on each of Apr 20, 2021, Apr 20, 2022, Apr 20, 2023, Apr 20, 2024 Other employees Mar 15, 2017 in aggregate Dec 15, 2017 Dec 14, 2018 Aug 5, 2019 Oct 10, 2019 2019 2019 2019 2019 USD5,142,591 31,672 ADS USD529,477 3,075 ADS USD1,488,996 10,151 ADS USD652,020 N/A (7) USD96,154 4,274 ADS 2,781 ADS – – – – – (31,010 ADS) (662 ADS) (3,075 ADS) – (8,657 ADS) (1,494 ADS) (4,274 ADS) – – (2,781 ADS) – – – – – vesting on each of Oct 20, 2022, Oct 20, 2023, Oct 20, 2024, Oct 20, 2025 Mar 8, 2022 Mar 8, 2022 Mar 8, 2022 Mar 8, 2022 25% of LTIP Awards vesting on each of Oct 10, 2020, Oct 10, 2021, Oct 10, 2022, Oct 10, 2023 N/A N/A N/A N/A N/A US$18.71 US$18.71 US$18.71 US$18.71 N/A Apr 20, 2020 N/A (7) USD650,000 9,609 ADS – (3,203 ADS) – 6,406 ADS 25% of LTIP Awards vesting N/A US$17.38 on each of Apr 20, 2021, Apr 20, 2022, Apr 20, 2023, Apr 20, 2024 Mar 8, 2022 Mar 3, 2023 Mar 3, 2023 (385,917 ADS) (10,011 ADS) – (103,697 ADS) 768,336 ADS (5,503 ADS) 27,626 ADS – – – – (243,674 ADS) 2,148,342 ADS All LTIP Awards will (91,670 ADS) 210,589 ADS vest in Feb/Mar 2024 All LTIP Awards will vest in Feb/Mar 2024 N/A N/A N/A N/A N/A US$18.71 N/A N/A N/A N/A Apr 20, 2020 Apr 20, 2020 Aug 12, 2020 Mar 26, 2021 N/A (7) USD9,773,916 395,928 ADS 2020 USD33,953,547 872,033 ADS 2020 USD2,171,022 33,129 ADS 2021 USD53,469,885 2,392,016 ADS Sep 1, 2021 2021 USD7,279,340 302,259 ADS – – – – – 70 DIRECTORS’ REPORT Name or category of Participants Total: Five highest paid individuals during 2022 Total: Maximum amount stipulated in the LTIP Awards Date of grant of Maximum amount stipulated in the LTIP Awards granted Unvested LTIP Awards during the during the during the as at year ended year ended year ended Lapsed/ Unvested Vested canceled LTIP Awards as at Price of ADS prior to the grant date Price of ADS prior to the vesting date of LTIP Performance as at date of January 1, December 31, December 31, December 31, December 31, Awards period (1) grant 2022 (2) 2022 2022 (3) 2022 2022 Vesting Period of LTIP Awards of LTIP Awards (4) LTIP Awards (5) Sep 1, 2021 N/A (7) USD503,077 12,443 ADS – (3,110 ADS) – 9,333 ADS 25% of LTIP Awards N/A US$12.86 Dec 14, 2021 Dec 14, 2021 N/A (7) N/A (7) USD100,000 USD100,000 3,059 ADS 3,059 ADS – – (3,059 ADS) (764 ADS) May 23, 2022 2022 USD54,938,691 To be USD54,938,691 determined (9) Sep 13, 2022 2022 USD3,789,159 To be USD3,789,159 determined (9) Sep 13, 2022 N/A (7) USD1,730,000 128,863 ADS USD1,730,000 – – – vesting on each of Sep 1, 2022, Sep 1, 2023, Sep 1, 2024, Sep 1, 2025 Dec 14, 2022 – 2,295 ADS 25% of LTIP Awards vesting on each of Dec 14, 2022, Dec 14, 2023, Dec 14, 2024, Dec 14, 2025 N/A N/A US$14.27 US$14.27 – – All LTIP Awards will US$9.58 vest in Feb/Mar 2025 All LTIP Awards will US$14.35 vest in Feb/Mar 2025 128,863 ADS 25% of LTIP Awards US$14.35 N/A N/A N/A – – – – – 4,577,946 ADS (506,169 ADS) (459,492 ADS) 3,612,285 ADS Mar 15, 2017 Apr 20, 2020 Apr 20, 2020 Mar 26, 2021 2019 USD993,359 8,888 ADS N/A (7) USD622,461 31,898 ADS 2020 2021 USD3,399,299 100,985 ADS USD3,841,280 172,742 ADS – – – – May 23, 2022 2022 USD5,458,989 To be USD5,458,989 (8,888 ADS) (31,898 ADS) – – – – – – – – – – 100,985 ADS 172,742 ADS determined (9) 314,513 ADS vesting on each of Sep 13, 2023, Sep 13, 2024, Sep 13, 2025, Sep 13, 2026 Mar 8, 2022 Mar 8, 2022 Mar 3, 2023 All LTIP Awards will vest in Feb/Mar 2024 N/A N/A N/A N/A – All LTIP Awards will US$9.58 vest in Feb/Mar 2025 US$18.71 US$18.71 N/A N/A N/A (40,786 ADS) – 273,727 ADS HUTCHMED (China) Limited 2022 Annual Report 71 Notes: (1) (2) (3) (4) (5) (6) For annual performance based award, performance targets may include targets for shareholder returns, financings, revenues, net profit after taxes and the achievement of clinical and regulatory milestones. Shares purchased by the Trustee following determination of the cash amount based on the actual achievement of performance targets stipulated in the LTIP Award. Vesting period for annual performance based awards is typically three years after the date of grant. For non-performance based awards, 25% of the award vesting annually over a four-year period. The stated prices were closing prices of the ADS quoted on NASDAQ on the trading day immediately prior to the respective dates of grant of LTIP Awards during 2022. The stated prices were closing prices of the ADS quoted on NASDAQ on the trading day immediately prior to the respective dates of vesting of LTIP Awards during 2022. Similar to the arrangement for his Director's fees, these ADSs were not received by Mr To Chi Keung, Simon, but were received by or for the account of his employer, Hutchison Whampoa (China) Limited. (7) Non-performance based awards. (8) (9) Mr Christian Lawrence Hogg retired as Executive Director and Chief Executive Officer of the Company on March 4, 2022. To be determined according to the actual achievement of the performance targets in 2022. (10) These ADSs were not received by Ms Edith Shih, but were received by or for the account of her employer, Hutchison International Limited. For LTIP Awards with performance targets, prior to their determination date, the fair value of the LTIP Awards is determined based on the amount that is expected to vest taking into consideration the achievement of the performance conditions and the extent to which the performance conditions are likely to be met. Performance conditions vary by awards, and may include targets for shareholder returns, financings, revenues, net profit after taxes and the achievement of clinical and regulatory milestones. As the extent of achievement of the performance targets is uncertain prior to the determination date, a probability based on management’s assessment of the achievement of the performance targets has been assigned to calculate the amount to be recognized as an expense over the requisite period. For those LTIP Awards which do not stipulate performance targets, their fair value is based on the cash amount determined upon the grant of such awards. Refer to Note 17(ii) to the consolidated financial statements for further details of the LTIP Awards. The total maximum amount stipulated in the LTIP Awards granted during 2022 were US$65,916,839. For those LTIP Awards stipulating performance targets based on the estimated achievement of performance conditions for 2022 financial year, the fair value was US$17,429,205 which is recognized to share-based compensation expense over the requisite vesting period. For those which do not stipulate performance targets, the fair value was US$1,730,000. MANAGEMENT CONTRACTS No contracts concerning the management and administration of the whole or any substantial part of the businesses of the Company were entered into or existed during the year. (11) Mr Paul Rutherford Carter elected, on acceptance of the grant of his awards, to have 15% of his LTIP Awards (amounting to US$7,500 with respect to his awards which vested on April 20, 2022) held on his behalf by the Trustee administering the LTIP pending vesting in the form of cash, to settle his tax liabilities in respect of his awards. PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES (12) Both Mr Paul Rutherford Carter and Dr Karen Jean Ferrante elected, on acceptance of the grant of their awards, to have 15% of their LTIP Awards, (amounting to US$9,375 with respect to their awards which vested on October 20, 2022) held on their behalf by the Trustee administering the LTIP pending vesting in the form of cash, to settle their tax liabilities in respect of their awards. During the year ended December 31, 2022, neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the listed securities of the Company during the year. 72 DIRECTORS’ REPORTPRE-EMPTIVE RIGHTS AUDITORS The financial statements have been audited by PricewaterhouseCoopers, Certified Public Accountants, and PricewaterhouseCoopers Zhong Tian LLP who will retire and, being eligible, offer themselves for re-appointment at the 2023 AGM. ANNUAL GENERAL MEETING The 2023 AGM will be held on Friday, May 12, 2023 at 5:00 pm (Hong Kong time) at the 1st Floor, Harbour Grand Kowloon, 20 Tak Fung Street, Hung Hom, Kowloon, Hong Kong. Details of the business/resolutions proposed are set out in the Notice of the AGM. By Order of the Board Edith Shih Director and Company Secretary February 28, 2023 Under the Articles of Association of the Company, unless the Company by special resolution directs otherwise, any new shares will be offered to the existing shareholders pro rata to their holdings. In 2022 AGM, the Company obtained approval from shareholders by passing of special resolutions to disapply the pre-emption rights. MAJOR CUSTOMERS AND SUPPLIERS During the year, the percentage of purchase attributable to the five largest suppliers of the Group combined was less than 30% of the total purchase of the Group. During the year, the percentages of revenue attributable to the major customers of the Group were as follows: The largest customer Five largest customers combined Percentage of total revenue of the Group 16% 43% As at December 31, 2022, none of the Directors, their close associates or any shareholders (which to the knowledge of Directors own more than 5% of the issued share capital of the Company) had any interest in the major customers of the Group. SUFFICIENCY OF PUBLIC FLOAT As at the date of this report, based on the information that is publicly available to the Company and within the knowledge of the Directors of the Company, the Company has maintained the prescribed public float under the HK Listing Rules. HUTCHMED (China) Limited 2022 Annual Report 73 The Company strives to attain and maintain high standards of corporate governance best suited to the needs and interests of the Company and its subsidiaries (the “Group”) as it believes that an effective corporate governance framework is fundamental to promoting and safeguarding the interests of shareholders and other stakeholders and enhancing shareholder value. Accordingly, the Company has adopted and applied corporate governance principles and practices that emphasize a quality board of Directors (the “Board”), effective risk management and internal control systems, stringent disclosure practices, transparency and accountability as well as effective communication and engagement with shareholders and other stakeholders. It is, in addition, committed to continuously enhancing these standards and practices and inculcating a robust culture of compliance and ethical governance underlying the business operations and practices across the Group. The Company has complied throughout the year ended December 31, 2022 with all applicable code provisions of the Hong Kong Corporate Governance Code (“HK CG Code”) contained in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Hong Kong Listing Rules”). Although the American depositary shares of the Company are listed on NASDAQ Global Select Market (“Nasdaq”), being a foreign private issuer, the Company is permitted to follow Cayman Islands law for corporate governance practices. In addition, the Company is subject to and complies with certain applicable requirements of the Sarbanes-Oxley Act (the “SOX”). THE BOARD CORPORATE PURPOSE, VALUES AND CULTURE The Group’s purpose is to improve the lives of patients globally through the discovery, development and delivery of world class treatments for cancer and immunological diseases, underpinned by the business values of innovation, collaboration, integrity and sustainability across all levels of the Group. As a leading biopharmaceutical company based in China, the Group lives up to this purpose by instilling a culture of innovation that is driven by science, with the ambition of creating world-class cancer and immunological therapies, for the improvement of the lives of patients. This includes its commitment to encouraging, valuing and challenging every employee, so that the collective scientific and commercial expertise of the Group better serves the broader community. Guided by the Group’s core values, the Board, together with senior management, play a leading role in defining the purpose and strategic direction of the Group, set the tone and shape the corporate culture of the Company to ensure all businesses across the Group are aligned with the same purpose. Alongside the Group’s robust corporate governance framework and effective risk management and internal control systems, the desired culture is developed and reflected consistently in the operating practices and policies of the Group, as well as its relations with stakeholders, through active collaboration, effective engagement and regular training at all levels. Board oversight of the culture of the organization encompasses a range of measures and tools, including employee engagement, retention and training, robust financial reporting, whistleblowing, data privacy and security and legal and regulatory compliance (including compliance with the Code of Ethics and other Group policies), as well as staff safety, wellbeing and support. From the Board performance evaluation conducted, the Directors are satisfied with the performance of the Board and acknowledged that the Board plays an effective role in the development and determination of the Group’s culture, strategy and overall commercial objective. Taking into account the corporate culture in a range of contexts, the Board considers that the culture, purpose, values and strategy of the Group are aligned. 74 CORPORATE GOVERNANCE REPORTCORPORATE STRATEGY BOARD COMPOSITION The primary objective of the Company is to be a leader in the discovery, development and commercialization of targeted therapies and immunotherapies for the treatment of cancer and immunological diseases. The strategy of the Company is to leverage the highly specialized expertise of the drug discovery division, the Oncology/Immunology operations, to develop and expand the drug candidate portfolio of the Group for the global market, building on the first-mover advantage in the development and launch of novel cancer drugs in China, and engaging partners for late-stage development and commercialization outside China. This strategy is aligned with the Company’s culture of innovation and high engagement and empowerment with a strong focus on reward and recognition. The Chairman’s Statement and the Operations Review contain discussions and analyses of the Group’s opportunities, performance and the basis on which the Group generates or preserves value over the longer term and the basis on which the Group will execute its strategy for delivering its objectives. The Group also focuses on sustainability and delivering business solutions to support the transition to a low-carbon economy. Further information on the sustainability initiatives of the Group and its key relationships with stakeholders can also be found in the standalone Sustainability Report of the Group. ROLE OF THE BOARD The Board is accountable to shareholders for the long-term sustainable success of the Company. It is responsible for shaping and overseeing the corporate culture, setting and guiding the long-term strategic objectives of the Company with appropriate focus on value creation, risk management and sustainability, directing, supervising and monitoring the managerial performance and operating practices of the Group to ensure they align with the desired culture. It also ensures ongoing effective communication with shareholders and engagement with key stakeholders as it develops the purpose and values of the Company. Directors are charged with the task of promoting the long-term sustainable success of the Company and making decisions in the best interests of the Company with due regard to sustainability considerations. The Board, led by the Chairman, Mr To Chi Keung, Simon, fosters and oversees the culture, determines and monitors the Group’s long term objectives and commercial strategies, annual operating and capital expenditure budgets and business plans, evaluates the performance of the Company, and supervises the management of the Company (the “Management”). Management is responsible for the day-to-day operations of the Group under the leadership of the Chief Executive Officer (the “CEO”), and putting in place mechanisms for ensuring the desired culture of the Company is understood and shared at all levels of the Group. As of December 31, 2022 and up to the date of this report, the Board comprised ten Directors, including the Chairman, CEO and Chief Scientific Officer (the “CSO”), Chief Financial Officer (the “CFO”), three Non-executive Directors and four Independent Non-executive Directors (one of whom is the Senior Independent Non-executive Director). The number of Independent Non-executive Directors on the Board meets the one-third requirement under the Hong Kong Listing Rules. The following changes to the Board composition have taken place since the date of the last corporate governance report: (1) On March 4, 2022, Mr Christian Lawrence Hogg retired as Executive Director and CEO. Dr Weiguo Su was appointed as CEO and remains as the Chief Scientific Officer. (2) On May 16, 2022, Mr Lefei Sun was appointed as Non-executive Director. Biographical details of the Directors are set out in the “Information on Directors” section on pages 43 to 47 and on the website of the Company (www.hutch-med.com). A list setting out the names of the Directors and their roles and functions is posted on the websites of the Company and HKEX (www.hkexnews.hk). CHAIRMAN AND CEO The role of the Chairman is separate from that of the CEO. Such division of responsibilities reinforces the independence and accountability of these Directors. The Chairman is responsible for the effective conduct of the Board, ensuring that it as a whole plays an effective role in the development and determination of the Group’s strategy and overall commercial objectives and acts as the guardian of the Board’s decision-making processes. He is responsible for setting the agenda for each Board meeting, taking into account, where appropriate, matters proposed by Directors. He also ensures that the Board receives accurate, timely and clear information on the Group’s performance, issues, challenges and opportunities facing the Group and matters reserved to it for decision. With the support of the other Executive Directors and the Company Secretary, the Chairman seeks to ensure that the Board complies with approved procedures, including the schedule of matters and functions reserved to the Board for its decision and the Terms of Reference of all Board Committees. The Board, under the leadership of the Chairman, has adopted good corporate governance practices and procedures and taken appropriate steps to provide effective communication with shareholders, as outlined later in this report. HUTCHMED (China) Limited 2022 Annual Report 75 The CEO is responsible for managing the businesses of the Group, formulating and developing the Group’s strategy and overall commercial objectives in close consultation with the Chairman and the Board. With the executive management team of each core business division, the CEO implements the decisions of the Board and its Committees. He maintains an ongoing dialogue with the Chairman to keep him fully informed of all major business development and issues. He is also responsible for ensuring that the development needs of senior management reporting to him are identified and met as well as leading the communication program with shareholders. BOARD PROCESS The Board meets regularly, and at least four times a year with meeting dates scheduled prior to the beginning of the year. Between scheduled meetings, senior management of the Group provides to Directors, on a regular basis, monthly updates and other information with respect to the performance and business activities of the Group. Throughout the year, in addition to Board meetings, Directors participate in the deliberation and approval of routine and operational matters of the Company by way of written resolutions with supporting explanatory materials, supplemented by additional verbal and/or written information from the Company Secretary or other executives as and when required. Whenever warranted, additional Board meetings are held. Further, Directors have full access to information on the Group and advice and services of the Company Secretary. They also have full access to independent professional advice at all times whenever deemed necessary and they are at liberty to propose appropriate matters for inclusion in Board agendas. With respect to regular meetings of the Board, Directors receive written notice of the meetings generally about a month in advance and a draft agenda for review and comment prior thereto. The full set of Board papers is normally supplied no less than three days prior to the meetings. With respect to other meetings, Directors are given as much notice as is reasonable and practicable in the circumstances. Except for those circumstances permitted by the Articles of Association of the Company, a Director who has a material interest in any contract, transaction, arrangement or any other kind of proposal put forward to the Board for consideration abstains from voting on the relevant resolution and such Director is not counted for quorum determination purposes. In 2022, the Company held five Board meetings with 100% attendance of its members. All Directors also attended the annual general meeting of the Company (“AGM”) held on April 27, 2022. The attendance record is set out below: Board Meetings Attended/ Attendance Eligible to at 2022 attend 5/5 1/1 5/5 5/5 5/5 5/5 3/3 5/5 5/5 5/5 5/5 AGM ✔ N/A ✔ ✔ ✔ ✔ N/A ✔ ✔ ✔ ✔ Position Chairman: Executive Directors: Name of Director To Chi Keung, Simon Christian Lawrence Hogg (1) Weiguo Su Cheng Chig Fung, Johnny Non-executive Directors: Dan Eldar Independent Non-executive Directors: Edith Shih Lefei Sun (2) Paul Rutherford Carter Karen Jean Ferrante Graeme Allan Jack Mok Shu Kam, Tony Notes: (1) Retired on March 4, 2022 (2) Appointed on May 16, 2022 In addition to Board meetings, in 2022 the Chairman also met with the Independent Non-executive Directors without the presence of other Directors, with full attendance. Such meetings provide an effective forum for the Chairman to listen to the views of the Independent Non-executive Directors including corporate governance improvement, effectiveness of the Board, and any other issues they may wish to raise in the absence of other Directors and senior management of the Company. The Senior Independent Non-executive Director, Mr Paul Rutherford Carter, also held a meeting with all Non-executive Directors without the presence of the Chairman, with full attendance, for the appraisal of the Chairman’s performance. 76 CORPORATE GOVERNANCE REPORT All Non-executive Directors entered into service contracts for an initial term ending on December 31 of the year of appointment or until the next following annual general meeting of the Company. Thereafter, such contracts are automatically renewed for successive 12-month periods unless terminated by written notice given by either party. The Chairman of the Board is of the view that the performance of each of the Non-executive Directors continues to be effective and they all demonstrate commitment to their role as a Non-executive Director. Under the Articles of Association of the Company, one-third of Directors are subject to re-election by shareholders at AGM and at least once every three years on a rotation basis. A retiring Director is eligible for re-election and re-election of retiring Directors at general meetings is presented in separate resolutions. To follow the market practice in the United Kingdom whereby all directors are subject to annual re-election, the Directors and the Board have resolved that all Directors will retire at the upcoming AGM of the Company and, being eligible, will offer themselves for re-election by shareholders. Save as mentioned herein, there are no existing or proposed service contracts between any of the Directors and the Company which cannot be terminated by the Company within 12 months and without payment of compensation (other than statutory compensation). Where vacancies arise at the Board, candidates are proposed and put forward to the Board for consideration and approval, with the objective of appointing to the Board individuals with expertise in the businesses of the Group and leadership qualities to complement the capabilities of the existing Directors thereby enabling the Company to retain as well as improve its competitive position. BOARD PERFORMANCE The Company regards board evaluation as a critical tool to assess Board effectiveness and efficiency. Performance evaluation on the Board, its Committees and the Chairman of each Committee had been conducted since 2008. The evaluation involved each Director completing a questionnaire to provide individual ratings as well as comments covering a range of topics. The findings of the evaluation were then analyzed and circulated to the Board. The objective of the evaluation is to ensure that the Board, its Committees and the Chairman of each Committee continue to act effectively in fulfilling the duties and responsibilities expected of them, and to develop action plans for improvement. The evaluation parameters included, amongst others, the composition, diversity and leadership of the Board as well as board processes. Based on the performance review, the Board considers its existing practice effective. The Board is satisfied that it has met its performance objectives and each Director has contributed positively to the overall effectiveness of the Board. BOARD INDEPENDENCE The Company recognizes that Board independence is key to good corporate governance. As part of the established governance framework, the Group has in place effective mechanisms that underpin a strong independent Board and that independent views and input from Directors are conveyed to the Board. The governance framework and mechanisms are kept under regular review to align with international best practice, ensuring their effectiveness. In February 2023, the Board conducted a review and considered that such mechanisms were properly implemented during 2022 and were effective. The current composition of the Board (comprising more than one third Independent Non-Executive Directors) and the Audit Committee (comprising all Independent Non-executive Directors) comply with the independence requirements under the Hong Kong Listing Rules. The Nomination Committee and Remuneration Committee are both chaired by an Independent Non-executive Director. The Company has a vigorous selection, nomination and appointment/re-appointment process for Directors (including Independent Non-executive Directors), see “Nomination Process” on pages 90 to 92 of this report. The fees payable to Independent Non-executive Directors (including the additional fees to reflect membership or chairmanship of Board committees) are fixed fees without a discretionary element. The Long Term Incentive Plan (“LTIP”) awards to Independent Non-executive Directors are non-performance based. As such, none of the Independent Non-executive Directors receives remuneration based on performance of the Group. Information about remuneration of the Directors is set out on pages 93 to 95 of this report. The remuneration of Independent Non-executive Directors are also subject to a regular review mechanism to maintain competitiveness and commensurate with their responsibilities and workload. To facilitate attendance and participation at Board and other Board committee meetings, the Company plans meeting schedules for the year well in advance, with electronic facilities for attendance as required. External independent professional advice is also available to all Directors (including Independent Non-executive Directors) whenever deemed necessary. The Board process, ranging from agenda setting, provision of information and focus on constructive debates and discussions, facilitates effective and active participation by all independent Non-executive Directors (see “Board Process” on pages 76 to 77 on this report). Each year, the Chairman meets with the Independent Non-executive Directors twice without the presence of other Directors, enabling them to express their views outside the boardroom. The Independent Non-executive Directors have historically and consistently demonstrated strong commitment, and the ability to devote sufficient time to discharging their responsibilities at the Board. Their commitment is also subject to self-confirmation each year. HUTCHMED (China) Limited 2022 Annual Report 77 TRAINING AND COMMITMENT Upon appointment to the Board, a Director is provided with a package of comprehensive orientation materials on the Group comprising information on the Group, duties as a director and board committee member, as well as internal governance and sustainability policies of the Group. These orientation materials are presented to the Directors by senior management in the form of a detailed induction to the Group’s businesses, strategic direction and governance practice. The Company arranges and provides Continuous Professional Development (“CPD”) training in the form of seminars, webcasts and related reading materials to Directors to help them to keep abreast of current trends and issues facing the Group, including the latest changes in the commercial (including industry-specific and innovative changes), legal and regulatory environment in which the Group conducts its businesses and to refresh their knowledge and skills on the roles, functions and duties as a listed company director. In addition, CPD training may take the form of attendance at external forums or briefing sessions (including delivery of speeches) on relevant topics. CPD training of approximately 29 hours had been provided to Directors during the year. The Directors are required to provide the Company with details of CPD training undertaken by them from time to time. The training records are maintained by the Company Secretary and are made available for regular review by the Audit Committee. Based on the details so provided, the CPD training undertaken by the Directors during the year is summarized as follows, representing an average of approximately 14 hours undertaken by each Director during the year: Legal and Regulatory Sustainability Practices Risk Management Directors’ Duties Corporate Governance/ Financial Reporting/ Group’s Businesses/ Areas ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ Directors Chairman: To Chi Keung, Simon Executive Directors: Christian Lawrence Hogg (1) Weiguo Su Cheng Chig Fung, Johnny Non-executive Directors: Dan Eldar Edith Shih Lefei Sun (2) Independent Non-executive Directors: Paul Rutherford Carter Karen Jean Ferrante Graeme Allan Jack Mok Shu Kam, Tony Notes: (1) Retired on March 4, 2022 (2) Appointed on May 16, 2022 All Directors have confirmed that they have given sufficient time and attention to the affairs of the Group for the year. In addition, Directors have disclosed to the Company in a timely manner their other commitments, such as directorships in other public listed companies and major appointments as well as updated the Company on any subsequent changes. 78 CORPORATE GOVERNANCE REPORT SECURITIES TRANSACTIONS The Board has adopted the Code on Dealings in Shares which is on terms no less exacting than the required standard set out in the Model Code for Securities Transactions by Directors of Listed Issuers set out in Appendix 10 of the Hong Kong Listing Rules as the protocol regulating Directors’ dealings in securities of the Company. In summary, a Director who wishes to deal in the securities of the Company must notify the Chairman (or a Director designated by the Board for such specific purpose) in writing prior to any dealings and obtain a dated written acknowledgement before any dealing. Any clearance to deal granted in response to a Director’s request would be valid for no longer than five business days of clearance being received. After dealings, the Director must submit a disclosure of interests filing with respect to the dealing, within one business day of transaction. The Company Secretary plays a leading role in helping the Company develop and maintain a sound and effective corporate governance framework, in particular, a set of risk management and internal control system to ensure that regulatory compliance, good corporate governance practices and culture are upheld by the Company. The Company Secretary is responsible for ensuring that the Board is fully apprised of all legislative, regulatory, corporate governance and sustainability developments of relevance to the Group and that it takes these developments into consideration when making decisions for the Group. From time to time, she organizes seminars on specific topics of importance and interest and disseminates reference materials to Directors for their information. In response to specific enquiries made, all Directors have confirmed that they have complied with the required standards set out in such code regarding their securities transactions throughout their tenure during the year ended December 31, 2022. BOARD COMMITTEES The Board is supported by five permanent board committees: Audit Committee, Nomination Committee, Remuneration Committee, Technical Committee and Sustainability Committee, details of which are described later in this report. The terms of reference for these Committees, which have been adopted by the Board, are available on the websites of the Company and HKEX. Other board committees are established by the Board as and when warranted to take charge of specific tasks. COMPANY SECRETARY The Company Secretary is accountable to the Board for ensuring that Board procedures are followed and Board activities are efficiently and effectively conducted. These objectives are achieved through adherence to proper Board processes and timely preparation of and dissemination to Directors of comprehensive Board meeting papers. Minutes of all meetings of the Board and Board Committees are prepared and maintained by the Company Secretary to record in sufficient detail the matters considered and decisions reached by the Board or Board Committees, including any concerns raised or dissenting views voiced by any Director. All draft and final minutes of Board meetings and meetings of Board Committees are sent to Directors or Board Committee members as appropriate for comments, approval and records. Board records are available for inspection by any Director upon request. The Company Secretary who works closely with the Board to formulate the purpose, values and strategy of the Company, take charge in developing a robust compliance and ethical culture to meet both mounting regulatory and investor expectations, and to ensure the culture and the purpose, value and strategy of the Group are aligned. The Company Secretary is also directly responsible for the Group’s compliance with all obligations of the Hong Kong Listing Rules, AIM Rules for Companies and applicable Nasdaq listing rules (collectively, the “Rules”), including the preparation, publication and dispatch of annual and interim reports within the time limits laid down in the Rules, the timely dissemination to shareholders and the market of announcements, press releases and information relating to the Group and assisting in the notification of Directors’ dealings in securities of the Group. Furthermore, the Company Secretary advises the Directors on related party transactions, connected transactions, notifiable transactions and price-sensitive/inside information, and Directors’ obligations for disclosure of interests and dealings in the Company’s securities, to ensure that the standards and disclosures requirements of the Rules and applicable laws, rules and regulations are complied with and, where required, reported in the annual and interim reports of the Company. In relation to related party transactions and connected transactions, detailed analysis is performed on all potential related party transactions and connected transactions to ensure full compliance and for Directors’ consideration. The Company Secretary also serves as a crucial conduit of communications internally and externally. The Company Secretary facilitates information flow and communication among Directors and also conveys the Board’s decisions to the Management from time to time and ensures a good channel of communication with shareholders. She also works with the Board and Management to assist in responding to regulators in a timely manner. The appointment and removal of the Company Secretary is subject to Board approval. Whilst the Company Secretary reports to the Chairman, all members of the Board have access to her advice and service. The Company Secretary has day-to-day knowledge of the Group’s affairs. She confirms that she has complied with all the required qualifications, experience and training requirements under the Hong Kong Listing Rules. HUTCHMED (China) Limited 2022 Annual Report 79 ACCOUNTABILITY AND AUDIT AUDIT COMMITTEE The Audit Committee comprises three Independent Non-executive Directors who possess the relevant business and financial management experience and skills to understand financial statements and monitor the financial governance, internal controls and risk management of the Company. It is chaired by Mr Graeme Allan Jack with Mr Paul Rutherford Carter and Dr Karen Jean Ferrante as members. None of the Committee Members is related to the Company’s external auditor. The Audit Committee held three meetings in 2022 with 100% attendance. Members Attended/Eligible to attend Graeme Allan Jack (Chairman) Paul Rutherford Carter Karen Jean Ferrante 3/3 3/3 3/3 The Group’s internal audit activity continues to be handled by CK Hutchison Holdings Limited (“CKHH”, being the largest shareholder of the Company) which appoints a General Manager with responsibility for the internal audit (“Internal Audit GM”) to report directly to the Audit Committee. Internal Audit GM and external auditor, PricewaterhouseCoopers (“PwC”), attended all Audit Committee meetings. In addition, the Audit Committee held private sessions with them, as well as the CFO, separately without the presence of Management. The function of the Audit Committee is to assist the Board in fulfilling its duties through the review and supervision of the Company’s financial reporting, risk management and internal control systems (including cyber risks) and to take on any other responsibility as may be delegated by the Board from time to time. The Audit Committee is responsible for monitoring the integrity of the Group’s interim and annual results and financial statements, and reviewing the significant financial reporting judgments contained therein, as well as overseeing the relationship between the Company and its external auditors. It is also required to develop and review the Company’s policies and practices on corporate governance including compliance with statutory and the Rules requirements; and review the scope, extent and effectiveness of the activities of the Group’s internal audit function. In addition, it is authorized to engage legal and other advisers and conduct investigations as it determines to be necessary. Throughout 2022, the Audit Committee discharged the duties and responsibilities under its terms of reference and the applicable corporate governance code. The following paragraphs of this report set out a summary of the work performed by the Audit Committee during 2022 and 2023 (up to the date of this report). FINANCIAL REPORTING The annual and interim results of the Company are published in a timely manner, within three months of the year end and two months of the half- year end respectively. The responsibility of Directors in relation to the consolidated financial statements is set out below. This should be read in conjunction with, but distinguished from, the Independent Auditor’s Report on pages 100 to 103 which acknowledges the reporting responsibility of the Group’s Auditor. ANNUAL REPORT AND CONSOLIDATED FINANCIAL STATEMENTS The Directors acknowledge their responsibility for the preparation of the annual report and consolidated financial statements of the Company, ensuring that the consolidated financial statements, taken as a whole, is fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s position, performance, business model and strategy in accordance with the HK CG Code, Cayman Islands Companies Law and the applicable accounting standards. ACCOUNTING POLICIES The Directors consider that in preparing the consolidated financial statements, the Group has applied appropriate accounting policies that are consistently adopted and made judgments and estimates that are reasonable in accordance with the applicable accounting standards. ACCOUNTING RECORDS The Directors are responsible for ensuring that the Group keeps accounting records which disclose the financial position of the Group, upon which the consolidated financial statements of the Group could be prepared in accordance with the Group’s accounting policies. SAFEGUARDING ASSETS The Directors are responsible for taking all reasonable and necessary steps to safeguard the assets of the Group and to prevent and detect fraud and other irregularities within the Group. GOING CONCERN The Directors, having made appropriate inquiries, are of the view that the Group has adequate resources to continue in operational existence for the foreseeable future and that, for this reason, it is appropriate for the Group to adopt the going concern basis in preparing the consolidated financial statements. 80 CORPORATE GOVERNANCE REPORT During 2022 and 2023 (up to the date of this report), the Audit Committee met with the CFO and other senior management of the Company, the Internal Audit GM and PwC, to review the 2022 interim and 2021 and 2022 annual results, reports and financial statements, and other financial, corporate governance, risk management, internal control and cyber risks of the Group. It received, considered and discussed the reports and presentations of Management, Internal Audit GM and PwC. As part of these reviews and discussions, the Audit Committee reviewed a SOX compliance project conducted by the Company, which assessed the management of internal controls and procedures, and the evaluation of the internal control systems relating to financial reporting of the Company to ensure compliance with the requirements of section 404 of SOX. The Company also prepared and presented the Corporate Governance Compliance Reports and Compliance and Litigation Reports during the Audit Committee meetings. These reviews were conducted to ensure that the Group’s 2021 and 2022 annual results, reports and financial statements were prepared in accordance with generally accepted accounting principles in the United States (“USGAAP”) and comply with the applicable disclosure requirements of the Companies Ordinance and the Hong Kong Listing Rules, and for such control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Based on these reviews and discussions, the Audit Committee was satisfied that the Group’s 2022 interim and the Group’s 2021 and 2022 annual results, reports and financial statements have been prepared in accordance with the aforementioned requirements and recommended that these be approved by the Board. The Audit Committee met three times during 2022 and one time during 2023 (up to the date of this report) with PwC to consider its reports on the scope, strategy, progress and outcome of its independent review of the Group’s 2022 interim financial statements and audit of the Group’s 2021 and 2022 annual financial statements. It reviewed the composition of the audit engagements teams and PwC’s strategy and approach for the interim review and the annual audit, including the audit risk and materiality assessment, the nature, timing and scope of the audit procedures, and PwC’s reporting obligations before the audit commences. It received and discussed updates with PwC on the audit including observations on the control environment and material areas in which significant accounting judgments were applied, as well as information about the firm’s quality management and monitoring process for the audit, the delivery of audit deliverables against agreed timetable and milestones and the involvement of specialist and expert. The Audit Committee was satisfied with PwC’s competence, expertise, resources, as well as the effectiveness of the audit services. There were no breaches of the policy on hiring employees or former employees of the external auditor during the reported period. The Audit Committee reviewed the audit fees and the fees for non-audit services payable to PwC. The non-audit services were carried out in accordance with PwC’s independence policy to ensure that they do not create a conflict of interest, as well as the Group’s policy regarding the engagement of its external auditors for the various services. During the reported period, the Audit Committee also reviewed the independence and objectivity of PwC. It had considered all relationships (including requirements for rotation of audit partners, provision of non-audit services and long-term audit relationship) between the Company and PwC when assessing the independence and objectivity of the external auditor. The Audit Committee considered PwC to be independent and PwC, in accordance with applicable professional ethical standards, provided the Audit Committee a letter confirming its independence and objectivity for 2022. To assist the Board in assessing the overall governance, financial reporting, risk management and internal control framework and maintaining effective risk management and internal control systems, covering all material controls, including financial, operational and compliance controls, in 2022, the Audit Committee reviewed the process by which the Group evaluated its control environment and managed significant risks (including cyber risks). It received, considered and provided feedback on the risk management report, the composite risk register, the risk heat map, the presentation of the Internal Audit GM and Management on their review with respect to the effectiveness of the risk management and internal control systems of the Group. Based on these reviews, the Audit Committee concurred with Management confirmation that such systems are effective and adequate. It also reviewed and was satisfied with the adequacy of resources, qualifications and experience of the accounting, internal audit and financial reporting functions, and the training programs and budget of the Group. In addition, the Audit Committee reviewed, in conjunction with the Internal Audit GM, the 2022 work plans and resource requirements, and deliberated on the reports regarding the effectiveness of risk management and internal control systems (including cyber risks) of the Group. Further, it also considered the reports from the Legal Department on the Group’s material litigation proceedings and compliance status on key legal and regulatory requirements. These reviews and reports were taken into consideration by the Audit Committee when it made its recommendation to the Board for approval of the consolidated financial statements. During 2022, the Audit Committee also received periodic presentations on, and reviewed, the compliance status of the Group with respect to the applicable corporate governance code as well as other corporate governance topics including the Group’s policies and practices on compliance with legal and regulatory requirements. In January and February 2023, the Audit Committee also reviewed and recommended to the Board updates to its terms of reference and certain corporate governance policies including the Code of Ethics, Anti-Bribery and Anti-Corruption Policy, and Whistleblowing Policy. It has also received update reports on CPD training of Directors. The Audit Committee, on behalf of the Board, also conducted a review of the implementation and effectiveness of the Shareholders Communication Policy in February 2023. Having considered the multiple channels of communication and engagement in place (see “Relationship with Shareholders and Other Stakeholders” on pages 95 to 97 of this report), the Audit Committee was satisfied that the Shareholders Communication Policy has been properly implemented during 2022 and is effective. HUTCHMED (China) Limited 2022 Annual Report 81 EXTERNAL AUDITOR The Group’s policy regarding the engagement of its external auditor for the various services listed below is as follows: • • • • • Audit services – include audit services provided in connection with the audit of the consolidated financial statements. All such services are to be provided by the external auditor. Audit related services – include services that would normally be provided by an external auditor but not generally included in the audit fees, for example, audits of the Group’s pension plans, due diligence and accounting advice related to mergers and acquisitions, internal control reviews of systems and/or processes, and issuance of special audit reports for tax or other purposes. The external auditor is to be invited to undertake those services that it must, or is best placed to, undertake in its capacity as an auditor. Taxation related services – include all tax compliance and tax planning services, except for those services which are provided in connection with the audit. The Group uses the services of the external auditor where it is best suited. All other significant taxation related work is undertaken by other parties as appropriate. Other services – include amongst others, risk management diagnostics and assessments, and non-financial systems consultations. The external auditor is also permitted to assist Management and the Internal Audit GM with internal investigations and fact-finding into alleged improprieties. These services are subject to specific approval by the Audit Committee. General consulting services – the external auditor is not eligible to provide services involving general consulting work. An analysis of the fees of PwC is shown in Item 16C of the Form 20-F. For the year ended December 31, 2022, fees of US$2.5 million charged by PwC in total were for both audit and non-audit services. The non-audit services, which amounted to approximately US$0.3 million, were related to tax compliance and the provision of tax advices. These non-audit services had been reviewed prior to the engagement by the Audit Committee, which considered such services not having an impairing effect on the independence of the auditor. The lead audit engagement partner who has been in the role since 2018 and, in accordance with PwC’s policy, will be due for rotation after completing the annual audit for the year 2022. The Company was involved in the succession planning of the external auditor. In 2022, the Audit Committee discussed with the external auditor the provisions the firm had in place for rotation of the lead engagement partner. PwC has arranged a new lead audit engagement partner to assume the role. 82 The Audit Committee was satisfied with PwC’s competence, expertise, resources, independence and objectivity, as well as the effectiveness of the audit process, and recommended to the Board on the re-appointment of PwC as the external auditor which will be considered by the shareholders at the forthcoming annual general meeting. AUDIT REPORT ON THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements of the Group for the year ended December 31, 2022 have been audited by PwC in accordance with USGAAP. The unqualified auditor’s report is set out on pages 100 to 103. The consolidated financial statements of the Group for the year ended December 31, 2022 have also been reviewed by the Audit Committee. RISK MANAGEMENT, INTERNAL CONTROL AND LEGAL & REGULATORY COMPLIANCE BOARD OVERSIGHT The Board has overall responsibility for the Group’s systems of risk management, internal control and legal and regulatory compliance. In meeting its responsibility, the Board, with due regard to the Company’s risk appetite, evaluates and determines the nature and extent of the risks (including sustainability and cyber risks) that the Company is willing to accept in pursuit of its strategic and business objectives. The Board inculcates appropriate risk culture across the business operations of the Group and has put in place a comprehensive range of policies and systems, including parameters of delegated authority, which provide a framework for the identification, reporting and management of risks. It also reviews and monitors the effectiveness of the systems of risk management and internal control on an ongoing basis. The reporting and review processes include review by the Executive Directors and the Board of budgets, strategic plans, and detailed operational and financial reports as provided by business unit management, as well as review by the Audit Committee of the ongoing work of the internal audit and risk management functions of CKHH. Whilst these procedures are designed to identify and manage risks that could adversely impact the achievement of the Group’s business objectives, they do not provide absolute assurance against material mis-statement, errors, losses, fraud or non-compliance. RISK MANAGEMENT The Company adopts an Enterprise Risk Management (“ERM”) framework which is consistent with the COSO (the Committee of Sponsoring Organizations of the Treadway Commission) framework. The ERM framework facilitates a systematic approach in identifying, assessing and managing risks (including sustainability and cyber risks) within the Group, be they are of strategic, financial, operational or compliance nature. CORPORATE GOVERNANCE REPORTRisk management is integral to the day-to-day operations of the Group and is a continuous process carried out at all levels of the Group. There are ongoing dialogues between the Executive Directors and the management team of each core business division about the current and emerging risks (including sustainability and cyber risks), their plausible impact and mitigation measures to ensure that the executive management teams of each core business has performed its duty to have effective system. These measures include instituting additional controls and deploying appropriate insurance instruments to minimize or transfer the impact or risks that the Group’s businesses face. The latter also includes Directors’ and Officers’ Liability Insurance to protect Directors and officers of the Group against potential personal legal liabilities. In terms of formal risk review and reporting, the Group adopts a “top-down and bottom-up” approach involving regular input from each core business as well as discussions and reviews by the Executive Directors and the Board, through the Audit Committee. More specifically, on a half-yearly basis, each core business unit is required to formally identify and assess the significant risks (including sustainability and cyber risks) their business faces, whilst the Executive Directors provide input after taking a holistic assessment of all the significant risks that the Group faces. Relevant risk information including key mitigation measures and plans are recorded in a risk register to facilitate the ongoing review and tracking of progress. The composite Risk Register together with the related risk assessment report, form part of the risk management report for review and approval by the Audit Committee on a half-yearly basis. The Audit Committee, on behalf of the Board, reviews the report, discusses the risk management and internal control systems, including matters related to cyber risks, with the Internal Audit GM and Executive Directors, and provides input as appropriate so as to ensure effective risk management is in place. The following table summarizes the risks factors of the Group which could affect the Group’s financial condition or results of operations that differ materially from expected or historical results and the relevant mitigation actions. With regards to sustainability risks, in 2022 the Company engaged an independent third party to conduct a climate risk assessment for the Group and a climate risks and opportunities workshop for senior management. During the workshop, participants reviewed climate risks and opportunities, along with the potential financial impacts. Following the assessment, climate risk has been newly incorporated into the sustainability risks of the ERM framework. RISK MANAGEMENT OVERVIEW RISK FACTOR RISK DESCRIPTION MANAGEMENT ACTIONS Risks Related to the Financial Position and Need for Capital Funding for product development The research and development of drug candidates, as • Active monitoring of available cash resources against programs and commercialization well as commercialization in the areas of manufacturing, future cash requirements efforts marketing, sales and distribution of such drug candidates, • Diversified sources of funding requires significant expenditures. Failure to raise capital o Cash inflows from commercial operations on attractive terms may compromise the Group’s ability to o Sharing of clinical development costs with and execute its business plans. receipt of milestone income from partners through collaborations o Entering into an out-licensing arrangement with a global pharmaceutical company o Ready access to capital markets as listed on AIM, Nasdaq and HKEX o Bank borrowing facilities o Proceeds from private placements of shares o Divestment of non-core business Risks Related to Oncology/Immunology Operations and Development of the Group’s Drug Candidates The Group’s future profitability The Group does not expect to be significantly profitable Regularly evaluating the research and development is dependent on the successful development and commercialization unless and until it successfully completes its clinical trials, receives relevant regulatory approval and generates strategy of the Group in light of unmet medical needs. Three oncology drugs, ELUNATE® in metastatic colorectal of the drug candidates substantial sales of approved innovative drugs in cancer, SULANDA® in pancreatic and non-pancreatic developments. neuroendocrine tumors and ORPATHYS® in non-small cell lung cancer with MET exon 14 skipping alterations, were approved and launched in China HUTCHMED (China) Limited 2022 Annual Report 83 RISK FACTOR RISK DESCRIPTION MANAGEMENT ACTIONS Competition in discovering, The development and commercialization of new drugs • Targeting potential markets with high unmet demands developing and commercializing is highly competitive. The competition from other in drug discovery process drugs pharmaceutical companies with respect to current drug • Formation of strategic partnerships and collaborations candidates, as well as any future drug candidates, is always with other companies present given market dynamics. Attract, retain and motivate key Attracting, retaining and motivating key executives • Building culture of innovation and high engagement executives and qualified personnel and personnel is critical to an organization’s success, and empowerment with high focus on reward and particularly in the innovative pharmaceutical industry. recognition The loss of key executives and personnel could impede • Benchmarking salary and compensation structure the achievement of research, development and against peer groups commercialization initiatives. • Share-based compensation provided to incentivize key management/talent • Establishing key performance measurement and talent development schemes Commercial strategy for newly Following the commercial launches of the Group’s pipeline • Building a large-scale global production facility in approved drug products products, a comprehensive strategy is required to be Shanghai formulated to secure manufacturing and commercialization • Setting up commercial infrastructure to perform capacity. commercialization activities of developed drug products in China and looking for partners to commercialize and develop late stage drug candidates outside of China Risks Related to Sales of the Group’s Internally Developed Drugs and Other Drugs Compliance with extensive regulatory The regulatory framework in China governs and addresses • Setting up compliance team and implementing internal requirements for pharmaceutical all aspects of operations within the pharmaceutical policies and procedures to monitor compliance companies in China industry, including licensing and certification requirements, • Benchmarking against regulatory reviews of industry periodic renewal and reassessment processes, and groups and best practices of peers registration of new drugs, interactions with healthcare professionals and organizations among others. Violations of such requirements may adversely affect the Group’s businesses. Product liability claims The Group’s businesses face an inherent risk of product • Establishing measures to ensure product safety liability exposure related to sales of products or the o Independent laboratory testing products licensed from third parties. If the Group cannot o Compliance with relevant quality practices successfully defend against product liability claims, if any, o Sourcing from well-established suppliers product reputation and financial results could be materially • Procuring product liability insurance Risks Related to the Group’s Dependence on Third Parties affected. Relationships with collaboration Poor relationships with collaboration partners could lead • Establishing joint steering committees to make key partners to disagreement regarding clinical development and decisions and resolve any differences commercialization, and termination or expiration of the collaboration. Any such matters would cause adverse • Ongoing dialogue and regular meetings at executive levels to facilitate strategic alignment and planning impacts to business reputation and financial results. 84 CORPORATE GOVERNANCE REPORTRISK FACTOR RISK DESCRIPTION MANAGEMENT ACTIONS Sourcing of materials for clinical trials The development and commercialization of drug • Active monitoring of the supply of materials and and commercial products candidates requires sufficient supplies (including Active inventory levels Pharmaceutical Ingredient (API)) for clinical testing and • Sourcing from well-established clinical suppliers with commercial demand. Development and commercialization long-term relationships could be interrupted if suppliers fail to provide a stable supply of necessary materials. Compliance with clinical trial The regulatory approval process for clinical trials may be • Implementation of measures to ensure compliance regulatory requirements of delayed or subject the Group to enforcement action in o Sourcing from well-established clinical suppliers collaboration with partner/clinical cases where clinical research organizations or collaboration o Maintaining relevant liability insurance research organization partners fail to comply with clinical trial regulations. Any non-compliance may require clinical trials to be repeated and delay regulatory approval. Other Risks and Risks Related to Doing Business in China The COVID-19 pandemic and other Although the restrictive measures related to the COVID-19 • The COVID-19 outbreak posed some challenges to the adverse public health developments pandemic have gradually been lifted around the world, Group’s operations in 2022 resulting from restrictions in could materially and adversely affect the COVID-19 pandemic or any other adverse public health travel, facility lockdowns, etc. the Group’s business developments may continue to have a negative impact on • The Group put in place measures to reduce the impact the Group’s business, which could have a material adverse of such restrictions to the extent possible effect on the business, financial condition and results of • The Group will continue to monitor the situation operations and cash flows. National Reimbursement Drug List China’s NRDL system is driving down the price of innovative • Undertaking of holistic assessments to determine (“NRDL”) pricing risk on innovative drugs which affects the profitability of all biotech minimum acceptable pricing when applying for products companies. Inclusion into the NRDL will result in a higher inclusion in the NRDL by taking various factors into sales volume and sales growth as well as a reduction in the consideration, such as patient population size and price. patient out-of-pocket costs • ORPATHYS® has been included in the updated NRDL with effect from March 2023 Uncertainties with respect to the The implementation of laws and regulations in China may • Close monitoring of the pharmaceutical regulatory legal system and changes in laws and be in part based on government policies and internal environment in China regulations in China rules that are subject to the interpretation and discretion • Benchmarking against regulatory reviews of industry of different government agencies. Unexpected changes groups and best practices of peers to laws and regulations can materially affect business operations and financial results. Adverse information technology Pharmaceutical companies which develop and • Setting up of information technology systems security incidents commercialize new drugs rely significantly on information subject to regular reviews internally and by external technology for storing clinical and financial data. experts Information technology systems could be vulnerable • Regular maintenance and upgrade of information to damage from external or internal security incidents, technology systems security breakdowns, malicious intrusions and cybercrimes, • Compliance with best-practice cybersecurity guidelines which may cause significant interruptions or losses to the published by the National Institute of Standards and business. Technology (NIST) HUTCHMED (China) Limited 2022 Annual Report 85 RISK FACTOR RISK DESCRIPTION MANAGEMENT ACTIONS Foreign currency fluctuations The value of the Renminbi against the U.S. dollar and • Active cash management to mitigate foreign currency other currencies may fluctuate and is affected by changes exposure in political and economic conditions. Appreciation or o Active monitoring of China operations and its depreciation in the value of the Renminbi relative to U.S. funding requirements to plan remittances and dollars would affect financial results reported in U.S. dollar timely conversion to address exposure to currency terms regardless of any underlying change in the business exchange rate variations or results of operations. Compliance with personal information The business is subject to personal information and data • Establishing Information Security Policy, Personal and data protection and privacy protection and privacy laws at the local, state, national and Information Protection Policy and other related policies regulations international levels where applicable. Legal requirements and procedures on personal and customer data regarding personal information and data protection and governance with relevant compliance requirements privacy continue to evolve and may result in ever-increasing • Closely monitoring the development in the relevant public security and escalating levels of enforcement action. regulatory regime to ensure compliance with the requirements • Briefing senior management and Directors on information security matters in relevant Board Committee meetings regularly • Maintaining relevant cybersecurity insurance • Conducting relevant cybersecurity assessment annually through an independent third party • No information security breach was observed historically Risks Related to Intellectual Property Protect product intellectual property The discovery and development of innovative • Active management and tracking of intellectual rights medicines require significant investment of resources. A property rights pharmaceutical company’s success depends in part on • Frequent consultations with external counsel its ability to protect such investments, products and drug • Establishing protection mechanisms including candidates from competition by establishing and enforcing execution of confidentiality and non-competition intellectual property rights. Failure could cause additional agreements, registration of intellectual property rights competition to harm the business. and defense of any intellectual property related claims Pages 7 to 69 of Form 20-F provide a further discussion of these and other important risk factors which could affect the Group’s financial condition or results of operations. 86 CORPORATE GOVERNANCE REPORTINTERNAL CONTROL ENVIRONMENT Group structures covering all subsidiaries, associated companies and joint ventures are maintained and updated on a timely and regular basis. Executive Directors are appointed to the boards of all material operating subsidiaries and associated companies for overseeing and monitoring those companies, including attendance at board meetings, review and approval of budgets and plans, and determination of business strategies with associated risks identified and key business performance targets set. The executive management team of each core business division is accountable for the conduct and performance of each business in the division within the agreed strategies, and similarly, management of each business is accountable for its conduct and performance. The Executive Directors monitor the performance and review the risk profiles of the companies within the Group on an ongoing basis. The internal control procedures of the Group include a comprehensive system for reporting information to the executive management team of each core business division and the Executive Directors. Business plans and budgets are prepared annually by management of individual businesses and subject to review and approval by both the executive management team and Executive Directors as part of the Group’s five-year corporate planning cycle. Reforecasts for the current year are prepared on a quarterly basis, reviewed for variances to the budget and for approval. When setting budgets and reforecasts, management identifies, evaluates and reports on the likelihood and potential financial impact of significant business risks. Executive Directors review monthly management reports on the financial results and key operating statistics of each business division and discuss with the executive management team and senior management of business operations to review these reports, business performance against budgets, forecasts, significant business risk sensitivities and strategies. In addition, financial controllers of the executive management team of each core business division discuss with the representatives of the Finance Department to review monthly performance against budget and forecast, and to address accounting and finance related matters. The Finance Department has established guidelines and procedures for the approval and control of expenditures. Operating expenditures are subject to overall budget control and are controlled within each business with approval levels set by reference to the level of responsibility of each executive and officer. Capital expenditures are subject to overall control within the annual budget review and approval process, and more specific control and approval prior to commitment by the Finance Department or Executive Directors are required for unbudgeted expenditures and material expenditures within the approved budget. Quarterly reports of actual versus budgeted and approved expenditures are also reviewed. The Group’s internal audit activity is outsourced to CKHH and the Audit Committee believes that outsourcing offers the Group access to the range of skills and resources required and has endorsed its continuing use. The Audit Committee monitors and reviews the internal audit relationship with CKHH and the procedures used, as described in further detail below, to ensure the effectiveness of the internal audit process. The Internal Audit GM, reporting directly to the Audit Committee, provides independent assurance as to the existence and effectiveness of the risk management activities and controls in the Group’s business operations in various countries. Using risk assessment methodology and taking into account the dynamics of the Group’s activities, internal audit derives its yearly audit plan which is reviewed by the Audit Committee, and reassessed during the year as needed to ensure that adequate resources are deployed and the plan’s objectives are met. The Internal Audit GM is responsible for assessing the Group’s risk management and internal control systems, formulating an impartial opinion on the systems, and reporting its findings to the Audit Committee, the CEO, the CFO and the senior management concerned as well as following up on all reports to ensure that all issues have been satisfactorily resolved. In addition, a regular dialogue is maintained with the external auditor so that both are aware of the significant factors which may affect their respective scope of work. Depending on the nature of business and risk exposure of individual business units, the scope of work performed by the internal audit function includes financial, IT and operations reviews, recurring and surprise audits, fraud investigations and productivity efficiency reviews. Reports from the external auditor on internal controls and relevant financial reporting matters are presented to the Internal Audit GM and, as appropriate, to the CFO. These reports are reviewed and appropriate actions are taken. The Board, through the Audit Committee, has monitored the Group’s risk management and internal control systems for the year ended December 31, 2022 covering all material financial, operational and compliance controls, has conducted a review of their effectiveness, and was satisfied that such systems are effective and adequate. In addition, the Board, through the Audit Committee, reviewed and was satisfied with the adequacy of resources, qualifications and experience of the staff of the Group’s accounting and financial reporting and internal audit functions, and their training programs and budget. HUTCHMED (China) Limited 2022 Annual Report 87 LEGAL AND REGULATORY CONTROL COMPLIANCE Code of Ethics The Group is committed to ensuring its businesses are operated in compliance with local and international laws, rules and regulations. The Legal Department has the responsibility of safeguarding the legal interests of the Group, including preparing, reviewing and approving all legal and corporate secretarial documentation of Group companies, working in conjunction with finance, tax, treasury, corporate secretarial and business unit personnel on the review and co-ordination process, and advising Management of legal and commercial issues of concern. In addition, the Legal Department is also responsible for overseeing regulatory compliance matters of all Group companies. It analyzes and monitors the regulatory frameworks within which the Group operates, including reviewing applicable laws and regulations and preparing and submitting responses or filings to relevant regulatory and/or government authorities on regulatory issues and consultations. In addition, the Legal Department prepares and updates internal policies where necessary so as to strengthen the internal controls and compliance procedures of the Group. The Legal Department also determines and approves the engagement of external legal advisors, ensuring the requisite professional standards are adhered to as well as most cost effective services are rendered. Further, the Legal Department organizes and holds from time to time continuing education on legal and regulatory matters of relevance to the Group for Directors and the business executives. GOVERNANCE POLICIES The Group places utmost importance on the ethical, personal and professional standards of Directors and employees of the Group. All employees adhere to various Group policies that reflect the core values and corporate culture of the Group. The Code of Ethics is the central tool through which the Company sets the conduct expectations for employees underscoring the strong commitment of the Group to uphold high standards of business integrity, honesty and transparency in all its business dealings. The Company has also established anti-corruption and whistleblowing policies and systems, which are conducive to setting a healthy corporate culture and good corporate governance practices. In addition, the Group has adopted and implemented a number of other governance policies to incorporate the core values of the Group into its operations and practices. These policies are reviewed from time to time to ensure their relevance and appropriateness to the Group’s business, corporate strategy and stakeholder expectations. Key governance policies and guidelines of the Group, which are posted on the website of the Group, include: The Code of Ethics of the Group sets the standards for employees as are reasonably necessary to promote honest and ethical conduct, accurate and timely disclosure in the reports and documents that the Group files or submits to regulators, compliance with applicable laws and regulations, prompt internal reporting of violations and accountability for adherence to the Code of Ethics. Every employee is required to undertake to adhere to the Code of Ethics, which includes provisions dealing with conflict of interest, equal opportunities, diversity and a respectful workplace, health and safety, protection and proper use of company assets, record keeping, bribery and corruption, personal data protection and privacy as well as reporting procedures for illegal and unethical behavior. Employees are required to report any non-compliance with the Code of Ethics in accordance with the established reporting and escalation procedures. Whistleblowing Policy In line with the commitment to achieve and maintain the highest standards of openness, probity and accountability, the Company expects and encourages employees of the Group and those who deal with the Group (e.g. customers, suppliers, creditors and debtors) to report to the Company, in confidence, any suspected impropriety, misconduct or malpractice within the Group. In this regard, the Company has adopted the Whistleblowing Policy. The policy aim to provide reporting channels and guidance on reporting possible improprieties and reassurance to whistleblowers of the protection that the Group will extend to them in the formal system, including anonymity and legal protection against unfair dismissal or victimization for any genuine reports made. The Board delegated the authority to the Audit Committee which is responsible for ensuring that proper arrangements are in place for fair and independent investigation of any matters raised and appropriate follow-up actions are taken. Anti-Bribery and Anti-Corruption Policy In its business dealings, the Group does not tolerate any form of fraud or bribery, whether direct or indirect, by, or of, its Directors, officers, employees, agents or consultants or any persons or companies acting for it or on its behalf. The Anti-Bribery and Anti-Corruption Policy, which outlines the Group’s zero-tolerance stance against bribery and corruption, assists employees in recognizing circumstance which may lead to or give the appearance of being involved in corruption or unethical business conduct, so as to avoid such conduct which is clearly prohibited, and to promptly seek guidance where necessary. Each business unit is required to report any actual or suspected incidents of bribery, theft, fraud or similar offences to the Internal Audit GM for independent analyses and necessary follow up. 88 CORPORATE GOVERNANCE REPORTShareholders Communication Policy Information Security Policy The Group is committed to enhancing long-term shareholder value through regular communication with its shareholders, both individual and institutional. To this end, the Group strives to ensure that all shareholders have ready, equal and timely access to all publicly available information of the Group. The Shareholders Communication Policy sets out the framework the Company has put in place to promote effective communication with shareholders so as to enable them to engage actively with the Company and exercise their rights as shareholders in an informed manner. Policy on Handling of Confidential and Price-sensitive Inside Information, and Securities Dealing With a view to ensuring that inside information is identified, handled and disseminated in compliance with the applicable rules and regulations, and proper internal control procedures are in place to guard against mishandling of inside information which may constitute insider dealing or breach of any other statutory obligations, the Group has implemented the Policy on Handling of Confidential and Price-sensitive Inside Information and Securities Dealing. The policy also adopts additional precautions which should be taken by employees who are in possession of price-sensitive inside information, including identification of project by code name and dissemination of information for stated purpose and on a need-to-know basis only. Whilst all employees are absolutely prohibited at all times from dealing in the securities of the Company when they are in possession of unpublished and price-sensitive inside information or confidential information, certain members of senior management or staff are subject to specific additional compliance requirements as are communicated to them individually from time to time (including but not limited to obtaining written pre-clearance from designated members of management prior to any dealing in any such securities). Policy on Personal Information Governance The Group is also committed to the safeguard and protection of the personal information acquired from (i) its employees, agents, consultants, contractors, vendors, service providers, (ii) patients or clinical study subjects who use the Group’s products and other customers, (iii) healthcare professionals who study or prescribe the Group’s products, and (iv) in connection with the Group’s investment or business development activities including, the Group’s due diligence process, in compliance with applicable data protection laws in jurisdictions in which the Group operates. Personal information should only be collected for specified, clear and legitimate purposes and only to the extent needed to achieve those purposes and use of such data should only be proportionate to clear purposes. Excessive personal information collection is prohibited. Employees must not disclose any confidential information of the Group, its customers, suppliers, business partners or shareholders, except when disclosure is authorized by the Group in accordance with the Information Security Policy which defines the common policies for information confidentiality, integrity and availability to be applied across the entire Group. Employees are required to make a self-declaration every year to confirm that he/she has read, understood and will continue to comply with the various Group policies. Trainings on information security, which includes policies, standards, baselines, procedures, guidelines, responsibilities, related enforcement measures, and consequences of failure to comply, are mandatory and conducted regularly for all employees. Board Diversity Policy and Director Nomination Policy The two Board policies, Board Diversity Policy and Director Nomination Policy set out the approach to achieving diversity as well as the approach and procedures the Board adopts for the nomination and selection of Directors. Further details of the policies are provided on page 90 of this report. INTERNAL AUDIT The Internal Audit GM, reporting directly to the Audit Committee, provides independent assurance as to the existence and effectiveness of the risk management and internal control systems in the business operations of the Group. It has wide authority to access to documents, records, properties and personnel of the Group. By applying risk assessment methodology and considering the dynamics of the activities of the Group, internal audit devises its three-year risk-based audit plan for the Audit Committee’s review. The plan is subject to continuous reassessment taking into account external and internal factors such as macro-economic and regulatory changes, business and operational changes, emerging risks and opportunities (including sustainability and cyber-related ones), as well as audit and fraud findings that may affect the risk profile of the Group during the year. HUTCHMED (China) Limited 2022 Annual Report 89 Internal audit is responsible for assessing the risk management and internal control systems of the Group, including reviewing the continuing connected transactions of the Company (refer to pages 53 to 56 of this annual report for more details), formulating an impartial opinion on the systems, and reporting its findings to the Audit Committee, the Executive Director and the executive management team concerned as well as following up on the issues to ensure that they are satisfactorily resolved, within the agreed timeline. In addition, internal audit maintains a regular dialogue with the external auditor so that the parties are aware of the significant factors which may affect their respective scope of work. Depending on the nature of business and risk exposure of individual business units, the scope of work performed by internal audit includes financial, IT, operations, business ethics, governance policy and regulatory compliance reviews, recurring and surprise audits, as well as productivity efficiency reviews. Internal audit is also responsible for periodic fraud analyses and independent investigations. In accordance with the Code of Ethics and Anti-Bribery and Anti-Corruption Policy of the Group, each business unit is required to report in a timely manner to the Company any actual or suspected bribery, fraudulent or suspicious activities. These cases, together with those escalated through the Complaints Procedures, are recorded in the Company’s centralized fraud incidents register under the internal audit’s custody, and are independently assessed and investigated as appropriate. Internal audit would promptly escalate any incidents of material nature to the Chairman of the Audit Committee for his direction. Also, a summary of the fraud incidents and relevant statistics (including results of independent investigations and actions taken) is presented to the Audit Committee and the Executive Directors on a regular basis. Reports from the external auditor on internal controls and relevant financial reporting matters are presented to internal audit and, as appropriate, to the CFO. These reports are reviewed and appropriate actions are taken. The Board, through the Audit Committee, has conducted a review of the Group’s risk management and internal control systems for the year ended December 31, 2022 covering all material controls, including financial, operational and compliance controls, and concurs with Management confirmation that such systems are effective and adequate. In addition, the Board, through the Audit Committee and the Sustainability Committee, reviewed and was satisfied with the adequacy of resources, staff qualifications and experience, training programs and budget of the Group’s accounting, internal audit, financial reporting, and sustainability performance and reporting functions. NOMINATION OF DIRECTORS NOMINATION COMMITTEE The Nomination Committee comprises three members and is chaired by Professor Mok Shu Kam, Tony, an Independent Non-executive Director and with the Chairman Mr To Chi Keung, Simon and Independent Non- executive Director Mr Graeme Allan Jack as members, is in full compliance with the code provision of the HK CG Code. The responsibilities of the Nomination Committee are to review the structure, size, diversity profile and skills set of the Board against its needs and make recommendations on the composition of the Board to achieve the Group’s corporate strategy as well as promote shareholder value. It identifies suitable director and senior management candidates and selects or makes recommendations to the Board on the appointment or re-appointment of Directors, succession planning for Directors and selection of individuals to be nominated as senior management. Furthermore, it also assesses the independence of Independent Non-executive Directors having regard to the criteria under the Hong Kong Listing Rules and Nasdaq Listing Rules and reviews the Director Nomination Policy and Board Diversity Policy periodically and makes recommendation on any proposed revisions to the Board. The Committee is authorized to obtain, at the Company’s expense, external legal or other professional advice on any matters within its Terms of Reference. NOMINATION PROCESS The nomination process has been, and will continue to be, conducted in accordance with the Director Nomination Policy and Board Diversity Policy, which are available on the website of the Company. The Board will from time to time review these policies and monitor their implementation to ensure continued effectiveness and compliance with regulatory requirements and good corporate governance practices. Pursuant to the Director Nomination Policy, the Nomination Committee, in determining the suitability of a candidate, will consider the potential contributions a candidate can bring to the Board including the attributes complementary to the Board, the commitment, motivation and integrity of the candidate, having due consideration of the benefits of a diversified Board. Under the Board Diversity Policy, Board candidates are selected based on merit and the contribution such candidate can bring to the Board to complement and expand the competencies, experience and perspectives of the Board as a whole, taking into account the corporate strategy of the Group and the benefits of various aspects of diversity, including gender, age, culture, ethnicity, educational background, professional experience and other factors that the Nomination Committee may consider relevant from time to time towards achieving a diversified Board. 90 CORPORATE GOVERNANCE REPORTThe following Board Skills Matrix shows a breakdown of the diverse skills set of the Directors: Board Skills Matrix 5 Directors Pharmaceutical Related Knowledge/ Experience 4 Directors Financial Reporting 7 Directors Strategic Planning & Risk Management 8 Directors Business Management 1 Director Legal & Regulatory Note: The Board comprises 10 Directors. The following chart shows the diversity profile of the Board as at December 31, 2022: Board Composition and Diversity 10 9 8 7 6 5 4 3 2 1 0 Female (20%) Male (80%) Executive Directors (30%) Non-executive Directors (30%) Independent Non-executive Directors (40%) Chinese (60%) above 64 years old (60%) Non-Chinese (40%) 64 years old or below (40%) Gender Designation Ethnicity Age Group Female representation at the Board stands at 20% (two out of ten), above average amongst companies listed on HKEX. The Company cements its commitment to gender diversity within its business, so it continues to review and assess the appropriate level of gender diversity and composition that aligns with the strategy of the Company. The Board is of the view that it is not necessary to set numerical targets and timeline for board gender diversity for the time being. The Company actively seeks to ensure it has an appropriate mix of diversity and has a number of initiatives in place to meet its strategic imperative of ensuring it has a diverse Board. It also conducts structured recruitment, selection and training programs at various levels within the Group to develop a broader pool of skilled and experienced potential Board members. HUTCHMED (China) Limited 2022 Annual Report 91 The Board also places tremendous emphasis on diversity (including gender diversity) across all levels of the Group. The total gender diversity of the workforce is balanced, with a slightly higher level female employee base (male represents 46% and female represents 54%). To support diversity across all facets, beyond gender, including race and ethnicity, disability, LGBTQ+, social mobility and age, the Group is enhancing diversity and inclusion efforts through employee networks, mentoring programs, equitable hiring practices, policies and awareness raising events and training for all employees to support inclusive behaviors. Further details on the gender ratio of the Group and initiatives taken to improve gender diversity across senior management and the wider workforce, together with relevant data, can be found in the 2022 Sustainability Report of the Group, which will be published together with this annual report. If the Board determines that an additional or replacement Director is required, the Nomination Committee will deploy multiple channels for identifying suitable director candidates, including referral from Directors, shareholders, management, advisors of the Company and external executive search firms. Where a retiring Director, being eligible, offers himself/herself for re-election, the Nomination Committee will consider and, if appropriate, recommend such retiring Director to stand for re-election. A circular containing the requisite information on retiring Directors who are standing for re-election will be sent to shareholders prior to a general meeting in accordance with the Hong Kong Listing Rules. Shareholders of the Company may also nominate a person to stand for election as a Director at a general meeting in accordance with the Articles of Association of the Company and applicable laws and regulations. The procedures for such proposal are posted on the website of the Company. The Nomination Committee held four meetings in 2022 with 100% attendance. Members Attended/Eligible to attend Mok Shu Kam, Tony (Chairman) Graeme Allan Jack To Chi Keung, Simon 4/4 4/4 4/4 During 2022, the Nomination Committee reviewed the structure, size and composition (in particular with regard to gender diversity) of the Board, ensuring that it has greater diversity and a balanced composition of skills and experience appropriate for the requirements of the businesses of the Group and that appropriate individuals with relevant expertise and leadership qualities are appointed to the Board to complement the capabilities of existing Directors. The Nomination Committee in May 2022 recommended to the Board the appointment of Mr Lefei Sun as a Non-executive Director. The appointment of Mr Lefei Sun was subject to a stringent nomination process in accordance with the Director Nomination Policy and Board Diversity Policy, to ensure the Board possess the necessary skills, experience and knowledge in alignment 92 with the Company’s strategy. The Company believes that Mr Lefei Sun’s substantial experience in capital markets, merger and acquisition, and business strategy in the healthcare and life sciences sectors will provide significant benefits to the Company. The Nomination Committee also assessed the independence of all other Independent Non-executive Directors and considered all of them being independent, having regard to their annual independence confirmation and the assessment of their independence with reference to the independence criteria set out in Hong Kong Listing Rules and Nasdaq Listing Rules. In particular, the Nomination Committee considered that all Independent Non-executive Directors continue to provide a balanced and independent view to the Board and play a leading role in the Board committees and bring independent and external dimension as well as constructive and informed comments on issues of the Company’s strategy, policy, performance, accountability, resources, key appointments and standards of conduct. None of the Independent Non-executive Directors have any involvement in the daily management of the Company, or any financial or other interests or relationships in the business of the Company. In addition, there are no circumstances which would materially interfere with their exercise of independent judgment. It also discussed the succession planning for Directors and senior management. At its meeting in February 2023, the Nomination Committee reviewed again the structure, skills set, expertise and competencies of the Board, affirmed the independence of the Independent Non-executive Directors, deliberated and selected Directors for retirement and re-election at the 2023 annual general meeting and recommended to the Board for consideration. It also reviewed the Board Diversity Policy and Director Nomination Policy as well as their implementation and effectiveness during 2022. These are determined to be effective. REMUNERATION OF DIRECTORS AND SENIOR MANAGEMENT REMUNERATION COMMITTEE The Remuneration Committee comprises three members and is chaired by Mr Paul Rutherford Carter, senior Independent Non-executive Director, with the Chairman Mr To Chi Keung, Simon and Independent Non- executive Director, Mr Graeme Allan Jack, as members. The composition of the Remuneration Committee meets the requirements of chairmanship and independence under the Hong Kong Listing Rules. The Remuneration Committee meets towards the end of each year to determine the remuneration package of Executive Directors and senior management of the Group and during the year to consider grants of share options and LTIP awards and other remuneration related matters. Remuneration matters are also considered and approved by way of written resolutions and where warranted, at additional meetings. CORPORATE GOVERNANCE REPORT The Remuneration Committee held six meetings in 2022 with 100% attendance. with the strategy and sustainability of the Group and are appropriate in the context of the external regulatory environment and the expectations of stakeholders. Members Attended/Eligible to attend Paul Rutherford Carter (Chairman) Graeme Allan Jack To Chi Keung, Simon 6/6 6/6 6/6 The responsibilities of the Remuneration Committee are to assist the Board in achieving its objectives of attracting, retaining and motivating a broader and more diverse pool of employees of the highest caliber and experience needed to shape and execute strategy across the Group’s substantial, diverse and international business operations. It assists the Group in the administration of a fair and transparent procedure for setting remuneration policies for all Directors and senior management of the Group. Whilst the Board retains its power to determine the remuneration of Non-executive Directors, the responsibility for reviewing and determining the remuneration package of individual Executive Directors and senior management of the Group is delegated to the Remuneration Committee. The Committee is authorized to obtain, at the Company’s expense, external legal or other professional advice on any matters within its Terms of Reference. During the year, the Remuneration Committee reviewed background information on market data (including economic indicators, statistics and the compensation benchmarking), headcount and staff costs. It also reviewed and approved the proposed 2023 directors’ fees for Executive Directors and made recommendation to the Board on the proposed 2023 directors’ fees for Independent Non-executive Directors. Prior to the end of the year, the Remuneration Committee reviewed and approved the 2022 year-end bonus and 2023 remuneration package of Executive Directors and senior management of the Group. No Director or any or his/her associates is involved in deciding his/her own remuneration. The Remuneration Committee also viewed and recommended to the Board updates to its Terms of Reference based on the latest HK CG Code which took effect on January 1, 2023. In addition, the Remuneration Committee has reviewed the approach to remuneration and reporting on executive remuneration in detail. Aimed at attracting and retaining top talent, the Remuneration Committee appointed an independent advisor, Aon Hewitt Consulting (Shanghai) Co., Ltd. (“Aon”) to conduct benchmarking research on the compensation of a peer group of U.S. and China biotech companies (the “Aon Benchmarking Research”). Aon has no other connection with the Company or individual Directors. The Remuneration Committee comprehensively reviewed the Group’s compensation and share-based incentives policies, the Aon Benchmarking Research and established an attractive policy to ensure the Group is able to recruit and retain top talent. Vesting of share-based awards under such policy is in line with the referenced peer group. The Committee takes seriously its responsibility to ensure that the executive remuneration practices of the Group drive strong performance, are aligned In addition, the Committee reviewed and made recommendation to the Board on grant of share awards under the LTIP and share options under the share options scheme to incentivize talents and professional expertise to stay and grow with the Group. Share awards and share options granted are generally with vesting period for more than 12 months. Details on the share awards and share options granted during the year are set out the Director’s Report. REMUNERATION POLICY The remuneration of Dr Weiguo Su and Mr Cheng Chig Fung, Johnny (Executive Directors) and senior management is determined by the Remuneration Committee with reference to their expertise and experience in the industry, the performance and profitability of the Group and remuneration benchmarks from other local and international companies as well as prevailing market conditions. Senior management also participates in bonus arrangements which are determined in accordance with the performance of the Group and of the individual. The Independent Non-executive Directors of the Company have been granted restricted share units bought in the market by the trustee of the LTIP (in the form of non-performance based LTIP awards) and they do not receive any performance related remuneration from the Company (please refer to the Directors’ Report for more information about Directors’ compensation). Such non-performance based LTIP awards vest 25% annually over a four year period. No new LTIP were granted to the Independent Non-executive Directors of the Company in 2022. All Directors’ compensation arrangements are approved by the Board of Directors with the relevant Directors declaring their interest and abstaining from voting where it relates to their compensation. In addition, the Nomination Committee of the Company assesses the independence of all the Independent Non-executive Directors every year having regard to the criteria under the HK CG Code. Therefore, the current compensation arrangements will not compromise the independence of the Independent Non-executive Directors. 2022 REMUNERATION Directors’ emoluments comprise payments to Directors from the Company and its subsidiaries. The emoluments of each of the Directors disclosed in the below table exclude amounts received by certain Directors from the subsidiaries of the Company but which were not retained and were paid onward by the respective Directors to a subsidiary of the Company or subsidiaries of CKHH. The amounts paid to each Director for 2022 are as below: HUTCHMED (China) Limited 2022 Annual Report 93 Name of Director Salary and fees US$’000 Executive Directors: To Chi Keung, Simon Christian Lawrence Hogg (5) Weiguo Su Cheng Chig Fung, Johnny Non-executive Directors: Dan Eldar Edith Shih Lefei Sun (10) 85 (3) (4) 88 (6) (4) 775 (8) (4) 404 (8) – – (4) – Independent Non-executive Directors: Paul Rutherford Carter Karen Jean Ferrante Graeme Allan Jack Mok Shu Kam, Tony Aggregate emoluments 117 103 111 103 1,786 Bonus US$’000 – 18 1,127 442 – – – – – – – 1,587 Benefits-in- kind US$’000 Taxable benefits US$’000 Pension contributions US$’000 Vested non- performance based LTIP(1) US$’000 Other share-based compensation(2) US$’000 – 11 6 11 – – – – – – – 28 – 42 – – – – – – – – – 42 – 5 64 29 – – – – – – – 98 139 (3) – – – 139 139 (9) – 139 139 139 139 973 Total US$’000 224 (1,155) 3,622 1,618 139 139 – 256 242 250 242 – (1,319) (7) 1,650 732 – – – – – – – 1,063 5,577 Notes: (1) (2) LTIP awards to the Chairman, Mr To Chi Keung, Simon, the Non-executive Directors and the Independent Non-executive Directors of the Company are in the form of non-performance based LTIP only. Amounts above reflect the annual amortization of the fixed monetary amounts of the LTIP awards over their vesting periods. Other share-based compensation to Mr Christian Lawrence Hogg, Dr Weiguo Su and Mr Cheng Chig Fung, Johnny includes share options and performance based LTIP awards granted to Executive Directors. Amounts above reflect the annual amortization of the fixed or determinable monetary amounts of the LTIP awards and the grant date fair value of the share options over their vesting periods. For performance based LTIP awards, the monetary amount of LTIP awards are estimated based on the expected achievement of the performance targets. The fair value of share options granted is estimated in accordance with the methodology disclosed on page 111 of this annual report. This methodology does not take into account the actual share price at the date of exercise or whether any vested share options would be exercised. The significant inputs to the valuation model are disclosed on page 125 of this annual report and the details of the share options granted are set out in the “Directors’ Report” section on pages 58 to 65. (3) Such Director’s fees and non-performance based LTIP awards were paid/transferred to his employer, Hutchison Whampoa (China) Limited. (4) Directors’ fees to these Directors from the Company’s subsidiaries during the period they served as directors have been paid to the subsidiaries of the Company/CKHH and are not included in the amounts above. (5) Retired on March 4, 2022. (6) Emoluments paid include Director’s fees of US$13,589. (7) Amounts include the reversal of the amortization expense in prior years relating to lapsed share options and performance-based LTIP awards as a result of Mr Christian Lawrence Hogg’s retirement on March 4, 2022. (8) Emoluments paid include Director’s fees of US$75,000. (9) Such non-performance based LTIP awards were transferred to her employer, Hutchison International Limited. (10) Appointed on May 16, 2022. The Committee consulted with the Group’s largest shareholder when developing its remuneration policy. In reviewing and setting remuneration, including that of Executive Directors, the Committee receives updates on investors’ views from time to time. These lines of communication ensure that emerging best-practice principles are factored into the Committee’s decision-making. 94 CORPORATE GOVERNANCE REPORT The remuneration paid to the members of Management, including salaries, pension contributions, performance related bonuses and share- based compensation (the annual amortization of share options and LTIP awards), by bands during the year (or for the period of employment in 2022) is set out below: RELATIONSHIP WITH SHAREHOLDERS AND OTHER STAKEHOLDERS Remuneration Bands Number of Individuals US$700,000 to US$1,100,000 US$1,100,000 to US$1,500,000 US$1,500,000 to US$2,100,000 2 4 3 TECHNICAL COMMITTEE The Technical Committee comprises six members and is chaired by Dr Karen Jean Ferrante with the Chairman, Mr To Chi Keung, Simon and Dr Weiguo Su, Executive Directors, Mr Lefei Sun (appointed on June 16, 2022), Non-executive Director, Mr Paul Rutherford Carter and Professor Mok Shu Kam, Tony, both Independent Non-executive Directors, as members. Mr Christian Lawrence Hogg ceased to be a member of the Technical Committee upon his retirement from the Board on March 4, 2022. The Committee considers from time to time matters relating to the technical aspects of the business and research and development. It also invites such executives as it thinks fit to attend meetings as and when required. The Technical Committee held three meetings in 2022 with 100% attendance. Members Attended/Eligible to attend Karen Jean Ferrante (Chairman) Paul Rutherford Carter Christian Lawrence Hogg (1) Mok Shu Kam, Tony Weiguo Su Lefei Sun (2) To Chi Keung, Simon 3/3 3/3 0/0 3/3 3/3 2/2 3/3 Notes: (1) Ceased to be a member upon his retirement from the Board on March 4, 2022 (2) Appointed as member on June 16, 2022 In order to stay attuned to changing expectations of stakeholders, the Group gives high priority to, and actively promotes investor relations and constructive dialogue with the investment community throughout the year. Multiple channels of communication and engagement were available. Through the CEO, the CFO, the Investor Relations Department and the Corporate Secretarial team, in addition to corporate communication of the Company, the Group engages with and responds to requests for information and queries from the investment community including shareholders, analysts and the media through regular briefing meetings, webcasts, announcements, conference calls and presentations. In 2022, over 500 investor interactions including virtual meetings, in-person meetings and conference calls and correspondence were conducted. The Board also provides clear and full information on the Group to shareholders through the publication of notices, announcements, circulars, interim and annual reports. The Memorandum and Articles of Association of the Company is published on the websites of the Company and HKEX. Moreover, a wide range of information on the Group is also available to shareholders and stakeholders on the website of the Company. A dedicated Corporate Governance section is also available on the website of the Company. The corporate governance policies and practices are available and updated on a regular basis. There is also a dedicated Sustainability section on the website containing further information on sustainability as well as the sustainability policies. AGM and other general meetings of the Company provide one of the primary forums for communication with shareholders and for shareholder participation. Such meetings provide shareholders with the opportunity to share their views and to meet the Board and certain members of senior management. Question and answer sessions at general meetings foster constructive dialogues between shareholders of the Company, Board members and Management. HUTCHMED (China) Limited 2022 Annual Report 95 Shareholders are encouraged to participate at general meetings of the Company physically, through electronic means, or by proxy if they are unable to attend in person. Pursuant to the Articles of Association of the Company, any one or more shareholders (or one shareholder which is a recognized clearing house, or its nominee(s)) holding not less than one-tenth of the paid up share capital of the Company, carrying the right of voting at general meetings of the Company, have rights to call for general meetings and to put forward agenda items for consideration by shareholders, by depositing at the principal office of the Company in Hong Kong a written requisition for such general meetings, signed by the shareholders concerned together with the objects of the meeting. The Board would within 21 days from the date of deposit of requisition convene the meeting to be held within two months after the deposit of such requisition. All substantive resolutions at general meetings are decided on a poll which is conducted by the Company Secretary and scrutinized by the Share Registrars of the Company. The results of the poll are published on the websites of the Company and applicable stock exchanges. In addition, regular updated financial, business and other information on the Group are made available to the shareholders and stakeholders on the website of the Company. The latest shareholders’ meeting of the Company was the 2022 AGM, which was held on April 27, 2022 as an electronic/hybrid meeting at which shareholders attended both physically and by electronic facilities and attended by all Directors and its external auditor. The respective chairmen of the Board, the Audit Committee, the Nomination Committee, the Remuneration Committee, the Technical Committee and the Sustainability Committee were all present. Directors are requested and encouraged to attend shareholders’ meetings. Separate resolutions were proposed at the 2022 AGM on each substantive issue and the percentage of votes cast in favor of such resolutions as disclosed in the announcement of the Company dated April 27, 2022 are set out below: Resolutions proposed at the 2022 AGM Percentage of Votes 1 Adoption of the audited financial statements, and the reports of the directors and independent auditors for the year ended 2(A) 2(B) 2(C) 2(D) 2(E) 2(F) 2(G) 2(H) 2(I) 3 4 5 December 31, 2021. Re-election of Mr To Chi Keung, Simon as a director. Re-election of Dr Weiguo Su as a director. Re-election of Mr Cheng Chig Fung, Johnny as a director. Re-election of Dr Dan Eldar as a director. Re-election of Ms Edith Shih as a director. Re-election of Mr Paul Rutherford Carter as a director. Re-election of Dr Karen Jean Ferrante as a director. Re-election of Mr Graeme Allan Jack as a director. Re-election of Professor Mok Shu Kam, Tony as a director. Appointment of PricewaterhouseCoopers and PricewaterhouseCoopers Zhong Tian LLP as the auditors of the Company for Hong Kong financial reporting and U.S. financial reporting purposes, respectively, and authorization of Directors to fix the auditors’ remuneration. Special Resolution: Granting of a general mandate to the directors of the Company to issue additional shares. Ordinary Resolution No. 5(1): Granting of a general mandate to the directors of the Company to repurchase shares of the Ordinary Resolution No. 5(2): Refreshment of the scheme mandate limit under the Long Term Incentive Plan. Company. 99.99% 92.45% 99.74% 99.71% 99.52% 99.03% 99.76% 99.98% 98.11% 97.46% 98.79% 99.39% 99.99% 91.76% Accordingly, all resolutions put to shareholders at the 2022 AGM were passed. The results of the voting by poll were published on the websites of the Company and applicable stock exchanges. Other corporate information relating to the Company is set out in the “Information for Shareholders” section of this annual report. This includes, among others, dates for key corporate events for 2023 and public float capitalization as at December 31, 2022. The Group values feedback from shareholders and other stakeholders on its efforts to promote transparency and foster investor relationship. Comments and suggestions to the Board or the Company are welcome and can be addressed to the Company Secretary by mail/e-mail or to the Company by e-mail at cosec@hutch-med.com. Institutional investors and analysts can contact the Investor Relations of the Company by email at ir@hutch-med.com. The Board receives updates from the Company Secretary and the Investor Relations of the Company from time to time on key issues raised by shareholders and investors. In developing and formulating Group strategy, the Board considers such key issues raised and takes shareholder and stakeholder feedback into account. 96 CORPORATE GOVERNANCE REPORT The Shareholders Communication Policy, which is available on the website of the Company, sets out the framework in place to promote two-way communication with shareholders so as to enable them to engage actively with the Company and exercise their rights as shareholders in an informed matter. The Audit Committee is responsible for regular review of the effectiveness and compliance with prevailing regulatory and other requirements of the policy. In January 2023, the Shareholders Communication Policy was updated to include the availability of sustainability report and sustainability policies on the website of the Company. In February 2023, the Audit Committee reviewed the policy again and considered that the implementation of the policy effective during 2022 (see “Audit Committee” on pages 80 to 81 of this report). The Board adopted a Dividend Policy for the Company. The Board intends to retain all future earnings for use in the operation and expansion of the business of the Company and does not have any present plan to pay any dividends for the immediate future. The declaration and payment of any dividends in the future will be determined by the Board, and will be dependent on a number of factors, including the earnings, capital requirements, overall financial condition, and contractual obligations of the Company. SUSTAINABILITY SUSTAINABILITY GOVERNANCE The key sustainability mission of the Group is to create long-term value for all stakeholders by aligning its sustainability objectives to the strategic development of its businesses. The Board has the overall responsibility to ensure that sustainability issues are integrated into the strategy and long-term development of the Group. It provides oversight of the sustainability performance of the Group through closely monitoring key sustainability matters and performance indicators, along with trends, risks, and opportunities that may impact the business development of the Group. Supported by the Sustainability Committee, senior management, and the Sustainability Working Group, the Board oversees the management approach to sustainability matters and the formulation of sustainability strategies. The Group firmly believes that establishing a robust sustainability governance structure is crucial for the long-term sustainable development of the Group. As a result, in 2022 the Group enhanced its governance structure to a four-tier sustainability governance framework to better reflect the workflow of group-wide sustainability initiatives as shown below. This diagram does not include the Audit Committee, which also maintains oversight of governance and risk management of the Group. Four-tier Sustainability Governance Structure of the Group BOARD LEVEL Board of Directors (Chairman, CEO & CSO, CFO, three non-executive directors (“NEDs”), four independent non-executive directors (“INEDs”)) BOARD COMMITTEE LEVEL Sustainability Committee (CFO, one NED, one INED) MANAGEMENT LEVEL Senior Management (CEO & CSO, CFO, Chief Operating Officer, Chief Medical Officer and other department heads) OPERATION LEVEL Sustainability Working Group (Representatives from different business units) HUTCHMED (China) Limited 2022 Annual Report 97 Board of Directors By closely monitoring sustainability trends, stakeholder expectations and the business needs of the Group, the Board is devoted to steering the group-wide sustainability strategy in achieving the goals and targets of the Group. The Board oversees the sustainability strategy, reporting, and risk management framework. It actively promotes the success of the Group by directing the formation and implementation of its sustainability strategy. The Board also regularly reviews progress against the Group’s sustainability objectives and targets. Sustainability Committee In response to the growing concerns of sustainability issues, the Sustainability Committee was established in 2021 to enhance the Group’s sustainability governance practices. The Sustainability Committee comprises three members and is chaired by Ms Edith Shih, Non-executive Director and Company Secretary, with Mr Cheng Chig Fung, Johnny, Executive Director, and Professor Mok Shu Kam, Tony, Independent Non-executive Director, as members. Mr Christian Lawrence Hogg ceased to be a member of the Sustainability Committee upon his retirement from the Board on March 4, 2022. It advises the Board and Management on and oversees the development and implementation of sustainability initiatives of the Group, including reviewing related policies and practices as well as assessing and making recommendations on matters pertaining to the sustainability governance, strategies, planning and risk management of the Group. In accordance with the Terms of Reference, the Sustainability Committee meets at least twice a year to review the sustainability performance of the Group and evaluate whether the Group is on track with the sustainability priorities and goals. To assist the Board in handling sustainability- related topics, the Committee meets regularly with the Board and make recommendations to the Board on the Company’s sustainability risks and opportunities, objectives, strategies, priorities, initiatives, goals, and sustainability disclosures. The Sustainability Committee held three meetings in 2022 with 90% attendance. All members attended the Sustainability Committee meetings except for a former Executive Director who was not able to attend one meeting due to other prior business commitment. Members Attended/Eligible to attend During 2022, the Committee discussed and reviewed the upcoming sustainability initiatives with respect to the stakeholders of the Company, including but not limited to the employees, investors and shareholders, customers, business partners and suppliers. It also reviewed the materiality assessment results, short to long term sustainability goals and targets, climate risk assessment, as well as the sustainability progress throughout the year. The Committee also endorsed and recommended the 2021 Sustainability Report of the Company to the Board for approval. At its meeting in February 2023, the Sustainability Committee received an update on the sustainability initiatives and progress of the 2022 Sustainability Report. The adequacy of resources, staff qualifications and experience, training programs and budget of the Group’s sustainability performance and reporting function was also examined and considered satisfactory by the Sustainability Committee. Senior Management The senior management meet regularly to discuss sustainability issues ahead of their submission to the Sustainability Committee for their review and oversight of the performance. They provide oversight on how the Sustainability Working Group integrate sustainability into daily practices. In addition, they have the overall responsibility to assess and manage sustainability issues that impact the business, including staying abreast on sustainability trends and developments of the Company. They also discuss and develop strategic direction on emerging issues, develop, shape and monitor the progress of the new sustainability targets and receive updates from the Sustainability Working Group on the overall performance. In 2022, the senior management held two meetings and participated in two internal engagement sessions related to sustainability initiatives. Sustainability Working Group The Sustainability Working Group consists of representatives from different business units. Members of the Working Group have diverse backgrounds and experience, representing a broad spectrum of skill sets across the Group’s operations. The Working Group is responsible for the operational support in driving sustainability performance across the Group. In 2022, four meetings and six data collection trainings were conducted for the Working Group members. Edith Shih (Chairman) Cheng Chig Fung, Johnny Christian Lawrence Hogg Note Mok Shu Kam, Tony 3/3 3/3 0/1 3/3 SUSTAINABILITY PROGRESS The Group made continued progress in 2022 in its commitment to the long-term sustainability of its businesses and communities in which it conducts business. Note: Ceased to be a member upon his retirement from the Board on March 4, 2022 98 CORPORATE GOVERNANCE REPORT Enhanced Sustainability Disclosure The Group enhanced its sustainability disclosure, including publishing its second Sustainability Report with reference to various sustainability reporting standards, and publishing eight governance and sustainability-related policies and statements. These are the Sustainability Policy; Environmental Policy; Human Rights Policy; Health and Safety Policy; Modern Slavery and Human Trafficking Statement; Interaction with Healthcare Organizations, Healthcare Professionals, Patients and Patient Organizations; Quality Management System Summary; and Drug Safety Information Reporting Summary. Policy details are available on the website of the Company. Enhanced disclosure, including making reference to Taskforce on Climate-related Financial Disclosure (“TCFD”) and Global Reporting Initiative (GRI) Standard disclosure frameworks, has been made in the 2022 Sustainability Report. Sustainability Goals and Targets To align with the sustainability strategy and facilitate the monitoring of its sustainability performance, the Board has set up and committed to 11 short, medium and long term new sustainability-related goals and targets for the Company and its subsidiaries to achieve by 2050, covering all three areas of environmental, social and governance. These new targets are an important aspect in achieving the Company’s long-term vision of being a more sustainable business. In adopting a S.M.A.R.T (Specific, Measurable, Achievable, Relevant, Timely) target setting approach, the Sustainability Working Group and senior management reviewed historical trends, goals and targets of peer companies as well as key messages and ambitions, to ensure practicability and effectiveness of its targets. The goals and targets were based on the results of the comprehensive materiality assessment (i.e. an assessment of the level of importance to stakeholders of the Company). Following which, the set of targets were further discussed and reviewed by the Sustainability Committee before being approved by the Board. Please refer to the 2022 Sustainability Report for an overview, details and progress of each goal and target. Stakeholder Engagement and Materiality Analysis Understanding the needs and expectations of the stakeholders of the Group has been and continues to be vital to the development of its sustainability strategy. It enables the Group to identify and prioritize existing and emerging risks and opportunities across its business operations. Materiality to the business is driven by internal and external viewpoints on how each sustainability issue impacts the business and stakeholders, as well as the Group’s impacts on society and the environment. The Group maintains an ongoing, open, and transparent dialogue with stakeholders to maximize opportunities for them to share their perceptions and build long-term relationships. Gathering views from its stakeholders helps the Group analyze and identify emerging social and environmental risks and opportunities to the business. Key stakeholder groups include employees, investors and shareholders, governments and regulators, healthcare professionals and patients, business partners, suppliers, industry associations and academia, non-government organizations and the community, and the media. Key outcomes of the engagement are summarized in the 2022 Sustainability Report. The Board, with the support of an independent third-party, initiated a robust and comprehensive materiality assessment in 2022, involving both internal and external stakeholders to understand their perceptions of the sustainability strategy of the Company and their evolving expectations and priorities for the future. The importance and relevance of a range of sustainability issues to the Group have been identified, assessed, and prioritized. The Group believes that material issues should be prioritized to ensure its efforts remain focused on those areas where it can have the greatest impact and be in a better position to anticipate evolving sustainability trends. Getting a better understanding of the Company’s sustainability position and the insights collected can help in embedding sustainability practices into its operations. The materiality assessment matrix mapped 33 sustainability material issues. All material issues have been addressed in the 2022 Sustainability Report in accordance with the various reporting standards. The top five material issues to internal and external stakeholders have been identified as Business Ethics, Product Quality & Safety, Patient Outcomes, Clinical Trial Practices, and Product Innovation. Action on Climate Risks In 2022, an independent third-party was engaged to conduct a climate risk assessment to identify climate-related risks and opportunities, as well as the potential financial impacts to help the Company better formulate its climate resilience strategy. Climate-related risk was newly added into the sustainability risks in the ERM framework of the Company following its climate-risk assessment. Please refer to the 2022 Sustainability Report with the first TCFD disclosures of the Company for details. The Group believes that these efforts will guide it towards a more sustainable future. A standalone Sustainability Report of the Company for 2022 is published alongside the 2022 Annual Report and includes further information on the Group’s sustainability initiatives and their performances. It further discusses the abovementioned sustainability mission and strategies, management approach, progress, material quantitative data, as well as policies and key initiatives of the Group. By Order of the Board Edith Shih Director and Company Secretary February 28, 2023 HUTCHMED (China) Limited 2022 Annual Report 99 To the Shareholders of HUTCHMED (China) Limited (incorporated in the Cayman Islands with limited liability) Opinion What we have audited Basis for Opinion We conducted our audit in accordance with Hong Kong Standards on Auditing (“HKSAs”) issued by the HKICPA. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. The consolidated financial statements of HUTCHMED (China) Limited (the “Company”) and its subsidiaries (the “Group”), which are set out on pages 104 to 152, comprise: We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. the consolidated balance sheets as at 31 December 2022; Independence the consolidated statements of operations for the year then ended; We are independent of the Group in accordance with the HKICPA’s Code of Ethics for Professional Accountants (“the Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. the consolidated statements of comprehensive loss for the year then ended; Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter identified in our audit is related to the allowances for credit losses on accounts receivable and other receivables (except for prepayments). • • • • • • the consolidated statements of changes in shareholders’ equity for the year then ended; the consolidated statements of cash flows for the year then ended; and the notes to the consolidated financial statements, which include significant accounting policies and other explanatory information. Our opinion In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2022, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance. 100 INDEPENDENT AUDITOR’S REPORTKey Audit Matter How our audit addressed the Key Audit Matter Allowances for credit losses on accounts receivable and other receivables (except for prepayments) We performed the following audit procedures on the allowances for credit losses on accounts receivable and other receivables (except for prepayments): Refer to Notes 3, 6 and 7 to the consolidated financial statements. We obtained an understanding of management’s assessment process of As described in Note 6 to the consolidated financial statements, as of December 31, 2022, the gross balance of accounts receivable was US$98.0 million and an allowance for credit losses of less than US$0.1 million was made. As described in Note 7 to the consolidated financial statements, as of December 31, 2022, the gross balance of other receivables was US$54.2 million which consisted of the balance of prepayments of US$22.3 million, and no allowance for credit losses was made. As described in Note 3 to the consolidated financial statements, the allowances for credit losses were made based on estimate of current expected credit losses to be incurred over the expected life of the receivables. There were significant estimates and judgments by management when developing the current expected credit losses to be incurred over the expected life of the receivables, which in turn led to a high degree of auditor judgment and significant audit effort in evaluating the audit evidence related to the accounts receivable and other receivables (except for prepayments) portfolio groups and estimated loss rates used by management. allowances for credit losses on accounts receivable and other receivables (except for prepayments) and internal controls and assessed the degree of complexity, subjectivity and uncertainty related to the significant management estimates and judgements used. We evaluated and validated key internal controls relating to management’s estimate of allowances for credit losses on accounts receivable and other receivables (except for prepayments). We evaluated the appropriateness of the model and methodology used by management to develop the current expected credit losses. We assessed the reasonableness of accounts receivable and other receivables (except for prepayments) portfolio groups used by management by evaluating the credit risk characteristics of these receivables. We assessed the reasonableness of estimated loss rates used by management by evaluating the historical default rates and application of forward-looking information. We tested the accuracy and completeness of the underlying data, including historical collection records and aging of the receivables, on a sample basis, by comparing selected items with relevant supporting documents, and tested the mathematical accuracy of allowances for credit losses. Based on the audit procedures performed, we found that the estimates used and judgments made by management in developing the allowances for credit losses on accounts receivable and other receivables (except for prepayments) were supportable in light of available evidence. Other Information The directors of the Group are responsible for the other information. The other information comprises all of the information included in the annual report other than the consolidated financial statements and our auditor’s report thereon. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. HUTCHMED (China) Limited 2022 Annual Report 101 • • • • • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. Responsibilities of Directors for the Consolidated Financial Statements The directors of the Group are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with U.S. GAAP and the disclosure requirements of the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. The directors are responsible for overseeing the Group’s financial reporting process. Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. We report our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with HKSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with HKSAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. 102 INDEPENDENT AUDITOR’S REPORTFrom the matters communicated with the directors, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in this independent auditor’s report is Cheuk Chi Shing. PricewaterhouseCoopers Certified Public Accountants Hong Kong, February 28, 2023 HUTCHMED (China) Limited 2022 Annual Report 103 CONSOLIDATED FINANCIAL STATEMENTS HUTCHMED (CHINA) LIMITED CONSOLIDATED BALANCE SHEETS (IN US$’, EXCEPT SHARE DATA) Note 2022 2021 December 31, Assets Current assets Cash and cash equivalents Short-term investments Accounts receivable Other receivables, prepayments and deposits Inventories Total current assets Property, plant and equipment Right-of-use assets Deferred tax assets Investments in equity investees Other non-current assets Total assets Liabilities and shareholders’ equity Current liabilities Accounts payable Other payables, accruals and advance receipts Bank borrowings Income tax payable Other current liabilities Total current liabilities Lease liabilities Deferred tax liabilities Long-term bank borrowings Other non-current liabilities Total liabilities Commitments and contingencies Company’s shareholders’ equity Ordinary shares; $0.10 par value; 1,500,000,000 shares authorized; 864,775,340 and 864,530,850 shares issued at December 31, 2022 and 2021 respectively Additional paid-in capital Accumulated losses Accumulated other comprehensive (loss)/income Total Company’s shareholders’ equity Non-controlling interests Total shareholders’ equity Total liabilities and shareholders’ equity 5 5 6 7 8 9 10 24(ii) 11 12 13 14 24(iii) 10 24(ii) 14 15 16 313,278 317,718 97,988 54,214 56,690 839,888 75,947 8,722 15,366 73,777 15,745 1,029,445 71,115 264,621 — 1,112 17,055 353,903 5,196 2,710 18,104 12,662 392,575 86,478 1,497,273 (971,481) (1,903) 610,367 26,503 636,870 1,029,445 377,542 634,158 83,580 81,041 35,755 1,212,076 41,275 11,879 9,401 76,479 21,551 1,372,661 41,177 210,839 26,905 15,546 17,191 311,658 7,161 2,765 — 11,563 333,147 86,453 1,505,196 (610,328) 5,572 986,893 52,621 1,039,514 1,372,661 The accompanying notes are an integral part of these consolidated financial statements. 104 HUTCHMED (CHINA) LIMITED CONSOLIDATED STATEMENTS OF OPERATIONS (IN US$’, EXCEPT SHARE AND PER SHARE DATA) Note 2022 Year Ended December 31, 2021 2020 Revenues Goods Services —third parties —related parties —commercialization—third parties —collaboration research and development —third parties 23(i) —research and development—related parties 23(i) Other collaboration revenue —royalties—third parties —licensing—third parties Total revenues Operating expenses Costs of goods—third parties Costs of goods—related parties Costs of services—commercialization —third parties Research and development expenses Selling expenses Administrative expenses Total operating expenses Gain on divestment of an equity investee Other (expense)/income Interest income Other income Interest expense Other expense 18 20 22 26 26 Total other (expense)/income Loss before income taxes and equity in earnings of equity investees Income tax benefit/(expense) Equity in earnings of equity investees, net of tax 24(i) 11 Net loss Less: Net income attributable to non-controlling interests Net loss attributable to the Company Losses per share attributable to the Company—basic and diluted (US$ per share) Number of shares used in per share calculation—basic and diluted 314,329 5,293 41,275 23,741 507 26,310 14,954 426,409 (268,698) (3,616) (38,789) (386,893) (43,933) (92,173) (834,102) (407,693) — 9,599 1,833 (652) (13,509) (2,729) (410,422) 283 49,753 (360,386) (449) (360,835) 266,199 4,256 27,428 18,995 525 15,064 23,661 356,128 (229,448) (3,114) (25,672) (299,086) (37,827) (89,298) (684,445) (328,317) 121,310 2,076 2,426 (592) (12,643) (8,733) (215,740) (11,918) 60,617 (167,041) (27,607) (194,648) 203,606 5,484 3,734 9,771 491 4,890 — 227,976 (178,828) (3,671) (6,020) (174,776) (11,334) (50,015) (424,644) (196,668) — 3,236 4,600 (787) (115) 6,934 (189,734) (4,829) 79,046 (115,517) (10,213) (125,730) 25 25 (0.43) 847,143,540 (0.25) 792,684,524 (0.18) 697,931,437 The accompanying notes are an integral part of these consolidated financial statements. HUTCHMED (China) Limited 2022 Annual Report 105 HUTCHMED (CHINA) LIMITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (IN US$’) Net loss Other comprehensive (loss)/income Foreign currency translation (loss)/gain Total comprehensive loss Less: Comprehensive loss/(income) attributable to non-controlling interests Total comprehensive loss attributable to the Company Year Ended December 31, 2022 2021 2020 (360,386) (167,041) (115,517) (8,469) (368,855) 545 (368,310) 2,964 (164,077) (28,029) (192,106) 9,530 (105,987) (11,413) (117,400) The accompanying notes are an integral part of these consolidated financial statements. 106 HUTCHMED (CHINA) LIMITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (IN US$’, EXCEPT SHARE DATA IN ’) Ordinary Shares Number Ordinary Shares Value Additional Paid-in Capital Accumulated Losses Accumulated Other Comprehensive (Loss)/Income Total Company’s Shareholders’ Equity 666,906 66,691 514,904 (289,734) (3,849) 288,012 — — — (125,730) As at January 1, 2020 Net (loss)/income Issuance in relation to public offering 23,669 2,366 115,975 Issuances in relation to private investment in public equity (“PIPE”) Issuance costs Issuances in relation to share option exercises Share-based compensation Share options Long-term incentive plan ("LTIP") LTIP—treasury shares acquired and held by Trustee Dividends declared to non-controlling shareholders of subsidiaries Purchase of additional interests in a subsidiary of an equity investee (Note 11) Transfer between reserves Foreign currency translation adjustments 36,667 3,667 196,333 — 480 — — — — — — — — — 48 — — — — — — — — (8,317) 545 8,727 7,203 15,930 (12,904) — (52) 44 — — — — — — — — — — (83) (44) — As at December 31, 2020 Net (loss)/income 727,722 72,772 822,458 (415,591) — — — (194,648) Issuance in relation to public offering 119,600 11,960 602,907 Issuance in relation to PIPE Issuance costs Issuances in relation to share option exercises Share-based compensation Share options LTIP LTIP—treasury shares acquired and held by Trustee Dividends declared to non-controlling shareholders of subsidiaries Transfer between reserves Divestment of an equity investee (Note 22) Foreign currency translation adjustments As at December 31, 2021 Net (loss)/income Issuances in relation to share option exercises Share-based compensation Share options LTIP LTIP—treasury shares acquired and held by Trustee Dividends declared to non-controlling shareholders of subsidiaries Transfer between reserves Foreign currency translation adjustments As at December 31, 2022 16,393 1,639 98,361 — 816 — — — — — — — — — 82 — — — — — — — — (29,806) 2,370 16,339 19,808 36,147 (27,309) — 89 (21) — — — — — — — — — — (89) — — 864,531 86,453 1,505,196 (610,328) — 244 — — — — — — — — 25 — — — — — — — — 149 6,724 32,970 39,694 (48,084) — 318 — (360,835) — — — — — — (318) — Non- controlling Interests 24,891 10,213 — — — — 10 16 26 — Total Shareholders’ Equity 312,903 (115,517) 118,341 200,000 (8,317) 593 8,737 7,219 15,956 (12,904) (125,730) 118,341 200,000 (8,317) 593 8,727 7,203 15,930 (12,904) — (1,462) (1,462) (139) — 8,330 484,116 (194,648) 614,867 100,000 (29,806) 2,452 16,339 19,808 36,147 (27,309) — — (1,468) 2,542 (35) — 1,200 34,833 27,607 — — — — 26 70 96 — (174) — 9,530 518,949 (167,041) 614,867 100,000 (29,806) 2,452 16,365 19,878 36,243 (27,309) (9,894) (9,894) — (443) 422 — (1,911) 2,964 986,893 52,621 1,039,514 (360,835) 174 6,724 32,970 39,694 (48,084) — — 449 — 12 15 27 — (360,386) 174 6,736 32,985 39,721 (48,084) (25,600) (25,600) — (994) — (8,469) — — — — — — — — — — (4) — 8,330 4,477 — — — — — — — — — — — (1,447) 2,542 5,572 — — — — — — — — 864,775 86,478 1,497,273 (971,481) (1,903) 610,367 26,503 636,870 (7,475) (7,475) The accompanying notes are an integral part of these consolidated financial statements. HUTCHMED (China) Limited 2022 Annual Report 107 HUTCHMED (CHINA) LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN US$’) Net cash used in operating activities Investing activities Purchases of property, plant and equipment Purchase of leasehold land Refund/(payment) of leasehold land deposit Deposits in short-term investments Proceeds from short-term investments Purchase of a warrant Dividend and proceeds received from divestment of Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited (“HBYS”) Deposit received for divestment of other equity investee Net cash generated from/(used in) investing activities Financing activities Proceeds from issuances of ordinary shares Purchases of treasury shares Dividends paid to non-controlling shareholders of subsidiaries Repayment of loan to a non-controlling shareholder of a subsidiary Proceeds from bank borrowings Repayment of bank borrowings Payment of issuance costs Net cash (used in)/generated from financing activities Net (decrease)/increase in cash and cash equivalents Effect of exchange rate changes on cash and cash equivalents Cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Supplemental disclosure for cash flow information Cash paid for interest Cash paid for tax, net of refunds Supplemental disclosure for non-cash activities Increase in accrued capital expenditures Vesting of treasury shares for LTIP Note 27 2022 (268,599) Year Ended December 31, 2021 (204,223) (36,664) — — (1,202,013) 1,518,453 — 16,488 324 296,588 174 (48,084) (25,600) — 17,753 (26,923) (83) (82,763) (54,774) (9,490) (64,264) 377,542 313,278 150 18,891 9,618 12,034 19 22 11 17(ii) 24(iii) 17(ii) 2020 (62,066) (7,949) (11,631) (2,326) (732,908) 629,373 — — — (16,401) (355) 930 (1,355,976) 921,364 (15,000) 159,118 — (306,320) (125,441) 717,319 (27,309) (9,894) (579) — — (29,509) 650,028 139,485 2,427 141,912 235,630 377,542 425 5,014 8,607 1,450 318,934 (12,904) (1,462) — — — (8,134) 296,434 108,927 5,546 114,473 121,157 235,630 815 5,940 298 4,828 The accompanying notes are an integral part of these consolidated financial statements. 108 HUTCHMED (CHINA) LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Nature of Business HUTCHMED (China) Limited (the “Company”) and its subsidiaries (together the “Group”) are principally engaged in researching, developing, manufacturing and marketing pharmaceutical products. The Group and its equity investees have research and development facilities and manufacturing plants in the People’s Republic of China (the “PRC”) and sell their products mainly in the PRC, including Hong Kong and Macau. In addition, the Group has established international operations in the United States of America (the “U.S.”) and Europe. The Company’s ordinary shares are listed on the Main Board of The Stock Exchange of Hong Kong Limited (“HKEX”) and the AIM market of the London Stock Exchange, and its American depositary shares (“ADS”) are traded on the Nasdaq Global Select Market. Liquidity As at December 31, 2022, the Group had accumulated losses of US$971,481,000 primarily due to its spending in drug research and development activities. The Group regularly monitors current and expected liquidity requirements to ensure that it maintains sufficient cash balances and adequate credit facilities to meet its liquidity requirements in the short and long term. As at December 31, 2022, the Group had cash and cash equivalents of US$313,278,000, short-term investments of US$317,718,000 and unutilized bank borrowing facilities of US$140,289,000. Short-term investments comprised of bank deposits maturing over three months. The Group’s operating plan includes the continued receipt of dividends from an equity investee. Dividends received for the years ended December 31, 2022, 2021 and 2020 were US$43,718,000, US$49,872,000 and US$86,708,000 respectively. Based on the Group’s operating plan, the existing cash and cash equivalents, short-term investments and unutilized bank borrowing facilities are considered to be sufficient to meet the cash requirements to fund planned operations and other commitments for at least the next twelve months from the issuance date of the consolidated financial statements (the look-forward period used). 2. Particulars of Principal Subsidiaries and Equity Investee Name Subsidiaries HUTCHMED Limited HUTCHMED International Corporation Hutchison Whampoa Sinopharm Pharma- ceuticals (Shanghai) Company Limited (“HSPL”) Hutchison Healthcare Limited Place of establish- ment and operations Equity interest attributable to the Group December 31, 2022 2021 Principal activities PRC U.S. PRC PRC 99.75 % 99.75 % Research, development, manufacture and commercialization of pharmaceutical products 99.75 % 99.75 % Provision of professional, scientific and 50.87 % 50.87 % technical support services Provision of sales, distribution and marketing services to pharmaceutical manufacturers 100 % 100 % Manufacture and distribution of healthcare products Hutchison Hain Organic (Hong Kong) Hong Kong 50 % 50 % Wholesale and trading of healthcare and Limited (“HHOHK”) (note) consumer products HUTCHMED Science Nutrition Limited Hong Kong 100 % 100 % Wholesale and trading of healthcare and consumer products Equity investee Shanghai Hutchison Pharmaceuticals PRC 50 % 50 % Manufacture and distribution of prescription Limited (“SHPL”) drug products Note: HHOHK is regarded as a subsidiary of the Company, as while both its shareholders have equal representation at the board, in the event of a deadlock, the Group has a casting vote and is therefore able to unilaterally control the financial and operating policies of HHOHK. HUTCHMED (China) Limited 2022 Annual Report 109 The Group places substantially all of its cash and cash equivalents and short-term investments in major financial institutions, which management believes are of high credit quality. The Group has a practice to limit the amount of credit exposure to any particular financial institution. Additionally, the Group has policies in place to ensure that sales are made to customers with an appropriate credit history and the Group performs periodic credit evaluations of its customers. Normally the Group does not require collateral from trade debtors. The Group has not had any material credit losses. Cash and Cash Equivalents The Group considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Cash and cash equivalents consist primarily of cash on hand and bank deposits and are stated at cost, which approximates fair value. Short-term Investments Short-term investments include deposits placed with banks with original maturities of more than three months but less than one year. Accounts Receivable Accounts receivable are stated at the amount management expects to collect from customers based on their outstanding invoices. The allowance for CECLs reflects the Group's current estimate of credit losses expected to be incurred over the life of the receivables. The Group considers various factors in establishing, monitoring, and adjusting its allowance for CECLs including the aging of the accounts and aging trends, the historical level of charge-offs, and specific exposures related to particular customers. The Group also monitors other risk factors and forward-looking information, such as country risk, when determining credit limits for customers and establishing adequate allowances for CECLs. Accounts receivable are written off after all reasonable means to collect the full amount (including litigation, where appropriate) have been exhausted. Inventories Inventories are stated at the lower of cost or net realizable value. Cost is determined using the weighted average cost method. The cost of finished goods comprises raw materials, direct labor, other direct costs and related production overheads based on normal operating capacity. Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. A provision for excess and obsolete inventory will be made based primarily on forecasts of product demand and production requirements. The excess balance determined by this analysis becomes the basis for excess inventory charge and the written-down value of the inventory becomes its cost. Written-down inventory is not written up if market conditions improve. 3. Summary of Significant Accounting Policies Principles of Consolidation and Basis of Presentation The accompanying consolidated financial statements reflect the accounts of the Company and all of its subsidiaries in which a controlling interest is maintained. All inter-company balances and transactions have been eliminated in consolidation. The consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the U.S. (“U.S. GAAP”). Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Foreign Currency Translation The Company’s presentation currency and functional currency is the U.S. dollar (“US$”). The financial statements of its subsidiaries with a functional currency other than the US$ have been translated into the Company’s presentation currency. All assets and liabilities of the subsidiaries are translated using year-end exchange rates and revenues and expenses are translated at average exchange rates for the year. Translation adjustments are in accumulated other comprehensive (loss)/income in shareholders’ equity. reflected Net foreign currency exchange losses of US$5,704,000 and net foreign currency exchange gains of US$1,671,000 and US$3,265,000 were recorded in other expense and income in the consolidated statements of operations for the years ended December 31, 2022, 2021 and 2020 respectively. Foreign Currency Risk The Group’s operating transactions and its assets and liabilities in the PRC are mainly denominated in Renminbi (“RMB”), which is not freely convertible into foreign currencies. The Group’s cash and cash equivalents denominated in RMB are subject to government controls. The value of the RMB is subject to fluctuations from central government policy changes and international economic and political developments that affect the supply and demand of RMB in the foreign exchange market. In the PRC, certain foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (the “PBOC”). Remittances in currencies other than RMB by the Group in the PRC must be processed through the PBOC or other PRC foreign exchange regulatory bodies which require certain supporting documentation in order to complete the remittance. Allowance for Current Expected Credit Losses and Concentration of Credit Risk Financial instruments that potentially expose the Group to credit risk consist primarily of cash and cash equivalents, short-term investments, and financial assets not carried at fair value including accounts receivable and other receivables. The Group recognizes an allowance for current expected credit losses (“CECLs”) on financial assets not carried at fair value. CECLs are calculated over the expected life of the financial assets on an individual or a portfolio basis considering information available about the counterparties’ credit situation and collectability of the specific cash flows, including information about past events, current conditions and future forecasts. 110 Property, Plant and Equipment Other Intangible Assets Property, plant and equipment consist of buildings, leasehold improvements, plant and equipment, furniture and fixtures, other equipment and motor vehicles. Property, plant and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the depreciable assets. Buildings Plant and equipment Furniture and fixtures, other equipment and motor vehicles Leasehold improvements 20 years 5-10 years 4-5 years Shorter of (a) 5 years or (b) remaining term of lease Additions and improvements that extend the useful life of an asset are capitalized. Repairs and maintenance costs are expensed as incurred. Impairment of Long-Lived Assets for impairment whenever events or changes The Group evaluates the recoverability of long-lived assets in for the accordance with authoritative guidance on accounting impairment or disposal of long-lived assets. The Group evaluates long- lived assets in circumstances indicate that the carrying value of these assets may not be recoverable. If indicators of impairment exist, the first step of the impairment test is performed to assess if the carrying value of the net assets exceeds the undiscounted cash flows of the assets. If yes, the second step of the impairment test is performed in order to determine if the carrying value of the net assets exceeds the fair value. If yes, impairment is recognized for the excess. Investments in Equity Investees Investments in equity investees over which the Group has significant influence are accounted for using the equity method. The Group evaluates equity method investments for impairment when events or circumstances suggest that their carrying amounts may not be recoverable. An impairment charge would be recognized in earnings for a decline in value that is determined to be other-than-temporary after assessing the severity and duration of the impairment and the likelihood of recovery before disposal. The investments are recorded at fair value only if impairment is recognized. Leasehold Land Leasehold land represents fees paid to acquire the right to use the land on which various plants and buildings are situated for a specified period of time from the date the respective right was granted and are stated at cost less accumulated amortization and impairment loss, if any. Amortization is computed using the straight-line basis over the lease period of 50 years. Goodwill Goodwill represents the excess of the purchase price plus fair value of non-controlling interests over the fair value of identifiable assets and liabilities acquired. Goodwill is not amortized, but is tested for impairment at the reporting unit level on at least an annual basis or when an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. When performing an evaluation of goodwill impairment, the Group has the option to first assess qualitative factors, such as significant events and changes to expectations and activities that may have occurred since the last impairment evaluation, to determine if it is more likely than not that goodwill might be impaired. If as a result of the qualitative assessment, that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the quantitative fair value test is performed to determine if the fair value of the reporting unit exceeds its carrying value. Other intangible assets with finite useful lives are carried at cost less accumulated amortization and impairment loss, if any. Amortization is computed using the straight-line basis over the estimated useful lives of the assets. Borrowings Borrowings are recognized initially at fair value, net of debt issuance costs incurred. Borrowings are subsequently stated at amortized cost; any difference between the proceeds (net of debt issuance costs) and the redemption value is recognized in the consolidated statements of operations over the period of the borrowings using the effective interest method. Ordinary Shares The Company’s ordinary shares are stated at par value of US$0.10 per ordinary share. The difference between the consideration received, net of issuance cost, and the par value is recorded in additional paid-in capital. Treasury Shares The Group accounts for treasury shares under the cost method. The treasury shares are purchased for the purpose of the LTIP and held by a trustee appointed by the Group (the “Trustee”) prior to vesting. Share-Based Compensation Share options The Group recognizes share-based compensation expense on share options granted to employees and directors based on their estimated grant date fair value using the Polynomial model. This Polynomial pricing model uses various inputs to measure fair value, including the market value of the Company’s underlying ordinary shares at the grant date, contractual terms, estimated volatility, risk-free interest rates and expected dividend yields. The Group recognizes share-based compensation expense in the consolidated statements of operations on a graded vesting basis over the requisite service period, and accounts for forfeitures as they occur. Share options are classified as equity-settled awards. Share-based compensation expense, when recognized, is charged to the consolidated statements of operations with the corresponding entry to additional paid-in capital. HUTCHMED (China) Limited 2022 Annual Report 111 LTIP Revenue Recognition The Group recognizes the share-based compensation expense on the LTIP awards based on a fixed or determinable monetary amount on a straight-line basis for each annual tranche awarded over the requisite period. For LTIP awards with performance targets, prior to their determination date, the amount of LTIP awards that is expected to vest takes into consideration the achievement of the performance conditions and the extent to which the performance conditions are likely to be met. Performance conditions vary by awards, and may include targets for shareholder returns, financings, revenues, net profit after taxes and the achievement of clinical and regulatory milestones. These LTIP awards are classified as liability-settled awards before the determination date (i.e. the date when the achievement of any performance conditions are known), as they settle in a variable number of shares based on a determinable monetary amount, which is determined upon the actual achievement of performance targets. As the extent of achievement of the performance targets is uncertain prior to the determination date, a probability based on management’s assessment of the achievement of the performance targets has been assigned to calculate the amount to be recognized as an expense over the requisite period. After the determination date or if the LTIP awards have no performance conditions, the LTIP awards are classified as equity-settled awards. If the performance target is achieved, the Group will pay the determined monetary amount to the Trustee to purchase ordinary shares of the Company or the equivalent ADS. Any cumulative compensation expense previously recognized as a liability will be transferred to additional paid-in capital. If the performance target is not achieved, no ordinary shares or ADS of the Company will be purchased and the amount previously recorded in the liability will be reversed and included in the consolidated statements of operations. Defined Contribution Plans The Group’s subsidiaries in the PRC participate in a government- mandated multi-employer defined contribution plan pursuant to which certain retirement, medical and other welfare benefits are provided to employees. The relevant labor regulations require the Group’s subsidiaries in the PRC to pay the local labor and social welfare authority’s monthly contributions at a stated contribution rate based on the monthly basic compensation of qualified employees. The relevant local labor and social welfare authorities are responsible for meeting all retirement benefits obligations and the Group’s subsidiaries in the PRC have no further commitments beyond their monthly contributions. The contributions to the plan are expensed as incurred. The Group also makes payments to other defined contribution plans for the benefit of employees employed by subsidiaries outside the PRC. The defined contribution plans are generally funded by the relevant companies and by payments from employees. The Group’s contributions to defined contribution plans for the years ended December 31, 2022, 2021 and 2020 amounted to US$11,795,000, US$7,181,000 and US$2,660,000 respectively. Revenue is measured based on consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Group from a customer, are also excluded from revenue. The Group recognizes revenue when it satisfies a performance obligation by transferring control over a good, service or license to a customer. (i) Goods and services The Group principally generates revenue from (1) sales of goods, which are the manufacture or purchase and distribution of pharmaceutical products and other consumer health products, and (2) provision of services, which are the provision of sales, distribution and marketing services to pharmaceutical manufacturers. The Group evaluates whether it is the principal or agent for these contracts. Where the Group obtains control of the goods for distribution, it is the principal (i.e. recognizes sales of goods on a gross basis). Where the Group does not obtain control of the goods for distribution, it is the agent (i.e. recognizes provision of services on a net basis). Control is primarily evidenced by taking physical possession and inventory risk of the goods. Revenue from sales of goods is recognized when the customer takes possession of the goods. This usually occurs upon completed delivery of the goods to the customer site. The amount of revenue recognized is adjusted for expected sales incentives as stipulated in the contract, which are generally issued to customers as direct discounts at the point- of-sale or indirectly in the form of rebates. Sales incentives are estimated using the expected value method. Additionally, sales are generally made with a limited right of return under certain conditions. Revenues are recorded net of provisions for sales discounts and returns. Revenue from provision of services is recognized when the benefits of the services transfer to the customer over time, which is based on the proportionate value of services rendered as determined under the terms of the relevant contract. Additionally, when the amounts that can be invoiced correspond directly with the value to the customer for performance completed to date, the Group recognizes revenue from provision of services based on amounts that can be invoiced to the customer. Deferred revenue is recognized if consideration is received in advance of transferring control of the goods or rendering of services. Accounts receivable is recognized if the Group has an unconditional right to bill the customer, which is generally when the customer takes possession of the goods or services are rendered. Payment terms differ by subsidiary and customer, but generally range from 45 to 180 days from the invoice date. (ii) License and collaboration contracts The Group’s Oncology/Immunology reportable segment includes revenue generated from license and collaboration contracts, which generally contain multiple performance obligations including (1) the license to the commercialization rights of a drug compound and (2) the research and development services for each specified treatment indication, which are accounted for separately if they are distinct, i.e. if a product or service is separately identifiable from other items in the arrangement and if a customer can benefit from it on its own or with other resources that are readily available to the customer. 112 in the The transaction price generally includes fixed and variable form of upfront payment, research and consideration development cost reimbursements, contingent milestone payments and sales-based royalties. Contingent milestone payments are not included in the transaction price until it becomes probable that a significant reversal of revenue will not occur, which is generally when the specified milestone is achieved. The allocation of the transaction price to each performance obligation is based on the relative standalone selling prices of each performance obligation determined at the inception of the contract. The Group estimates the standalone selling prices based on the income approach. Control of the license to the drug compounds transfers at the inception date of the collaboration agreements and consequently, amounts allocated to this performance obligation are generally recognized at a point in time. Conversely, research and development services for each specified indication are performed over time and amounts allocated to these performance obligations are generally recognized over time using cost inputs as a measure of progress. The Group has determined that research and development expenses provide an appropriate depiction of measure of progress for the research and development services. Changes to estimated cost inputs may result in a cumulative catch-up adjustment. Royalty revenues are recognized as future sales occur as they meet the requirements for the sales-usage based royalty exception. Deferred revenue is recognized if allocated consideration is received in advance of the Group rendering research and development services or earning royalties on future sales. Accounts receivable is recognized based on the terms of the contract and when the Group has an unconditional right to bill the customer, which is generally when research and development services are rendered. Research and Development Expenses Research and development expenses include the following: (i) research and development costs, which are expensed as incurred; (ii) acquired in-process research and development (“IPR&D”) expenses, which include the initial costs of externally developed IPR&D projects, acquired directly in a transaction other than a business combination, that do not have an alternative future use; and (iii) milestone payment obligations for externally developed IPR&D projects incurred prior to regulatory approval of the product in the in-licensed territory, which are accrued when the event requiring payment of the milestone occurs (milestone payment obligations incurred upon regulatory approval are recorded as other intangible assets). Collaborative Arrangements The Group enters into collaborative arrangements with collaboration partners that fall under the scope of Accounting Standards Codification (“ASC”) 808, Collaborative Arrangements (“ASC 808”). The Group records all expenditures for such collaborative arrangements in research and development expenses as incurred, including payments to third party vendors and reimbursements to collaboration partners, if any. Reimbursements from collaboration partners are recorded as reductions to research and development expenses and accrued when they can be contractually claimed. Government Grants Grants from governments are recognized at their fair values. Government grants that are received in advance are deferred and recognized in the consolidated statements of operations over the period necessary to match them with the costs that they are intended to compensate. Government grants in relation to the achievement of stages of research and development projects are recognized in the consolidated statements of operations when amounts have been received and all attached conditions have been met. Non-refundable grants received without any further obligations or conditions attached are recognized immediately in the consolidated statements of operations. Leases In an operating lease, a lessee obtains control of only the use of the underlying asset, but not the underlying asset itself. An operating lease is recognized as a right-of-use asset with a corresponding liability at the date which the leased asset is available for use by the Group. The Group recognizes an obligation to make lease payments equal to the present value of the lease payments over the lease term. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Group will exercise that option. for separately: Lease liabilities include the net present value of the following lease payments: (i) fixed payments; (ii) variable lease payments that depend on an index or a rate; and (iii) payments of penalties for terminating the lease if the lease term reflects the lessee exercising that option, if any. Lease liabilities exclude the following payments that are generally accounted (i) non-lease components, such as maintenance and security service fees and value added tax, and (ii) any payments that a lessee makes before the lease commencement date. The lease payments are discounted using the interest rate implicit in the lease or if that rate cannot be determined, the lessee’s incremental borrowing rate being the rate that the lessee would have to pay to borrow the funds in its currency and jurisdiction necessary to obtain an asset of similar value, economic environment and terms and conditions. An asset representing the right to use the underlying asset during the lease term is recognized that consists of the initial measurement of the operating lease liability, any lease payments made to the lessor at or before the commencement date less any lease incentives received, any initial direct cost incurred by the Group and any restoration costs. is subsequently measured at cost After commencement of the operating lease, the Group recognizes lease expenses on a straight-line basis over the lease term. The right-of- use asset less accumulated amortization and any impairment provision. The amortization of the right-of-use asset represents the difference between the straight-line lease expense and the accretion of interest on the lease liability each period. The interest amount is used to accrete the lease liability and to amortize the right-of-use asset. There is no amount recorded as interest expense. Payments associated with short-term leases are recognized as lease expenses on a straight-line basis over the period of the leases. Subleases of right-of-use assets are accounted for similar to other leases. As an intermediate lessor, the Group separately accounts for the head-lease and sublease unless it is relieved of its primary obligation under the head-lease. Sublease income is recorded on a gross basis separate from the head-lease expenses. If the total remaining lease cost on the head-lease is more than the anticipated sublease income for the lease term, this is an indicator that the carrying amount of the right-of- use asset associated with the head-lease may not be recoverable, and the right-of-use asset will be assessed for impairment. HUTCHMED (China) Limited 2022 Annual Report 113 Income Taxes Profit Appropriation and Statutory Reserves The Group accounts for income taxes under the liability method. Under the liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and income tax bases of assets and liabilities and are measured using the income tax rates that will be in effect when the differences are expected to reverse. A valuation allowance is recorded when it is more likely than not that some of the net deferred income tax asset will not be realized. is sustainable based on The Group accounts for an uncertain tax position in the consolidated financial statements only if it is more likely than not that its technical merits and the position consideration of the relevant tax authority’s widely understood administrative practices and precedents. If the recognition threshold is met, the Group records the largest amount of tax benefit that is greater than 50 percent likely to be realized upon ultimate settlement. The Group recognizes interest and penalties for income taxes, if any, under income tax payable on its consolidated balance sheets and under other expenses in its consolidated statements of operations. Losses per Share Basic losses per share is computed by dividing net loss attributable to the Company by the weighted average number of outstanding ordinary shares in issue during the year. Weighted average number of outstanding ordinary shares in issue excludes treasury shares. Diluted losses per share is computed by dividing net loss attributable to the Company by the weighted average number of outstanding ordinary shares in issue and dilutive ordinary share equivalents outstanding during the year. Dilutive ordinary share equivalents include ordinary shares and treasury shares issuable upon the exercise or settlement of share-based awards or warrants issued by the Company using the treasury stock method. The computation of diluted losses per share does not assume conversion, exercise, or contingent issuance of securities that would have an anti-dilutive effect. The Group’s subsidiaries and equity investees established in the PRC are required to make appropriations to certain non-distributable reserve funds. In accordance with the relevant laws and regulations established in the PRC, the Company’s subsidiaries registered as wholly-owned foreign enterprise have to make appropriations from their after-tax profits (as determined under generally accepted accounting principles in the PRC (“PRC GAAP”) to reserve funds including general reserve fund, enterprise expansion fund and staff bonus and welfare fund. The appropriation to the general reserve fund must be at least 10% of the after-tax profits calculated in accordance with PRC GAAP. Appropriation is not required if the general reserve fund has reached 50% of the registered capital of the company. Appropriations to the enterprise expansion fund and staff bonus and welfare fund are made at the respective company’s discretion. For the Group's equity investees, the amount of appropriations to these funds are made at the discretion of their respective boards. In addition, Chinese domestic companies must make appropriations from their after-tax profits as determined under PRC GAAP to non-distributable reserve funds including statutory surplus fund and discretionary surplus fund. The appropriation to the statutory surplus fund must be 10% of the after-tax profits as determined under PRC GAAP. Appropriation is not required if the statutory surplus fund has reached 50% of the registered capital of the company. Appropriation to the discretionary surplus fund is made at the respective company’s discretion. The use of the general reserve fund, enterprise expansion fund, statutory surplus fund and discretionary surplus fund is restricted to the offsetting of losses or increases to the registered capital of the respective company. The staff bonus and welfare fund is a liability in nature and is restricted to fund payments of special bonus to employees and for the collective welfare of employees. All these reserves are not permitted to be transferred to the company as cash dividends, loans or advances, nor can they be distributed except under liquidation. Segment Reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief executive officer who is the Group’s chief operating decision maker. The chief operating decision maker reviews the Group’s internal reporting in order to assess performance and allocate resources. 114 4. Fair Value Disclosures The following table presents the Group’s financial instruments by level within the fair value hierarchy under ASC 820, Fair Value Measurement: Level 1 Level 2 Level 3 Total Fair Value Measurement Using (in US$’000) As at December 31, 2021 Warrant (Note 19) — 2,452 — 2,452 Cash equivalents, short-term investments, accounts receivable, other receivables, accounts payable and other payables are carried at cost, which approximates fair value due to the short-term nature of these financial instruments, and are therefore excluded from the above table. Bank borrowings are floating rate instruments and carried at amortized cost, which approximates fair values, and are therefore excluded from the above table. 5. Cash and Cash Equivalents and Short-term Investments Cash and Cash Equivalents Cash at bank and on hand Bank deposits maturing in three months or less Short-term Investments Bank deposits maturing over three months (note) 2022 December 31, (in US$’000) 2021 178,326 134,952 313,278 317,718 630,996 104,620 272,922 377,542 634,158 1,011,700 Note: The maturities for short-term investments ranged from 91 to 99 days and 91 to 180 days for the years ended December 31, 2022 and 2021 respectively. Certain cash and bank balances denominated in RMB, US$ and UK Pound Sterling (“£”) were deposited with banks in the PRC. The conversion of these balances into foreign currencies is subject to the rules and regulations of foreign exchange control promulgated by the PRC government. Cash and cash equivalents and short-term investments were denominated in the following currencies: US$ RMB Hong Kong dollar (“HK$”) £ Euro 2022 December 31, (in US$’000) 2021 533,173 79,319 16,721 1,370 413 630,996 895,935 53,455 60,535 1,090 685 1,011,700 HUTCHMED (China) Limited 2022 Annual Report 115 6. Accounts Receivable Accounts receivable from contracts with customers consisted of the following: Accounts receivable—third parties Accounts receivable—related parties (Note 23(ii)) Allowance for credit losses Accounts receivable, net December 31, 2022 2021 (in US$’000) 94,531 3,517 (60) 97,988 82,434 1,166 (20) 83,580 Substantially all accounts receivable are denominated in RMB, US$ and HK$ and are due within one year from the end of the reporting periods. The carrying values of accounts receivable approximate their fair values due to their short-term maturities. An aging analysis for accounts receivable—third parties based on the relevant invoice dates is as follows: Not later than 3 months Between 3 months to 6 months Between 6 months to 1 year Later than 1 year Accounts receivable—third parties Movements on the allowance for credit losses: As at January 1 Increase in allowance for credit losses Decrease in allowance due to subsequent collection Exchange difference As at December 31 December 31, 2022 2021 (in US$’000) 84,007 7,478 1,947 1,099 94,531 78,288 2,867 78 1,201 82,434 2022 2021 (in US$’000) 2020 20 150 (107) (3) 60 95 16 (92) 1 20 16 95 (18) 2 95 116 7. Other receivables, prepayments and deposits Other receivables, prepayments and deposits consisted of the following: Dividend receivables (Note 22) Prepayments Value-added tax receivables Deposits Amounts due from related parties (Note 23(ii)) Others December 31, 2022 2021 (in US$’000) 26,246 22,329 1,491 1,214 998 1,936 54,214 46,387 14,128 16,616 1,255 1,149 1,506 81,041 No allowance for credit losses has been made for other receivables, prepayments and deposits for the years ended December 31, 2022 and 2021. 8. Inventories Inventories, net of provision for excess and obsolete inventories, consisted of the following: Raw materials Finished goods December 31, 2022 2021 (in US$’000) 27,392 29,298 56,690 15,837 19,918 35,755 HUTCHMED (China) Limited 2022 Annual Report 117 9. Property, Plant and Equipment Property, plant and equipment consisted of the following: Buildings Leasehold improvements Plant and equipment Furniture and fixtures, other equipment and motor vehicles Construction in progress Total 2,432 — — — (199) 2,233 1,788 116 — — (151) 1,753 17,828 171 (1,105) 1,336 (1,394) 16,836 11,571 3,741 (1,018) — (1,012) 13,282 (in US$’000) 5,987 541 (2) 1,412 (484) 7,454 2,352 590 (2) (56) (214) 2,670 27,957 4,945 (529) 1,637 (2,272) 31,738 17,188 3,880 (505) 56 (1,460) 19,159 19,970 40,625 — (4,385) (1,660) 54,550 — — — — — — 74,174 46,282 (1,636) — (6,009) 112,811 32,899 8,327 (1,525) — (2,837) 36,864 Cost As at January 1, 2022 Additions Disposals Transfers Exchange differences As at December 31, 2022 Accumulated depreciation As at January 1, 2022 Depreciation Disposals Transfers Exchange differences As at December 31, 2022 Net book value As at December 31, 2022 480 3,554 4,784 12,579 54,550 75,947 Buildings Leasehold improvements Plant and equipment Furniture and fixtures, other equipment and motor vehicles Construction in progress Total (in US$’000) Cost As at January 1, 2021 2,372 16,346 5,643 Additions Disposals Transfers Exchange differences — — — 60 452 (275) 916 389 24 (19) 197 142 As at December 31, 2021 2,432 17,828 5,987 Accumulated depreciation As at January 1, 2021 Depreciation Disposals Exchange differences As at December 31, 2021 Net book value 1,626 120 — 42 1,788 8,652 2,904 (223) 238 1,747 574 (18) 49 11,571 2,352 23,040 3,189 (705) 1,849 584 27,957 14,256 3,244 (688) 376 17,188 3,050 19,669 — (2,962) 213 19,970 — — — — — 50,451 23,334 (999) — 1,388 74,174 26,281 6,842 (929) 705 32,899 As at December 31, 2021 644 6,257 3,635 10,769 19,970 41,275 118 10. Leases Leases consisted of the following: Right-of-use assets Offices Factories Warehouses (note) Others Total right-of-use assets Lease liabilities—current Lease liabilities—non-current Total lease liabilities December 31, 2022 2021 (in US$’000) 6,634 387 1,500 201 8,722 3,708 5,196 8,904 10,605 702 281 291 11,879 4,917 7,161 12,078 Note: Includes US$1.5 million right-of-use asset for warehouses in Suzhou that is leased through June 2026 in which the contract has a termination option with 3-month advance notice. The termination option was not recognized as part of the right-of-use asset and lease liability as it is uncertain that the Group will exercise such option. Lease activities are summarized as follows: Lease expenses: Short-term leases with lease terms equal or less than 12 months Leases with lease terms greater than 12 months Cash paid on lease liabilities Non-cash: Lease liabilities recognized from obtaining right-of-use assets Non-cash: Lease liabilities changed in relation to modifications and terminations Year Ended December 31, 2022 2021 (in US$’000) 134 5,238 5,372 5,212 2,689 (499) 106 4,306 4,412 4,954 7,665 (33) Lease contracts are typically within a period of 1 to 8 years. The weighted average remaining lease term and the weighted average discount rate as at December 31, 2022 was 3.24 years and 3.04% respectively. The weighted average remaining lease term and the weighted average discount rate as at December 31, 2021 was 3.38 years and 3.33% respectively. Future lease payments are as follows: Lease payments: Not later than 1 year Between 1 to 2 years Between 2 to 3 years Between 3 to 4 years Between 4 to 5 years Later than 5 years Total lease payments Less: Discount factor Total lease liabilities December 31, 2022 (in US$’000) 3,908 2,471 1,177 911 680 115 9,262 (358) 8,904 HUTCHMED (China) Limited 2022 Annual Report 119 11. Investments in Equity Investees Investments in equity investees consisted of the following: SHPL Other December 31, 2022 2021 (in US$’000) 73,461 316 73,777 75,999 480 76,479 The equity investees are private companies and there are no quoted market prices available for their shares. Summarized financial information for the significant equity investees SHPL and HBYS (sold in 2021), is as follows: (i) Summarized balance sheets Current assets Non-current assets Current liabilities Non-current liabilities Net assets (ii) Summarized statements of operations Revenue Gross profit Interest income Finance cost Profit before taxation Income tax expense (note (c)) Net income (note(d)) Non-controlling interests Net income attributable to the shareholders of SHPL December 31, 2022 2021 (in US$’000) 214,267 80,062 (147,952) (4,944) 141,433 190,260 91,605 (128,993) (7,131) 145,741 SHPL HBYS(note (a)) Year Ended December 31, 2022 2021 2020 2021(note (b)) 2020 370,600 281,113 980 — 116,454 (16,738) 99,716 — 332,648 255,089 1,216 — 105,325 (15,896) 89,429 — (in US$’000) 276,354 204,191 975 — 77,837 (10,833) 67,004 — 209,528 111,066 205 — 36,715 (4,840) 31,875 (36) 232,368 116,804 271 (5) 107,715 (16,494) 91,221 62 equity investee 99,716 89,429 67,004 31,839 91,283 Notes: (a) In 2020, HBYS entered into an agreement with the government to return the land use right for a plot of land in Guangzhou to the government and recognized land compensation of RMB569.2 million (approximately US$86.1 million). In June 2021, HBYS received a completion confirmation from the government and became entitled to a land compensation bonus of RMB110.3 million (approximately US$17.0 million) and recorded a gain before tax of RMB106.8 million (approximately US$16.4 million) after deducting costs of RMB3.5 million (approximately US$0.6 million). (b) The summarized statement of operations for HBYS for the year ended December 31, 2021 includes the period when HBYS was the Group’s equity investee from January 1, 2021 to September 28, 2021, the completion date of the divestment. The Group has accounted for the investment in HBYS under the equity method up to September 28, 2021. 120 (c) The main entity within the SHPL group has been granted the High and New Technology Enterprise (“HNTE”) status. Accordingly, the entity was eligible to use a preferential income tax rate of 15% for the years ended December 31, 2022, 2021 and 2020. (d) Net income is before elimination of unrealized profits on transactions with the Group. The amounts eliminated were approximately US$110,000, US$36,000 and nil for the years ended December 31, 2022, 2021 and 2020 respectively. For the years ended December 31, 2022, 2021 and 2020, other equity investee had net income of approximately US$10,000 and US$41,000 and net losses of approximately US$194,000 respectively. In August 2022, the Group entered into an agreement with a third party (the “Buyer”) to sell its entire investment in other equity investee for cash consideration of RMB2.2 million (approximately US$324,000) with closing subject to regulatory approval in the PRC. (iii) Reconciliation of summarized financial information Reconciliation of the summarized financial information presented to the carrying amount of investments in equity investees is as follows: 2022 SHPL 2021 2020 2021 2020 HBYS (in US$’000) Opening net assets after non-controlling interests as at January 1 145,741 152,714 146,759 119,424 44,541 Net income attributable to the shareholders of equity investee 99,716 89,429 67,004 31,839 91,283 Purchase of additional interests in a subsidiary of an equity investee (note) Dividends declared Other comprehensive (loss)/income Closing net assets after non-controlling interests as at December 31 Group’s share of net assets Goodwill Elimination of unrealized profits on downstream sales Divestment (Note 22) — (87,436) (16,588) — (99,744) 3,342 — (72,179) 11,130 — (347) (106,159) (20,756) 1,387 4,703 141,433 145,741 152,714 70,717 2,872 (128) — 72,871 3,128 — — 76,357 3,051 — — 46,491 23,246 — — (23,246) 119,424 59,712 — — — Carrying amount of investments as at December 31 73,461 75,999 79,408 — 59,712 Note: During the year ended December 31, 2020, HBYS acquired an additional 30% interest in a subsidiary and after the acquisition, it became a wholly owned subsidiary of HBYS. SHPL had the following capital commitments: Property, plant and equipment Contracted but not provided for December 31, 2022 (in US$’000) 1,307 HUTCHMED (China) Limited 2022 Annual Report 121 12. Accounts Payable Accounts payable—third parties Accounts payable—non-controlling shareholders of subsidiaries (Note 23(iv)) December 31, 2022 2021 (in US$’000) 68,193 2,922 71,115 39,115 2,062 41,177 Substantially all accounts payable are denominated in RMB and US$ and due within one year from the end of the reporting period. The carrying values of accounts payable approximate their fair values due to their short-term maturities. An aging analysis based on the relevant invoice dates is as follows: Not later than 3 months Between 3 months to 6 months Between 6 months to 1 year Later than 1 year 13. Other Payables, Accruals and Advance Receipts Other payables, accruals and advance receipts consisted of the following: Accrued research and development expenses Accrued salaries and benefits Accrued capital expenditures Accrued administrative and other general expenses Accrued selling and marketing expenses Deposits Amounts due to related parties (Note 23(ii)) Deferred government grants Others December 31, 2022 2021 (in US$’000) 60,553 7,216 2,137 1,209 71,115 35,615 3,705 588 1,269 41,177 December 31, 2022 2021 (in US$’000) 156,134 42,442 21,390 14,491 11,564 3,616 2,101 673 12,210 264,621 116,134 41,786 11,343 15,836 8,412 2,111 1,915 314 12,988 210,839 122 14. Bank Borrowings Bank borrowings consisted of the following: Current Non-current December 31, 2022 2021 (in US$’000) — 18,104 26,905 — The weighted average interest rate for outstanding bank borrowings for the years ended December 31, 2022 and 2021 was 1.73% per annum and 1.08% per annum respectively. The carrying amounts of the Group’s outstanding bank borrowings as at December 31, 2022 and 2021 were denominated in RMB and HK$ respectively. (i) 3-year term loan and revolving loan facilities and 1-year revolving loan facility In May 2019, the Group through its subsidiary, entered into a facility agreement with a bank for the provision of unsecured credit facilities in the aggregate amount of HK$400,000,000 (US$51,282,000). The 3-year credit facilities included (i) a HK$210,000,000 (US$26,923,000) term loan facility and (ii) a HK$190,000,000 (US$24,359,000) revolving loan facility, both with an interest rate at the Hong Kong Interbank Offered Rate (“HIBOR”) plus 0.85% per annum, and an upfront fee of HK$819,000 (US$105,000) on the term loan. These credit facilities were guaranteed by the Company. The term loan was drawn in October 2019 and was repaid in May 2022. The revolving loan facility also expired in May 2022. In May 2022, the Group through its subsidiary, entered into a 1-year revolving loan facility with the bank in the amount of HK$390,000,000 (US$50,000,000) with an interest rate at HIBOR plus 0.5% per annum. This credit facility is guaranteed by the Company. As at December 31, 2022, no amount was drawn from the revolving loan facility. (ii) 10-year fixed asset loan facility In October 2021, a subsidiary entered into a 10-year fixed asset loan facility agreement with a bank for the provision of a secured credit facility in the amount of RMB754,880,000 (US$108,393,000) with an annual interest rate at the 5-year China Loan Prime Rate less 0.8% (which was supplemented in June 2022) and interest payments commencing upon completion of the underlying construction in progress. This credit facility is guaranteed by the immediate holding company of the subsidiary and secured by the underlying leasehold land and buildings. As at December 31, 2022 and 2021, RMB126,083,000 (US$18,104,000) and nil were utilized from the fixed asset loan facility respectively, of which RMB769,000 (US$110,000) and nil were related to capitalized interest respectively. (iii) 2-year revolving loan facility In August 2020, the Group through its subsidiary, entered into a 2-year revolving loan facility with a bank in the amount of HK$117,000,000 (US$15,000,000) with an interest rate at HIBOR plus 4.5% per annum. This credit facility was guaranteed by the Company. The revolving loan facility expired in August 2022. The Group’s bank borrowings are repayable as from the dates indicated as follows: Not later than 1 year Between 1 to 3 years Between 3 to 4 years Between 4 to 5 years Later than 5 years December 31, 2022 2021 (in US$’000) — 360 839 1,079 15,826 18,104 26,923 — — — — 26,923 As at December 31, 2022 and 2021, the Group had unutilized bank borrowing facilities of US$140,289,000 and US$157,430,000 respectively. HUTCHMED (China) Limited 2022 Annual Report 123 15. Commitments and Contingencies The Group had the following capital commitments: Property, plant and equipment Contracted but not provided for The Group does not have any other significant commitments or contingencies. 16. Ordinary Shares As at December 31, 2022, the Company is authorized to issue 1,500,000,000 ordinary shares. December 31, 2022 (in US$’000) 22,130 On April 14, 2021, the Company issued 16,393,445 ordinary shares to a third party for gross proceeds of US$100.0 million through a PIPE. Issuance costs totaled US$0.1 million. On June 30, 2021 and July 15, 2021, the Company issued an aggregate of 119,600,000 ordinary shares in a public offering on the HKEX with over- allotment option exercised in full for aggregate gross proceeds of US$614.9 million. Issuance costs totaled US$29.7 million. Each ordinary share is entitled to one vote. The holders of ordinary shares are also entitled to receive dividends whenever funds are legally available and when declared by the Board of Directors of the Company. 17. Share-based Compensation (i) Share-based Compensation of the Company The Company conditionally adopted a share option scheme on June 4, 2005 (as amended on March 21, 2007) and such scheme has a term of 10 years. It expired in 2016 and no further share options can be granted. Another share option scheme was conditionally adopted on April 24, 2015 (as amended on April 27, 2020) (the “Hutchmed Share Option Scheme”). Pursuant to the Hutchmed Share Option Scheme, the Board of Directors of the Company may, at its discretion, offer any employees and directors (including Executive and Non-executive Directors but excluding Independent Non- executive Directors) of the Company, holding companies of the Company and any of their subsidiaries or affiliates, and subsidiaries or affiliates of the Company share options to subscribe for shares of the Company. As at December 31, 2022, the aggregate number of shares issuable under the Hutchmed Share Option Scheme was 48,611,458 ordinary shares and the aggregate number of shares issuable under the prior share option scheme which expired in 2016 was 660,570 ordinary shares. The Company will issue new shares to satisfy share option exercises. Additionally, the number of shares authorized but unissued was 635,224,660 ordinary shares. Share options granted are generally subject to a four-year vesting schedule, depending on the nature and the purpose of the grant. Share options subject to the four-year vesting schedule, in general, vest 25% upon the first anniversary of the vesting commencement date as defined in the grant letter, and 25% every subsequent year. However, certain share option grants may have a different vesting schedule as approved by the Board of Directors of the Company. No outstanding share options will be exercisable or subject to vesting after the expiry of a maximum of eight to ten years from the date of grant. 124 A summary of the Company’s share option activity and related information is as follows: Number of share options Weighted average exercise price in US$ per share Outstanding at January 1, 2020 Granted Exercised Cancelled Expired Outstanding at December 31, 2020 Granted Exercised Cancelled Expired Outstanding at December 31, 2021 Granted (note) Exercised Cancelled Expired Outstanding at December 31, 2022 Vested and exercisable at December 31, 2021 Vested and exercisable at December 31, 2022 19,432,560 15,437,080 (480,780) (4,486,200) (741,670) 29,160,990 10,174,840 (815,190) (1,287,650) (42,400) 37,190,590 7,680,820 (244,490) (3,849,905) (1,255,620) 39,521,395 16,077,770 21,113,285 4.48 4.66 1.23 5.02 6.46 4.49 5.96 3.01 5.50 5.52 4.88 2.26 1.98 5.19 5.66 4.34 4.24 4.57 Weighted average remaining contractual life (years) Aggregate intrinsic value (in US$’000) 6.67 24,316 7.21 53,990 7.04 82,377 6.55 4.91 4.80 11,525 46,491 6,288 Note: Includes 861,220 share options (represented by 172,244 ADS) granted to an executive director in May 2022 where the number of share options exercisable is subject to a performance target based on a market condition covering the 3-year period from 2022 to 2024 which has been reflected in estimating the grant date fair value. The grant date fair value of such awards is US$0.24 per share using the Polynomial model. Vesting of such award will occur in March 2025. In estimating the fair value of share options granted, the following assumptions were used in the Polynomial model for awards granted in the periods indicated: Weighted average grant date fair value of share options (in US$ per share) 0.85 2.24 1.76 Year Ended December 31, 2021 2022 2020 Significant inputs into the valuation model (weighted average): Exercise price (in US$ per share) Share price at effective date of grant (in US$ per share) Expected volatility (note (a)) Risk-free interest rate (note (b)) Contractual life of share options (in years) Expected dividend yield (note (c)) Notes: 2.26 2.22 46.7% 2.98% 10 0% 5.96 5.91 41.1% 1.62% 10 0% 4.66 4.66 42.6% 0.59% 10 0% (a) The Company calculated its expected volatility with reference to the historical volatility prior to the issuances of share options. (b) For share options exercisable into ADS, the risk-free interest rates reference the U.S. Treasury yield curves because the Company’s ADS are currently listed on the NASDAQ and denominated in US$. For share options exercisable into ordinary shares, the risk-free interest rates reference the sovereign yield of the United Kingdom because the Company’s ordinary shares are currently listed on AIM and denominated in £. (c) The Company has not declared or paid any dividends and does not currently expect to do so prior to the exercise of the granted share options, and therefore uses an expected dividend yield of zero in the Polynomial model. HUTCHMED (China) Limited 2022 Annual Report 125 The Company will issue new shares to satisfy share option exercises. The following table summarizes the Company’s share option exercises: Cash received from share option exercises Total intrinsic value of share option exercises 2022 Year Ended December 31, 2021 2020 174 92 (in US$’000) 2,452 2,999 593 2,475 The Group recognizes compensation expense on a graded vesting approach over the requisite service period. The following table presents share- based compensation expense included in the Group’s consolidated statements of operations: Research and development expenses Selling and administrative expenses Cost of revenues 2022 Year Ended December 31, 2021 2020 (in US$’000) 4,803 1,803 130 6,736 8,460 7,783 122 16,365 4,061 4,586 90 8,737 As at December 31, 2022, the total unrecognized compensation cost was US$10,907,000, and will be recognized on a graded vesting approach over the weighted average remaining service period of 2.63 years. (ii) LTIP The Company grants awards under the LTIP to participating directors and employees, giving them a conditional right to receive ordinary shares of the Company or the equivalent ADS (collectively the “Awarded Shares”) to be purchased by the Trustee up to a cash amount. Vesting will depend upon continued employment of the award holder with the Group and will otherwise be at the discretion of the Board of Directors of the Company. Additionally, some awards are subject to change based on annual performance targets prior to their determination date. LTIP awards prior to the determination date Performance targets vary by award, and may include targets for shareholder returns, financings, revenues, net profit after taxes and the achievement of clinical and regulatory milestones. As the extent of achievement of the performance targets is uncertain prior to the determination date, a probability based on management’s assessment on the achievement of the performance target has been assigned to calculate the amount to be recognized as an expense over the requisite period with a corresponding entry to liability. LTIP awards after the determination date Upon the determination date, the Company will pay a determined monetary amount, up to the maximum cash amount based on the actual achievement of the performance target specified in the award, to the Trustee to purchase the Awarded Shares. Any cumulative compensation expense previously recognized as a liability will be transferred to additional paid-in capital. If the performance target is not achieved, no Awarded Shares of the Company will be purchased and the amount previously recorded in the liability will be reversed through share-based compensation expense. 126 Granted awards under the LTIP are as follows: Grant date April 20, 2020 April 20, 2020 April 20, 2020 April 20, 2020 August 12, 2020 August 12, 2020 March 26, 2021 September 1, 2021 September 1, 2021 October 20, 2021 December 14, 2021 December 14, 2021 May 23, 2022 September 13, 2022 September 13, 2022 Notes: Maximum cash amount (in US$ millions) Covered financial years Performance target determination date 5.3 37.4 1.9 0.2 2.1 0.3 57.3 7.3 0.5 1.7 0.1 0.1 60.4 3.8 1.7 2019 2020 note (c) note (d) 2020 note (c) 2021 2021 note (c) note (c) note (c) note (d) 2022 2022 note (c) note (a) note (b) note (c) note (d) note (b) note (c) note (b) note (b) note (c) note (c) note (c) note (d) note (b) note (b) note (c) (a) This award does not stipulate performance targets and vesting occurs two business days after the announcement of the Group’s annual results for the financial year falling two years after the covered financial year to which the LTIP award relates. (b) The annual performance target determination date is the date of the announcement of the Group’s annual results for the covered financial year and vesting occurs two business days after the announcement of the Group’s annual results for the financial year falling two years after the covered financial year to which the LTIP award relates. (c) This award does not stipulate performance targets and is subject to a vesting schedule of 25% on each of the first, second, third and fourth anniversaries of the date of grant. (d) This award does not stipulate performance targets and will be vested on the first anniversary of the date of grant. The Trustee has been set up solely for the purpose of purchasing and holding the Awarded Shares during the vesting period on behalf of the Company using funds provided by the Company. On the determination date, if any, the Company will determine the cash amount, based on the actual achievement of each annual performance target, for the Trustee to purchase the Awarded Shares. The Awarded Shares will then be held by the Trustee until they are vested. HUTCHMED (China) Limited 2022 Annual Report 127 The Trustee’s assets include treasury shares and funds for additional treasury shares, trustee fees and expenses. The number of treasury shares (in the form of ordinary shares or ADS of the Company) held by the Trustee were as follows: As at January 1, 2020 Purchased Vested As at December 31, 2020 Purchased Vested As at December 31, 2021 Purchased Vested As at December 31, 2022 Number of treasury shares Cost (in US$’000) 941,310 3,281,920 (712,555) 3,510,675 4,907,045 (278,545) 8,139,175 14,028,465 (2,566,265) 19,601,375 6,079 12,904 (4,828) 14,155 27,309 (1,450) 40,014 48,084 (12,034) 76,064 Based on the estimated achievement of performance conditions for 2022 financial year LTIP awards, the determined monetary amount was US$17,429,000 which is recognized to share-based compensation expense over the requisite vesting period to March 2025. For the years ended December 31, 2022, 2021 and 2020, US$19,031,000, US$6,618,000 and US$7,038,000 of the LTIP awards were forfeited respectively based on the determined or estimated monetary amount as at the forfeiture date. The following table presents the share-based compensation expenses recognized under the LTIP awards: Research and development expenses Selling and administrative expenses Cost of revenues Recorded with a corresponding credit to: Liability Additional paid-in capital 2022 Year Ended December 31, 2021 2020 (in US$’000) 16,101 7,376 373 23,850 6,216 17,634 23,850 16,880 8,451 294 25,625 14,263 11,362 25,625 7,252 3,552 101 10,905 7,778 3,127 10,905 For the years ended December 31, 2022, 2021 and 2020, US$15,351,000, US$8,516,000 and US$4,092,000 were reclassified from liability to additional paid-in capital respectively upon LTIP awards reaching the determination date. As at December 31, 2022 and 2021, US$3,701,000 and US$12,836,000 were recorded as liabilities respectively for LTIP awards prior to the determination date. As at December 31, 2022, the total unrecognized compensation cost was approximately US$34,668,000, which considers expected performance targets and the amounts expected to vest, and will be recognized over the requisite periods. 128 18. Revenues The following table presents disaggregated revenue, with sales of goods recognized at a point-in-time and provision of services recognized over time: Goods—Marketed Products Goods—Distribution Services—Commercialization—Marketed Products —Collaboration Research and Development —Research and Development Royalties Licensing Third parties Related parties (Note 23(i)) Goods—Marketed Products Goods—Distribution Services—Commercialization—Marketed Products —Collaboration Research and Development —Research and Development Royalties Licensing Third parties Related parties (Note 23(i)) Goods—Marketed Products Goods—Distribution Services—Commercialization—Marketed Products —Collaboration Research and Development —Research and Development Royalties Third parties Related parties (Note 23(i)) Oncology/Immunology Other Ventures Total Year Ended December 31, 2022 (in US$’000) 57,057 — 41,275 23,741 507 26,310 14,954 163,844 163,337 507 163,844 — 262,565 — — — — — 262,565 257,272 5,293 262,565 57,057 262,565 41,275 23,741 507 26,310 14,954 426,409 420,609 5,800 426,409 Oncology/Immunology Other Ventures Total Year Ended December 31, 2021 (in US$’000) 33,937 — 27,428 18,995 525 15,064 23,661 119,610 119,085 525 119,610 — 236,518 — — — — — 236,518 232,262 4,256 236,518 33,937 236,518 27,428 18,995 525 15,064 23,661 356,128 351,347 4,781 356,128 Oncology/Immunology Other Ventures Total Year Ended December 31, 2020 (in US$’000) 11,329 — 3,734 9,771 491 4,890 30,215 29,724 491 30,215 — 197,761 — — — — 11,329 197,761 3,734 9,771 491 4,890 197,761 227,976 192,277 5,484 197,761 222,001 5,975 227,976 HUTCHMED (China) Limited 2022 Annual Report 129 The following table presents liability balances from contracts with customers: Deferred revenue Current—Oncology/Immunology segment (note (a)) Current—Other Ventures segment (note (b)) Non-current—Oncology/Immunology segment (note (a)) Total deferred revenue (note (c) and (d)) Notes: December 31, 2022 2021 (in US$’000) 11,817 1,530 13,347 190 13,537 11,078 1,196 12,274 878 13,152 (a) Oncology/Immunology segment deferred revenue relates to invoiced amounts for royalties where the customer has not yet completed the in- market sale, unamortized upfront and milestone payments and advance consideration received for cost reimbursements which are attributed to research and development services that have not yet been rendered as at the reporting date. (b) Other Ventures segment deferred revenue relates to payments in advance from customers for goods that have not been transferred and services that have not been rendered to the customer as at the reporting date. (c) Estimated deferred revenue to be recognized over time as from the date indicated is as follows: Not later than 1 year Between 1 to 2 years Between 2 to 3 years Between 3 to 4 years December 31, 2022 2021 (in US$’000) 13,347 12,274 150 40 — 476 255 147 13,537 13,152 (d) As at January 1, 2022, deferred revenue was US$13.2 million, of which US$11.8 million was recognized during the year ended December 31, 2022. License and collaboration agreement with Eli Lilly On October 8, 2013, the Group entered into a licensing, co-development and commercialization agreement in China with Eli Lilly and Company (“Lilly”) relating to Elunate (“Lilly Agreement”), also known as fruquintinib, a targeted oncology therapy for the treatment of various types of solid tumors. Under the terms of the Lilly Agreement, the Group is entitled to receive a series of payments up to US$86.5 million, including upfront payments and development and regulatory approval milestones. Development costs after the first development milestone are shared between the Group and Lilly. Elunate was successfully commercialized in China in November 2018, and the Group receives tiered royalties in the range of 15% to 20% on all sales in China. In December 2018, the Group entered into various amendments to the Lilly Agreement (the “2018 Amendment”). Under the terms of the 2018 Amendment, the Group is entitled to determine and conduct future life cycle indications (“LCI”) development of Elunate in China beyond the three initial indications specified in the Lilly Agreement and will be responsible for all associated development costs. In return, the Group will receive additional regulatory approval milestones of US$20 million for each LCI approved, for up to three LCI or US$60 million in aggregate, and will increase tiered royalties to a range of 15% to 29% on all Elunate sales in China upon the commercial launch of the first LCI. Additionally, through the 2018 Amendment, Lilly has provided consent, and freedom to operate, for the Group to enter into joint development collaborations with certain third-party pharmaceutical companies to explore combination treatments of Elunate and various immunotherapy agents. The 2018 Amendment also provided the Group rights to promote Elunate in provinces that represent 30% to 40% of the sales of Elunate in China upon the occurrence of certain commercial milestones by Lilly. Such rights were further amended below. In July 2020, the Group entered into an amendment to the Lilly Agreement (the “2020 Amendment”) relating to the expansion of the Group’s role in the commercialization of Elunate across all of China. Under the terms of the 2020 Amendment, the Group is responsible for providing promotion and marketing services, including the development and execution of all on-the-ground medical detailing, promotion and local and regional marketing activities, in return for service fees on sales of Elunate made by Lilly. In October 2020, the Group commenced such promotion and marketing services. In addition, development and regulatory approval milestones for an initial indication under the Lilly Agreement were increased by US$10 million in lieu of cost reimbursement. 130 Upfront and cumulative milestone payments according to the Lilly Agreement received up to December 31, 2022 are summarized as follows: Upfront payment Development milestone payments achieved (in US$’000) 6,500 40,000 The Lilly Agreement has the following performance obligations: (1) the license for the commercialization rights to Elunate and (2) the research and development services for the specified indications. The transaction price includes the upfront payment, research and development cost reimbursements, milestone payments and sales-based royalties. Milestone payments were not included in the transaction price until it became probable that a significant reversal of revenue would not occur, which is generally when the specified milestone is achieved. The allocation of the transaction price to each performance obligation was based on the relative standalone selling prices of each performance obligation determined at the inception of the contract. Based on this estimation, proportionate amounts of transaction price to be allocated to the license to Elunate and the research and development services were 90% and 10% respectively. Control of the license to Elunate transferred at the inception date of the agreement and consequently, amounts allocated to this performance obligation were recognized at inception. Conversely, research and development services for each specified indication are performed over time and amounts allocated are recognized over time using the prior and estimated future development costs for Elunate as a measure of progress. Royalties are recognized as future sales occur as they meet the requirements for the sales- usage based royalty exception. The 2018 Amendment is a separate contract as it added distinct research and development services for the LCIs to the Lilly Agreement. The 2020 Amendment related to the promotion and marketing services is a separate contract as it added distinct services to the Lilly Agreement. Such promotion and marketing services are recognized over time based on amounts that can be invoiced to Lilly. The 2020 Amendment related to the additional development and regulatory approval milestone amounts is a modification as it only affected the transaction price of research and development services for a specific indication under the Lilly Agreement, and therefore, such additional milestone amounts will be included in the transaction price accounted under the Lilly Agreement once the specified milestones are achieved. Revenue recognized under the Lilly Agreement and subsequent amendments is as follows: Goods—Marketed Products Services—Commercialization—Marketed Products —Collaboration Research and Development Royalties 2022 Year Ended December 31, 2021 2020 (in US$’000) 14,407 41,275 8,054 13,954 77,690 15,792 27,428 4,491 10,292 58,003 11,329 3,734 1,991 4,890 21,944 License and collaboration agreement with AstraZeneca On December 21, 2011, the Group and AstraZeneca AB (publ) (“AZ”) entered into a global licensing, co-development, and commercialization agreement for Orpathys (“AZ Agreement”), also known as savolitinib, a novel targeted therapy and a highly selective inhibitor of the c-Met receptor tyrosine kinase for the treatment of cancer. Under the terms of the AZ Agreement, the Group is entitled to receive a series of payments up to US$140 million, including upfront payments and development and first-sale milestones. Additionally, the AZ Agreement contains possible significant future commercial sale milestones. Development costs for Orpathys in China will be shared between the Group and AZ, with the Group continuing to lead the development in China. AZ will lead and pay for the development of Orpathys for the rest of the world. Orpathys was successfully commercialized in China in July 2021, and the Group receives fixed royalties of 30% based on all sales in China. Should Orpathys be successfully commercialized outside China, the Group would receive tiered royalties from 9% to 13% on all sales outside of China. In August 2016 (as amended in December 2020), the Group entered into an amendment to the AZ Agreement whereby the Group shall pay the first approximately US$50 million of phase III clinical trial costs related to developing Orpathys for renal cell carcinoma (“RCC”), and remaining costs will be shared between the Group and AZ. Subject to approval of Orpathys in RCC, the Group would receive additional tiered royalties on all sales outside of China, with the incremental royalty rates determined based on actual sharing of development costs. In November 2021, the Group entered into an additional amendment which revised the sharing between the Group and AZ of development costs for Orpathys in China for non-small cell lung cancer, as well as adding potential development milestones. Upfront and cumulative milestone payments according to the AZ Agreement received up to December 31, 2022 are summarized as follows: Upfront payment Development milestone payments achieved First-sale milestone payment achieved (in US$’000) 20,000 40,000 25,000 HUTCHMED (China) Limited 2022 Annual Report 131 The AZ Agreement has the following performance obligations: (1) the license for the commercialization rights to Orpathys and (2) the research and development services for the specified indications. The transaction price includes the upfront payment, research and development cost reimbursements, milestone payments and sales-based royalties. Milestone payments were not included in the transaction price until it became probable that a significant reversal of revenue would not occur, which is generally when the specified milestone is achieved. The allocation of the transaction price to each performance obligation was based on the relative standalone selling prices of each performance obligation determined at the inception of the contract. Based on this estimation, proportionate amounts of transaction price to be allocated to the license to Orpathys and the research and development services were 95% and 5% respectively. Control of the license to Orpathys transferred at the inception date of the agreement and consequently, amounts allocated to this performance obligation were recognized at inception. Conversely, research and development services for each specified indication are performed over time and amounts allocated are recognized over time using the prior and estimated future development costs for Orpathys as a measure of progress. Revenue recognized under the AZ Agreement and subsequent amendments is as follows: Goods—Marketed Products Services—Collaboration Research and Development Royalties Licensing 19. In-Licensing arrangement 2022 Year Ended December 31, 2021 2020 (in US$’000) 9,904 14,467 12,356 14,954 51,681 6,509 14,113 4,772 23,661 49,055 — 7,780 — — 7,780 On August 7, 2021, the Group and Epizyme, Inc. (“Epizyme”) entered into a license agreement (the “In-license Agreement”) for tazemetostat, a novel inhibitor of EZH2 that is approved by the U.S. Food and Drug Administration for the treatment of certain patients with epithelioid sarcoma and follicular lymphoma. The Group will be responsible for the development and commercialization of tazemetostat in the PRC, Hong Kong, Macau and Taiwan (the “Territory”) and also holds rights to manufacture tazemetostat for the Territory. The Group also received a 4-year warrant, exercisable up to August 7, 2025, to purchase up to 5,653,000 shares of Epizyme common stock for an exercise price of US$11.50 per share (“Warrant Exercise Price”). Under the terms of the In-license Agreement and warrant, the Group paid Epizyme a US$25 million upfront payment and is obligated for a series of success-based payments up to US$110 million in development and regulatory milestones and up to US$175 million in sales milestones. Success- based payments are recognized when the related milestone is achieved. After tazemetostat is commercialized in the Territory, the Group will incur tiered royalties based on net sales. For the year ended December 31, 2022, US$5.0 million development milestone was paid and expensed to research and development expenses as in-process research and development. The US$25 million upfront payment was first allocated to the warrant for its initial fair value of US$15 million, and the remainder was allocated to the rights to tazemetostat which were expensed to research and development expense as in-process research and development. The warrant was recorded as a financial asset at fair value with changes to fair value recognized to the consolidated statements of operations. On August 12, 2022, a third party announced that it has acquired all outstanding shares of Epizyme under a definitive merger agreement. Consequently, the warrant was deemed expired under the terms of the In-license Agreement and warrant. For the years ended December 31, 2022 and 2021, fair value losses of US$2.5 million and US$12.5 million were recognized to other expense in the consolidated statements of operations respectively. 20. Research and Development Expenses Research and development expenses are summarized as follows: Clinical trial related costs Personnel compensation and related costs Other research and development expenses 2022 Year Ended December 31, 2021 2020 255,935 119,306 11,652 386,893 (in US$’000) 190,051 91,639 17,396 299,086 105,869 63,542 5,365 174,776 The Group has entered into multiple collaborative arrangements under ASC 808 to evaluate the combination of the Group’s drug compounds with the collaboration partners’ drug compounds. For the years ended December 31, 2022, 2021 and 2020, the Group has incurred research and development expenses of US$14,654,000, US$18,408,000 and US$8,291,000 respectively, related to such collaborative arrangements. 132 21. Government Grants Government grants in the Oncology/Immunology segment are primarily given in support of the construction of a manufacturing plant in Shanghai and R&D activities which are conditional upon i) the Group spending a predetermined amount, regardless of success or failure of the research and development projects and/or ii) the achievement of certain stages of research and development projects being approved by the relevant PRC government authority. They are refundable to the government if the conditions, if any, are not met. Government grants in the Other Ventures segment are primarily given to promote local initiatives. These government grants may be subject to ongoing reporting and monitoring by the government over the period of the grant. Government grants, which are deferred and recognized in the consolidated statements of operations over the period necessary to match them with the costs that they are intended to compensate, are recognized in other payables, accruals and advance receipts (Note 13) and other non-current liabilities. For the years ended December 31, 2022, 2021 and 2020, the Group received government grants of US$8,474,000, US$9,095,000 and US$4,724,000 respectively. Government grants were recognized in the consolidated statements of operations as follows: Research and development expenses Other income 2022 Year Ended December 31, 2021 2020 4,556 1,434 5,990 (in US$’000) 15,515 318 15,833 1,607 539 2,146 22. Gain on divestment of an equity investee In March 2021, the Group entered into a sale and purchase agreement (the “SPA”) with a third party to sell its entire investment in HBYS with closing subject to regulatory approval in the PRC. On September 28, 2021, the Group completed the divestment for cash consideration of US$159.1 million. On May 13, 2021 and September 23, 2021, HBYS had declared dividends to shareholders of US$46.5 million and US$59.7 million respectively which were related to prior year undistributed profits and distributions of a land bonus payment. Based on the SPA, the Group is entitled to a portion of such dividends and the third party will settle these amounts, net of taxes, after HBYS completes the distribution. As at December 31, 2022 and 2021, US$26.2 million and US$46.4 million of dividend receivables, net of taxes, from the third party was recorded in other receivables, prepayments and deposits (Note 7). In addition, the Group and Hutchison Whampoa Enterprises Limited, an affiliate of CK Hutchison Holdings Limited (“CK Hutchison”), entered into a license agreement on June 15, 2021, conditional upon the completion of the divestment, to grant a continuing right to use the “Hutchison Whampoa” brand by HBYS for 10 years at HK$12 million (approximately US$1.5 million) per year with aggregate amounts not to exceed HK$120 million (approximately US$15.4 million). On September 28, 2021, the Group recorded the present value of future branding liability payments of US$12.7 million. As at December 31, 2022 and 2021, US$1.5 million was included in amounts due to related parties (Note 23(ii)) and US$8.7 million and US$9.8 million were included in other non-current liabilities respectively. The gain on divestment of an equity investee was recognized in the consolidated statements of operations as follows: Proceeds Dividend receivables–third party (Note 7) Less: Group’s share of net assets of HBYS (Note 11(iii)) Dividend receivables–HBYS Withholding tax liability on dividend receivables–HBYS Branding liability Accumulated other comprehensive income and reserves Transaction costs and others Gain on divestment of an equity investee Less: Capital gain tax Less: Gain on divestment of an equity investee attributable to non-controlling interests Gain on divestment of an equity investee attributable to the Group Year Ended December 31, 2021 (in US$’000) 159,118 46,387 205,505 (23,246) (52,887) 2,644 (12,721) 1,911 104 121,310 (14,373) (24,010) 82,927 HUTCHMED (China) Limited 2022 Annual Report 133 23. Significant Transactions with Related Parties and Non-Controlling Shareholders of Subsidiaries The Group has the following significant transactions with related parties and non-controlling shareholders of subsidiaries, which were carried out in the normal course of business at terms determined and agreed by the relevant parties: (i) Transactions with related parties: Year Ended December 31, 2022 2021 (in US$’000) 2020 3,610 1,683 5,293 507 4,256 — 4,256 525 4,231 3,770 227 127 354 980 — 350 — 350 971 12,721 5,484 — 5,484 491 3,347 332 — 332 955 — December 31, 2022 2021 (in US$’000) 1,319 2,198 3,517 998 1,953 148 2,101 755 8,716 9,471 1,166 — 1,166 1,149 1,915 — 1,915 736 9,766 10,502 Sales to: Indirect subsidiaries of CK Hutchison An equity investee Revenue from research and development services from: An equity investee Purchases from: Equity investees Rendering of marketing services from: Indirect subsidiaries of CK Hutchison An equity investee Rendering of management services from: An indirect subsidiary of CK Hutchison Entered brand license agreement with: An indirect subsidiary of CK Hutchison (note (a)) (ii) Balances with related parties included in: Accounts receivable—related parties Indirect subsidiaries of CK Hutchison (note (b)) An equity investee (note (b)) Other receivables, prepayments and deposits An equity investee (note (b)) Other payables, accruals and advance receipts Indirect subsidiaries of CK Hutchison (note (c) and (e)) An equity investee (note (b) and (d)) Other non-current liabilities An equity investee (note (d)) An indirect subsidiary of CK Hutchison (note (e)) 134 Notes: (a) The branding rights for HBYS from an indirect subsidiary of CK Hutchison were recognized in the consolidated statements of operations through the gain on divestment of an equity investee (Note 22). For the years ended December 31, 2022 and 2021, the Group paid US$1,538,000 for each of the two years. (b) Balances with related parties are unsecured, repayable on demand and interest-free. The carrying values of balances with related parties approximate their fair values due to their short-term maturities. (c) Amounts due to indirect subsidiaries of CK Hutchison are unsecured, repayable on demand and interest-bearing if not settled within one month. (d) Other deferred income represents amounts recognized from granting of commercial, promotion and marketing rights. (e) As at December 31, 2022 and 2021, a branding liability payable of US$1,538,000 was included in amounts due to related parties under other payables, accruals and advance receipts. As at December 31, 2022 and 2021, US$8,716,000 and US$9,766,000 of the branding liability payable was included in other non-current liabilities. (iii) Transactions with non-controlling shareholders of subsidiaries: Sales Purchases Dividends declared (iv) Balances with non-controlling shareholders of subsidiaries included in: Accounts receivable Accounts payable 2022 Year Ended December 31, 2021 (in US$’000) 2020 47,611 7,936 25,600 41,974 10,660 9,894 36,500 13,936 1,462 December 31, 2022 2021 (in US$’000) 11,139 2,922 8,436 2,062 HUTCHMED (China) Limited 2022 Annual Report 135 24. Income Taxes (i) Income tax (benefit)/expense Current tax HK (note (a)) PRC (note (b) and (c)) U.S. and others (note (d)) Total current tax Deferred income tax (benefit)/expense Income tax (benefit)/expense Notes: Year Ended December 31, 2022 2021 (in US$’000) 2020 301 2,580 399 3,280 (3,563) (283) 310 15,909 417 16,636 (4,718) 11,918 457 872 219 1,548 3,281 4,829 (a) The Company, three subsidiaries incorporated in the British Virgin Islands and its Hong Kong subsidiaries are subject to Hong Kong profits tax. Under the Hong Kong two-tiered profits tax rates regime, the first HK$2.0 million (US$0.3 million) of assessable profits of qualifying corporations will be taxed at 8.25%, with the remaining assessable profits taxed at 16.5%. Hong Kong profits tax has been provided for at the relevant rates on the estimated assessable profits less estimated available tax losses, if any, of these entities as applicable. (b) Taxation in the PRC has been provided for at the applicable rate on the estimated assessable profits less estimated available tax losses, if any, in each entity. Under the PRC Enterprise Income Tax Law (the “EIT Law”), the standard enterprise income tax rate is 25%. In addition, the EIT Law provides for a preferential tax rate of 15% for companies which qualify as HNTE. HUTCHMED Limited and its wholly-owned subsidiary HUTCHMED (Suzhou) Limited qualify as a HNTE up to December 31, 2022 and 2023 respectively. Pursuant to the EIT law, a 10% withholding tax is levied on dividends paid by PRC companies to their foreign investors. A lower withholding tax rate of 5% is applicable under the China-HK Tax Arrangement if direct foreign investors with at least 25% equity interest in the PRC companies are Hong Kong tax residents, and meet the conditions or requirements pursuant to the relevant PRC tax regulations regarding beneficial ownership. Since the equity holders of the equity investees of the Company are Hong Kong incorporated companies and Hong Kong tax residents, and meet the aforesaid conditions or requirements, the Company has used 5% to provide for deferred tax liabilities on retained earnings which are anticipated to be distributed. As at December 31, 2022, 2021 and 2020, the amounts accrued in deferred tax liabilities relating to withholding tax on dividends were determined on the basis that 100% of the distributable reserves of the equity investees operating in the PRC will be distributed as dividends. Pursuant to PRC Bulletin on Issues of Enterprise Income Tax and Indirect Transfers of Assets by Non-PRC Resident Enterprises, an indirect transfer of a PRC resident enterprise by a non-PRC resident enterprise, via the transfer of an offshore intermediate holding company, shall be subject to PRC withholding tax under certain conditions. (c) Current tax in the PRC for the year ended December 31, 2021 includes US$14.4 million arising from the indirect disposal of HBYS (Note 22), calculated at 10% of the excess of the disposal proceeds over the cost of acquiring the equity investment in HBYS. (d) The Company’s subsidiary in the U.S. with operations primarily in New Jersey is subject to U.S. taxes, primarily federal and state taxes, which have been provided for at approximately 21% (federal) and 0% to 11.5% (state tax) on the estimated assessable profit over the reporting years. Certain income receivable by the Company is subject to U.S. withholding tax of 30%. Two of the Group’s subsidiaries are subject to corporate tax in the UK and EU countries at 19% and 15% to 25%, respectively, on the estimated assessable profits in relation to their presence in these countries. 136 The reconciliation of the Group’s reported income tax expense to the theoretical tax amount that would arise using the tax rates of the Company against the Group’s loss before income taxes and equity in earnings of equity investees is as follows: Loss before income taxes and equity in earnings of equity investees Tax calculated at the statutory tax rate of the Company Tax effects of: Different tax rates applicable in different jurisdictions Tax valuation allowance Preferential tax rate difference Preferential tax deduction and credits Expenses not deductible for tax purposes Withholding tax on undistributed earnings of PRC entities Others Income tax (benefit)/expense (ii) Deferred tax assets and liabilities The significant components of deferred tax assets and liabilities are as follows: Year Ended December 31, 2022 (410,422) (67,720) 2021 (in US$’000) (215,740) (35,597) 6,316 93,243 (171) (40,791) 8,886 2,492 (2,538) (283) 136 63,975 (148) (29,838) 8,684 3,153 1,553 11,918 2020 (189,734) (31,306) 4,025 46,321 (154) (18,814) 3,476 3,962 (2,681) 4,829 Deferred tax assets Cumulative tax losses Others Total deferred tax assets Less: Valuation allowance Deferred tax assets Deferred tax liabilities Undistributed earnings from PRC entities Others Deferred tax liabilities December 31, 2022 2021 (in US$’000) 264,751 15,254 280,005 (264,639) 15,366 2,686 24 2,710 186,832 12,269 199,101 (189,700) 9,401 2,720 45 2,765 HUTCHMED (China) Limited 2022 Annual Report 137 The movements in deferred tax assets and liabilities are as follows: As at January 1 Utilization of previously recognized withholding tax on undistributed earnings (Charged)/Credited to the consolidated statements of operations Withholding tax on undistributed earnings of PRC entities Deferred tax on amortization of intangible assets Deferred tax on temporary differences, tax loss carried forward and research tax credits Divestment of an equity investee Exchange differences As at December 31 2022 2021 (in US$’000) 2020 6,636 2,186 (2,492) 19 6,036 — 271 12,656 (3,548) 5,148 (3,153) 19 7,852 370 (52) 6,636 (2,343) 2,323 (3,962) 18 663 — (247) (3,548) The deferred tax assets and liabilities are offset when there is a legally enforceable right to set off and when the deferred income taxes relate to the same fiscal authority. The cumulative tax losses can be carried forward against future taxable income and will expire in the following years: No expiry date 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 December 31, 2022 2021 (in US$’000) 71,325 — — 3,763 36,098 48,150 61,808 107,297 175,853 243,918 389,761 610,800 60,450 200 — 4,099 39,321 52,452 67,217 117,376 191,554 265,696 432,278 — 1,748,773 1,230,643 The Company believes that it is more likely than not that future operations outside the U.S. will not generate sufficient taxable income to realize the benefit of the deferred tax assets. Certain of the Company’s subsidiaries have had sustained tax losses, which will expire within five years if not utilized in the case of PRC subsidiaries (ten years for HNTEs), and which will not be utilized in the case of Hong Kong subsidiaries as they do not generate taxable profits. Accordingly, a valuation allowance has been recorded against the relevant deferred tax assets arising from the tax losses. A U.S. subsidiary of the Company has approximately US$3.9 million and US$1.2 million U.S. Federal and New Jersey state research tax credits which will expire between 2041 and 2042 (Federal) and 2028 and 2029 (New Jersey) respectively, if not utilized. 138 The table below summarizes changes in the deferred tax valuation allowance: As at January 1 Charged to consolidated statements of operations Utilization of previously unrecognized tax losses Write-off of tax losses Others Exchange differences As at December 31 2022 189,700 93,243 (1) (125) — (18,178) 264,639 2021 (in US$’000) 122,378 63,975 (186) — (9) 3,542 189,700 2020 69,399 46,321 (114) — — 6,772 122,378 As at December 31, 2022, 2021 and 2020, the Group did not have any material unrecognized uncertain tax positions. (iii) Income tax payable As at January 1 Current tax Withholding tax upon dividend declaration from PRC entities Tax paid (note) Reclassification from non-current withholding tax Reclassification (from)/to prepaid tax Divestment of an equity investee (Note 22) Exchange difference As at December 31 2022 2021 (in US$’000) 2020 15,546 3,280 2,186 1,120 16,636 5,148 (18,891) (5,014) — (241) — (768) 1,112 — 25 (2,644) 275 15,546 1,828 1,548 2,323 (5,940) 812 485 — 64 1,120 Note: The amount for 2022 includes US$14.4 million capital gain tax paid for gain on divestment of HBYS (Note 22). The amount for 2020 is net of the PRC Enterprise Income Tax refund of US$0.4 million received by HSPL. 25. Losses Per Share (i) Basic losses per share Basic losses per share is calculated by dividing the net loss attributable to the Company by the weighted average number of outstanding ordinary shares in issue during the year. 2022 Year Ended December 31, 2021 2020 Weighted average number of outstanding ordinary shares in issue 847,143,540 792,684,524 697,931,437 Net loss attributable to the Company (US$’000) Losses per share attributable to the Company (US$ per share) (360,835) (194,648) (0.43) (0.25) (125,730) (0.18) (ii) Diluted losses per share Diluted losses per share is calculated by dividing net loss attributable to the Company by the weighted average number of outstanding ordinary shares in issue and dilutive ordinary share equivalents outstanding during the year. Dilutive ordinary share equivalents include shares issuable upon the exercise or settlement of share options, LTIP awards and warrants issued by the Company using the treasury stock method. For the years ended December 31, 2022, 2021 and 2020, the share options, LTIP awards and warrants issued by the Company were not included in the calculation of diluted losses per share because of their anti-dilutive effect. Therefore, diluted losses per share were equal to basic losses per share for the years ended December 31, 2022, 2021 and 2020. HUTCHMED (China) Limited 2022 Annual Report 139 26. Segment Reporting The Group’s operating segments are as follows: (i) Oncology/Immunology: focuses on discovering, developing, and commercializing targeted therapies and immunotherapies for the treatment of cancer and immunological diseases. Oncology/Immunology is further segregated into two core business areas: (a) R&D: comprises research and development activities covering drug discovery, development, manufacturing and regulatory functions as well as administrative activities to support research and development operations; and (b) Marketed Products: comprises the sales, marketing, manufacture and distribution of drugs developed from research and development activities. (ii) Other Ventures: comprises other commercial businesses which include the sales, marketing, manufacture and distribution of other prescription drugs and consumer health products. The performance of the reportable segments is assessed based on segment net (loss)/income attributable to the Company. The segment information is as follows: Oncology/Immunology Year Ended December 31, 2022 R&D U.S. and Others — 4 — — PRC 39,202 674 — 5 Marketed Products Other Ventures Subtotal PRC Subtotal PRC Unallocated Total (in US$’000) 39,202 124,642 163,844 262,565 — 426,409 678 — 5 — — — 678 — 272 — 8,649 (652) 9,599 (652) 5 49,748 — 49,753 (552) 6,053 5,501 (631) 4,870 (1,345) (3,242) 283 (215,834) (7,576) (186,945) (484) (402,779) (8,060) 17,367 — (385,412) (8,060) 54,604 (299) (30,027) (305) (360,835) (8,664) 47,563 725 48,288 — 48,288 664 21 48,973 Oncology/Immunology December 31, 2022 R&D U.S. and Others PRC Marketed Products Other Ventures Subtotal PRC Subtotal PRC Unallocated Total (in US$’000) 221,337 30,281 251,618 45,984 297,602 235,500 496,343 1,029,445 72,775 3,350 11,830 — — 316 2,103 3,167 — — — — 74,878 6,517 11,830 — — 316 — — — — — — 74,878 6,517 11,830 — — 735 1,308 — 3,137 85 316 73,461 334 897 — — — — 75,947 8,722 11,830 3,137 85 73,777 Revenue from external customers Interest income Interest expense Equity in earnings of equity investees, net of tax Income tax (expense)/benefit Net (loss)/income attributable to the Company Depreciation/ amortization Additions to non-current assets (other than financial instruments and deferred tax assets) Total assets Property, plant and equipment Right-of-use assets Leasehold land Goodwill Other intangible asset Investments in equity investees 140 Revenue from external customers Interest income Interest expense Equity in earnings of equity investees, net of tax Income tax benefit/(expense) Net (loss)/income attributable to the Company Depreciation/ amortization Additions to non-current assets (other than financial instruments and deferred tax assets) Oncology/Immunology Year Ended December 31, 2021 R&D U.S. and Others Marketed Products Other Ventures Subtotal PRC Subtotal PRC Unallocated Total (in US$’000) — 3 — — 43,181 812 76,429 — 119,610 812 — 20 — — — 20 236,518 282 — — 982 (592) 356,128 2,076 (592) 60,597 — 60,617 7,160 7,182 (1,320) 5,862 (14,573) (3,207) (11,918) PRC 43,181 809 — 20 22 (143,528) (6,436) (152,235) (197) (295,763) (6,633) 4,032 — (291,731) (6,633) 142,890 (318) (45,807) (239) (194,648) (7,190) 25,295 4,321 29,616 — 29,616 1,056 327 30,999 Oncology/Immunology December 31, 2021 R&D U.S. and Others PRC Marketed Products Other Ventures Subtotal PRC Subtotal PRC Unallocated Total (in US$’000) Total assets Property, plant and equipment Right-of-use assets Leasehold land Goodwill Other intangible asset Investments in equity investees 166,802 19,870 186,672 35,978 222,650 225,898 924,113 1,372,661 38,049 4,798 13,169 — — 480 1,862 3,768 — — — — 39,911 8,566 13,169 — — 480 — — — — — — 39,911 8,566 13,169 — — 746 1,827 — 3,380 163 480 75,999 618 1,486 — — — — 41,275 11,879 13,169 3,380 163 76,479 HUTCHMED (China) Limited 2022 Annual Report 141 Oncology/Immunology Year Ended December 31, 2020 Marketed Products Other Ventures Subtotal PRC Subtotal PRC Unallocated Total (in US$’000) 10,262 19,953 30,215 197,761 461 — 167 — — 2,608 (787) 227,976 3,236 (787) (97) 79,143 — 79,046 (167) 73 (824) (4,078) (4,829) — — — 461 — (97) 240 R&D U.S. and Others — — — — PRC 10,262 461 — (97) (402) 642 (120,096) (5,458) (62,683) (119) (182,779) (5,577) 7,282 — (175,497) (5,577) 72,785 (292) (23,018) (192) (125,730) (6,061) 22,574 754 23,328 — 23,328 817 1,090 25,235 Revenue from external customers Interest income Interest expense Equity in earnings of equity investees, net of tax Income tax (expense)/benefit Net (loss)/income attributable to the Company Depreciation/ amortization Additions to non-current assets (other than financial instruments and deferred tax assets) Revenue from external customers is after elimination of inter-segment sales. Sales between segments are carried out at mutually agreed terms. The amounts eliminated attributable to sales between PRC and U.S. and others under Oncology/Immunology segment were US$55,433,000, US$46,891,000, and US$19,230,000 for the years ended December 31, 2022, 2021, and 2020 respectively. A summary of customers which accounted for over 10% of the Group’s revenue for the years ended December 31, 2022, 2021 and 2020 is as follows: Customer A Customer B Customer C Customer D 2022 Year Ended December 31, 2021 (in US$’000) 75,606 51,681 47,611 (note) 56,082 49,055 41,974 (note) 2020 (note) (note) 36,500 25,993 Note: Customer did not account for over 10% of the Group’s revenue during the year. Customer A and B are included in Oncology/Immunology and Customer C and D are primarily included in Other Ventures. Unallocated expenses mainly represent corporate expenses which include corporate employee benefit expenses and the relevant share-based compensation expenses. Unallocated assets mainly comprise cash and cash equivalents and short-term investments. 142 27. Note to Consolidated Statements of Cash Flows Reconciliation of net loss for the year to net cash used in operating activities: Net loss Adjustments to reconcile net loss to net cash used in operating activities Year Ended December 31, 2022 2021 (in US$’000) 2020 (360,386) (167,041) (115,517) 7,190 6,061 Depreciation and amortization Amortization of finance costs Loss on disposals of property, plant and equipment Provision for excess and obsolete inventories Provision for credit losses, net Share-based compensation expense—share options Share-based compensation expense—LTIP Equity in earnings of equity investees, net of tax Dividends received from SHPL and HBYS Impairment of investment in other equity investee Changes in right-of-use assets Fair value losses on warrant Gain from divestment of HBYS Unrealized currency translation loss/(gain) Changes in income tax balances Changes in working capital Accounts receivable Other receivables, prepayments and deposits Inventories Accounts payable Other payables, accruals and advance receipts Lease liabilities Deferred revenue Other Total changes in working capital Net cash used in operating activities 8,664 18 111 293 43 6,736 23,850 (49,753) 43,718 130 2,721 2,452 — 13,274 (19,174) (14,451) 12,072 (21,213) 29,938 52,629 (2,701) 386 2,044 58,704 44 70 (23) (76) 16,365 25,625 (60,617) 49,872 — (3,727) 12,548 (121,310) (2,505) 6,904 (35,634) (5,758) (16,002) 9,565 66,224 3,079 11,071 (87) 32,458 (268,599) (204,223) 43 85 65 77 8,737 10,905 (79,046) 86,708 — (2,197) — — (6,149) (1,111) (4,693) (9,602) (3,623) 7,651 37,472 2,258 (158) (32) 29,273 (62,066) HUTCHMED (China) Limited 2022 Annual Report 143 28. Litigation From time to time, the Group may become involved in litigation relating to claims arising from the ordinary course of business. The Group believes that there are currently no claims or actions pending against the Group, the ultimate disposition of which could have a material adverse effect on the Group’s financial position, results of operations or cash flows. However, litigation is subject to inherent uncertainties and the Group’s view of these matters may change in the future. When an unfavorable outcome occurs, there exists the possibility of a material adverse impact on the Group’s financial position, results of operations or cash flows for the periods in which the unfavorable outcome occurs, and potentially in future periods. On May 17, 2019, Luye Pharma Hong Kong Ltd. (“Luye”) issued a notice to the Group purporting to terminate a distribution agreement that granted the Group exclusive commercial rights to Seroquel in the PRC for failure to meet a pre-specified target. The Group disagrees with this assertion and believes that Luye have no basis for termination. As a result, the Group commenced legal proceedings in 2019 in order to seek damages. On October 21, 2021 (and a decision on costs and interest in December 2021), the Group was awarded an amount of RMB253.2 million (equivalent to US$36.4 million) with interest of 5.5% per annum from the date of the award until payment and recovery of costs of approximately US$2.2 million (collectively the “Award”). On June 27, 2022, Luye provided the Group a bank guarantee of up to RMB286.0 million to cover the Award amounts, pending the outcome of an application by Luye to the High Court of Hong Kong to set aside the Award. On July 26, 2022, Luye’s application to set aside the Award was dismissed by the High Court with costs awarded in favor of the Group. On October 7, 2022, Luye filed a Notice of Appeal to the Court of Appeal regarding the dismissal and the notice was accepted on November 8, 2022. A Court of Appeal hearing date has been set for June 2023. The legal proceedings are ongoing, no Award amounts have been received as at the issuance date of these consolidated financial statements and no Award amounts have been recognized and no adjustment has been made to Seroquel-related balances as at December 31, 2022. Such Seroquel-related balances include accounts receivable, long-term prepayment, accounts payable and other payables of US$1.1 million, US$0.5 million, US$0.9 million and US$1.2 million respectively. 29. Restricted Net Assets Relevant PRC laws and regulations permit payments of dividends by the Company’s subsidiaries in the PRC only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. In addition, the Company’s subsidiaries in the PRC are required to make certain appropriations of net after-tax profits or increases in net assets to the statutory surplus fund prior to payment of any dividends. In addition, registered share capital and capital reserve accounts are restricted from withdrawal in the PRC, up to the amount of net assets held in each subsidiary. As a result of these and other restrictions under PRC laws and regulations, the Company’s subsidiaries in the PRC are restricted in their ability to transfer their net assets to the Group in terms of cash dividends, loans or advances, with restricted portions amounting to US$0.1 million and US$0.1 million as at December 31, 2022 and 2021 respectively, which excludes the Company’s subsidiaries with a shareholders’ deficit. Even though the Group currently does not require any such dividends, loans or advances from the PRC subsidiaries, for working capital and other funding purposes, the Group may in the future require additional cash resources from the Company’s subsidiaries in the PRC due to changes in business conditions, to fund future acquisitions and development, or merely to declare and pay dividends to make distributions to shareholders. In addition, the Group has certain investments in equity investees in the PRC, where the Group’s equity in undistributed earnings amounted to US$53.7 million and US$54.4 million as at December 31, 2022 and 2021 respectively. 30. Subsequent Events The Group evaluated subsequent events through February 28, 2023, which is the date when the consolidated financial statements were issued. On January 23, 2023, the Group and Takeda Pharmaceuticals International AG (“Takeda”) entered into an exclusive out-licensing agreement (the “Agreement”) to further the global development, commercialization and manufacturing of Fruquintinib outside Mainland China, Hong Kong and Macau. The Group will receive up to US$1,130.0 million from Takeda, including upfront payments of US$400.0 million upon closing of the Agreement, as well as potential regulatory, development and commercial sales milestone payments, plus royalties on net sales. 144 31. Additional Information: Company Balance Sheets (Parent Company Only) Assets Current assets Cash and cash equivalents Short-term investments Other receivables, prepayments and deposits Total current assets Investments in subsidiaries Total assets Liabilities and shareholders’ equity Current liabilities Other payables, accruals and advance receipts Income tax payable Total current liabilities Other non-current liabilities Total liabilities Commitments and contingencies Company’s shareholders’ equity Ordinary shares; $0.10 par value; 1,500,000,000 shares authorized; 864,775,340 and 864,530,850 shares issued at December 31, 2022 and 2021 respectively Additional paid-in capital Accumulated losses Accumulated other comprehensive (loss)/income Total Company’s shareholders’ equity Total liabilities and shareholders’ equity 32. Dividends No dividend has been declared or paid by the Company since its incorporation. December 31, Note 2022 2021 (in US$’000) 7,892 — 947 8,839 726,430 735,269 124,178 16 124,194 708 124,902 979 55,128 934 57,041 972,831 1,029,872 42,952 16 42,968 11 42,979 86,478 1,497,273 (971,481) (1,903) 610,367 735,269 86,453 1,505,196 (610,328) 5,572 986,893 1,029,872 15 16 HUTCHMED (China) Limited 2022 Annual Report 145 33. Directors’ Remuneration Directors’ remuneration disclosed pursuant to the Listing Rules, Section 383(1)(a), (b), (c) and (f) of the Hong Kong Companies Ordinance and Part 2 of the Companies (Disclosure of Information about Benefits of Directors) Regulation, is as follows: Fees: Other remuneration Salaries, allowances and benefits in kind Pension contributions Performance related bonuses Share-based compensation expenses (note) 2022 Year Ended December 31, 2021 (in US$’000) 2020 683 883 848 1,173 98 1,587 2,036 4,894 5,577 1,160 93 2,245 5,553 9,051 9,934 1,093 89 2,005 3,336 6,523 7,371 Note: During the years ended December 31, 2022, 2021 and 2020, certain directors were granted share options and LTIP awards in respect of their services to the Group under the share option schemes and LTIP of the Company, further details of which are set out in Note 17. The share-based compensation expenses were recognized in the consolidated statements of operations during the years ended December 31, 2022, 2021 and 2020. (i) Independent non-executive directors The fees paid to independent non-executive directors were as follows: 2022 Year Ended December 31, 2021 (in US$’000) 2020 Paul Carter Karen Ferrante Graeme Jack Tony Mok 117 103 111 103 434 117 103 111 99 430 The share-based compensation expenses of the independent non-executive directors were as follows: Paul Carter Karen Ferrante Graeme Jack Tony Mok 2022 Year Ended December 31, 2021 (in US$’000) 2020 139 139 139 139 556 91 91 91 91 364 117 103 104 84 408 73 73 73 73 292 There were no other remunerations payable to independent non-executive directors during the years ended December 31, 2022, 2021 and 2020. 146 (ii) Executive directors and non-executive directors Executive directors Simon To Wei-guo Su Johnny Cheng Christian Hogg (note) Non-executive directors Dan Eldar Edith Shih Executive directors Simon To Wei-guo Su Johnny Cheng Christian Hogg (note) Non-executive directors Dan Eldar Edith Shih Executive directors Simon To Wei-guo Su Johnny Cheng Christian Hogg (note) Non-executive directors Dan Eldar Edith Shih Year Ended December 31, 2022 Salaries, allowances and benefits in kind Pension contributions Performance related bonuses Fees (in US$’000) Share-based compensation Total 85 75 75 14 249 — — — 249 — 706 340 127 1,173 — — — 1,173 — 64 29 5 98 — — — 98 — 1,127 442 18 1,587 — — — 139 1,650 732 224 3,622 1,618 (1,319) (1,155) 1,202 4,309 139 139 278 139 139 278 1,587 1,480 4,587 Year Ended December 31, 2021 Salaries, allowances and benefits in kind Pension contributions Performance related bonuses Fees (in US$’000) Share-based compensation Total 85 75 72 77 309 70 74 144 453 — 412 328 420 1,160 — — — 1,160 — 35 28 30 93 — — — 93 — 835 410 1,000 2,245 — — — 2,245 92 1,934 733 2,246 5,005 92 92 184 5,189 177 3,291 1,571 3,773 8,812 162 166 328 9,140 Year Ended December 31, 2020 Salaries, allowances and benefits in kind Pension contributions Performance related bonuses Fees (in US$’000) Share-based compensation Total 80 75 70 75 300 70 70 140 440 — 362 320 411 1,093 — — — 1,093 — 32 27 30 89 — — — 89 — 736 372 897 2,005 — — — 2,005 73 1,472 341 1,012 2,898 73 73 146 3,044 153 2,677 1,130 2,425 6,385 143 143 286 6,671 Note: Mr Christian Hogg retired as executive director on March 4, 2022. HUTCHMED (China) Limited 2022 Annual Report 147 34. Five Highest-Paid Employees The five highest-paid employees during years ended December 31, 2022, 2021 and 2020 included the following number of directors and non- directors: Directors Non-directors Year Ended December 31, 2021 2020 2022 2 3 5 3 2 5 3 2 5 Details of the remuneration for the years ended December 31, 2022, 2021 and 2020 of the five highest-paid employees who are non-directors (the “Non-director Individuals”) were as follows: Salaries, allowances and benefits in kind Pension contributions Performance related bonuses Share-based compensation expenses (note) 2022 Year Ended December 31, 2021 (in US$’000) 2020 1,497 51 1,759 2,001 5,308 859 52 802 1,465 3,178 715 48 735 1,104 2,602 Note: During the years ended December 31, 2022, 2021 and 2020, the Non-director Individuals were granted share options and LTIP awards in respect of their services to the Group under the share option schemes and LTIP of the Company, further details of which are set out in Note 17. The share-based compensation expenses were recognized in the consolidated statements of operations during the years ended December 31, 2022, 2021 and 2020. The number of Non-director Individuals whose remuneration fell within the following bands is as follows: HK$10,000,000 to HK$10,500,000 HK$12,000,000 to HK$12,500,000 HK$12,500,000 to HK$13,000,000 HK$16,500,000 to HK$17,000,000 Year Ended December 31, 2021 2020 2022 — 2 — 1 3 — 1 1 — 2 2 — — — 2 During the years ended December 31, 2022, 2021 and 2020, no remuneration was paid by the Group to any directors or Non-director Individuals as an inducement to join the Group or as compensation for loss of office. Additionally, none of the directors or Non-director Individuals have waived any remuneration during the years ended December 31, 2022, 2021 and 2020. 148 35. Reconciliation between U.S. GAAP and International Financial Reporting Standards These consolidated financial statements are prepared in accordance with U.S. GAAP, which differ in certain respects from International Financial Reporting Standards (“IFRS”). The effects of material differences prepared under U.S. GAAP and IFRS are as follows: (i) Reconciliation of consolidated statements of operations Year Ended December 31, 2022 IFRS adjustments Lease amortization (note (a)) Issuance costs (note (b)) Capitalization of rights (note (c)) Amounts as reported under U.S. GAAP (268,698) (386,893) (43,933) (92,173) (834,102) 57 31 49 182 319 (652) (322) (13,509) 12 Divestment of an equity investee (note (d)) Amounts under IFRS — (268,641) — — — — — — — — — — — — (381,862) (43,884) (91,991) (828,783) (974) (13,497) (3,039) (405,413) 49,737 (355,393) (454) (355,847) (in US$’000) — — — — — — — — — — — — — — 5,000 — — 5,000 — — — 5,000 — 5,000 — 5,000 Costs of goods—third parties Research and development expenses Selling expenses Administrative expenses Total operating expenses Interest expense Other expense Total other (expense)/income (2,729) (310) Loss before income taxes and equity in earnings of equity investees (410,422) Equity in earnings of equity investees, net of tax 49,753 Net loss Less: Net income attributable to non-controlling interests Net loss attributable to the Company (360,386) (449) (360,835) 9 (16) (7) (5) (12) Year Ended December 31, 2021 IFRS adjustments Amounts as reported under U.S. GAAP Lease amortization (note (a)) Issuance costs (note (b)) Capitalization of rights (note (c)) Divestment of an equity investee (note (d)) Amounts under IFRS Costs of goods—third parties Research and development expenses Selling expenses Administrative expenses Total operating expenses Gain on divestment of an equity investee Interest expense Other expense Total other (expense)/income Loss before income taxes and equity in earnings of equity investees Income tax benefit/(expense) (229,448) (299,086) (37,827) (89,298) (684,445) 121,310 (592) (12,643) (8,733) (215,740) (11,918) Equity in earnings of equity investees, net of tax 60,617 40 23 53 161 277 — (400) 9 (391) (114) — (1) (in US$’000) — — — — (163) (163) — — — — (163) — — 11,111 — — 11,111 — — — — — — — — — (229,408) (287,952) (37,774) (89,300) (673,220) 11,266 132,576 — — — (992) (12,634) (9,124) 11,111 — 11,266 370 (193,640) (11,548) — (11,636) 48,980 Net loss Less: Net income attributable to non-controlling (167,041) (115) (163) 11,111 interests Net loss attributable to the Company (27,607) (194,648) (2) — (27) (117) (163) 11,084 — — — (156,208) (27,636) (183,844) HUTCHMED (China) Limited 2022 Annual Report 149 Year Ended December 31, 2020 IFRS adjustments Amounts as reported under U.S. GAAP Lease amortization (note (a)) Issuance costs (note (b)) Capitalization of rights (note (c)) Divestment of an equity investee (note (d)) Amounts under IFRS Costs of goods—third parties Research and development expenses Selling expenses Administrative expenses Total operating expenses Interest expense Other expense Total other (expense)/income Loss before income taxes and equity in earnings of equity investees Equity in earnings of equity investees, net of tax Net loss Less: Net income attributable to non-controlling interests Net loss attributable to the Company (ii) Reconciliation of consolidated balance sheets (178,828) (174,776) (11,334) (50,015) (424,644) (787) (115) 6,934 (189,734) 79,046 (115,517) (10,213) (125,730) 29 18 51 132 230 (237) 15 (222) 8 4 12 17 29 (in US$’000) — — — 860 860 — — — 860 — 860 — 860 — — — — — — — — — — — — — December 31, 2022 IFRS adjustments — — — — — — — — — — — — — (178,799) (174,758) (11,283) (49,023) (423,554) (1,024) (100) 6,712 (188,866) 79,050 (114,645) (10,196) (124,841) Amounts as reported under U.S. GAAP Lease amortization (note (a)) Issuance costs (note (b)) Right-of-use assets Investments in equity investees Other non-current assets 8,722 73,777 15,745 (233) (37) — — — — Capitalization of rights (note (c)) (in US$’000) — — 15,370 Total assets 1,029,445 (270) — 15,370 Other payables, accruals and advance receipts Total current liabilities Total liabilities 264,621 353,903 392,575 — — — — — — Additional paid-in capital 1,497,273 — (697) — — — — Accumulated losses (971,481) (246) 697 16,084 Accumulated other comprehensive (loss)/income (1,903) Total Company’s shareholders’ equity 610,367 Non-controlling interests Total shareholders’ equity 26,503 636,870 8 (238) (32) (270) — — — — (739) 15,345 25 15,370 Divestment of an equity investee (note (d)) LTIP classification (note (e)) Amounts under IFRS — — — — — — — — — — — — — — — — 8,489 73,740 31,115 — 1,044,545 (3,701) 260,920 (3,701) 350,202 (3,701) 388,874 3,701 1,500,277 — (954,946) — (2,634) 3,701 629,175 — 26,496 3,701 655,671 150 December 31, 2021 IFRS adjustments Divestment of an equity investee (note (d)) LTIP classification (note (e)) Amounts under IFRS Amounts as reported under U.S. GAAP Lease amortization (note (a)) Issuance costs (note (b)) Right-of-use assets Investments in equity investees Other non-current assets 11,879 76,479 21,551 (257) (24) — Total assets 1,372,661 (281) Other payables, accruals and advance receipts Total current liabilities Total liabilities 210,839 311,658 333,147 Additional paid-in capital 1,505,196 — — — — — — — — — — — (697) Capitalization of rights (note (c)) (in US$’000) — — 11,296 11,296 — — — — Accumulated losses (610,328) (233) 697 11,084 Accumulated other comprehensive (loss)/income Total Company’s shareholders’ equity Non-controlling interests Total shareholders’ equity 5,572 986,893 52,621 1,039,514 (7) (240) (41) (281) — — — — 185 11,269 27 11,296 Notes: (a) Lease amortization — — — — — — — — — — — — — — — — 11,622 76,455 32,847 — 1,383,676 (12,836) 198,003 (12,836) 298,822 (12,836) 320,311 12,836 1,517,335 — (598,780) — 5,750 12,836 1,010,758 — 52,607 12,836 1,063,365 Under U.S. GAAP, for operating leases, the amortization of right-of-use assets and the interest expense element of lease liabilities are recorded together as lease expenses, which results in a straight-line recognition effect in the consolidated statements of operations. Under IFRS, all leases are accounted for like finance leases where right-of-use assets are generally depreciated on a straight-line basis while lease liabilities are measured under the effective interest method, which results in higher expenses at the beginning of the lease term and lower expenses near the end of the lease term. (b) Issuance costs Under U.S. GAAP and IFRS, there are differences in the criteria for capitalization of issuance costs incurred in the offering of equity securities. (c) Capitalization of development and commercial rights Under U.S. GAAP, the acquired development and commercial rights do not meet the capitalization criteria as further development is needed as of the acquisition date and there is no alternative future use. Such rights are considered as in-process research and development and were expensed to research and development expense. Under IFRS, the acquired development and commercial rights were capitalized to intangible assets. The recognition criterion is always assumed to be met as the price already reflects the probability that future economic benefits will flow to the Group. HUTCHMED (China) Limited 2022 Annual Report 151 (d) Divestment of HBYS Under U.S. GAAP, an equity method investment to be divested that does not qualify for discontinued operations reporting would not qualify for held-for-sale classification. The investment in HBYS was not presented as a discontinued operation or as an asset classified as held-for-sale after the signing of the SPA in March 2021 and therefore, it was accounted for under the equity method until closing on September 28, 2021. Under IFRS, an equity method investment may be classified as held-for-sale even if the discontinued operations criteria are not met. The investment in HBYS was not presented as a discontinued operation but was classified as held-for-sale and therefore equity method accounting was discontinued in March 2021 on the initial classification as held-for-sale. Accordingly, the reconciliation includes a classification difference in the consolidated statement of operations between gain on divestment of an equity investee, equity earnings of equity investees, net of tax and income tax expense. (e) LTIP classification Under U.S. GAAP, LTIP awards with performance conditions are classified as liability-settled awards prior to the determination date as they settle in a variable number of shares based on a determinable monetary amount, which is determined upon the actual achievement of performance targets. After the determination date, the LTIP awards are reclassified as equity-settled awards. Under IFRS, LTIP awards are classified as equity-settled awards, both prior to and after the determination date, as they are ultimately settled in ordinary shares or the equivalent ADS of the Company instead of cash. 152 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 20-F (Mark one) ☐☐ ☒☒ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 OR OR ☐☐  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to OR SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ☐☐ Date of event requiring this shell company report Commission file number 001-37710 HUTCHMED (CHINA) LIMITED (Exact name of Registrant as specified in its charter) N/A (Translation of Registrant’s name into English) Cayman Islands (Jurisdiction of incorporation or organization) 48th Floor, Cheung Kong Center 2 Queen’s Road Central Hong Kong +852 2121 8200 (Address of principal executive offices) Dr. Weiguo Su Chief Executive Officer and Chief Scientific Officer Level 18, The Metropolis Tower 10 Metropolis Drive Hunghom, Kowloon Hong Kong Telephone: +852 2121 8200 Facsimile: +852 2121 8281 (Name, telephone, email and/or facsimile number and address of Company contact person) Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of each class American depositary shares, each representing five ordinary shares, par value $0.10 per share Ordinary shares, par value $0.10 per share* *Not for trading, but only in connection with the listing of American depositary shares on the Nasdaq Global Select Market Securities registered or to be registered pursuant to Section 12(g) of the Act: Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None (Title of Class) None (Title of Class) Trading Symbol(s) HCM Name of each exchange on which registered Nasdaq Global Select Market Nasdaq Global Select Market* Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the Annual Report: 864,775,340 ordinary shares were issued and outstanding as of December 31, 2022. Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.  Yes  No  Yes  No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer  Accelerated filer  Non-accelerated filer  Emerging growth company ☐ If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐ †The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepare or issued its audit report.  If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐ Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAP  International Financial Reporting Standards as issued by the International Accounting Standards Board  Other  If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. If this is an Annual Report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Item 17  Item 18 (APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS) Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ☐ Yes ☒ No ☐ Yes ☐ No HUTCHMED (China) Limited Table of Contents INTRODUCTION Introduction Cautionary Statement Regarding Forward-Looking Statements PART I Item 1. Identity of Directors, Senior Management and Advisers Item 2. Offer Statistics and Expected Timetable Item 3. Key Information Item 4. Information on the Company Item 4A. Unresolved Staff Comments Item 5. Operating and Financial Review and Prospects Item 6. Directors, Senior Management and Employees Item 7. Major Shareholders and Related Party Transactions Item 8. Financial Information Item 9. The Offer and Listing Item 10. Additional Information Item 11. Quantitative and Qualitative Disclosures About Market Risk Item 12. Description of Securities Other Than Equity Securities PART II Item 13. Defaults, Dividend Arrearages and Delinquencies Item 14. Material Modifications to the Rights of Security Holders and Use Of Proceeds Item 15. Controls and Procedures Item 16. Reserved Item 16A.Audit Committee Financial Experts Item 16B. Code of Ethics Item 16C. Principal Accountant Fees and Services Item 16D.Exemptions From The Listing Standards For Audit Committees Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers Item 16F. Change In Registrant’s Certifying Accountant Item 16G.Corporate Governance Item 16H.Mine Safety Disclosure Item 16I. Disclosure Regarding Foreign Jurisdictions That Prevent Inspection Item 16J. Insider Trading Policies PART III Item 17. Financial Statements Item 18. Financial Statements Item 19. Exhibits SIGNATURES 3 5 7 7 7 7 69 161 161 184 199 203 203 204 213 214 217 217 217 217 218 218 218 218 219 219 219 220 220 220 220 220 220 221 222 224 This annual report on Form 20-F contains our audited consolidated statements of operations data for the years ended December 31, 2022, 2021 and 2020 and our audited consolidated balance sheet data as of December 31, 2022 and 2021. Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. This annual report also includes audited consolidated income statement data for the years ended December 31, 2022, 2021 and 2020 and the audited consolidated statements of financial position data as of December 31, 2022 and 2021 for our non-consolidated joint venture, Shanghai Hutchison Pharmaceuticals, and audited consolidated income statement data for the period from January 1, 2021 to September 28, 2021 and the year ended December 31, 2020 and the audited consolidated statements of financial position data as of September 28, 2021 of Hutchison Baiyunshan when it was our non-consolidated joint venture. On September 28, 2021, we completed the disposal of our entire interest in Hutchison Baiyunshan, which was our non-core and over-the-counter drug joint venture business. The financial statements of each of Shanghai Hutchison Pharmaceuticals and Hutchison Baiyunshan have been prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standard Board, or IASB. Unless the context requires otherwise, references herein to the “company,” “HUTCHMED,” “we,” “us” and “our” refer to HUTCHMED (China) Limited, a holding company incorporated in the Cayman Islands, and its consolidated subsidiaries and joint ventures, some of which, as noted below, are incorporated and operate in the PRC. “HUTCHMED Holdings” refers to HUTCHMED Holdings Limited, a subsidiary of the Company and a holding company incorporated in the Cayman Islands. “HUTCHMED Limited” refers to “HUTCHMED Limited”, a subsidiary of HUTCHMED Holdings which is incorporated in the PRC and through which we operate our Oncology/Immunology operations in China. Our other principal operating subsidiaries for our Oncology/Immunology operations are HUTCHMED International Corporation (incorporated in Delaware), HUTCHMED Holdings (HK) Limited (incorporated in Hong Kong) and HUTCHMED (Suzhou) Limited (incorporated and operates in the PRC). “Hutchison Sinopharm” refers to Hutchison Whampoa Sinopharm Pharmaceuticals (Shanghai) Company Limited, our PRC-incorporated joint venture with Sinopharm through which we operate our principal consolidated joint venture. See Item 4. “Information on the Company—C. Organizational Structure” for a diagram illustrating our corporate structure. Conventions Used in this Annual Report Unless otherwise indicated, references in this annual report to: “ADRs” are to the American depositary receipts, which evidence our ADSs; • • • • • • • • “ADSs” are to our American depositary shares, each of which represents five ordinary shares; “China” or “PRC” refers to the People’s Republic of China including Hong Kong and Macau and, only for the purpose of this annual report, excluding Taiwan; and only in the context of describing PRC rules, laws, regulations, regulatory authority, and any PRC entities or citizens under such rules, laws and regulations and other legal or tax matters in this annual report, excludes Taiwan, Hong Kong, and Macau; the legal and operational risks associated with operating in China also apply to our operations in Hong Kong; “CK Hutchison” are to CK Hutchison Holdings Limited, a company incorporated in the Cayman Islands and listed on the Hong Kong Stock Exchange, and the ultimate parent company of our largest shareholder, Hutchison Healthcare Holdings Limited; “E.U.” are to the European Union; “Guangzhou Baiyunshan” are to Guangzhou Baiyunshan Pharmaceutical Holdings Company Limited, a leading China-based pharmaceutical company listed on the Shanghai Stock Exchange and the Hong Kong Stock Exchange; “Hain Celestial” are to The Hain Celestial Group, Inc., a Nasdaq-listed, natural and organic food and personal care products company; “HK$” or “HK dollar” are to the legal currency of the Hong Kong Special Administrative Region; 3 HUTCHMED (China) Limited Table of Contents INTRODUCTION Introduction PART I Cautionary Statement Regarding Forward-Looking Statements Item 1. Identity of Directors, Senior Management and Advisers Item 2. Offer Statistics and Expected Timetable Item 3. Key Information Item 4. Information on the Company Item 4A. Unresolved Staff Comments Item 5. Operating and Financial Review and Prospects Item 6. Directors, Senior Management and Employees Item 7. Major Shareholders and Related Party Transactions Item 8. Financial Information Item 9. The Offer and Listing Item 10. Additional Information Item 11. Quantitative and Qualitative Disclosures About Market Risk Item 12. Description of Securities Other Than Equity Securities PART II Item 13. Defaults, Dividend Arrearages and Delinquencies Item 14. Material Modifications to the Rights of Security Holders and Use Of Proceeds Item 15. Controls and Procedures Item 16. Reserved Item 16A.Audit Committee Financial Experts Item 16B. Code of Ethics Item 16C. Principal Accountant Fees and Services Item 16D.Exemptions From The Listing Standards For Audit Committees Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers Item 16F. Change In Registrant’s Certifying Accountant Item 16I. Disclosure Regarding Foreign Jurisdictions That Prevent Inspection Item 16G.Corporate Governance Item 16H.Mine Safety Disclosure Item 16J. Insider Trading Policies PART III Item 17. Financial Statements Item 18. Financial Statements Item 19. Exhibits SIGNATURES 3 5 7 7 7 7 217 218 69 161 161 184 199 203 203 204 213 214 217 217 217 218 218 218 219 219 219 220 220 220 220 220 220 221 222 224 This annual report on Form 20-F contains our audited consolidated statements of operations data for the years ended December 31, 2022, 2021 and 2020 and our audited consolidated balance sheet data as of December 31, 2022 and 2021. Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. This annual report also includes audited consolidated income statement data for the years ended December 31, 2022, 2021 and 2020 and the audited consolidated statements of financial position data as of December 31, 2022 and 2021 for our non-consolidated joint venture, Shanghai Hutchison Pharmaceuticals, and audited consolidated income statement data for the period from January 1, 2021 to September 28, 2021 and the year ended December 31, 2020 and the audited consolidated statements of financial position data as of September 28, 2021 of Hutchison Baiyunshan when it was our non-consolidated joint venture. On September 28, 2021, we completed the disposal of our entire interest in Hutchison Baiyunshan, which was our non-core and over-the-counter drug joint venture business. The financial statements of each of Shanghai Hutchison Pharmaceuticals and Hutchison Baiyunshan have been prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standard Board, or IASB. Unless the context requires otherwise, references herein to the “company,” “HUTCHMED,” “we,” “us” and “our” refer to HUTCHMED (China) Limited, a holding company incorporated in the Cayman Islands, and its consolidated subsidiaries and joint ventures, some of which, as noted below, are incorporated and operate in the PRC. “HUTCHMED Holdings” refers to HUTCHMED Holdings Limited, a subsidiary of the Company and a holding company incorporated in the Cayman Islands. “HUTCHMED Limited” refers to “HUTCHMED Limited”, a subsidiary of HUTCHMED Holdings which is incorporated in the PRC and through which we operate our Oncology/Immunology operations in China. Our other principal operating subsidiaries for our Oncology/Immunology operations are HUTCHMED International Corporation (incorporated in Delaware), HUTCHMED Holdings (HK) Limited (incorporated in Hong Kong) and HUTCHMED (Suzhou) Limited (incorporated and operates in the PRC). “Hutchison Sinopharm” refers to Hutchison Whampoa Sinopharm Pharmaceuticals (Shanghai) Company Limited, our PRC-incorporated joint venture with Sinopharm through which we operate our principal consolidated joint venture. See Item 4. “Information on the Company—C. Organizational Structure” for a diagram illustrating our corporate structure. Unless otherwise indicated, references in this annual report to: Conventions Used in this Annual Report • • • • • • • • “ADRs” are to the American depositary receipts, which evidence our ADSs; “ADSs” are to our American depositary shares, each of which represents five ordinary shares; “China” or “PRC” refers to the People’s Republic of China including Hong Kong and Macau and, only for the purpose of this annual report, excluding Taiwan; and only in the context of describing PRC rules, laws, regulations, regulatory authority, and any PRC entities or citizens under such rules, laws and regulations and other legal or tax matters in this annual report, excludes Taiwan, Hong Kong, and Macau; the legal and operational risks associated with operating in China also apply to our operations in Hong Kong; “CK Hutchison” are to CK Hutchison Holdings Limited, a company incorporated in the Cayman Islands and listed on the Hong Kong Stock Exchange, and the ultimate parent company of our largest shareholder, Hutchison Healthcare Holdings Limited; “E.U.” are to the European Union; “Guangzhou Baiyunshan” are to Guangzhou Baiyunshan Pharmaceutical Holdings Company Limited, a leading China-based pharmaceutical company listed on the Shanghai Stock Exchange and the Hong Kong Stock Exchange; “Hain Celestial” are to The Hain Celestial Group, Inc., a Nasdaq-listed, natural and organic food and personal care products company; “HK$” or “HK dollar” are to the legal currency of the Hong Kong Special Administrative Region; 3 • • • • • • • • • • • • • • • • “Hutchison Baiyunshan” are to Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited, which was our non-consolidated joint venture with Guangzhou Baiyunshan in which we indirectly held a 50% interest through a holding company until our disposal of such interest on September 28, 2021 (this interest was previously held through a holding company in which we have a 80% interest); “HUTCHMED Science Nutrition” are to HUTCHMED Science Nutrition Limited, our wholly owned subsidiary; Trademarks and Service Marks We own or have been licensed rights to trademarks, service marks and trade names for use in connection with the operation of our business, including, but not limited to, the trademarks “Hutchison”, “Chi-Med”, “Hutchison China MediTech”, “HUTCHMED”, “Elunate”, “Sulanda”, “Orpathys”, “Tazverik” and the logos used by HUTCHMED Limited. All other trademarks, service marks or trade names appearing in this annual report that are not identified as marks owned by us are the property of their respective owners. “Hutchison Hain Organic” are to Hutchison Hain Organic Holdings Limited, our joint venture with Hain Celestial in which we have a 50% interest; Solely for convenience, the trademarks, service marks and trade names referred to in this annual report are listed without the ®, ™ and (sm) symbols, but we will assert, to the fullest extent under applicable law, our applicable rights in these trademarks, service marks and trade names. “Hutchison Healthcare” are to Hutchison Healthcare Limited, our wholly owned subsidiary; “HUTCHMED Limited”, our PRC-incorporated subsidiary through which we operate our Oncology/Immunology operations in China and in which we have a 99.8% interest; “HUTCHMED Holdings” are to HUTCHMED Holdings Limited, our subsidiary incorporated in the Cayman Islands in which we have a 99.8% interest and which is the indirect holding company of HUTCHMED Limited; “Hutchison Sinopharm” are to Hutchison Whampoa Sinopharm Pharmaceuticals (Shanghai) Company Limited, our PRC- incorporated joint venture with Sinopharm in which we have a 50.9% interest and through which we operate our principal consolidated joint venture; “ordinary shares” or “shares” are to our ordinary shares, par value $0.10 per share; “RMB” or “renminbi” are to the legal currency of the PRC; “SEHK” are to The Stock Exchange of Hong Kong Limited, or the Hong Kong Stock Exchange; “Shanghai Hutchison Pharmaceuticals” are to Shanghai Hutchison Pharmaceuticals Limited, our non-consolidated joint venture with Shanghai Pharmaceuticals in which we have a 50% interest; CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This annual report contains forward-looking statements made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The words “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “might,” “objective,” “plan,” “potential,” “predict,” “project,” “positioned,” “seek,” “should,” “target,” “will,” “would,” or the negative of these terms or other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements are based on current expectations, estimates, forecasts and projections about our business and the industry in which we operate and management’s beliefs and assumptions, are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors. These forward-looking statements include statements regarding: the initiation, timing, progress and results of our or our collaboration partners’ pre-clinical and clinical studies, and our research and development programs; our or our collaboration partners’ ability to advance our drug candidates into, and/or successfully complete, clinical studies; the timing of regulatory filings and the likelihood of favorable regulatory outcomes and approvals; “Shanghai Pharmaceuticals” are to Shanghai Pharmaceuticals Holding Co., Ltd., a leading pharmaceutical company in China listed on the Shanghai Stock Exchange and the Hong Kong Stock Exchange; regulatory developments in China, the United States and other countries; “Sinopharm” are to Sinopharm Group Co. Ltd., a leading distributor of pharmaceutical and healthcare products and a leading supply chain service provider in China listed on the Hong Kong Stock Exchange; “U.S.” or “United States” are to the United States of America; “$” or “U.S. dollars” are to the legal currency of the United States; and “£” or “pound sterling” are to the legal currency of the United Kingdom. References in this annual report to our “Oncology/Immunology” operations are to all activities related to oncology/immunology, including sales, marketing, manufacturing and research and development with respect to our drugs and drug candidates, and references to our “Other Ventures” are to all of our other businesses. Our reporting currency is the U.S. dollar. In addition, this annual report also contains translations of certain foreign currency amounts into dollars for the convenience of the reader. Unless otherwise stated, all translations of pound sterling into U.S. dollars were made at £1.00 to $1.21, all translations of RMB into U.S. dollars were made at RMB6.96 to $1.00 and all translations of HK dollars into U.S. dollars were made at HK$7.8 to $1.00, which are the exchange rates used in our audited consolidated financial statements as of December 31, 2022. We make no representation that the pound sterling, HK dollar or U.S. dollar amounts referred to in this annual report could have been or could be converted into U.S. dollars, pounds sterling or HK dollars, as the case may be, at any particular rate or at all. 4 5 • • • • • • • • • • • • the ability of our oncology drug sales team to effectively develop and execute promotional and marketing activities to support the marketing and sales of our approved drug candidates; the timing, progress and results of our commercial launches, the rate and degree of market acceptance and potential market for any of our approved drug candidates; the pricing and reimbursement of our and our joint ventures’ products and our approved drug candidates; our ability to contract on commercially reasonable terms with contract research organizations, or CROs, third-party suppliers the scope of protection we are able to establish and maintain for intellectual property rights covering our or our joint ventures’ and manufacturers; products and our drug candidates; candidates; the ability of third parties with whom we contract to successfully conduct, supervise and monitor clinical studies for our drug estimates of our expenses, future revenues, capital requirements and our needs for additional financing; our ability to obtain additional funding for our operations; • “Hutchison Baiyunshan” are to Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited, which was our non-consolidated joint venture with Guangzhou Baiyunshan in which we indirectly held a 50% interest through a holding company until our disposal of such interest on September 28, 2021 (this interest was previously held through a holding company in which we have a 80% interest); “HUTCHMED Science Nutrition” are to HUTCHMED Science Nutrition Limited, our wholly owned subsidiary; “Hutchison Hain Organic” are to Hutchison Hain Organic Holdings Limited, our joint venture with Hain Celestial in which we have a 50% interest; “Hutchison Healthcare” are to Hutchison Healthcare Limited, our wholly owned subsidiary; “HUTCHMED Limited”, our PRC-incorporated subsidiary through which we operate our Oncology/Immunology operations in China and in which we have a 99.8% interest; “HUTCHMED Holdings” are to HUTCHMED Holdings Limited, our subsidiary incorporated in the Cayman Islands in which we have a 99.8% interest and which is the indirect holding company of HUTCHMED Limited; “Hutchison Sinopharm” are to Hutchison Whampoa Sinopharm Pharmaceuticals (Shanghai) Company Limited, our PRC- incorporated joint venture with Sinopharm in which we have a 50.9% interest and through which we operate our principal consolidated joint venture; “ordinary shares” or “shares” are to our ordinary shares, par value $0.10 per share; “RMB” or “renminbi” are to the legal currency of the PRC; “SEHK” are to The Stock Exchange of Hong Kong Limited, or the Hong Kong Stock Exchange; “Shanghai Hutchison Pharmaceuticals” are to Shanghai Hutchison Pharmaceuticals Limited, our non-consolidated joint venture with Shanghai Pharmaceuticals in which we have a 50% interest; “Shanghai Pharmaceuticals” are to Shanghai Pharmaceuticals Holding Co., Ltd., a leading pharmaceutical company in China listed on the Shanghai Stock Exchange and the Hong Kong Stock Exchange; “Sinopharm” are to Sinopharm Group Co. Ltd., a leading distributor of pharmaceutical and healthcare products and a leading supply chain service provider in China listed on the Hong Kong Stock Exchange; “U.S.” or “United States” are to the United States of America; “$” or “U.S. dollars” are to the legal currency of the United States; and “£” or “pound sterling” are to the legal currency of the United Kingdom. • • • • • • • • • • • • • • • References in this annual report to our “Oncology/Immunology” operations are to all activities related to oncology/immunology, including sales, marketing, manufacturing and research and development with respect to our drugs and drug candidates, and references to our “Other Ventures” are to all of our other businesses. Our reporting currency is the U.S. dollar. In addition, this annual report also contains translations of certain foreign currency amounts into dollars for the convenience of the reader. Unless otherwise stated, all translations of pound sterling into U.S. dollars were made at £1.00 to $1.21, all translations of RMB into U.S. dollars were made at RMB6.96 to $1.00 and all translations of HK dollars into U.S. dollars were made at HK$7.8 to $1.00, which are the exchange rates used in our audited consolidated financial statements as of December 31, 2022. We make no representation that the pound sterling, HK dollar or U.S. dollar amounts referred to in this annual report could have been or could be converted into U.S. dollars, pounds sterling or HK dollars, as the case may be, at any particular rate or at all. Trademarks and Service Marks We own or have been licensed rights to trademarks, service marks and trade names for use in connection with the operation of our business, including, but not limited to, the trademarks “Hutchison”, “Chi-Med”, “Hutchison China MediTech”, “HUTCHMED”, “Elunate”, “Sulanda”, “Orpathys”, “Tazverik” and the logos used by HUTCHMED Limited. All other trademarks, service marks or trade names appearing in this annual report that are not identified as marks owned by us are the property of their respective owners. Solely for convenience, the trademarks, service marks and trade names referred to in this annual report are listed without the ®, ™ and (sm) symbols, but we will assert, to the fullest extent under applicable law, our applicable rights in these trademarks, service marks and trade names. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This annual report contains forward-looking statements made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The words “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “might,” “objective,” “plan,” “potential,” “predict,” “project,” “positioned,” “seek,” “should,” “target,” “will,” “would,” or the negative of these terms or other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements are based on current expectations, estimates, forecasts and projections about our business and the industry in which we operate and management’s beliefs and assumptions, are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors. These forward-looking statements include statements regarding: • • • • • • • • • • • • the initiation, timing, progress and results of our or our collaboration partners’ pre-clinical and clinical studies, and our research and development programs; our or our collaboration partners’ ability to advance our drug candidates into, and/or successfully complete, clinical studies; the timing of regulatory filings and the likelihood of favorable regulatory outcomes and approvals; regulatory developments in China, the United States and other countries; the ability of our oncology drug sales team to effectively develop and execute promotional and marketing activities to support the marketing and sales of our approved drug candidates; the timing, progress and results of our commercial launches, the rate and degree of market acceptance and potential market for any of our approved drug candidates; the pricing and reimbursement of our and our joint ventures’ products and our approved drug candidates; our ability to contract on commercially reasonable terms with contract research organizations, or CROs, third-party suppliers and manufacturers; the scope of protection we are able to establish and maintain for intellectual property rights covering our or our joint ventures’ products and our drug candidates; the ability of third parties with whom we contract to successfully conduct, supervise and monitor clinical studies for our drug candidates; estimates of our expenses, future revenues, capital requirements and our needs for additional financing; our ability to obtain additional funding for our operations; 4 5 • • • • • • • • • • the potential benefits of our collaborations and our ability to enter into future collaboration arrangements; PART I the ability and willingness of our collaborators to actively pursue development activities under our collaboration agreements; ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS our receipt of milestone or royalty payments, service payments and manufacturing costs pursuant to our strategic alliances with AstraZeneca AB (publ), or AstraZeneca, Lilly (Shanghai) Management Company Limited, or Eli Lilly and Takeda Pharmaceuticals International AG, or Takeda; ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE our financial performance; our ability to attract and retain key scientific and management personnel; our relationship with our joint venture and collaboration partners; developments relating to our competitors and our industry, including competing drug products; changes in our tax status or the tax laws in the jurisdictions that we operate; developments in our business strategies and business plans; and the extent of the impact of the COVID-19 pandemic, including the duration, spread, severity of the COVID-19 pandemic, the duration and scope of related government orders and restrictions and the extent of the impact of the COVID-19 pandemic on the global economy. Not applicable. D. Risk Factors. Not applicable. Not applicable. ITEM 3. KEY INFORMATION A. Reserved. B. Capitalization and Indebtedness. Not applicable. C. Reasons for the Offer and Use of Proceeds. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. As a result, any or all of our forward-looking statements in this annual report may turn out to be inaccurate. We have included important factors in the cautionary statements included in this annual report on Form 20-F, particularly in the section of this annual report on Form 20-F titled “Risk Factors,” that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Moreover, we operate in a highly competitive and rapidly changing environment in which new risks often emerge. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. You should read this annual report and the documents that we reference herein and have filed as exhibits hereto completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained herein are made as of the date of the filing of this annual report, and we do not assume any obligation to update any forward-looking statements except as required by applicable law. In addition, this annual report contains statistical data and estimates that we have obtained from industry publications and reports generated by third-party market research firms. Although we believe that the publications, reports and surveys are reliable, we have not independently verified the data and cannot guarantee the accuracy or completeness of such data. You are cautioned not to give undue weight to this data. Such data involves risks and uncertainties and are subject to change based on various factors, including those discussed above. HUTCHMED (China) Limited is a Cayman Islands holding company which conducts its operations in China through its PRC subsidiaries (our corporate group does not include any variable interest entities). We face various legal and operational risks and uncertainties as a company with substantial operations in China. The PRC government has significant authority to exert influence on the ability of a company with substantial operations in China, like us, to conduct its business, accept foreign investments or be listed on a U.S. stock exchange. For example, we face risks associated with PRC regulatory approvals of offshore offerings, anti-monopoly regulatory actions, cybersecurity, data privacy and from U.S. regulators if there is a lack of inspection from the U.S. Public Company Accounting Oversight Board, or PCAOB, on our auditors, which is further discussed below under “—Holding Foreign Companies Accountable Act” and in various risk factors in this section. The PRC government may also intervene with or influence our operations as the government deems appropriate to further regulatory, political and societal goals. The PRC government publishes from time to time new policies that can significantly affect our industry in which we operate and we cannot rule out the possibility that it will in the future further release regulations or policies regarding our industry that could adversely affect our business, financial condition and results of operations. Any such action, once taken by the PRC government, could cause the value of our ADSs and ordinary shares to significantly decline or in extreme cases, become worthless. 6 7 the potential benefits of our collaborations and our ability to enter into future collaboration arrangements; PART I the ability and willingness of our collaborators to actively pursue development activities under our collaboration agreements; ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS our receipt of milestone or royalty payments, service payments and manufacturing costs pursuant to our strategic alliances with AstraZeneca AB (publ), or AstraZeneca, Lilly (Shanghai) Management Company Limited, or Eli Lilly and Takeda Not applicable. ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable. ITEM 3. KEY INFORMATION A. Reserved. B. Capitalization and Indebtedness. Not applicable. C. Reasons for the Offer and Use of Proceeds. the extent of the impact of the COVID-19 pandemic, including the duration, spread, severity of the COVID-19 pandemic, the duration and scope of related government orders and restrictions and the extent of the impact of the COVID-19 pandemic on the global economy. Not applicable. D. Risk Factors. HUTCHMED (China) Limited is a Cayman Islands holding company which conducts its operations in China through its PRC subsidiaries (our corporate group does not include any variable interest entities). We face various legal and operational risks and uncertainties as a company with substantial operations in China. The PRC government has significant authority to exert influence on the ability of a company with substantial operations in China, like us, to conduct its business, accept foreign investments or be listed on a U.S. stock exchange. For example, we face risks associated with PRC regulatory approvals of offshore offerings, anti-monopoly regulatory actions, cybersecurity, data privacy and from U.S. regulators if there is a lack of inspection from the U.S. Public Company Accounting Oversight Board, or PCAOB, on our auditors, which is further discussed below under “—Holding Foreign Companies Accountable Act” and in various risk factors in this section. The PRC government may also intervene with or influence our operations as the government deems appropriate to further regulatory, political and societal goals. The PRC government publishes from time to time new policies that can significantly affect our industry in which we operate and we cannot rule out the possibility that it will in the future further release regulations or policies regarding our industry that could adversely affect our business, financial condition and results of operations. Any such action, once taken by the PRC government, could cause the value of our ADSs and ordinary shares to significantly decline or in extreme cases, become worthless. • • • • • • • • • • Pharmaceuticals International AG, or Takeda; our financial performance; our ability to attract and retain key scientific and management personnel; our relationship with our joint venture and collaboration partners; developments relating to our competitors and our industry, including competing drug products; changes in our tax status or the tax laws in the jurisdictions that we operate; developments in our business strategies and business plans; and Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. As a result, any or all of our forward-looking statements in this annual report may turn out to be inaccurate. We have included important factors in the cautionary statements included in this annual report on Form 20-F, particularly in the section of this annual report on Form 20-F titled “Risk Factors,” that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Moreover, we operate in a highly competitive and rapidly changing environment in which new risks often emerge. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. You should read this annual report and the documents that we reference herein and have filed as exhibits hereto completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained herein are made as of the date of the filing of this annual report, and we do not assume any obligation to update any forward-looking statements except as required by applicable law. In addition, this annual report contains statistical data and estimates that we have obtained from industry publications and reports generated by third-party market research firms. Although we believe that the publications, reports and surveys are reliable, we have not independently verified the data and cannot guarantee the accuracy or completeness of such data. You are cautioned not to give undue weight to this data. Such data involves risks and uncertainties and are subject to change based on various factors, including those discussed above. 6 7 Holding Foreign Companies Accountable Act Pursuant to the Holding Foreign Companies Accountable Act, or the HFCAA if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspections by the PCAOB for two consecutive years, the SEC will prohibit our shares or the ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States. On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong, including our auditor. In March 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA following the filing of our annual report on Form 20-F for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. For this reason, we do not expect to be identified as a Commission-Identified Issuer under the HFCAA after we file this annual report on Form 20-F. Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong and we continue to use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the Securities and Exchange Commission, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year. There can be no assurance that we would not be identified as a Commission-Identified Issuer for any future fiscal year, and if we were so identified for two consecutive years, we would become subject to the prohibition on trading under the HFCAA. See Item 3.D. “Risk Factors—Risks Relating to our ADSs—The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of such inspections.” And Item 3.D. “ Risk Factors—Risks Relating to our ADSs—Our ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or investigate completely auditors located in China. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.” Furthermore, in connection with our historical issuance of securities to foreign investors, under currently effective PRC laws, regulations and regulatory rules, as of the date of this annual report, we and our non-consolidated joint venture are not currently required to obtain permissions from the China Securities Regulatory Commission (the “CSRC”), and we have not received any formal notice from any PRC authority indicating that we should apply for or are otherwise subject to cybersecurity review or security assessment. In addition, we and our non-consolidated joint venture have not been asked to obtain such permissions by any PRC authority or received any denial to do so. However, the PRC government has recently indicated an intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers. For example, the CSRC published the Trial Measures and Listing Guidelines (defined below) on February 17, 2023, designed to regulate overseas securities offerings by PRC domestic companies. Given the recent nature of the introduction of the Trial Measures and Listing Guidelines, and the fact that the Trial Measures and Listing Guidelines are not due to become effective until March 31, 2023, there remains significant uncertainty as to the enactment, interpretation and implementation of regulatory requirements related to overseas securities offerings and other capital markets activities. If (i) we mistakenly conclude that certain regulatory filings, permissions and approvals are not required or (ii) applicable laws, regulations, or interpretations change and (iii) we are required to obtain such filings, permissions or approvals in the future, but fail to receive or maintain such filings, permissions or approvals, we may face sanctions by the CSRC, the Cyberspace Administration of China (the “CAC”) or other PRC regulatory agencies. In addition, rules and regulations in China can change quickly with little advance notice. These regulatory agencies may impose fines and penalties on our operations in China, limit our operations in China, limit our ability to pay dividends outside of China, limit our ability to list on stock exchanges outside of China or offer our securities to foreign investors or take other actions that could have a material adverse effect on our business, financial condition, results of operations and prospects, as well as the trading price of our securities. Our non-consolidated joint venture faces the same risks as well. See also “Other Risks and Risks Relating to Doing Business in China—The PRC government exerts substantial influence over the manner in which we conduct our business activities. Its oversight and discretion over our business could result in a material adverse change in our operations and the value of our ordinary shares and ADSs. Changes in laws, regulations and policies in China and uncertainties with respect to the PRC legal system could materially and adversely affect us.” and “—The PRC government has increasingly strengthened oversight in offerings conducted overseas or on foreign investment in China-based issuers, which could result in a material change in our Permissions, Approvals, Licenses and Permits Required from the PRC Authorities for Our Operations and for the Offering operations and our ordinary shares and ADSs could decline in value or become worthless.” of Our Securities to Foreign Investors Cash Flows Through Our Organization We conduct our business primarily through our subsidiaries and joint ventures in China. Our operations in China are governed by PRC laws and regulations. As of the date of this annual report, we and our non-consolidated joint venture, Shanghai Hutchison Pharmaceuticals, have obtained the requisite permissions, approvals, licenses and permits from the PRC government authorities that are material for the business operations of our subsidiaries and our joint ventures in China, including, among others, pharmaceutical manufacturing permits, business licenses, drug registration certificates and pharmaceutical distribution permits and no such material permission or approval has been denied. For a detailed discussion on the licenses and permits we and our non-consolidated joint venture are required to obtain as a pharmaceutical company operating in China, see Item 4.B. “Business Overview—Certificates and Permits”, “Business Overview—Regulations—Government Regulation of Pharmaceutical Product Development and Approval,” “Business Overview—Regulations—Coverage and Reimbursement” and “Business Overview—Regulations—Other Healthcare Laws.” Given the uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement practice by relevant government authorities, we may be required to obtain additional requisite permissions, approvals, licenses, permits and filings for the operation of our business in the future. See also “Risks Relating to Sales of Our Internally Developed Drugs and Other Drugs—Pharmaceutical companies in China are required to comply with extensive regulations and hold a number of permits and licenses to carry on their business. Our and our joint ventures’ ability to obtain and maintain these regulatory approvals is uncertain, and future government regulation may impose additional burdens on our operations.” HUTCHMED (China) Limited is a Cayman Islands incorporated holding company with no material operations of its own. We conduct our operations primarily in China through our PRC subsidiaries and PRC joint ventures, collectively referred to as the Onshore Entities below. HUTCHMED (China) Limited has an indirect equity ownership interest in all Onshore Entities through offshore Hong Kong-incorporated holding companies, and it has received funding through various capital markets transactions (e.g., offerings and private placements of equity securities). We also fund our operations through cash flows generated and dividend payments from our Oncology/Immunology and Other Ventures operations (substantially all of which have been generated in China), service and milestone and upfront payments from our collaboration partners to our PRC subsidiaries, and bank loans to our subsidiaries. We utilize a portion of our funds outside of China to support the operations of our subsidiaries in China through capital contributions and/or shareholder loans, which are the only methods by which we can fund our subsidiaries under PRC laws and regulations. Such capital contributions and shareholder loans are subject to the satisfaction of applicable government registration and approval requirements in China and limitations on the amount of shareholder loans relative to the amount of total capital contributions. If such subsidiaries generate sufficient income, they may repay shareholder loans or distribute retained earnings through cash dividends as determined by their respective board of directors. Our PRC subsidiaries are permitted to pay dividends only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Furthermore, our PRC subsidiaries are required to make appropriations to certain statutory reserve funds or may make appropriations to certain discretionary funds, which are not distributable as cash dividends except in the event of a solvent liquidation of the companies. The amount of any repayment of shareholder loans or dividend payments can be distributed to our various offshore subsidiaries through our offshore Hong Kong-incorporated holding companies. For more information, see Item 3.D. “Risk Factors—Other Risks and Risks Relating to Doing Business in China— Restrictions on currency exchange may limit our ability to receive and use our revenue effectively.” and Item 4.B. “Business Overview— Regulations—PRC Regulation of Foreign Currency Exchange, Offshore Investment and State-Owned Assets—Regulation on Investment in Foreign invested Enterprises.” Our joint ventures in China do not require intra-group funding as they have been profitable. Service and milestone and upfront payments from our collaboration partners are received directly by our PRC subsidiaries and reinvested into their operations. 8 9 Holding Foreign Companies Accountable Act Pursuant to the Holding Foreign Companies Accountable Act, or the HFCAA if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspections by the PCAOB for two consecutive years, the SEC will prohibit our shares or the ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States. On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong, including our auditor. In March 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA following the filing of our annual report on Form 20-F for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. For this reason, we do not expect to be identified as a Commission-Identified Issuer under the HFCAA after we file this annual report on Form 20-F. Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong and we continue to use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the Securities and Exchange Commission, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year. There can be no assurance that we would not be identified as a Commission-Identified Issuer for any future fiscal year, and if we were so identified for two consecutive years, we would become subject to the prohibition on trading under the HFCAA. See Item 3.D. “Risk Factors—Risks Relating to our ADSs—The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of such inspections.” And Item 3.D. “ Risk Factors—Risks Relating to our ADSs—Our ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or investigate completely auditors located in China. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.” Permissions, Approvals, Licenses and Permits Required from the PRC Authorities for Our Operations and for the Offering of Our Securities to Foreign Investors We conduct our business primarily through our subsidiaries and joint ventures in China. Our operations in China are governed by PRC laws and regulations. As of the date of this annual report, we and our non-consolidated joint venture, Shanghai Hutchison Pharmaceuticals, have obtained the requisite permissions, approvals, licenses and permits from the PRC government authorities that are material for the business operations of our subsidiaries and our joint ventures in China, including, among others, pharmaceutical manufacturing permits, business licenses, drug registration certificates and pharmaceutical distribution permits and no such material permission or approval has been denied. For a detailed discussion on the licenses and permits we and our non-consolidated joint venture are required to obtain as a pharmaceutical company operating in China, see Item 4.B. “Business Overview—Certificates and Permits”, “Business Overview—Regulations—Government Regulation of Pharmaceutical Product Development and Approval,” “Business Overview—Regulations—Coverage and Reimbursement” and “Business Overview—Regulations—Other Healthcare Laws.” Given the uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement practice by relevant government authorities, we may be required to obtain additional requisite permissions, approvals, licenses, permits and filings for the operation of our business in the future. See also “Risks Relating to Sales of Our Internally Developed Drugs and Other Drugs—Pharmaceutical companies in China are required to comply with extensive regulations and hold a number of permits and licenses to carry on their business. Our and our joint ventures’ ability to obtain and maintain these regulatory approvals is uncertain, and future government regulation may impose additional burdens on our operations.” Furthermore, in connection with our historical issuance of securities to foreign investors, under currently effective PRC laws, regulations and regulatory rules, as of the date of this annual report, we and our non-consolidated joint venture are not currently required to obtain permissions from the China Securities Regulatory Commission (the “CSRC”), and we have not received any formal notice from any PRC authority indicating that we should apply for or are otherwise subject to cybersecurity review or security assessment. In addition, we and our non-consolidated joint venture have not been asked to obtain such permissions by any PRC authority or received any denial to do so. However, the PRC government has recently indicated an intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers. For example, the CSRC published the Trial Measures and Listing Guidelines (defined below) on February 17, 2023, designed to regulate overseas securities offerings by PRC domestic companies. Given the recent nature of the introduction of the Trial Measures and Listing Guidelines, and the fact that the Trial Measures and Listing Guidelines are not due to become effective until March 31, 2023, there remains significant uncertainty as to the enactment, interpretation and implementation of regulatory requirements related to overseas securities offerings and other capital markets activities. If (i) we mistakenly conclude that certain regulatory filings, permissions and approvals are not required or (ii) applicable laws, regulations, or interpretations change and (iii) we are required to obtain such filings, permissions or approvals in the future, but fail to receive or maintain such filings, permissions or approvals, we may face sanctions by the CSRC, the Cyberspace Administration of China (the “CAC”) or other PRC regulatory agencies. In addition, rules and regulations in China can change quickly with little advance notice. These regulatory agencies may impose fines and penalties on our operations in China, limit our operations in China, limit our ability to pay dividends outside of China, limit our ability to list on stock exchanges outside of China or offer our securities to foreign investors or take other actions that could have a material adverse effect on our business, financial condition, results of operations and prospects, as well as the trading price of our securities. Our non-consolidated joint venture faces the same risks as well. See also “Other Risks and Risks Relating to Doing Business in China—The PRC government exerts substantial influence over the manner in which we conduct our business activities. Its oversight and discretion over our business could result in a material adverse change in our operations and the value of our ordinary shares and ADSs. Changes in laws, regulations and policies in China and uncertainties with respect to the PRC legal system could materially and adversely affect us.” and “—The PRC government has increasingly strengthened oversight in offerings conducted overseas or on foreign investment in China-based issuers, which could result in a material change in our operations and our ordinary shares and ADSs could decline in value or become worthless.” Cash Flows Through Our Organization HUTCHMED (China) Limited is a Cayman Islands incorporated holding company with no material operations of its own. We conduct our operations primarily in China through our PRC subsidiaries and PRC joint ventures, collectively referred to as the Onshore Entities below. HUTCHMED (China) Limited has an indirect equity ownership interest in all Onshore Entities through offshore Hong Kong-incorporated holding companies, and it has received funding through various capital markets transactions (e.g., offerings and private placements of equity securities). We also fund our operations through cash flows generated and dividend payments from our Oncology/Immunology and Other Ventures operations (substantially all of which have been generated in China), service and milestone and upfront payments from our collaboration partners to our PRC subsidiaries, and bank loans to our subsidiaries. We utilize a portion of our funds outside of China to support the operations of our subsidiaries in China through capital contributions and/or shareholder loans, which are the only methods by which we can fund our subsidiaries under PRC laws and regulations. Such capital contributions and shareholder loans are subject to the satisfaction of applicable government registration and approval requirements in China and limitations on the amount of shareholder loans relative to the amount of total capital contributions. If such subsidiaries generate sufficient income, they may repay shareholder loans or distribute retained earnings through cash dividends as determined by their respective board of directors. Our PRC subsidiaries are permitted to pay dividends only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Furthermore, our PRC subsidiaries are required to make appropriations to certain statutory reserve funds or may make appropriations to certain discretionary funds, which are not distributable as cash dividends except in the event of a solvent liquidation of the companies. The amount of any repayment of shareholder loans or dividend payments can be distributed to our various offshore subsidiaries through our offshore Hong Kong-incorporated holding companies. For more information, see Item 3.D. “Risk Factors—Other Risks and Risks Relating to Doing Business in China— Restrictions on currency exchange may limit our ability to receive and use our revenue effectively.” and Item 4.B. “Business Overview— Regulations—PRC Regulation of Foreign Currency Exchange, Offshore Investment and State-Owned Assets—Regulation on Investment in Foreign invested Enterprises.” Our joint ventures in China do not require intra-group funding as they have been profitable. Service and milestone and upfront payments from our collaboration partners are received directly by our PRC subsidiaries and reinvested into their operations. 8 9 For the years ended December 31, 2022, 2021 and 2020, HUTCHMED provided funds to its PRC subsidiaries of $310.0 million, $230.0 million and $188.0 million, respectively, of which $100.0 million, $100.0 million and $40.0 million, respectively, were in the form of capital contributions and $210.0 million, $130.0 million and $148.0 million, respectively, were in the form of shareholder loans. Additionally, during the years ended December 31, 2022 and 2021, shareholder loans of approximately $3.4 million and $2.0 million was repaid by a PRC subsidiary, respectively. There were no transfers of assets other than transfers of cash to/from PRC subsidiaries in 2022, 2021 and 2020. For the years ended December 31, 2022, 2021 and 2020, the respective Hong Kong immediate holding company of our onshore non-consolidated joint ventures (Shanghai Hutchison Pharmaceuticals and Hutchison Baiyunshan prior to its divestment in September 2021) received dividends totaling approximately $43.7 million, $49.9 million and $86.7 million, respectively. These dividends were subject to a 5% withholding tax upon distribution from the onshore non-consolidated joint ventures to their respective Hong Kong immediate holding company. HUTCHMED also conducts operations outside of China through subsidiaries in the U.S. and E.U. Such subsidiaries have entered into service agreements with our PRC subsidiaries pursuant to which cash is transferred by our PRC subsidiaries to support their operations via the settlement of service invoices based on actual activities. We have comprehensive cash management policies in place, including specific policies with respect to fund transfers through our organization. Our management regularly monitors the liquidity position and funding requirements of our subsidiaries and joint ventures. When funding is required by our operations in China, a thorough assessment is performed on the purpose of the funding (e.g., R&D investment, capital expenditures, etc.), the amount of funding and the form of injection (i.e., shareholder loans or capital contributions). Conversely, when a dividend distribution is to be made by an onshore joint venture, a similar assessment is performed on the cash flow forecast, sufficiency of funds and related factors. All necessary approvals are obtained at the chairman and chief executive officer levels and the board of directors for the relevant entities prior to any transfer. All such transfers and distributions are reviewed and approved by the relevant authorities where necessary, including the State Administration of Foreign Exchange, or SAFE, and the State Administration for Market Regulations, or SAMR. Our cash management policies and procedures also govern the management of any funds that are not yet required by our operations. Such funds are retained by our subsidiaries outside of China mainly in the form of short-term investments, such as time deposits with major banks in Hong Kong. We have never declared or paid dividends on our ordinary shares. There have been no transfers, dividends or distributions made to U.S. investors to date. We currently expect to retain all future earnings for use in the operation and expansion of our business and do not have any present plan to pay any dividends. The declaration and payment of any dividends in the future will be determined by our board of directors in its discretion, and will depend on a number of factors, including our earnings, capital requirements, overall financial condition, and contractual restrictions. See Item 8. “Financial Information—A.8 Dividend Policy” and Item 3.D. “Risk Factors—Risks Relating to Our ADSs—We do not currently intend to pay dividends on our securities, and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of the ADSs.” You should carefully consider all of the information in this annual report before making an investment in the ADSs. Below please find a summary of the principal risks and uncertainties we face, organized under relevant headings. In particular, as we are a China- based company incorporated in the Cayman Islands, you should pay special attention to subsections headed “Item 3. Key Information- 3.D. Risk Factors-Other Risks and Risks Related to Doing Business in China.” The following summarizes some, but not all, of the risks provided below. Please carefully consider all of the information discussed in this Item 3.D. “Risk Factors” in this annual report for a more thorough description of these and other risks. Risks Relating to Our Financial Position and Need for Capital • • Risks relating to our need for additional funding Risks relating to our existing and future indebtedness Risks Relating to Our Oncology/Immunology Operations and Development of Our Drug Candidates • Risks relating to our approach to the discovery and development of drug candidates and the lengthy, expensive and uncertain clinical development process • Risks relating to expediting regulatory review, obtaining and maintaining regulatory approval and ongoing regulatory review for our drug candidates • Risks relating to the commercialization of our drug candidates • Risks relating to undesirable side effects of our drug candidates • Risks relating to competition in discovering, developing and commercializing drugs • Risks relating to our collaboration partners with respect to clinical trials, marketing and distribution • Risks relating to our international operations Risks Relating to Sales of Our Internally Developed Drugs and Other Drugs China candidates products trials • Risks relating to obtaining and maintaining permits and licenses for our and our joint ventures’ pharmaceutical operations in • Risks relating to leveraging our Other Ventures’ prescription drug business to commercialize our internally developed drug • Risks relating to competition in selling our approved, internally developed drugs and drugs of our Other Ventures • Risks relating to maintaining and enhancing the brand recognition of our drugs • Risks relating to the availability of reimbursement of our drugs, the lack of which could diminish our sales or profitability • Risks relating to counterfeit products in China • Risks relating to rapid changes in the pharmaceutical industry rendering our products obsolete • Risks relating to cultivating or sourcing raw materials • Risks relating to adverse publicity of us, our joint ventures or our products Risks Relating to Our Dependence on Third Parties • Risks relating to disagreements with current or future collaboration partners which we rely on for certain drug development activities including the conducting of clinical trials • Risks relating to relying on third party suppliers for the active pharmaceutical ingredients in our drug candidate and drug • Risks relating to our collaboration partners or our CROs’ failure to comply with regulatory requirements pertaining to clinical • Risks relating to our collaboration partners, principal investigators, CROs and other third-party contractors and consultants engaging in misconduct or other improper activities • Risks relating to relying on third parties to construct our new manufacturing facility in Shanghai • Risks relating to relying on distributors for logistics and distributions services 10 11 For the years ended December 31, 2022, 2021 and 2020, HUTCHMED provided funds to its PRC subsidiaries of $310.0 million, $230.0 million and $188.0 million, respectively, of which $100.0 million, $100.0 million and $40.0 million, respectively, were in the form of capital contributions and $210.0 million, $130.0 million and $148.0 million, respectively, were in the form of shareholder loans. Additionally, during the years ended December 31, 2022 and 2021, shareholder loans of approximately $3.4 million and $2.0 million was repaid by a PRC subsidiary, respectively. There were no transfers of assets other than transfers of cash to/from PRC subsidiaries in 2022, 2021 and 2020. For the years ended December 31, 2022, 2021 and 2020, the respective Hong Kong immediate holding company of our onshore non-consolidated joint ventures (Shanghai Hutchison Pharmaceuticals and Hutchison Baiyunshan prior to its divestment in September 2021) received dividends totaling approximately $43.7 million, $49.9 million and $86.7 million, respectively. These dividends were subject to a 5% withholding tax upon distribution from the onshore non-consolidated joint ventures to their respective Hong Kong immediate holding company. HUTCHMED also conducts operations outside of China through subsidiaries in the U.S. and E.U. Such subsidiaries have entered into service agreements with our PRC subsidiaries pursuant to which cash is transferred by our PRC subsidiaries to support their operations via the settlement of service invoices based on actual activities. We have comprehensive cash management policies in place, including specific policies with respect to fund transfers through our organization. Our management regularly monitors the liquidity position and funding requirements of our subsidiaries and joint ventures. When funding is required by our operations in China, a thorough assessment is performed on the purpose of the funding (e.g., R&D investment, capital expenditures, etc.), the amount of funding and the form of injection (i.e., shareholder loans or capital contributions). Conversely, when a dividend distribution is to be made by an onshore joint venture, a similar assessment is performed on the cash flow forecast, sufficiency of funds and related factors. All necessary approvals are obtained at the chairman and chief executive officer levels and the board of directors for the relevant entities prior to any transfer. All such transfers and distributions are reviewed and approved by the relevant authorities where necessary, including the State Administration of Foreign Exchange, or SAFE, and the State Administration for Market Regulations, or SAMR. Our cash management policies and procedures also govern the management of any funds that are not yet required by our operations. Such funds are retained by our subsidiaries outside of China mainly in the form of short-term investments, such as time deposits with major banks in Hong Kong. We have never declared or paid dividends on our ordinary shares. There have been no transfers, dividends or distributions made to U.S. investors to date. We currently expect to retain all future earnings for use in the operation and expansion of our business and do not have any present plan to pay any dividends. The declaration and payment of any dividends in the future will be determined by our board of directors in its discretion, and will depend on a number of factors, including our earnings, capital requirements, overall financial condition, and contractual restrictions. See Item 8. “Financial Information—A.8 Dividend Policy” and Item 3.D. “Risk Factors—Risks Relating to Our ADSs—We do not currently intend to pay dividends on our securities, and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of the ADSs.” You should carefully consider all of the information in this annual report before making an investment in the ADSs. Below please find a summary of the principal risks and uncertainties we face, organized under relevant headings. In particular, as we are a China- based company incorporated in the Cayman Islands, you should pay special attention to subsections headed “Item 3. Key Information- 3.D. Risk Factors-Other Risks and Risks Related to Doing Business in China.” • Risks relating to expediting regulatory review, obtaining and maintaining regulatory approval and ongoing regulatory review for our drug candidates • Risks relating to the commercialization of our drug candidates • Risks relating to undesirable side effects of our drug candidates • Risks relating to competition in discovering, developing and commercializing drugs • Risks relating to our collaboration partners with respect to clinical trials, marketing and distribution • Risks relating to our international operations Risks Relating to Sales of Our Internally Developed Drugs and Other Drugs • Risks relating to obtaining and maintaining permits and licenses for our and our joint ventures’ pharmaceutical operations in China • Risks relating to leveraging our Other Ventures’ prescription drug business to commercialize our internally developed drug candidates • Risks relating to competition in selling our approved, internally developed drugs and drugs of our Other Ventures • Risks relating to maintaining and enhancing the brand recognition of our drugs • Risks relating to the availability of reimbursement of our drugs, the lack of which could diminish our sales or profitability • Risks relating to counterfeit products in China • Risks relating to rapid changes in the pharmaceutical industry rendering our products obsolete • Risks relating to cultivating or sourcing raw materials • Risks relating to adverse publicity of us, our joint ventures or our products Risks Relating to Our Dependence on Third Parties • Risks relating to disagreements with current or future collaboration partners which we rely on for certain drug development activities including the conducting of clinical trials The following summarizes some, but not all, of the risks provided below. Please carefully consider all of the information discussed in this Item 3.D. “Risk Factors” in this annual report for a more thorough description of these and other risks. • Risks relating to relying on third party suppliers for the active pharmaceutical ingredients in our drug candidate and drug products Risks Relating to Our Financial Position and Need for Capital Risks relating to our need for additional funding Risks relating to our existing and future indebtedness • • • Risks Relating to Our Oncology/Immunology Operations and Development of Our Drug Candidates Risks relating to our approach to the discovery and development of drug candidates and the lengthy, expensive and uncertain clinical development process • Risks relating to our collaboration partners or our CROs’ failure to comply with regulatory requirements pertaining to clinical trials • Risks relating to our collaboration partners, principal investigators, CROs and other third-party contractors and consultants engaging in misconduct or other improper activities • Risks relating to relying on third parties to construct our new manufacturing facility in Shanghai • Risks relating to relying on distributors for logistics and distributions services 10 11 • Risks relating to the availability of benefits currently enjoyed by virtue of our association with CK Hutchison Risks Relating to Our Financial Position and Need for Capital Other Risks and Risks Relating to Doing Business in China • • • • • Risks relating to COVID-19 Risks relating to compliance with privacy and cybersecurity laws, information security policies and contractual obligations related to data privacy and security and any information technology or data security failures Risks relating to product liability claims or lawsuits Risks relating to liabilities under anti-corruption laws, environmental, health and safety laws and laws relating to equity incentive plans Risks relating to changes in laws, regulations and policies in China and uncertainties with respect to the PRC legal system, China’s currency exchange limits and PRC government tax incentives or treatment Risks Relating to Intellectual Property • • Risks relating to our, our joint ventures and our collaboration partners’ abilities to protect and enforce intellectual property rights and maintain confidentiality of trade secrets Risks relating to infringing upon third parties’ intellectual property rights Risks Relating to our ADSs We may need substantial additional funding for our product development programs and commercialization efforts. If we are unable to raise capital on acceptable terms when needed, we could incur losses and be forced to delay, reduce or eliminate such efforts. We expect to incur significant expenses in connection with our ongoing activities, particularly as we or our collaboration partners advance the clinical development of our clinical drug candidates which are currently in active or completed clinical studies in various countries. We will incur significant expenses as we continue research and development and initiate additional clinical trials of, and seek regulatory approval for, these and other future drug candidates. In addition, we have incurred and expect to continue to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution in China for Sulanda (surufatinib), our unpartnered drug product approved in China in December 2020, and any of our other unpartnered drug candidates that may be approved in the future. In particular, the costs that may be required for the manufacture of any drug candidate that receives regulatory approval may be substantial as we may have to modify or increase the production capacity at our current manufacturing facilities or contract with third-party manufacturers. We may also incur expenses as we create additional infrastructure, such as our new manufacturing facility under construction in Shanghai. Accordingly, we may need to obtain substantial funding in connection with our continuing operations through public or private equity offerings, debt financings, collaborations or licensing arrangements or other sources. If we are unable to raise capital when needed or on attractive terms, we could incur losses and be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts. Our net cash used in operating activities was $62.1 million, $204.2 million and $268.6 million for the years ended December 31, 2020, 2021 and 2022, respectively. We believe, however, that our expected cash flow from operations, including dividends from our Other Ventures and milestone and other payments from our collaboration partners, our cash and cash equivalents and short-term investments as well as our unutilized bank facilities as of December 31, 2022, will enable us to fund our operating expenses, debt service and capital expenditure requirements for at least the next 12 months. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. Our future capital requirements will depend on many factors, including: • • Risks relating to being delisted from the Nasdaq if the PCAOB is unable to inspect or investigate completely auditors located in China in the future the number and development requirements of the drug candidates we pursue; Risks relating to our largest shareholder which may limit the ability of other shareholders to influence corporate matters and clinical trials; the scope, progress, timing, results and costs of researching and developing our drug candidates, and conducting pre-clinical You should carefully consider the following risk factors in addition to the other information set forth in this annual report. If any of the following risks were actually to occur, our company’s business, financial condition and results of operations prospects could be adversely affected and the value of our ADSs would likely suffer. • • • • • • • • • the cost, timing and outcome of regulatory review of our drug candidates; the cost and timing of commercialization activities, including product manufacturing, marketing, sales and distribution, for our drug candidates for which we have received regulatory approval; the amount and timing of any upfront milestone or royalty payments, service payments and reimbursement of manufacturing costs from our collaboration partners, with whom we cooperate with respect to the development and potential commercialization of certain of our drug candidates; the cash received from commercial sales of drug candidates for which we have received regulatory approval; our ability to establish and maintain strategic partnerships, collaboration, licensing or other arrangements and the financial terms of such agreements; the cost, timing and outcome of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims; and the costs of operating as a public company listed in Hong Kong, the United States and United Kingdom. 12 13 • • • • • • • • • • Other Risks and Risks Relating to Doing Business in China Risks relating to COVID-19 Risks relating to compliance with privacy and cybersecurity laws, information security policies and contractual obligations related to data privacy and security and any information technology or data security failures Risks relating to product liability claims or lawsuits Risks relating to liabilities under anti-corruption laws, environmental, health and safety laws and laws relating to equity incentive plans Risks relating to changes in laws, regulations and policies in China and uncertainties with respect to the PRC legal system, China’s currency exchange limits and PRC government tax incentives or treatment Risks Relating to Intellectual Property Risks relating to our, our joint ventures and our collaboration partners’ abilities to protect and enforce intellectual property rights and maintain confidentiality of trade secrets Risks relating to infringing upon third parties’ intellectual property rights Risks Relating to our ADSs in China in the future Risks relating to being delisted from the Nasdaq if the PCAOB is unable to inspect or investigate completely auditors located Risks relating to our largest shareholder which may limit the ability of other shareholders to influence corporate matters You should carefully consider the following risk factors in addition to the other information set forth in this annual report. If any of the following risks were actually to occur, our company’s business, financial condition and results of operations prospects could be adversely affected and the value of our ADSs would likely suffer. Risks relating to the availability of benefits currently enjoyed by virtue of our association with CK Hutchison Risks Relating to Our Financial Position and Need for Capital We may need substantial additional funding for our product development programs and commercialization efforts. If we are unable to raise capital on acceptable terms when needed, we could incur losses and be forced to delay, reduce or eliminate such efforts. We expect to incur significant expenses in connection with our ongoing activities, particularly as we or our collaboration partners advance the clinical development of our clinical drug candidates which are currently in active or completed clinical studies in various countries. We will incur significant expenses as we continue research and development and initiate additional clinical trials of, and seek regulatory approval for, these and other future drug candidates. In addition, we have incurred and expect to continue to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution in China for Sulanda (surufatinib), our unpartnered drug product approved in China in December 2020, and any of our other unpartnered drug candidates that may be approved in the future. In particular, the costs that may be required for the manufacture of any drug candidate that receives regulatory approval may be substantial as we may have to modify or increase the production capacity at our current manufacturing facilities or contract with third-party manufacturers. We may also incur expenses as we create additional infrastructure, such as our new manufacturing facility under construction in Shanghai. Accordingly, we may need to obtain substantial funding in connection with our continuing operations through public or private equity offerings, debt financings, collaborations or licensing arrangements or other sources. If we are unable to raise capital when needed or on attractive terms, we could incur losses and be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts. Our net cash used in operating activities was $62.1 million, $204.2 million and $268.6 million for the years ended December 31, 2020, 2021 and 2022, respectively. We believe, however, that our expected cash flow from operations, including dividends from our Other Ventures and milestone and other payments from our collaboration partners, our cash and cash equivalents and short-term investments as well as our unutilized bank facilities as of December 31, 2022, will enable us to fund our operating expenses, debt service and capital expenditure requirements for at least the next 12 months. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. Our future capital requirements will depend on many factors, including: • • • • • • • • • the number and development requirements of the drug candidates we pursue; the scope, progress, timing, results and costs of researching and developing our drug candidates, and conducting pre-clinical and clinical trials; the cost, timing and outcome of regulatory review of our drug candidates; the cost and timing of commercialization activities, including product manufacturing, marketing, sales and distribution, for our drug candidates for which we have received regulatory approval; the amount and timing of any upfront milestone or royalty payments, service payments and reimbursement of manufacturing costs from our collaboration partners, with whom we cooperate with respect to the development and potential commercialization of certain of our drug candidates; the cash received from commercial sales of drug candidates for which we have received regulatory approval; our ability to establish and maintain strategic partnerships, collaboration, licensing or other arrangements and the financial terms of such agreements; the cost, timing and outcome of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims; and the costs of operating as a public company listed in Hong Kong, the United States and United Kingdom. 12 13 Identifying potential drug candidates and conducting pre-clinical testing and clinical trials is a time-consuming, expensive and uncertain process that may take years to complete, and our commercial revenue will be derived from sales of products that will not be commercially available unless and until we receive regulatory approval. We may never generate the necessary data or results required for certain drug candidates to obtain regulatory approval, and even if approved, they may not achieve commercial success. Accordingly, we will need to continue to rely on financing to achieve our business objectives. Adequate financing may not be available to us on acceptable terms, or at all. Raising capital may cause dilution to our shareholders, restrict our operations or require us to relinquish rights to technologies or drug candidates. We expect to finance our cash needs in part through cash flow from our operations, including dividends from our Other Ventures, and we may also rely on raising capital through a combination of public or private equity offerings, debt financings and/or license and development agreements with collaboration partners. In addition, we may seek capital due to favorable market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans. To the extent that we raise capital through the sale of equity or convertible debt securities (including potential further listings on other stock exchanges), the ownership interest of our shareholders may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect the rights of our existing shareholders. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends. Additional debt financing would also result in increased fixed payment obligations. In addition, if we raise funds through collaborations, strategic partnerships or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates or grant licenses on terms that may not be favorable to us. We may also lose control of the development of drug candidates, such as the pace and scope of clinical trials, as a result of such third-party arrangements. If we are unable to raise funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market drug candidates that we would otherwise prefer to develop and market ourselves. Our existing and any future indebtedness could adversely affect our ability to operate our business. Our outstanding indebtedness combined with current and future financial obligations and contractual commitments, including any additional indebtedness beyond our current facilities with HSBC and Bank of China could have significant adverse consequences, including: • • • • • requiring us to dedicate a portion of our cash resources to the payment of interest and principal, and prepayment and repayment fees and penalties, thereby reducing money available to fund working capital, capital expenditures, product development and other general corporate purposes; increasing our vulnerability to adverse changes in general economic, industry and market conditions; of our drug candidates. subjecting us to restrictive covenants that may reduce our ability to take certain corporate actions or obtain further debt or equity financing; limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and drug candidates. placing us at a competitive disadvantage compared to our competitors that have less debt or better debt servicing options. We intend to satisfy our current and future debt service obligations with our existing cash and cash equivalents and short-term investments. Nevertheless, we may not have sufficient funds, and may be unable to arrange for financing, to pay the amounts due under our existing debt. Failure to make payments or comply with other covenants under our existing debt instruments could result in an event of default and acceleration of amounts due. We have historically incurred significant net operating cash outflows, and may continue to experience net cash outflow from operating activities. Investment in biopharmaceutical drug development is highly speculative. It entails substantial upfront expenditures and significant risk that a drug candidate might fail to gain regulatory approval or become commercially viable. We continue to incur significant expenses related to our ongoing operations. For a detailed discussion of our net cash used in operating activities, see Item 5.B. “Operating and Financial Review and Prospects”, “Liquidity and Capital Resources.” We expect to incur significant expenses, particularly research and development expenses, for the foreseeable future as we expand our development of, and seek regulatory approvals for, our drug candidates. Typically, it takes many years to develop one new drug from the drug discovery stage to the time it is available for treating patients. Our ability to improve our cash flow depends on a number of variables, including the number and scope of our drug development programs and the associated costs of those programs, the cost of commercializing any approved products, our ability to generate revenues and the timing and amount of milestones and other payments we make or receive through arrangements with third parties. Our failure to generate positive cash flow from operations may adversely affect our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. There is no assurance that we will be able to generate sufficient net cash inflows from operating activities, which could have adverse effects on our long-term viability. We face risks with our short-term investments and in collecting our accounts receivables. Our short-term investments are bank deposits with maturities of more than three months but less than one year. Our short-term investments were $634.2 million and $317.7 million as of December 31, 2021 and 2022, respectively, and are placed with major financial institutions. These investments may earn yields substantially lower than expected. Failure to realize the benefits we expected from these investments may materially and adversely affect our business and financial results. To date, we have experienced no loss or lack of access to our invested cash or cash equivalents; however, we can provide no assurance that access to our invested cash and cash equivalents will not be impacted by adverse conditions in the financial and credit markets. Our accounts receivable balance, net of allowance for credit losses, totaled $83.6 million and $98.0 million as of December 31, 2021 and 2022, respectively. We have policies and procedures in place to ensure that sales are made to customers with an appropriate credit history. We perform periodic credit evaluations of our customers and monitor risk factors and forward-looking information, such as country risk, when determining credit limits for customers. However, there can be no assurance such policies and procedures will effectively limit our credit risk and enable us to avoid losses, which could adversely affect our financial condition and results of operations. In addition, amounts due to us are not covered by collateral or credit insurance. If we fail to collect all or part of such accounts receivable in a timely manner, or at all, our financial condition may be materially and adversely affected. Risks Relating to Our Oncology/Immunology Operations and Development of Our Drug Candidates Historically, our in-house research and development division, which is included in our Oncology/Immunology operations, has not generated significant profits or has operated at a net loss. Our future profitability is dependent on the successful commercialization To date, fruquintinib, surufatinib and savolitinib (marketed as Elunate, Sulanda and Orpathys, respectively in China) are our only internally developed drug candidates that have been approved for sale in China. We do not expect our Oncology/Immunology operations to be significantly profitable unless and until we generate substantial revenues from Elunate, Sulanda and Orpathys and can successfully commercialize our other drug products. We expect to incur significant sales and marketing costs as we prepare to commercialize our 14 15 We have historically incurred significant net operating cash outflows, and may continue to experience net cash outflow from operating activities. Investment in biopharmaceutical drug development is highly speculative. It entails substantial upfront expenditures and significant risk that a drug candidate might fail to gain regulatory approval or become commercially viable. We continue to incur significant expenses related to our ongoing operations. For a detailed discussion of our net cash used in operating activities, see Item 5.B. “Operating and Financial Review and Prospects”, “Liquidity and Capital Resources.” We expect to incur significant expenses, particularly research and development expenses, for the foreseeable future as we expand our development of, and seek regulatory approvals for, our drug candidates. Typically, it takes many years to develop one new drug from the drug discovery stage to the time it is available for treating patients. Our ability to improve our cash flow depends on a number of variables, including the number and scope of our drug development programs and the associated costs of those programs, the cost of commercializing any approved products, our ability to generate revenues and the timing and amount of milestones and other payments we make or receive through arrangements with third parties. Our failure to generate positive cash flow from operations may adversely affect our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. There is no assurance that we will be able to generate sufficient net cash inflows from operating activities, which could have adverse effects on our long-term viability. that adversely affect the rights of our existing shareholders. Debt financing and preferred equity financing, if available, may involve We face risks with our short-term investments and in collecting our accounts receivables. Our short-term investments are bank deposits with maturities of more than three months but less than one year. Our short-term investments were $634.2 million and $317.7 million as of December 31, 2021 and 2022, respectively, and are placed with major financial institutions. These investments may earn yields substantially lower than expected. Failure to realize the benefits we expected from these investments may materially and adversely affect our business and financial results. To date, we have experienced no loss or lack of access to our invested cash or cash equivalents; however, we can provide no assurance that access to our invested cash and cash equivalents will not be impacted by adverse conditions in the financial and credit markets. Our accounts receivable balance, net of allowance for credit losses, totaled $83.6 million and $98.0 million as of December 31, 2021 and 2022, respectively. We have policies and procedures in place to ensure that sales are made to customers with an appropriate credit history. We perform periodic credit evaluations of our customers and monitor risk factors and forward-looking information, such as country risk, when determining credit limits for customers. However, there can be no assurance such policies and procedures will effectively limit our credit risk and enable us to avoid losses, which could adversely affect our financial condition and results of operations. In addition, amounts due to us are not covered by collateral or credit insurance. If we fail to collect all or part of such accounts receivable in a timely manner, or at all, our financial condition may be materially and adversely affected. Risks Relating to Our Oncology/Immunology Operations and Development of Our Drug Candidates Historically, our in-house research and development division, which is included in our Oncology/Immunology operations, has not generated significant profits or has operated at a net loss. Our future profitability is dependent on the successful commercialization of our drug candidates. To date, fruquintinib, surufatinib and savolitinib (marketed as Elunate, Sulanda and Orpathys, respectively in China) are our only internally developed drug candidates that have been approved for sale in China. We do not expect our Oncology/Immunology operations to be significantly profitable unless and until we generate substantial revenues from Elunate, Sulanda and Orpathys and can successfully commercialize our other drug products. We expect to incur significant sales and marketing costs as we prepare to commercialize our drug candidates. Identifying potential drug candidates and conducting pre-clinical testing and clinical trials is a time-consuming, expensive and uncertain process that may take years to complete, and our commercial revenue will be derived from sales of products that will not be commercially available unless and until we receive regulatory approval. We may never generate the necessary data or results required for certain drug candidates to obtain regulatory approval, and even if approved, they may not achieve commercial success. Accordingly, we will need to continue to rely on financing to achieve our business objectives. Adequate financing may not be available to us on Raising capital may cause dilution to our shareholders, restrict our operations or require us to relinquish rights to technologies or acceptable terms, or at all. drug candidates. We expect to finance our cash needs in part through cash flow from our operations, including dividends from our Other Ventures, and we may also rely on raising capital through a combination of public or private equity offerings, debt financings and/or license and development agreements with collaboration partners. In addition, we may seek capital due to favorable market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans. To the extent that we raise capital through the sale of equity or convertible debt securities (including potential further listings on other stock exchanges), the ownership interest of our shareholders may be materially diluted, and the terms of such securities could include liquidation or other preferences agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends. Additional debt financing would also result in increased fixed payment obligations. In addition, if we raise funds through collaborations, strategic partnerships or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates or grant licenses on terms that may not be favorable to us. We may also lose control of the development of drug candidates, such as the pace and scope of clinical trials, as a result of such third-party arrangements. If we are unable to raise funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market drug candidates that we would otherwise prefer to develop and market ourselves. Our existing and any future indebtedness could adversely affect our ability to operate our business. Our outstanding indebtedness combined with current and future financial obligations and contractual commitments, including any additional indebtedness beyond our current facilities with HSBC and Bank of China could have significant adverse consequences, including: • requiring us to dedicate a portion of our cash resources to the payment of interest and principal, and prepayment and repayment fees and penalties, thereby reducing money available to fund working capital, capital expenditures, product development and other general corporate purposes; • • • • increasing our vulnerability to adverse changes in general economic, industry and market conditions; subjecting us to restrictive covenants that may reduce our ability to take certain corporate actions or obtain further debt or equity financing; limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and placing us at a competitive disadvantage compared to our competitors that have less debt or better debt servicing options. We intend to satisfy our current and future debt service obligations with our existing cash and cash equivalents and short-term investments. Nevertheless, we may not have sufficient funds, and may be unable to arrange for financing, to pay the amounts due under our existing debt. Failure to make payments or comply with other covenants under our existing debt instruments could result in an event of default and acceleration of amounts due. 14 15 Successful commercialization of our drug candidates is subject to many risks. Elunate is marketed in collaboration with our partner, Eli Lilly. Beginning in October 2020, we assumed responsibility for the development and execution of all on-the-ground medical detailing, promotion and local and regional marketing activities for Elunate in China. Sulanda is marketed by us without the support of a collaboration partner. Orpathys is marketed in collaboration with our partner, AstraZeneca. Elunate, Sulanda and Orpathys are the first innovative oncology drugs we, as an organization, have commercialized, and there is no guarantee that we will be able to successfully commercialize them or any of our other drug candidates for their approved indications. There are numerous examples of failures to meet expectations of market potential, including by pharmaceutical companies with more experience and resources than us. There are many factors that could cause the commercialization of Elunate, Sulanda, Orpathys or our other drug products to be unsuccessful, including a number of factors that are outside our control. In the case of Elunate, for example, the third-line metastatic colorectal cancer, or mCRC, patient population in China may be smaller than we estimate or physicians may be unwilling to prescribe, or patients may be unwilling to take, Elunate for a variety of reasons. Additionally, any negative development for fruquintinib, surufatinib or savolitinib in clinical development in additional indications, or in regulatory processes in other jurisdictions, may adversely impact the commercial results and potential of Elunate, Sulanda or Orpathys in China and globally. For example, in April 2022, the FDA issued a Complete Response Letter (“CRL”) regarding the NDA for surufatinib for the treatment of non-pancreatic neuroendocrine tumors (NETs) and pancreatic NETs and determined that the data package submitted does not support an approval in the U.S. at the time. We have subsequently withdrawn our submission to the FDA and the EMA for surufatinib. Thus, significant uncertainty remains regarding the commercial potential of Elunate, Sulanda and Orpathys. We may not achieve profitability after generating revenues from Elunate, Sulanda, Orpathys and/or our other drug candidates, if ever. If the commercialization of Elunate, Sulanda, Orpathys and/or our other drug candidates is unsuccessful or perceived as disappointing, our stock price could decline significantly and the long-term success of the product and our company could be harmed. All of our drug candidates, other than fruquintinib, surufatinib and savolitinib for approved indications in China, are still in development. If we are unable to obtain regulatory approval and ultimately commercialize our drug candidates, or if we experience significant delays in doing so, our business will be materially harmed. All of our drug candidates are still in development, including fruquintinib, surufatinib and savolitinib which have been approved in China for the treatment of third-line mCRC, non-pancreatic NETs and advanced pancreatic NETs, and non-small cell lung cancer, or NSCLC, respectively, but are still in development in the United States and other jurisdictions for these and other indications. Although we receive certain payments from our collaboration partners, including upfront payments and payments for achieving certain development, regulatory or commercial milestones, for certain of our drug candidates, our ability to generate revenue from our drug candidates is dependent on their receipt of regulatory approval for and successful commercialization of such products, which may never occur. Each of our drug candidates in development will require additional pre-clinical and/or clinical trials, regulatory approval in multiple jurisdictions, manufacturing supply, substantial investment and significant marketing efforts before we generate any revenue from product sales. The success of our drug candidates will depend on several factors, including the following: • • • • • • • successful completion of pre-clinical and/or clinical trials; successful enrollment in, and completion of, clinical trials; receipt of regulatory approvals from applicable regulatory authorities for planned clinical trials, future clinical trials, drug registrations or post-approval trials; successful completion of all safety studies required to obtain regulatory approval and/or fulfillment of post-approval requirements in the United States, China and other jurisdictions for our drug candidates; adapting our commercial manufacturing capabilities to the specifications for our drug candidates for clinical supply and commercial manufacturing; obtaining and maintaining patent and trade secret protection or regulatory exclusivity for our drug candidates; launching commercial sales of our drug candidates, if and when approved, whether alone or in collaboration with others; acceptance of the drug candidates, if and when approved, by patients, the medical community and third-party payors; • • • • effectively competing with other therapies; obtaining and maintaining healthcare coverage and adequate reimbursement; enforcing and defending intellectual property rights and claims; and • maintaining a continued acceptable safety profile of the drug candidates following approval. If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize our drug candidates, which would materially harm our business. Our primary approach to the discovery and development of drug candidates focuses on the inhibition of kinases, some of which are unproven. A primary focus of our research and development efforts is on identifying kinase targets for which drug compounds previously developed by others affecting those targets have been unsuccessful due to limited selectivity, off-target toxicity and other problems. We then work to engineer drug candidates which have the potential to have superior efficacy, safety and other features as compared to such prior drug compounds. We also focus on developing drug compounds with the potential to be global best-in-class/next-generation therapies for validated kinase targets. Even if we are able to develop compounds that successfully target the relevant kinases in pre-clinical studies, we may not succeed in demonstrating safety and efficacy of the drug candidates in clinical trials. Even if we are able to demonstrate safety and efficacy of compounds in certain indications in certain jurisdictions, we may not succeed in demonstrating the same in other indications or same indications in other jurisdictions. As a result, our efforts may not result in the discovery or development of drugs that are commercially viable or are superior to existing drugs or other therapies on the market. While the results of pre-clinical studies, early-stage clinical trials as well as clinical trials in certain indications have suggested that certain of our drug candidates may successfully inhibit kinases and may have significant utility in several cancer indications, potentially in combination with other cancer drugs, chemotherapy and immunotherapies, we have not yet demonstrated efficacy and safety for many of our drug candidates in later stage clinical trials. We may expend our limited resources to pursue a particular drug candidate or indication and fail to capitalize on drug candidates or indications that may be more profitable or for which there is a greater likelihood of success. Because we have limited financial and managerial resources, we must limit our research programs to specific drug candidates that we identify for specific indications. As a result, we may forego or delay pursuit of opportunities with other drug candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial drugs or profitable market opportunities. In addition, if we do not accurately evaluate the commercial potential or target market for a particular drug candidate, we may relinquish valuable rights to that drug candidate through collaboration, licensing or other royalty arrangements when it would have been more advantageous for us to retain sole development and commercialization rights to such drug candidate. The regulatory approval processes of the U.S. Food and Drug Administration, or FDA, National Medical Products Administration of China, or NMPA, and comparable authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our drug candidates, our ability to generate revenue will be materially impaired. Our drug candidates and the activities associated with their development and commercialization, including their design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale, distribution, import and export, are subject to comprehensive regulation by the FDA, NMPA and other regulatory agencies in the United States and China and by comparable regulatory authorities in other countries. Securing regulatory approval requires the submission of extensive pre-clinical and clinical data and supporting information to the various regulatory authorities for each therapeutic indication to establish the drug candidate’s safety and efficacy. Securing regulatory approval also requires the submission of information about the drug manufacturing process to, and inspection of manufacturing facilities by, the relevant regulatory authority. Our drug candidates may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining regulatory approval or prevent or limit commercial use. 16 17 Successful commercialization of our drug candidates is subject to many risks. Elunate is marketed in collaboration with our partner, Eli Lilly. Beginning in October 2020, we assumed responsibility for the development and execution of all on-the-ground medical detailing, promotion and local and regional marketing activities for Elunate in China. Sulanda is marketed by us without the support of a collaboration partner. Orpathys is marketed in collaboration with our partner, AstraZeneca. Elunate, Sulanda and Orpathys are the first innovative oncology drugs we, as an organization, have commercialized, and there is no guarantee that we will be able to successfully commercialize them or any of our other drug candidates for their approved indications. There are numerous examples of failures to meet expectations of market potential, including by pharmaceutical companies with more experience and resources than us. There are many factors that could cause the commercialization of Elunate, Sulanda, Orpathys or our other drug products to be unsuccessful, including a number of factors that are outside our control. In the case of Elunate, for example, the third-line metastatic colorectal cancer, or mCRC, patient population in China may be smaller than we estimate or physicians may be unwilling to prescribe, or patients may be unwilling to take, Elunate for a variety of reasons. Additionally, any negative development for fruquintinib, surufatinib or savolitinib in clinical development in additional indications, or in regulatory processes in other jurisdictions, may adversely impact the commercial results and potential of Elunate, Sulanda or Orpathys in China and globally. For example, in April 2022, the FDA issued a Complete Response Letter (“CRL”) regarding the NDA for surufatinib for the treatment of non-pancreatic neuroendocrine tumors (NETs) and pancreatic NETs and determined that the data package submitted does not support an approval in the U.S. at the time. We have subsequently withdrawn our submission to the FDA and the EMA for surufatinib. Thus, significant uncertainty remains regarding the commercial potential of Elunate, Sulanda and Orpathys. We may not achieve profitability after generating revenues from Elunate, Sulanda, Orpathys and/or our other drug candidates, if ever. If the commercialization of Elunate, Sulanda, Orpathys and/or our other drug candidates is unsuccessful or perceived as disappointing, our stock price could decline significantly and the long-term success of the product and our company could be harmed. All of our drug candidates, other than fruquintinib, surufatinib and savolitinib for approved indications in China, are still in development. If we are unable to obtain regulatory approval and ultimately commercialize our drug candidates, or if we experience significant delays in doing so, our business will be materially harmed. All of our drug candidates are still in development, including fruquintinib, surufatinib and savolitinib which have been approved in China for the treatment of third-line mCRC, non-pancreatic NETs and advanced pancreatic NETs, and non-small cell lung cancer, or NSCLC, respectively, but are still in development in the United States and other jurisdictions for these and other indications. Although we receive certain payments from our collaboration partners, including upfront payments and payments for achieving certain development, regulatory or commercial milestones, for certain of our drug candidates, our ability to generate revenue from our drug candidates is dependent on their receipt of regulatory approval for and successful commercialization of such products, which may never occur. Each of our drug candidates in development will require additional pre-clinical and/or clinical trials, regulatory approval in multiple jurisdictions, manufacturing supply, substantial investment and significant marketing efforts before we generate any revenue from product sales. The success of our drug candidates will depend on several factors, including the following: • • • • • • • successful completion of pre-clinical and/or clinical trials; successful enrollment in, and completion of, clinical trials; receipt of regulatory approvals from applicable regulatory authorities for planned clinical trials, future clinical trials, drug registrations or post-approval trials; successful completion of all safety studies required to obtain regulatory approval and/or fulfillment of post-approval requirements in the United States, China and other jurisdictions for our drug candidates; adapting our commercial manufacturing capabilities to the specifications for our drug candidates for clinical supply and commercial manufacturing; obtaining and maintaining patent and trade secret protection or regulatory exclusivity for our drug candidates; launching commercial sales of our drug candidates, if and when approved, whether alone or in collaboration with others; • • • • acceptance of the drug candidates, if and when approved, by patients, the medical community and third-party payors; effectively competing with other therapies; obtaining and maintaining healthcare coverage and adequate reimbursement; enforcing and defending intellectual property rights and claims; and • maintaining a continued acceptable safety profile of the drug candidates following approval. If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize our drug candidates, which would materially harm our business. Our primary approach to the discovery and development of drug candidates focuses on the inhibition of kinases, some of which are unproven. A primary focus of our research and development efforts is on identifying kinase targets for which drug compounds previously developed by others affecting those targets have been unsuccessful due to limited selectivity, off-target toxicity and other problems. We then work to engineer drug candidates which have the potential to have superior efficacy, safety and other features as compared to such prior drug compounds. We also focus on developing drug compounds with the potential to be global best-in-class/next-generation therapies for validated kinase targets. Even if we are able to develop compounds that successfully target the relevant kinases in pre-clinical studies, we may not succeed in demonstrating safety and efficacy of the drug candidates in clinical trials. Even if we are able to demonstrate safety and efficacy of compounds in certain indications in certain jurisdictions, we may not succeed in demonstrating the same in other indications or same indications in other jurisdictions. As a result, our efforts may not result in the discovery or development of drugs that are commercially viable or are superior to existing drugs or other therapies on the market. While the results of pre-clinical studies, early-stage clinical trials as well as clinical trials in certain indications have suggested that certain of our drug candidates may successfully inhibit kinases and may have significant utility in several cancer indications, potentially in combination with other cancer drugs, chemotherapy and immunotherapies, we have not yet demonstrated efficacy and safety for many of our drug candidates in later stage clinical trials. We may expend our limited resources to pursue a particular drug candidate or indication and fail to capitalize on drug candidates or indications that may be more profitable or for which there is a greater likelihood of success. Because we have limited financial and managerial resources, we must limit our research programs to specific drug candidates that we identify for specific indications. As a result, we may forego or delay pursuit of opportunities with other drug candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial drugs or profitable market opportunities. In addition, if we do not accurately evaluate the commercial potential or target market for a particular drug candidate, we may relinquish valuable rights to that drug candidate through collaboration, licensing or other royalty arrangements when it would have been more advantageous for us to retain sole development and commercialization rights to such drug candidate. The regulatory approval processes of the U.S. Food and Drug Administration, or FDA, National Medical Products Administration of China, or NMPA, and comparable authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our drug candidates, our ability to generate revenue will be materially impaired. Our drug candidates and the activities associated with their development and commercialization, including their design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale, distribution, import and export, are subject to comprehensive regulation by the FDA, NMPA and other regulatory agencies in the United States and China and by comparable regulatory authorities in other countries. Securing regulatory approval requires the submission of extensive pre-clinical and clinical data and supporting information to the various regulatory authorities for each therapeutic indication to establish the drug candidate’s safety and efficacy. Securing regulatory approval also requires the submission of information about the drug manufacturing process to, and inspection of manufacturing facilities by, the relevant regulatory authority. Our drug candidates may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining regulatory approval or prevent or limit commercial use. 16 17 The process of obtaining regulatory approvals in the United States, China and other countries is expensive, may take many years if additional clinical trials are required, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the drug candidates involved. Changes in regulatory approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted New Drug Application, or NDA, pre-market approval or equivalent application types, may cause delays in the approval or rejection of an application. The FDA, NMPA and comparable regulatory authorities in other countries have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional pre-clinical, clinical or other studies. Our drug candidates could be delayed in receiving, or fail to receive, regulatory approval for many reasons, including the following: If the FDA, NMPA or another regulatory agency revokes its approval of, or if safety, efficacy, manufacturing or supply issues arise with, any therapeutic that we use in combination with our drug candidates, we may be unable to market such drug candidate or may experience significant regulatory delays or supply shortages, and our business could be materially harmed. We are currently developing combination therapies using our savolitinib, fruquintinib, surufatinib and other drug candidates with various immunotherapies, targeted therapies and/or other therapies. For example, we are currently developing savolitinib in combination with immunotherapy (Imfinzi) and targeted therapy (Tagrisso). However, we did not develop and we do not manufacture or sell Imfinzi, Tagrisso or any other therapeutic we use in combination with our drug candidates. We may also seek to develop our drug candidates in combination with other therapeutics in the future. • the FDA, NMPA or comparable regulatory authorities may disagree with the number, design, size, conduct or implementation of our clinical trials; • we may be unable to demonstrate to the satisfaction of the FDA, NMPA or comparable regulatory authorities that a drug candidate is safe and effective for its proposed indication; If the FDA, NMPA or another regulatory agency revokes its approval, or does not grant approval, of any of these and other therapeutics we use in combination with our drug candidates, we will not be able to market our drug candidates in combination with such therapeutics. If safety or efficacy issues arise with these or other therapeutics that we seek to combine with our drug candidates in the future, we may experience significant regulatory delays, and we may be required to redesign or terminate the applicable clinical trials. In addition, if manufacturing or other issues result in a supply shortage of these or any other combination therapeutics, we may not be able to complete clinical development of savolitinib, fruquintinib, surufatinib and/or any other of our drug candidates on our • the results of clinical trials may not meet the level of statistical significance required by the FDA, NMPA or comparable regulatory authorities for approval; current timeline or at all. • we may be unable to demonstrate that a drug candidate’s clinical and other benefits outweigh its safety risks; • • • • • • • the FDA, NMPA or comparable regulatory authorities may disagree with our interpretation of data from pre-clinical studies or clinical trials; the data collected from clinical trials of our drug candidates may not be sufficient to support the submission of an NDA or other submission or to obtain regulatory approval in the United States or elsewhere; the FDA, NMPA or comparable regulatory authorities may fail to approve the manufacturing processes for our clinical and commercial supplies; the approval policies or regulations of the FDA, NMPA or comparable regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval; the FDA, NMPA or comparable regulatory authority may prioritize treatments for emerging health crises, such as COVID-19, resulting in delays for our drug candidates; the FDA, NMPA or comparable regulatory authorities may restrict the use of our products to a narrow population; and our collaboration partners or CROs that are retained to conduct the clinical trials of our drug candidates may take actions that materially and adversely impact the clinical trials. In addition, even if we were to obtain approval, regulatory authorities may approve any of our drug candidates for fewer or more limited indications than we request, may not approve the price we intend to charge for our drugs, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a drug candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that drug candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our drug candidates. Furthermore, even though the NMPA has granted approval for fruquintinib and surufatinib for use in third-line mCRC and NET patients, respectively, and approval for savolitinib for lung cancer with MET exon 14 skipping alterations, we are still subject to substantial, ongoing regulatory requirements. See “—Even if we receive regulatory approval for our drug candidates, we are subject to ongoing obligations and continued regulatory review, which may result in significant additional expense.” 18 19 Even if one or more of our drug candidates were to receive regulatory approval for use in combination with a therapeutic, we would continue to be subject to the risk that the FDA, NMPA or another regulatory agency could revoke its approval of the combination therapeutic, or that safety, efficacy, manufacturing or supply issues could arise with one of these combination therapeutics. This could result in Orpathys, Elunate, Sulanda or one of our other products being removed from the market or being less successful commercially. We face substantial competition, which may result in others discovering, developing or commercializing drugs before or more successfully than we do. The development and commercialization of new drugs is highly competitive. We face competition with respect to our current drug candidates, and will face competition with respect to any drug candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There are a number of large pharmaceutical and biotechnology companies that currently market drugs or are pursuing the development of therapies in the field of kinase inhibition for cancer and other diseases. Some of these competitive drugs and therapies are based on scientific approaches that are the same as or similar to our approach, and others are based on entirely different approaches. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization. Specifically, there are a large number of companies developing or marketing treatments for cancer and immunological diseases, including many major pharmaceutical and biotechnology companies. Many of the companies against which we are competing or against which we may compete in the future have significantly greater financial resources and expertise in research and development, manufacturing, pre-clinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved drugs than we do. Mergers and acquisitions in the pharmaceutical, biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. The process of obtaining regulatory approvals in the United States, China and other countries is expensive, may take many years if additional clinical trials are required, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the drug candidates involved. Changes in regulatory approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted New Drug Application, or NDA, pre-market approval or equivalent application types, may cause delays in the approval or rejection of an application. The FDA, NMPA and comparable regulatory authorities in other countries have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional pre-clinical, clinical or other studies. Our drug candidates could be delayed in receiving, or fail to receive, regulatory approval for many reasons, including the following: of our clinical trials; • the FDA, NMPA or comparable regulatory authorities may disagree with the number, design, size, conduct or implementation • we may be unable to demonstrate to the satisfaction of the FDA, NMPA or comparable regulatory authorities that a drug candidate is safe and effective for its proposed indication; • the results of clinical trials may not meet the level of statistical significance required by the FDA, NMPA or comparable regulatory authorities for approval; • we may be unable to demonstrate that a drug candidate’s clinical and other benefits outweigh its safety risks; • • • • • • • the FDA, NMPA or comparable regulatory authorities may disagree with our interpretation of data from pre-clinical studies or clinical trials; the data collected from clinical trials of our drug candidates may not be sufficient to support the submission of an NDA or other submission or to obtain regulatory approval in the United States or elsewhere; the FDA, NMPA or comparable regulatory authorities may fail to approve the manufacturing processes for our clinical and commercial supplies; the approval policies or regulations of the FDA, NMPA or comparable regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval; the FDA, NMPA or comparable regulatory authority may prioritize treatments for emerging health crises, such as COVID-19, resulting in delays for our drug candidates; the FDA, NMPA or comparable regulatory authorities may restrict the use of our products to a narrow population; and our collaboration partners or CROs that are retained to conduct the clinical trials of our drug candidates may take actions that materially and adversely impact the clinical trials. In addition, even if we were to obtain approval, regulatory authorities may approve any of our drug candidates for fewer or more limited indications than we request, may not approve the price we intend to charge for our drugs, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a drug candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that drug candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our drug candidates. Furthermore, even though the NMPA has granted approval for fruquintinib and surufatinib for use in third-line mCRC and NET patients, respectively, and approval for savolitinib for lung cancer with MET exon 14 skipping alterations, we are still subject to substantial, ongoing regulatory requirements. See “—Even if we receive regulatory approval for our drug candidates, we are subject to ongoing obligations and continued regulatory review, which may result in significant additional expense.” If the FDA, NMPA or another regulatory agency revokes its approval of, or if safety, efficacy, manufacturing or supply issues arise with, any therapeutic that we use in combination with our drug candidates, we may be unable to market such drug candidate or may experience significant regulatory delays or supply shortages, and our business could be materially harmed. We are currently developing combination therapies using our savolitinib, fruquintinib, surufatinib and other drug candidates with various immunotherapies, targeted therapies and/or other therapies. For example, we are currently developing savolitinib in combination with immunotherapy (Imfinzi) and targeted therapy (Tagrisso). However, we did not develop and we do not manufacture or sell Imfinzi, Tagrisso or any other therapeutic we use in combination with our drug candidates. We may also seek to develop our drug candidates in combination with other therapeutics in the future. If the FDA, NMPA or another regulatory agency revokes its approval, or does not grant approval, of any of these and other therapeutics we use in combination with our drug candidates, we will not be able to market our drug candidates in combination with such therapeutics. If safety or efficacy issues arise with these or other therapeutics that we seek to combine with our drug candidates in the future, we may experience significant regulatory delays, and we may be required to redesign or terminate the applicable clinical trials. In addition, if manufacturing or other issues result in a supply shortage of these or any other combination therapeutics, we may not be able to complete clinical development of savolitinib, fruquintinib, surufatinib and/or any other of our drug candidates on our current timeline or at all. Even if one or more of our drug candidates were to receive regulatory approval for use in combination with a therapeutic, we would continue to be subject to the risk that the FDA, NMPA or another regulatory agency could revoke its approval of the combination therapeutic, or that safety, efficacy, manufacturing or supply issues could arise with one of these combination therapeutics. This could result in Orpathys, Elunate, Sulanda or one of our other products being removed from the market or being less successful commercially. We face substantial competition, which may result in others discovering, developing or commercializing drugs before or more successfully than we do. The development and commercialization of new drugs is highly competitive. We face competition with respect to our current drug candidates, and will face competition with respect to any drug candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There are a number of large pharmaceutical and biotechnology companies that currently market drugs or are pursuing the development of therapies in the field of kinase inhibition for cancer and other diseases. Some of these competitive drugs and therapies are based on scientific approaches that are the same as or similar to our approach, and others are based on entirely different approaches. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization. Specifically, there are a large number of companies developing or marketing treatments for cancer and immunological diseases, including many major pharmaceutical and biotechnology companies. Many of the companies against which we are competing or against which we may compete in the future have significantly greater financial resources and expertise in research and development, manufacturing, pre-clinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved drugs than we do. Mergers and acquisitions in the pharmaceutical, biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. 18 19 Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize drugs that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any drugs that we or our collaborators may develop. Our competitors also may obtain FDA, NMPA or other regulatory approval for their drugs more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we or our collaborators are able to enter the market. The key competitive factors affecting the success of all of our drug candidates, if approved, are likely to be their efficacy, safety, convenience, price, the level of generic competition and the availability of reimbursement from government and other third-party payors. Clinical development involves a lengthy and expensive process with an uncertain outcome. There is a risk of failure for each of our drug candidates. It is difficult to predict when or if any of our drug candidates will prove effective and safe in humans or will receive regulatory approval. Before obtaining regulatory approval from regulatory authorities for the sale of any drug candidate, we or our collaboration partners must complete pre-clinical studies and then conduct extensive clinical trials to demonstrate the safety and efficacy of our drug candidates in humans. Clinical testing is expensive, difficult to design and implement and can take many years to complete. The outcomes of pre-clinical development testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover, pre-clinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their drug candidates performed satisfactorily in pre-clinical studies and clinical trials have nonetheless failed to obtain regulatory approval of their drug candidates. Our current or future clinical trials may not be successful. Commencing each of our clinical trials is subject to finalizing the trial design based on ongoing discussions with the FDA, NMPA or other regulatory authorities. The FDA, NMPA and other regulatory authorities could change their position on the acceptability of our trial designs or clinical endpoints, which could require us to complete additional clinical trials or impose approval conditions that we do not currently expect. Successful completion of our clinical trials is a prerequisite to submitting an NDA or analogous filing to the FDA, NMPA or other regulatory authorities for each drug candidate and, consequently, the ultimate approval and commercial marketing of our drug candidates. We do not know whether any of our clinical trials will begin or be completed on schedule, if at all. We and our collaboration partners may incur additional costs or experience delays in completing our pre-clinical or clinical trials, or ultimately be unable to complete the development and commercialization of our drug candidates. We and our collaboration partners, including AstraZeneca, Eli Lilly, BeiGene Ltd., or BeiGene, Inmagene Biopharmaceuticals Co. Ltd., or Inmagene, Innovent Biologics (Suzhou) Co., Inc., or Innovent, Genor Biopharma Co. Ltd., or Genor, Shanghai Junshi Biosciences Co. Ltd., or Junshi and Epizyme, Inc. (a subsidiary of Ipsen Pharma SAS), or Epizyme, and Takeda may experience delays in completing our pre-clinical or clinical trials, and numerous unforeseen events could arise during, or as a result of, future clinical trials, which could delay or prevent us from receiving regulatory approval, including: • regulators, institutional review boards, or IRBs, ethics committees or the China Human Genetic Resources Administration Office may not authorize us or our investigators to commence or conduct a clinical trial at a prospective trial site; • we may experience delays in reaching, or we may fail to reach, agreement on acceptable terms with prospective trial sites and prospective CROs, who conduct clinical trials on behalf of us and our collaboration partners, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; • • • clinical trials may produce negative or inconclusive results, and we or our collaboration partners may decide, or regulators may require us or them, to conduct additional clinical trials or we may decide to abandon drug development programs; the number of patients required for clinical trials of our drug candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials or fail to return for post-treatment follow-up at a higher rate than we anticipate; third-party contractors used in our clinical trials may fail to comply with regulatory requirements or meet their contractual obligations in a timely manner, or at all, or may deviate from the clinical trial protocol or drop out of the trial, which may require that we or our collaboration partners add new clinical trial sites or investigators; • we or our collaboration partners may elect to, or regulators, IRBs or ethics committees may require that we or our investigators, suspend or terminate clinical research for various reasons, including non-compliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks; the cost of clinical trials of our drug candidates may be greater than we anticipate; the supply or quality of our drug candidates, companion diagnostics, if any, or other materials necessary to conduct clinical trials of our drug candidates may be insufficient or inadequate; and our drug candidates may have undesirable side effects or unexpected characteristics, causing us or our investigators, regulators, IRBs or ethics committees to suspend or terminate the trials, or reports may arise from pre-clinical or clinical testing of other cancer therapies that raise safety or efficacy concerns about our drug candidates. We could encounter regulatory delays if a clinical trial is suspended or terminated by us or our collaboration partners, by, as applicable, the IRBs of the institutions in which such trials are being conducted, by the Data Safety Monitoring Board, which is an independent group of experts that is formed to monitor clinical trials while ongoing, or by the FDA, NMPA or other regulatory authorities. Such authorities may impose a suspension or termination due to a number of factors, including: a failure to conduct the clinical trial in accordance with regulatory requirements or the applicable clinical protocols, inspection of the clinical trial operations or trial site by the FDA, NMPA or other regulatory authorities that results in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. Many of the factors that cause a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our drug candidates. Further, the FDA, NMPA or other regulatory authorities may disagree with our clinical trial design and our interpretation of data from clinical trials, or may change the requirements for approval even after it has reviewed and commented on the design for our clinical trials. If we or our collaboration partners are required to conduct additional clinical trials or other testing of our drug candidates beyond those that are currently contemplated, if we or our collaboration partners are unable to successfully complete clinical trials of our drug candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may: be delayed in obtaining regulatory approval for our drug candidates; not obtain regulatory approval at all; obtain approval for indications or patient populations that are not as broad as intended or desired; be subject to post-marketing testing requirements; or have the drug removed from the market after obtaining regulatory approval. • • • • • • • • Our drug development costs will also increase if we experience delays in testing or regulatory approvals. We do not know whether any of our clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant pre-clinical study or clinical trial delays also could allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our drug candidates and may harm our business and results of operations. Any delays in our clinical development programs may harm our business, financial condition and prospects significantly. 20 21 Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize drugs that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any drugs that we or our collaborators may develop. Our competitors also may obtain FDA, NMPA or other regulatory approval for their drugs more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we or our collaborators are able to enter the market. The key competitive factors affecting the success of all of our drug candidates, if approved, are likely to be their efficacy, safety, convenience, price, the level of generic competition and the availability of reimbursement from government and other third-party payors. Clinical development involves a lengthy and expensive process with an uncertain outcome. There is a risk of failure for each of our drug candidates. It is difficult to predict when or if any of our drug candidates will prove effective and safe in humans or will receive regulatory approval. Before obtaining regulatory approval from regulatory authorities for the sale of any drug candidate, we or our collaboration partners must complete pre-clinical studies and then conduct extensive clinical trials to demonstrate the safety and efficacy of our drug candidates in humans. Clinical testing is expensive, difficult to design and implement and can take many years to complete. The outcomes of pre-clinical development testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover, pre-clinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their drug candidates performed satisfactorily in pre-clinical studies and clinical trials have nonetheless failed to obtain regulatory approval of their drug candidates. Our current or future clinical trials may not be successful. Commencing each of our clinical trials is subject to finalizing the trial design based on ongoing discussions with the FDA, NMPA or other regulatory authorities. The FDA, NMPA and other regulatory authorities could change their position on the acceptability of our trial designs or clinical endpoints, which could require us to complete additional clinical trials or impose approval conditions that we do not currently expect. Successful completion of our clinical trials is a prerequisite to submitting an NDA or analogous filing to the FDA, NMPA or other regulatory authorities for each drug candidate and, consequently, the ultimate approval and commercial marketing of our drug candidates. We do not know whether any of our clinical trials will begin or be completed on schedule, if at all. We and our collaboration partners may incur additional costs or experience delays in completing our pre-clinical or clinical trials, or ultimately be unable to complete the development and commercialization of our drug candidates. We and our collaboration partners, including AstraZeneca, Eli Lilly, BeiGene Ltd., or BeiGene, Inmagene Biopharmaceuticals Co. Ltd., or Inmagene, Innovent Biologics (Suzhou) Co., Inc., or Innovent, Genor Biopharma Co. Ltd., or Genor, Shanghai Junshi Biosciences Co. Ltd., or Junshi and Epizyme, Inc. (a subsidiary of Ipsen Pharma SAS), or Epizyme, and Takeda may experience delays in completing our pre-clinical or clinical trials, and numerous unforeseen events could arise during, or as a result of, future clinical trials, which could delay or prevent us from receiving regulatory approval, including: • regulators, institutional review boards, or IRBs, ethics committees or the China Human Genetic Resources Administration Office may not authorize us or our investigators to commence or conduct a clinical trial at a prospective trial site; • we may experience delays in reaching, or we may fail to reach, agreement on acceptable terms with prospective trial sites and prospective CROs, who conduct clinical trials on behalf of us and our collaboration partners, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; • • • clinical trials may produce negative or inconclusive results, and we or our collaboration partners may decide, or regulators may require us or them, to conduct additional clinical trials or we may decide to abandon drug development programs; the number of patients required for clinical trials of our drug candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials or fail to return for post-treatment follow-up at a higher rate than we anticipate; third-party contractors used in our clinical trials may fail to comply with regulatory requirements or meet their contractual obligations in a timely manner, or at all, or may deviate from the clinical trial protocol or drop out of the trial, which may require that we or our collaboration partners add new clinical trial sites or investigators; • we or our collaboration partners may elect to, or regulators, IRBs or ethics committees may require that we or our investigators, suspend or terminate clinical research for various reasons, including non-compliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks; • • • the cost of clinical trials of our drug candidates may be greater than we anticipate; the supply or quality of our drug candidates, companion diagnostics, if any, or other materials necessary to conduct clinical trials of our drug candidates may be insufficient or inadequate; and our drug candidates may have undesirable side effects or unexpected characteristics, causing us or our investigators, regulators, IRBs or ethics committees to suspend or terminate the trials, or reports may arise from pre-clinical or clinical testing of other cancer therapies that raise safety or efficacy concerns about our drug candidates. We could encounter regulatory delays if a clinical trial is suspended or terminated by us or our collaboration partners, by, as applicable, the IRBs of the institutions in which such trials are being conducted, by the Data Safety Monitoring Board, which is an independent group of experts that is formed to monitor clinical trials while ongoing, or by the FDA, NMPA or other regulatory authorities. Such authorities may impose a suspension or termination due to a number of factors, including: a failure to conduct the clinical trial in accordance with regulatory requirements or the applicable clinical protocols, inspection of the clinical trial operations or trial site by the FDA, NMPA or other regulatory authorities that results in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. Many of the factors that cause a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our drug candidates. Further, the FDA, NMPA or other regulatory authorities may disagree with our clinical trial design and our interpretation of data from clinical trials, or may change the requirements for approval even after it has reviewed and commented on the design for our clinical trials. If we or our collaboration partners are required to conduct additional clinical trials or other testing of our drug candidates beyond those that are currently contemplated, if we or our collaboration partners are unable to successfully complete clinical trials of our drug candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may: • • • • • be delayed in obtaining regulatory approval for our drug candidates; not obtain regulatory approval at all; obtain approval for indications or patient populations that are not as broad as intended or desired; be subject to post-marketing testing requirements; or have the drug removed from the market after obtaining regulatory approval. Our drug development costs will also increase if we experience delays in testing or regulatory approvals. We do not know whether any of our clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant pre-clinical study or clinical trial delays also could allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our drug candidates and may harm our business and results of operations. Any delays in our clinical development programs may harm our business, financial condition and prospects significantly. 20 21 If we or our collaboration partners experience delays or difficulties in the enrollment of patients in clinical trials, the progress of such clinical trials and our receipt of necessary regulatory approvals could be delayed or prevented. Our drug candidates may cause undesirable side effects that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following regulatory approval, if any. We or our collaboration partners may not be able to initiate or continue clinical trials for our drug candidates if we or our collaboration partners are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA, NMPA or similar regulatory authorities. In particular, we and our collaboration partners have designed many of our clinical trials, and expect to design future trials, to include some patients with the applicable genomic alteration that causes the disease with a view to assessing possible early evidence of potential therapeutic effect. Genomically defined diseases, however, may have relatively low prevalence, and it may be difficult to identify patients with the applicable genomic alteration. In addition, for many of our trials, we focus on enrolling patients who have failed their first or second-line treatments, which limits the total size of the patient population available for such trials. The inability to enroll a sufficient number of patients with the applicable genomic alteration or that meet other applicable criteria for our clinical trials would result in significant delays and could require us or our collaboration partners to abandon one or more clinical trials altogether. In addition, some of our competitors have ongoing clinical trials for drug candidates that treat the same indications as our drug candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ drug candidates. Patient enrollment may be affected by other factors including: • • • • • • • • • • • the severity of the disease under investigation; the total size and nature of the relevant patient population; the design and eligibility criteria for the clinical trial in question; the availability of an appropriate genomic screening test/companion diagnostic; regulatory authorities may withdraw or limit their approval of such drug candidates; the perceived risks and benefits of the drug candidate under study; the efforts to facilitate timely enrollment in clinical trials; the patient referral practices of physicians; the availability of competing therapies which are undergoing clinical trials; the ability to monitor patients adequately during and after treatment; the proximity and availability of clinical trial sites for prospective patients ; and the impact of the spread of infectious diseases, including but not limited to the duration and scope of related government orders and restrictions. • we may decide to remove such drug candidates from the marketplace; Enrollment delays in our clinical trials may result in increased development costs for our drug candidates, which could cause the • we could be sued and held liable for injury caused to individuals exposed to or taking our drug candidates; and value of our company to decline and limit our ability to obtain financing. • our reputation may suffer. Any of these events could prevent us from achieving or maintaining market acceptance of the affected drug candidates and could substantially increase the costs of commercializing our drug candidates, if approved, and significantly impact our ability to successfully commercialize our drug candidates and generate revenue. 22 23 Undesirable side effects caused by our drug candidates could cause us or our collaboration partners to interrupt, delay or halt clinical trials or could cause regulatory authorities to interrupt, delay or halt our clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA, NMPA or other regulatory authorities. In particular, as is the case with all oncology drugs, it is likely that there may be side effects, for example, hand-foot syndrome, associated with the use of certain of our drug candidates. Results of our trials could reveal a high and unacceptable severity and prevalence of these or other side effects. In such an event, our trials could be suspended or terminated and the FDA, NMPA or comparable regulatory authorities could order us to cease further development of or deny approval of our drug candidates for some or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly. Further, our drug candidates could cause undesirable side effects related to off-target toxicity. Many of the currently approved tyrosine kinase inhibitors or TKIs have been associated with off-target toxicities because they affect multiple kinases. While we believe that the kinase selectivity of our drug candidates has the potential to significantly improve the unfavorable adverse off-target toxicity issues, if patients were to experience off-target toxicity, we may not be able to achieve an effective dosage level, receive approval to market, or achieve the commercial success we anticipate with respect to any of our drug candidates, which could prevent us from ever generating revenue or achieving profitability. Many compounds that initially showed promise in early-stage testing for treating cancer have later been found to cause side effects that prevented further development of the compound. Clinical trials assess a sample of the potential patient population. With a limited number of patients and duration of exposure, rare and severe side effects of our drug candidates may only be uncovered with a significantly larger number of patients exposed to the drug candidate. If our drug candidates receive regulatory approval and we or others identify undesirable side effects caused by such drug candidates (or any other similar drugs) after such approval, a number of potentially significant negative consequences could result, including: • • regulatory authorities may require the addition of labeling statements, such as a “boxed” warning or a contra-indication; • we may be required to create a medication guide outlining the risks of such side effects for distribution to patients; • we may be required to change the way such drug candidates are distributed or administered, conduct additional clinical trials or change the labeling of the drug candidates; • regulatory authorities may require a Risk Evaluation and Mitigation Strategy, or REMS, plan to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools; • we may be subject to regulatory investigations and government enforcement actions; If we or our collaboration partners experience delays or difficulties in the enrollment of patients in clinical trials, the progress of such clinical trials and our receipt of necessary regulatory approvals could be delayed or prevented. Our drug candidates may cause undesirable side effects that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following regulatory approval, if any. We or our collaboration partners may not be able to initiate or continue clinical trials for our drug candidates if we or our collaboration partners are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA, NMPA or similar regulatory authorities. In particular, we and our collaboration partners have designed many of our clinical trials, and expect to design future trials, to include some patients with the applicable genomic alteration that causes the disease with a view to assessing possible early evidence of potential therapeutic effect. Genomically defined diseases, however, may have relatively low prevalence, and it may be difficult to identify patients with the applicable genomic alteration. In addition, for many of our trials, we focus on enrolling patients who have failed their first or second-line treatments, which limits the total size of the patient population available for such trials. The inability to enroll a sufficient number of patients with the applicable genomic alteration or that meet other applicable criteria for our clinical trials would result in significant delays and could require us or our collaboration partners to abandon one or more clinical trials altogether. In addition, some of our competitors have ongoing clinical trials for drug candidates that treat the same indications as our drug candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ drug candidates. Patient enrollment may be affected by other factors including: the severity of the disease under investigation; the total size and nature of the relevant patient population; the design and eligibility criteria for the clinical trial in question; the availability of an appropriate genomic screening test/companion diagnostic; the perceived risks and benefits of the drug candidate under study; the efforts to facilitate timely enrollment in clinical trials; the patient referral practices of physicians; the availability of competing therapies which are undergoing clinical trials; the ability to monitor patients adequately during and after treatment; the proximity and availability of clinical trial sites for prospective patients ; and • • • • • • • • • • • Undesirable side effects caused by our drug candidates could cause us or our collaboration partners to interrupt, delay or halt clinical trials or could cause regulatory authorities to interrupt, delay or halt our clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA, NMPA or other regulatory authorities. In particular, as is the case with all oncology drugs, it is likely that there may be side effects, for example, hand-foot syndrome, associated with the use of certain of our drug candidates. Results of our trials could reveal a high and unacceptable severity and prevalence of these or other side effects. In such an event, our trials could be suspended or terminated and the FDA, NMPA or comparable regulatory authorities could order us to cease further development of or deny approval of our drug candidates for some or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly. Further, our drug candidates could cause undesirable side effects related to off-target toxicity. Many of the currently approved tyrosine kinase inhibitors or TKIs have been associated with off-target toxicities because they affect multiple kinases. While we believe that the kinase selectivity of our drug candidates has the potential to significantly improve the unfavorable adverse off-target toxicity issues, if patients were to experience off-target toxicity, we may not be able to achieve an effective dosage level, receive approval to market, or achieve the commercial success we anticipate with respect to any of our drug candidates, which could prevent us from ever generating revenue or achieving profitability. Many compounds that initially showed promise in early-stage testing for treating cancer have later been found to cause side effects that prevented further development of the compound. Clinical trials assess a sample of the potential patient population. With a limited number of patients and duration of exposure, rare and severe side effects of our drug candidates may only be uncovered with a significantly larger number of patients exposed to the drug candidate. If our drug candidates receive regulatory approval and we or others identify undesirable side effects caused by such drug candidates (or any other similar drugs) after such approval, a number of potentially significant negative consequences could result, including: • • regulatory authorities may withdraw or limit their approval of such drug candidates; regulatory authorities may require the addition of labeling statements, such as a “boxed” warning or a contra-indication; • we may be required to create a medication guide outlining the risks of such side effects for distribution to patients; • we may be required to change the way such drug candidates are distributed or administered, conduct additional clinical trials or change the labeling of the drug candidates; • regulatory authorities may require a Risk Evaluation and Mitigation Strategy, or REMS, plan to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools; • we may be subject to regulatory investigations and government enforcement actions; the impact of the spread of infectious diseases, including but not limited to the duration and scope of related government orders and restrictions. • we may decide to remove such drug candidates from the marketplace; Enrollment delays in our clinical trials may result in increased development costs for our drug candidates, which could cause the • we could be sued and held liable for injury caused to individuals exposed to or taking our drug candidates; and value of our company to decline and limit our ability to obtain financing. • our reputation may suffer. Any of these events could prevent us from achieving or maintaining market acceptance of the affected drug candidates and could substantially increase the costs of commercializing our drug candidates, if approved, and significantly impact our ability to successfully commercialize our drug candidates and generate revenue. 22 23 We and our collaboration partners have conducted and intend to conduct additional clinical trials for certain of our drug candidates at sites outside the United States, and the FDA may not accept data from trials conducted in such locations or may require additional U.S.-based trials. If we are unable to obtain and/or maintain priority review by the NMPA, fast track designation by the FDA, or another expedited registration pathway for our drug candidates, the time and cost we incur to obtain regulatory approvals may increase. Even if we receive such approvals, they may not lead to a faster development, review or approval process. We and our collaboration partners have conducted, currently are conducting and intend in the future to conduct, clinical trials outside the United States, particularly in China where our Oncology/Immunology operations are headquartered as well as in other jurisdictions such as Australia, Japan, South Korea, the U.K., and various European countries. Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of these data is subject to certain conditions imposed by the FDA. For example, the clinical trial must be well designed and conducted by qualified investigators in accordance with current good clinical practices, or GCPs, including review and approval by an independent ethics committee and receipt of informed consent from trial patients. The trial population must also adequately represent the U.S. population, and the data must be applicable to the U.S. population and U.S. medical practice in ways that the FDA deems clinically meaningful. Generally, the patient population for any clinical trial conducted outside of the United States must be representative of the population for which we intend to seek approval in the United States. In addition, while these clinical trials are subject to applicable local laws, FDA acceptance of the data will be dependent upon its determination that the trials also comply with all applicable U.S. laws and regulations. There can be no assurance that the FDA will accept data from trials conducted outside of the United States. If the FDA does not accept the data from our clinical trials conducted outside the United States, it would likely result in the need for additional clinical trials, which would be costly and time-consuming and delay or permanently halt our ability to develop and market these or other drug candidates in the United States. In April 2022, we received a CRL from the FDA regarding the NDA for surufatinib for the treatment of pancreatic NETs and non-pancreatic NETs. The FDA determined that the current data package, based on two positive Phase III trials in China and one bridging study in the U.S., does not support an approval in the U.S. at this time. The CRL indicated that a multi-regional clinical trial is required for U.S. approval. We have subsequently withdrawn our submission to the FDA and the EMA for surufatinib. In addition, there are risks inherent in conducting clinical trials in jurisdictions outside the United States including: • • regulatory and administrative requirements of the jurisdiction where the trial is conducted that could burden or limit our ability to conduct our clinical trials; foreign exchange fluctuations; • manufacturing, customs, shipment and storage requirements; • • cultural differences in medical practice and clinical research; and the risk that patient populations in such trials are not considered representative as compared to patient populations in the United States and other markets. Under the Breakthrough Therapy Drug Review Procedures (For Trial Implementation), the Review and Approval Procedures for Conditional Approval of Drug Marketing Applications (For Trial Implementation), and the Priority Review and Approval Procedures for Drug Marketing Authorization (For Trial Implementation), the NMPA (or, where applicable, the National Health Commission, or the NHC) may grant priority review approval (i) to innovative drugs or new improved drugs undergoing clinical trials that are used to prevent and treat diseases that are seriously life-threatening or which seriously affect quality of life for which there is no effective prevention or treatment, or for which there is sufficient evidence to show obvious clinical advantages compared with existing treatments, (ii) to drugs undergoing clinical trials which meet the conditions for conditional approval specified in the Technical Guidelines for Conditional Approval of Drugs, (iii) to innovative drugs and new improved drugs which are in shortage, prevent and treat major infectious diseases and rare diseases, (iv) to new varieties, dosage forms and specifications that meet the physiological characteristics of children, (v) to vaccines (including innovative vaccines) urgently needed for control and prevention of diseases, and (vi) under other circumstances stipulated by the NMPA. Priority review provides a fast track process for drug registration. We have received priority review status for a number of our drug candidates, including for example fruquintinib for the treatment of advanced colorectal cancer, or CRC, savolitinib for the treatment of NSCLC and surufatinib for the treatment of advanced NET. We anticipate that we may seek priority review for certain of our other drug candidates in the future. In the United States, if a drug is intended for the treatment of a serious or life-threatening condition and the drug demonstrates the potential to address unmet medical needs for this condition, we may apply for fast track designation by the FDA. The FDA has broad discretion whether or not to grant this designation, so even if we believe a particular drug candidate is eligible for this designation, we cannot be sure that the FDA would decide to grant it. We have sought and will likely continue to seek fast track designation for some of our drug candidates. For example, in June 2020, the FDA granted fast track designation to fruquintinib for metastatic CRC. Even if we receive fast track designation for a drug candidate, we may not experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may withdraw fast track designation if it believes that the designation is no longer supported by data from our clinical development program. A failure to obtain and/or maintain priority review, fast track designation or any other form of expedited development, review or approval for our drug candidates would result in a longer time period to commercialization of such drug candidate, could increase the cost of development of such drug candidate and could harm our competitive position in the marketplace. In addition, even if we obtain priority review, there is no guarantee that we will experience a faster review or approval compared to non-accelerated registration pathways or that a drug candidate will ultimately be approved for sale. Although we have obtained orphan drug designation for surufatinib for the treatment of pancreatic NETs in the United States, we may not be able to obtain or maintain the benefits associated with orphan drug status, including market exclusivity. Under the Orphan Drug Act, the FDA may designate a drug as an orphan drug if it is intended to treat a rare disease or condition, which is generally defined as affecting fewer than 200,000 individuals in the United States. We have obtained orphan drug designation from the FDA for surufatinib for the treatment of pancreatic NETs. Generally, if a drug with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the drug may be entitled to a seven-year period of marketing exclusivity, which precludes the FDA from approving another marketing application for the same molecule for the same indication for that time period. We can provide no assurance that another drug will not receive marketing approval prior to our product candidates. Orphan drug exclusivity may be lost if the FDA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition. In addition, even after a drug is granted orphan exclusivity and approved, the FDA can subsequently approve another drug for the same condition before the expiration of the seven-year exclusivity period if the FDA concludes that the later drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. 24 25 We and our collaboration partners have conducted and intend to conduct additional clinical trials for certain of our drug candidates at sites outside the United States, and the FDA may not accept data from trials conducted in such locations or may require additional U.S.-based trials. If we are unable to obtain and/or maintain priority review by the NMPA, fast track designation by the FDA, or another expedited registration pathway for our drug candidates, the time and cost we incur to obtain regulatory approvals may increase. Even if we receive such approvals, they may not lead to a faster development, review or approval process. We and our collaboration partners have conducted, currently are conducting and intend in the future to conduct, clinical trials outside the United States, particularly in China where our Oncology/Immunology operations are headquartered as well as in other jurisdictions such as Australia, Japan, South Korea, the U.K., and various European countries. Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of these data is subject to certain conditions imposed by the FDA. For example, the clinical trial must be well designed and conducted by qualified investigators in accordance with current good clinical practices, or GCPs, including review and approval by an independent ethics committee and receipt of informed consent from trial patients. The trial population must also adequately represent the U.S. population, and the data must be applicable to the U.S. population and U.S. medical practice in ways that the FDA deems clinically meaningful. Generally, the patient population for any clinical trial conducted outside of the United States must be representative of the population for which we intend to seek approval in the United States. In addition, while these clinical trials are subject to applicable local laws, FDA acceptance of the data will be dependent upon its determination that the trials also comply with all applicable U.S. laws and regulations. There can be no assurance that the FDA will accept data from trials conducted outside of the United States. If the FDA does not accept the data from our clinical trials conducted outside the United States, it would likely result in the need for additional clinical trials, which would be costly and time-consuming and delay or permanently halt our ability to develop and market these or other drug candidates in the United States. In April 2022, we received a CRL from the FDA regarding the NDA for surufatinib for the treatment of pancreatic NETs and non-pancreatic NETs. The FDA determined that the current data package, based on two positive Phase III trials in China and one bridging study in the U.S., does not support an approval in the U.S. at this time. The CRL indicated that a multi-regional clinical trial is required for U.S. approval. We have subsequently withdrawn our submission to the FDA and the EMA for surufatinib. In addition, there are risks inherent in conducting clinical trials in jurisdictions outside the United States including: regulatory and administrative requirements of the jurisdiction where the trial is conducted that could burden or limit our ability to conduct our clinical trials; foreign exchange fluctuations; • manufacturing, customs, shipment and storage requirements; cultural differences in medical practice and clinical research; and • • • • the risk that patient populations in such trials are not considered representative as compared to patient populations in the United States and other markets. Under the Breakthrough Therapy Drug Review Procedures (For Trial Implementation), the Review and Approval Procedures for Conditional Approval of Drug Marketing Applications (For Trial Implementation), and the Priority Review and Approval Procedures for Drug Marketing Authorization (For Trial Implementation), the NMPA (or, where applicable, the National Health Commission, or the NHC) may grant priority review approval (i) to innovative drugs or new improved drugs undergoing clinical trials that are used to prevent and treat diseases that are seriously life-threatening or which seriously affect quality of life for which there is no effective prevention or treatment, or for which there is sufficient evidence to show obvious clinical advantages compared with existing treatments, (ii) to drugs undergoing clinical trials which meet the conditions for conditional approval specified in the Technical Guidelines for Conditional Approval of Drugs, (iii) to innovative drugs and new improved drugs which are in shortage, prevent and treat major infectious diseases and rare diseases, (iv) to new varieties, dosage forms and specifications that meet the physiological characteristics of children, (v) to vaccines (including innovative vaccines) urgently needed for control and prevention of diseases, and (vi) under other circumstances stipulated by the NMPA. Priority review provides a fast track process for drug registration. We have received priority review status for a number of our drug candidates, including for example fruquintinib for the treatment of advanced colorectal cancer, or CRC, savolitinib for the treatment of NSCLC and surufatinib for the treatment of advanced NET. We anticipate that we may seek priority review for certain of our other drug candidates in the future. In the United States, if a drug is intended for the treatment of a serious or life-threatening condition and the drug demonstrates the potential to address unmet medical needs for this condition, we may apply for fast track designation by the FDA. The FDA has broad discretion whether or not to grant this designation, so even if we believe a particular drug candidate is eligible for this designation, we cannot be sure that the FDA would decide to grant it. We have sought and will likely continue to seek fast track designation for some of our drug candidates. For example, in June 2020, the FDA granted fast track designation to fruquintinib for metastatic CRC. Even if we receive fast track designation for a drug candidate, we may not experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may withdraw fast track designation if it believes that the designation is no longer supported by data from our clinical development program. A failure to obtain and/or maintain priority review, fast track designation or any other form of expedited development, review or approval for our drug candidates would result in a longer time period to commercialization of such drug candidate, could increase the cost of development of such drug candidate and could harm our competitive position in the marketplace. In addition, even if we obtain priority review, there is no guarantee that we will experience a faster review or approval compared to non-accelerated registration pathways or that a drug candidate will ultimately be approved for sale. Although we have obtained orphan drug designation for surufatinib for the treatment of pancreatic NETs in the United States, we may not be able to obtain or maintain the benefits associated with orphan drug status, including market exclusivity. Under the Orphan Drug Act, the FDA may designate a drug as an orphan drug if it is intended to treat a rare disease or condition, which is generally defined as affecting fewer than 200,000 individuals in the United States. We have obtained orphan drug designation from the FDA for surufatinib for the treatment of pancreatic NETs. Generally, if a drug with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the drug may be entitled to a seven-year period of marketing exclusivity, which precludes the FDA from approving another marketing application for the same molecule for the same indication for that time period. We can provide no assurance that another drug will not receive marketing approval prior to our product candidates. Orphan drug exclusivity may be lost if the FDA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition. In addition, even after a drug is granted orphan exclusivity and approved, the FDA can subsequently approve another drug for the same condition before the expiration of the seven-year exclusivity period if the FDA concludes that the later drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. 24 25 Even if we receive regulatory approval for our drug candidates, we are subject to ongoing obligations and continued regulatory review, which may result in significant additional expense. Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel. If the FDA, NMPA or a comparable regulatory authority approves any of our drug candidates, we will continue to be subject to extensive and ongoing regulatory requirements. For example, even though the NMPA has granted approval of fruquintinib, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for fruquintinib continue to be subject to the NMPA’s oversight. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with current good manufacturing processes. Any regulatory approvals that we receive for our drug candidates may also be subject to limitations on the approved indicated uses for which the drug may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including post-approval testing, sometimes referred to as Phase IV clinical trials, and surveillance to monitor the safety and efficacy of the drug. In addition, regulatory policies may change or additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our drug candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any regulatory approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability. We are highly dependent on the expertise of the members of our research and development team, as well as the other principal members of our management, including Weiguo Su, Ph.D., our Chief Executive Officer, Chief Scientific Officer and director. Although we have entered into employment agreements with our executive officers, each of them may terminate their employment with us at any time with three months’ prior written notice. We do not maintain “key person” insurance for any of our executives or other employees. Recruiting and retaining qualified management, scientific, clinical, manufacturing and sales and marketing personnel will also be critical to our success. The loss of the services of our executive officers or other key employees could impede the achievement of our research, development and commercialization objectives and seriously harm our ability to successfully implement our business strategy. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory approval of and commercialize drugs. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. Failure to succeed in clinical trials may make it more challenging to recruit and retain qualified scientific personnel. We may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with any of our drugs that receive regulatory approval. We have operations internationally and are subject to a variety of risks and complexities that may materially and adversely affect our business, results of operations, financial condition and growth prospects. Once a drug is approved by the FDA, NMPA or a comparable regulatory authority for marketing, it is possible that there could be a subsequent discovery of previously unknown problems with the drug, including problems with third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements. If any of the foregoing occurs with respect to our drug products, it may result in, among other things: We have been involved in clinical and non-clinical development internationally for over a decade. Conducting our business in multiple countries subjects us to a variety of risks and complexities that may materially and adversely affect our business, results of operations, financial condition and growth prospects, including, among other things: restrictions on the marketing or manufacturing of the drug, withdrawal of the drug from the market, or drug recalls; the increased complexity and costs inherent in managing international operations; diverse regulatory, financial and legal requirements, and any future changes to such requirements, in one or more countries fines, warning letters or holds on clinical trials; where we are located or do business; refusal by the FDA, NMPA or comparable regulatory authority to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of drug license approvals; country-specific tax, labor and employment laws and regulations; drug seizure or detention, or refusal to permit the import or export of drugs; and injunctions or the imposition of civil or criminal penalties. • • • • • Any government investigation of alleged violations of law could require us to expend significant time and resources and could generate negative publicity. If we or our collaborators are not able to maintain regulatory compliance, regulatory approval that has been obtained may be lost and we may not achieve or sustain profitability, which would adversely affect our business, prospects, financial condition and results of operations. The incidence and prevalence for target patient populations of our drug candidates are based on estimates and third-party sources. If the market opportunities for our drug candidates are smaller than we estimate or if any approval that we obtain is based on a narrower definition of the patient population, our revenue and ability to achieve profitability will be adversely affected, possibly materially. Periodically, we make estimates regarding the incidence and prevalence of target patient populations for particular diseases based on various third-party sources and internally generated analysis and use such estimates in making decisions regarding our drug development strategy, including determining indications on which to focus in pre-clinical or clinical trials. These estimates may be inaccurate or based on imprecise data. For example, the total addressable market opportunity will depend on, among other things, their acceptance by the medical community and patient access, drug pricing and reimbursement. The number of patients in the addressable markets may turn out to be lower than expected, patients may not be otherwise amenable to treatment with our drugs, or new patients may become increasingly difficult to identify or gain access to, all of which would adversely affect our results of operations and our business. 26 27 • • • • • • • applicable trade laws, tariffs, export quotas, custom duties or other trade restrictions and any changes to them; challenges inherent in efficiently managing employees in diverse geographies, including the need to adapt systems, policies, benefits and compliance programs to differing labor and other regulations; changes in currency rates; and regulations relating to data security and the unauthorized use of, or access to, commercial and personal information. There can be no assurance that we will effectively manage the increased complexity without experiencing operating inefficiencies or control deficiencies. Such increased complexity may also lead to decisions to reposition our international operations to align them with our overall and evolving business strategy, including with our recent strategic change to focus on path to profitability. Significant management time and effort is required to effectively manage the increased complexity of our company, and our failure to successfully do so could have a material adverse effect on our business, financial condition, results of operations and growth prospects. Even if we receive regulatory approval for our drug candidates, we are subject to ongoing obligations and continued regulatory Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel. review, which may result in significant additional expense. If the FDA, NMPA or a comparable regulatory authority approves any of our drug candidates, we will continue to be subject to extensive and ongoing regulatory requirements. For example, even though the NMPA has granted approval of fruquintinib, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for fruquintinib continue to be subject to the NMPA’s oversight. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with current good manufacturing processes. Any regulatory approvals that we receive for our drug candidates may also be subject to limitations on the approved indicated uses for which the drug may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including post-approval testing, sometimes referred to as Phase IV clinical trials, and surveillance to monitor the safety and efficacy of the drug. In addition, regulatory policies may change or additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our drug candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any regulatory approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability. We are highly dependent on the expertise of the members of our research and development team, as well as the other principal members of our management, including Weiguo Su, Ph.D., our Chief Executive Officer, Chief Scientific Officer and director. Although we have entered into employment agreements with our executive officers, each of them may terminate their employment with us at any time with three months’ prior written notice. We do not maintain “key person” insurance for any of our executives or other employees. Recruiting and retaining qualified management, scientific, clinical, manufacturing and sales and marketing personnel will also be critical to our success. The loss of the services of our executive officers or other key employees could impede the achievement of our research, development and commercialization objectives and seriously harm our ability to successfully implement our business strategy. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory approval of and commercialize drugs. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. Failure to succeed in clinical trials may make it more challenging to recruit and retain qualified scientific personnel. We may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with any of our drugs that receive regulatory approval. We have operations internationally and are subject to a variety of risks and complexities that may materially and adversely affect our business, results of operations, financial condition and growth prospects. Once a drug is approved by the FDA, NMPA or a comparable regulatory authority for marketing, it is possible that there could be a subsequent discovery of previously unknown problems with the drug, including problems with third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements. If any of the foregoing occurs with respect to our drug We have been involved in clinical and non-clinical development internationally for over a decade. Conducting our business in multiple countries subjects us to a variety of risks and complexities that may materially and adversely affect our business, results of operations, financial condition and growth prospects, including, among other things: products, it may result in, among other things: • • • • • restrictions on the marketing or manufacturing of the drug, withdrawal of the drug from the market, or drug recalls; fines, warning letters or holds on clinical trials; refusal by the FDA, NMPA or comparable regulatory authority to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of drug license approvals; drug seizure or detention, or refusal to permit the import or export of drugs; and injunctions or the imposition of civil or criminal penalties. Any government investigation of alleged violations of law could require us to expend significant time and resources and could generate negative publicity. If we or our collaborators are not able to maintain regulatory compliance, regulatory approval that has been obtained may be lost and we may not achieve or sustain profitability, which would adversely affect our business, prospects, financial condition and results of operations. The incidence and prevalence for target patient populations of our drug candidates are based on estimates and third-party sources. If the market opportunities for our drug candidates are smaller than we estimate or if any approval that we obtain is based on a narrower definition of the patient population, our revenue and ability to achieve profitability will be adversely affected, possibly materially. Periodically, we make estimates regarding the incidence and prevalence of target patient populations for particular diseases based on various third-party sources and internally generated analysis and use such estimates in making decisions regarding our drug development strategy, including determining indications on which to focus in pre-clinical or clinical trials. These estimates may be inaccurate or based on imprecise data. For example, the total addressable market opportunity will depend on, among other things, their acceptance by the medical community and patient access, drug pricing and reimbursement. The number of patients in the addressable markets may turn out to be lower than expected, patients may not be otherwise amenable to treatment with our drugs, or new patients may become increasingly difficult to identify or gain access to, all of which would adversely affect our results of operations and our business. • • • • • • • the increased complexity and costs inherent in managing international operations; diverse regulatory, financial and legal requirements, and any future changes to such requirements, in one or more countries where we are located or do business; country-specific tax, labor and employment laws and regulations; applicable trade laws, tariffs, export quotas, custom duties or other trade restrictions and any changes to them; challenges inherent in efficiently managing employees in diverse geographies, including the need to adapt systems, policies, benefits and compliance programs to differing labor and other regulations; changes in currency rates; and regulations relating to data security and the unauthorized use of, or access to, commercial and personal information. There can be no assurance that we will effectively manage the increased complexity without experiencing operating inefficiencies or control deficiencies. Such increased complexity may also lead to decisions to reposition our international operations to align them with our overall and evolving business strategy, including with our recent strategic change to focus on path to profitability. Significant management time and effort is required to effectively manage the increased complexity of our company, and our failure to successfully do so could have a material adverse effect on our business, financial condition, results of operations and growth prospects. 26 27 We may be restricted from transferring our scientific data abroad. On March 17, 2018, the General Office of the State Council promulgated the Measures for the Management of Scientific Data, or the Scientific Data Measures, which provides a broad definition of scientific data and relevant rules for the management of scientific data. According to the Scientific Data Measures, enterprises in China must seek governmental approval before any scientific data involving a state secret may be transferred abroad or to foreign parties. Further, any researcher conducting research funded at least in part by the Chinese government is required to submit relevant scientific data for management by the entity to which such researcher is affiliated before such data may be published in any foreign academic journal. Given that the term state secret is not clearly defined in the Scientific Data Measures, if and to the extent our research and development of drug candidates will be subject to the Scientific Data Measures and any subsequent laws as required by the relevant government authorities, we cannot assure you that we can always obtain relevant approvals for sending scientific data (such as the results of our pre-clinical studies or clinical trials conducted within China) abroad or to our foreign partners in China. The PRC Personal Information Protection Law, effective November 2021, provides that where a personal information processor needs to provide personal information outside the territory of the PRC due to business or other needs, it shall meet any of the following conditions: (i) it shall pass the security evaluation organized by the Cyberspace Administration of China (“CAC”) in accordance with the provisions of Article 40 thereof, (ii) it shall have been certified by a specialized agency for protection of personal information in accordance with the provisions of the CAC, (iii) it shall enter into a contract with the overseas recipient under the standard contract formulated by the CAC, specifying the rights and obligations of both parties, or (iv) it shall meet other conditions prescribed by laws, administrative regulations or the CAC. If we are unable to obtain necessary approvals or meet the necessary requirements in a timely manner, or at all, our research and development of drug candidates may be hindered, which may materially and adversely affect our business, results of operations, financial conditions and prospects. If the relevant government authorities consider the transmission of our scientific data to be in violation of the requirements under the Scientific Data Measures, we may be subject to fines and other administrative penalties imposed by those government authorities. If we expand our existing compassionate-use program or participate in additional compassionate-use programs, discrepancies among the regulations in different countries may lead to increased risk of adverse drug reactions and serious adverse events arising from the use of our drug candidates. Compassionate-use programs are regulatory programs that facilitate access to investigational drugs for the treatment of patients with serious or immediately life-threatening diseases or conditions that lack therapeutic alternatives. Currently, there is no unified approach or standard practice to regulate compassionate-use programs or access to investigational drugs across countries. In China, the PRC Drug Administration Law provides that drugs in clinical trials intended for the treatment of serious life-threatening diseases without existing effective treatments may, upon review and informed consent, be administered to patients with the same conditions within the institution conducting the clinical trials, provided that such drugs may be beneficial as indicated by medical observation and such practice is in conformity with ethical principles. On May 9, 2022, the NMPA published the draft PRC Drug Administration Implementation Regulations for comment, of which Article 100 states that (i) with respect to experimental drugs undergoing clinical trials for treatment of seriously life-threatening diseases for which there is no effective treatment, compassionate-use thereof may be proposed by physician to patient if the patient cannot participate in the clinical trial of the drug and, based on medical analysis of the patient’s condition, the physician believes that benefits of use may outweigh risks, and (ii) compassionate-use of experimental drugs should follow the principles of patients’ voluntary requests, medical ethics and informed consent, and following review and approval by an ethics committee, experimental drugs can be administered in institutions conducting clinical trials by physicians with use or training experience in experimental drugs on patients with the same conditions as subjects receiving treatment by experimental drugs in clinical trials thereof. In the United States, compassionate-use programs are limited to patients who have a life-threatening disease or serious disease or condition, who may gain access to an investigational medical product for treatment outside of clinical trials when no comparable or satisfactory alternative therapy options are available. Additionally, the U.S. Right to Try Act provides a separate pathway for patients with a life-threatening disease or condition who have exhausted all other treatment options and who are unable to participate in clinical trials to access investigational drugs that have passed Phase I clinical trials under a more expedited process. The regulatory discrepancy for compassionate-use programs among countries may lead to uneven patient entry criteria and protocols for compassionate use programs. This may create increased risk of serious adverse events because of enrolled patients’ advanced disease or comorbidities. In addition, because the products in compassionate-use programs are investigational drugs, many of which are still in experimental stages, patients in compassionate-use program may exhibit adverse drug reactions from using these products. We currently have named patient programs in Hong Kong for compassionate use of fruquintinib, surufatinib and savolitinib, an expanded access program in the United States for compassionate use of surufatinib and have enlisted fruquintinib in the Macau Government Hospital Named Patient drug formulary. Although we have enrolled a limited number of patients in each of our current programs, we may be subject to the risk of enrolled patients exhibiting adverse drug reactions or serious adverse events being produced from the use of our drug products, particularly if we expand such programs or establish or participate in additional compassionate-use programs. Such occurrences can potentially lead to clinical holds of our ongoing clinical trials or complicate the determination of the safety profile of a drug candidate under regulatory review for commercial marketing, or expose us to tort liability. Risks Relating to Sales of Our Internally Developed Drugs and Other Drugs Pharmaceutical companies in China are required to comply with extensive regulations and hold a number of permits and licenses to carry on their business. Our and our joint ventures’ ability to obtain and maintain these regulatory approvals is uncertain, and future government regulation may impose additional burdens on our operations. The pharmaceutical industry in China is subject to extensive government regulation and supervision. The regulatory framework addresses all aspects of operations in the pharmaceutical industry, including approval, production, distribution, advertising, licensing and certification requirements and procedures, periodic renewal and reassessment processes, registration of new drugs and environmental protection. Violation of applicable laws and regulations may materially and adversely affect our business. In order to manufacture and distribute pharmaceutical products in China, we and our joint ventures are required to, among other things: obtain a pharmaceutical manufacturing permit for each production facility from the NMPA; obtain a drug registration certificate, which includes a drug approval number, from the NMPA for each drug manufactured by obtain a pharmaceutical distribution permit from the NMPA; and renew the pharmaceutical manufacturing permits, the pharmaceutical distribution permits, drug registration certificates, among other requirements. If we or our joint ventures are unable to obtain or renew such permits or any other permits or licenses required for our or their operations, we will not be able to engage in the manufacture and distribution of our products and our business may be adversely affected. The regulatory framework regarding the pharmaceutical industry in China is subject to change and amendment from time to time. Any such change or amendment could materially and adversely impact our business, financial condition and results of operations. The PRC government has introduced various reforms to the Chinese healthcare system in recent years and may continue to do so, with an overall objective to expand basic medical insurance coverage and improve the quality and reliability of healthcare services. Specific upcoming regulatory and policy changes remain uncertain. The implementing measures to be issued may not be sufficiently effective to achieve the stated goals and, as a result, we may not be able to benefit from such reform to the level we expect, if at all. Moreover, the reform could give rise to regulatory developments, such as more burdensome administrative procedures, which may have an adverse effect on our business and prospects. For further information regarding government regulation in China and other jurisdictions, see Item 4.B. “Business Overview— Regulations—Government Regulation of Pharmaceutical Product Development and Approval,” “Business Overview—Regulations— Coverage and Reimbursement” and “Business Overview—Regulations—Other Healthcare Laws.” us; • • • • 28 29 We may be restricted from transferring our scientific data abroad. On March 17, 2018, the General Office of the State Council promulgated the Measures for the Management of Scientific Data, or the Scientific Data Measures, which provides a broad definition of scientific data and relevant rules for the management of scientific data. According to the Scientific Data Measures, enterprises in China must seek governmental approval before any scientific data involving a state secret may be transferred abroad or to foreign parties. Further, any researcher conducting research funded at least in part by the Chinese government is required to submit relevant scientific data for management by the entity to which such researcher is affiliated before such data may be published in any foreign academic journal. Given that the term state secret is not clearly defined in the Scientific Data Measures, if and to the extent our research and development of drug candidates will be subject to the Scientific Data Measures and any subsequent laws as required by the relevant government authorities, we cannot assure you that we can always obtain relevant approvals for sending scientific data (such as the results of our pre-clinical studies or clinical trials conducted within China) abroad or to our foreign partners in China. The PRC Personal Information Protection Law, effective November 2021, provides that where a personal information processor needs to provide personal information outside the territory of the PRC due to business or other needs, it shall meet any of the following conditions: (i) it shall pass the security evaluation organized by the Cyberspace Administration of China (“CAC”) in accordance with the provisions of Article 40 thereof, (ii) it shall have been certified by a specialized agency for protection of personal information in accordance with the provisions of the CAC, (iii) it shall enter into a contract with the overseas recipient under the standard contract formulated by the CAC, specifying the rights and obligations of both parties, or (iv) it shall meet other conditions prescribed by laws, administrative regulations or the CAC. If we are unable to obtain necessary approvals or meet the necessary requirements in a timely manner, or at all, our research and development of drug candidates may be hindered, which may materially and adversely affect our business, results of operations, financial conditions and prospects. If the relevant government authorities consider the transmission of our scientific data to be in violation of the requirements under the Scientific Data Measures, we may be subject to fines and other administrative penalties imposed by those government authorities. If we expand our existing compassionate-use program or participate in additional compassionate-use programs, discrepancies among the regulations in different countries may lead to increased risk of adverse drug reactions and serious adverse events arising from the use of our drug candidates. Compassionate-use programs are regulatory programs that facilitate access to investigational drugs for the treatment of patients with serious or immediately life-threatening diseases or conditions that lack therapeutic alternatives. Currently, there is no unified approach or standard practice to regulate compassionate-use programs or access to investigational drugs across countries. In China, the PRC Drug Administration Law provides that drugs in clinical trials intended for the treatment of serious life-threatening diseases without existing effective treatments may, upon review and informed consent, be administered to patients with the same conditions within the institution conducting the clinical trials, provided that such drugs may be beneficial as indicated by medical observation and such practice is in conformity with ethical principles. On May 9, 2022, the NMPA published the draft PRC Drug Administration Implementation Regulations for comment, of which Article 100 states that (i) with respect to experimental drugs undergoing clinical trials for treatment of seriously life-threatening diseases for which there is no effective treatment, compassionate-use thereof may be proposed by physician to patient if the patient cannot participate in the clinical trial of the drug and, based on medical analysis of the patient’s condition, the physician believes that benefits of use may outweigh risks, and (ii) compassionate-use of experimental drugs should follow the principles of patients’ voluntary requests, medical ethics and informed consent, and following review and approval by an ethics committee, experimental drugs can be administered in institutions conducting clinical trials by physicians with use or training experience in experimental drugs on patients with the same conditions as subjects receiving treatment by experimental drugs in clinical trials thereof. In the United States, compassionate-use programs are limited to patients who have a life-threatening disease or serious disease or condition, who may gain access to an investigational medical product for treatment outside of clinical trials when no comparable or satisfactory alternative therapy options are available. Additionally, the U.S. Right to Try Act provides a separate pathway for patients with a life-threatening disease or condition who have exhausted all other treatment options and who are unable to participate in clinical trials to access investigational drugs that have passed Phase I clinical trials under a more expedited process. The regulatory discrepancy for compassionate-use programs among countries may lead to uneven patient entry criteria and protocols for compassionate use programs. This may create increased risk of serious adverse events because of enrolled patients’ advanced disease or comorbidities. In addition, because the products in compassionate-use programs are investigational drugs, many of which are still in experimental stages, patients in compassionate-use program may exhibit adverse drug reactions from using these products. We currently have named patient programs in Hong Kong for compassionate use of fruquintinib, surufatinib and savolitinib, an expanded access program in the United States for compassionate use of surufatinib and have enlisted fruquintinib in the Macau Government Hospital Named Patient drug formulary. Although we have enrolled a limited number of patients in each of our current programs, we may be subject to the risk of enrolled patients exhibiting adverse drug reactions or serious adverse events being produced from the use of our drug products, particularly if we expand such programs or establish or participate in additional compassionate-use programs. Such occurrences can potentially lead to clinical holds of our ongoing clinical trials or complicate the determination of the safety profile of a drug candidate under regulatory review for commercial marketing, or expose us to tort liability. Risks Relating to Sales of Our Internally Developed Drugs and Other Drugs Pharmaceutical companies in China are required to comply with extensive regulations and hold a number of permits and licenses to carry on their business. Our and our joint ventures’ ability to obtain and maintain these regulatory approvals is uncertain, and future government regulation may impose additional burdens on our operations. The pharmaceutical industry in China is subject to extensive government regulation and supervision. The regulatory framework addresses all aspects of operations in the pharmaceutical industry, including approval, production, distribution, advertising, licensing and certification requirements and procedures, periodic renewal and reassessment processes, registration of new drugs and environmental protection. Violation of applicable laws and regulations may materially and adversely affect our business. In order to manufacture and distribute pharmaceutical products in China, we and our joint ventures are required to, among other things: • • • • obtain a pharmaceutical manufacturing permit for each production facility from the NMPA; obtain a drug registration certificate, which includes a drug approval number, from the NMPA for each drug manufactured by us; obtain a pharmaceutical distribution permit from the NMPA; and renew the pharmaceutical manufacturing permits, the pharmaceutical distribution permits, drug registration certificates, among other requirements. If we or our joint ventures are unable to obtain or renew such permits or any other permits or licenses required for our or their operations, we will not be able to engage in the manufacture and distribution of our products and our business may be adversely affected. The regulatory framework regarding the pharmaceutical industry in China is subject to change and amendment from time to time. Any such change or amendment could materially and adversely impact our business, financial condition and results of operations. The PRC government has introduced various reforms to the Chinese healthcare system in recent years and may continue to do so, with an overall objective to expand basic medical insurance coverage and improve the quality and reliability of healthcare services. Specific upcoming regulatory and policy changes remain uncertain. The implementing measures to be issued may not be sufficiently effective to achieve the stated goals and, as a result, we may not be able to benefit from such reform to the level we expect, if at all. Moreover, the reform could give rise to regulatory developments, such as more burdensome administrative procedures, which may have an adverse effect on our business and prospects. For further information regarding government regulation in China and other jurisdictions, see Item 4.B. “Business Overview— Regulations—Government Regulation of Pharmaceutical Product Development and Approval,” “Business Overview—Regulations— Coverage and Reimbursement” and “Business Overview—Regulations—Other Healthcare Laws.” 28 29 As a significant portion of the operations of our Other Ventures is conducted through joint ventures, we are dependent on the success of our joint ventures, our receipt of dividends or other payments from our joint ventures for cash to fund our operations, and our investments in our joint ventures are subject to liquidity risk. We are party to a joint venture agreement with Shanghai Pharmaceuticals, relating to our non-consolidated joint venture namely, Shanghai Hutchison Pharmaceuticals, which forms part of the operations of our Other Ventures. Our equity in earnings of such non- consolidated joint venture, net of tax, was $33.5 million, $44.7 million and $49.7 million for the years ended December 31, 2020, 2021 and 2022, respectively, as recorded in our consolidated financial statements. As such, our results of operations and financial performance have been, and will continue to be, affected by the financial performance of such joint venture as well as any other equity investees we have or may have in the future. We may also be required to recognize an impairment charge in our consolidated financial statements if there is a decline in the fair market value of our investments in such businesses below their carrying amounts for whatever reason that is determined to be other-than-temporary. Furthermore, we have consolidated joint ventures with each of Sinopharm and Hain Celestial which accounted for substantially all of our Other Ventures’ consolidated revenue for the years ended December 31, 2020, 2021 and 2022. As a result, our ability to fund our operations and pay our expenses or to make future dividend payments, if any, is largely dependent on the earnings of our joint ventures and the payment of those earnings to us in the form of dividends. Payments to us by our joint ventures will be contingent upon our joint ventures’ earnings and other business considerations and may be subject to statutory or contractual restrictions. Each joint venture’s ability to distribute dividends to us is subject to approval by their respective boards of directors, which in the case of Shanghai Hutchison Pharmaceuticals is comprised of an equal number of representatives from each party. Furthermore, our ability to promptly sell one or more of our interests in our joint ventures in response to changing corporate strategy or economic, financial and investment conditions is limited. The market for such investments can be affected by various factors, such as general economic and market conditions, availability of financing, interest rates and investor demand, many of which are beyond our control. If we determine to sell any of our joint venture investments, we cannot predict if we will be successful or whether any price or other terms offered by a prospective purchaser would be acceptable to us. Operationally, our joint venture partners have certain responsibilities and/or certain rights to exercise control or influence over operations and decision-making under the joint venture arrangements. Therefore, the success of our joint ventures depends on the efforts and abilities of our joint venture parties. For example, we appoint the general managers of Hutchison Sinopharm and Shanghai Hutchison Pharmaceuticals pursuant to the respective joint venture agreements governing these entities and therefore oversee the day-to-day management of these joint ventures. However, we still rely on our joint venture partners Sinopharm and Shanghai Pharmaceuticals to provide certain distribution and logistics services. See “—Risks Relating to Our Dependence on Third Parties—Joint ventures form an important part of our Other Ventures, and our ability to manage and develop the businesses conducted by these joint ventures depends in part on our relationship with our joint venture partners” for more information. We may not be successful in building a commercial team to successfully manufacture, sell and market our approved drugs, and we may not be able to generate any revenue from such products. Reimbursement may not be available for the products currently sold through our Oncology/Immunology and Other Ventures operations or our drug candidates in China, the United States or other countries, which could diminish our sales or affect our We have leveraged our experience operating our prescription drugs business to commercialize certain of our approved, internally developed drug candidates in China. We must adapt our know-how to build a specific oncology and/or immunology focused sales and marketing team. As of December 31, 2022, we had an oncology commercial team with over 860 staff in mainland China to support the commercialization of Elunate, Sulanda, Orpathys and our other drug candidates, if approved. There are risks involved in establishing an in-house oncology commercial team. For example, recruiting and/or training a sales force to detail our approved drug candidates is time consuming and could delay any drug launch. Factors that may inhibit our efforts to commercialize our drug candidates include: • • • our inability to recruit and retain adequate numbers of effective sales and marketing personnel; our inability to effectively manage the expansion of our operations and train additional qualified personnel in the relevant areas of oncology and/or immunology; the inability of our sales personnel to obtain access to physicians or educate adequate numbers of physicians who then prescribe any future drugs; and 30 31 • the lack of complementary drugs to be offered by our sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines. In such case, our business, results of operations, financial condition and prospects will be materially and adversely affected. We face substantial competition in selling our approved, internally developed drugs and the drugs of our Other Ventures. The marketed drugs developed and sold by our Oncology/Immunology operations and the prescription drugs business which is part of our Other Ventures’ operations face substantial competition in the pharmaceutical industry in China, which is characterized by a number of established, large pharmaceutical companies, as well as smaller emerging pharmaceutical companies, engaged in the development, production, marketing or sales of prescription drugs, in particular cardiovascular drugs. The identities of the key competitors with respect to drugs sold by our Oncology/Immunology and Other Ventures operations vary by product and, in certain cases, competitors have greater financial resources than us and may elect to focus these resources on developing, importing or in- licensing and marketing products in the PRC that are substitutes for our products and may have broader sales and marketing infrastructure with which to do so. Such drugs may compete against products that have lower prices, superior performance, greater ease of administration or other advantages compared to our products. In some circumstances, price competition may drive our competitors to conduct illegal manufacturing processes to lower their manufacturing costs. Increased competition may result in price reductions, reduced margins and loss of market share, whether achieved by either legal or illegal means, any of which could materially and adversely affect our profit margins. We and our joint ventures may not be able to compete effectively against current and future competitors. If we are not able to maintain and enhance brand recognition of our drugs to maintain a competitive advantage, our reputation, business and operating results may be harmed. We believe that market awareness of our products sold through our Oncology/Immunology and Other Ventures operations, which include our joint ventures’ branded products, such as Shang Yao, and the brands of third-party products which are distributed through our joint ventures, has contributed significantly to our success. We also believe that maintaining and enhancing such brands is critical to maintaining our competitive advantage. Although the sales and marketing staff of such businesses will continue to further promote such brands to remain competitive, they may not be successful. If we or our joint ventures are unable to further enhance brand recognition and increase awareness of such products, or are compelled to incur excessive marketing and promotion expenses in order to maintain brand awareness, our business and results of operations may be materially and adversely affected. Furthermore, our results of operations could be adversely affected if the Shang Yao brand, or the brands of any other products, or our reputation, are impaired by certain actions taken by our joint venture partners, distributors, competitors or relevant regulatory authorities. profitability. The regulations that govern pricing and reimbursement for pharmaceuticals vary widely from country to country. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after regulatory approval is granted. In some foreign markets, pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. Furthermore, once marketed and sold, government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. Adverse pricing reimbursement levels may hinder market acceptance of our drug candidates or other products sold by us. As a significant portion of the operations of our Other Ventures is conducted through joint ventures, we are dependent on the success of our joint ventures, our receipt of dividends or other payments from our joint ventures for cash to fund our operations, and our • the lack of complementary drugs to be offered by our sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines. investments in our joint ventures are subject to liquidity risk. We are party to a joint venture agreement with Shanghai Pharmaceuticals, relating to our non-consolidated joint venture namely, Shanghai Hutchison Pharmaceuticals, which forms part of the operations of our Other Ventures. Our equity in earnings of such non- consolidated joint venture, net of tax, was $33.5 million, $44.7 million and $49.7 million for the years ended December 31, 2020, 2021 and 2022, respectively, as recorded in our consolidated financial statements. As such, our results of operations and financial performance have been, and will continue to be, affected by the financial performance of such joint venture as well as any other equity investees we have or may have in the future. We may also be required to recognize an impairment charge in our consolidated financial statements if there is a decline in the fair market value of our investments in such businesses below their carrying amounts for whatever reason that is determined to be other-than-temporary. Furthermore, we have consolidated joint ventures with each of Sinopharm and Hain Celestial which accounted for substantially all of our Other Ventures’ consolidated revenue for the years ended December 31, 2020, 2021 and 2022. As a result, our ability to fund our operations and pay our expenses or to make future dividend payments, if any, is largely dependent on the earnings of our joint ventures and the payment of those earnings to us in the form of dividends. Payments to us by our joint ventures will be contingent upon our joint ventures’ earnings and other business considerations and may be subject to statutory or contractual restrictions. Each joint venture’s ability to distribute dividends to us is subject to approval by their respective boards of directors, which in the case of Shanghai Hutchison Pharmaceuticals is comprised of an equal number of representatives from each party. Furthermore, our ability to promptly sell one or more of our interests in our joint ventures in response to changing corporate strategy or economic, financial and investment conditions is limited. The market for such investments can be affected by various factors, such as general economic and market conditions, availability of financing, interest rates and investor demand, many of which are beyond our control. If we determine to sell any of our joint venture investments, we cannot predict if we will be successful or whether any price or other terms offered by a prospective purchaser would be acceptable to us. Operationally, our joint venture partners have certain responsibilities and/or certain rights to exercise control or influence over operations and decision-making under the joint venture arrangements. Therefore, the success of our joint ventures depends on the efforts and abilities of our joint venture parties. For example, we appoint the general managers of Hutchison Sinopharm and Shanghai Hutchison Pharmaceuticals pursuant to the respective joint venture agreements governing these entities and therefore oversee the day-to-day management of these joint ventures. However, we still rely on our joint venture partners Sinopharm and Shanghai Pharmaceuticals to provide certain distribution and logistics services. See “—Risks Relating to Our Dependence on Third Parties—Joint ventures form an important part of our Other Ventures, and our ability to manage and develop the businesses conducted by these joint ventures depends in part on our relationship with our joint venture partners” for more information. We may not be successful in building a commercial team to successfully manufacture, sell and market our approved drugs, and we may not be able to generate any revenue from such products. We have leveraged our experience operating our prescription drugs business to commercialize certain of our approved, internally developed drug candidates in China. We must adapt our know-how to build a specific oncology and/or immunology focused sales and marketing team. As of December 31, 2022, we had an oncology commercial team with over 860 staff in mainland China to support the commercialization of Elunate, Sulanda, Orpathys and our other drug candidates, if approved. There are risks involved in establishing an in-house oncology commercial team. For example, recruiting and/or training a sales force to detail our approved drug candidates is time consuming and could delay any drug launch. Factors that may inhibit our efforts to commercialize our drug candidates include: our inability to recruit and retain adequate numbers of effective sales and marketing personnel; our inability to effectively manage the expansion of our operations and train additional qualified personnel in the relevant areas • • • of oncology and/or immunology; any future drugs; and the inability of our sales personnel to obtain access to physicians or educate adequate numbers of physicians who then prescribe In such case, our business, results of operations, financial condition and prospects will be materially and adversely affected. We face substantial competition in selling our approved, internally developed drugs and the drugs of our Other Ventures. The marketed drugs developed and sold by our Oncology/Immunology operations and the prescription drugs business which is part of our Other Ventures’ operations face substantial competition in the pharmaceutical industry in China, which is characterized by a number of established, large pharmaceutical companies, as well as smaller emerging pharmaceutical companies, engaged in the development, production, marketing or sales of prescription drugs, in particular cardiovascular drugs. The identities of the key competitors with respect to drugs sold by our Oncology/Immunology and Other Ventures operations vary by product and, in certain cases, competitors have greater financial resources than us and may elect to focus these resources on developing, importing or in- licensing and marketing products in the PRC that are substitutes for our products and may have broader sales and marketing infrastructure with which to do so. Such drugs may compete against products that have lower prices, superior performance, greater ease of administration or other advantages compared to our products. In some circumstances, price competition may drive our competitors to conduct illegal manufacturing processes to lower their manufacturing costs. Increased competition may result in price reductions, reduced margins and loss of market share, whether achieved by either legal or illegal means, any of which could materially and adversely affect our profit margins. We and our joint ventures may not be able to compete effectively against current and future competitors. If we are not able to maintain and enhance brand recognition of our drugs to maintain a competitive advantage, our reputation, business and operating results may be harmed. We believe that market awareness of our products sold through our Oncology/Immunology and Other Ventures operations, which include our joint ventures’ branded products, such as Shang Yao, and the brands of third-party products which are distributed through our joint ventures, has contributed significantly to our success. We also believe that maintaining and enhancing such brands is critical to maintaining our competitive advantage. Although the sales and marketing staff of such businesses will continue to further promote such brands to remain competitive, they may not be successful. If we or our joint ventures are unable to further enhance brand recognition and increase awareness of such products, or are compelled to incur excessive marketing and promotion expenses in order to maintain brand awareness, our business and results of operations may be materially and adversely affected. Furthermore, our results of operations could be adversely affected if the Shang Yao brand, or the brands of any other products, or our reputation, are impaired by certain actions taken by our joint venture partners, distributors, competitors or relevant regulatory authorities. Reimbursement may not be available for the products currently sold through our Oncology/Immunology and Other Ventures operations or our drug candidates in China, the United States or other countries, which could diminish our sales or affect our profitability. The regulations that govern pricing and reimbursement for pharmaceuticals vary widely from country to country. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after regulatory approval is granted. In some foreign markets, pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. Furthermore, once marketed and sold, government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. Adverse pricing reimbursement levels may hinder market acceptance of our drug candidates or other products sold by us. 30 31 In China, for example, the Ministry of Human Resources and Social Security of the PRC or provincial or local human resources and social security authorities, together with other government authorities, review the inclusion or removal of drugs from the Medicines Catalogue for the National Basic Medical Insurance, Labor Injury Insurance and Childbirth System in China, or the National Reimbursement Drug List, or NRDL, or provincial or local medical insurance catalogues for the National Medical Insurance Program, and the category under which a drug will be classified, both of which affect the amounts reimbursable to program participants for their purchases of those medicines. These determinations are made based on a number of factors, including price and efficacy. Depending on the category under which a drug is classified in the provincial medicine catalogue, a National Medical Insurance Program participant residing in that province can be reimbursed for the full cost of Category A medicine and for the majority of the cost of a Category B medicine. In some instances, if the price range designated by the local or provincial government decreases, it may adversely affect our business and could reduce our total revenue, and if our revenue falls below production costs, we may stop manufacturing certain products. In November 2019 and January 2022, Elunate and Sulanda were added to China’s NRDL as a Category B medicine, respectively. Orpathys has been added as a Category B medicine in the updated NRDL, effective from March 1, 2023. In addition, in order to access certain local or provincial-level markets, our joint ventures are periodically required to enter into competitive bidding processes for She Xiang Bao Xin (the best-selling product of our Shanghai Hutchison Pharmaceuticals joint venture) and other products with a pre-defined price range. The competitive bidding in effect sets price ceilings for those products, thereby limiting our profitability. In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs which may affect reimbursement rates of our drug candidates if approved. For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or the Affordable Care Act, was passed, which substantially changed the way health care is financed by both governmental and private insurers. The Affordable Care Act, among other things, established a new Medicare Part D coverage gap discount program, in which, effective 2019, manufacturers must agree to offer 70% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D. In addition, other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. Modifications to or repeal of all or certain provisions of the Affordable Care Act had been expected based on statements made by former President Trump and certain members of Congress. However, President Biden has indicated that his healthcare policy will build on the Affordable Care Act and that his administration will prioritize comprehensive drug pricing reform. We cannot predict the ultimate content, timing or effect of any changes to the Affordable Care Act or other federal and state reform efforts. Several U.S. states have also enacted laws to control drug pricing or require manufacturers to disclose information about drug pricing. There is no assurance that federal or state health care reform will not adversely affect our future business and financial results. We expect that additional U.S. state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our drug candidates or additional pricing pressures. We expect that the pharmaceutical industry will experience pricing pressures due to the increasing influence of managed care (and related implementation of managed care strategies to control utilization), consolidation in drug distribution industry, additional federal and state legislative and regulatory proposals to regulate pricing of drugs, limit coverage of drugs or reduce reimbursement for drugs, public scrutiny and recent regulatory initiatives to control the price of pharmaceuticals through government negotiations of drug prices in Medicare Part D and, eventually Medicare Part B, and importation of cheaper products from abroad. Moreover, eligibility for reimbursement in the United States does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim U.S. reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by U.S. government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Third-party payors in the United States often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for any approved drugs that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize drugs and our overall financial condition. Sales of our generic prescription drugs sold through our Other Ventures rely on the ability to win tender bids for the medicine purchases of hospitals in China. Our prescription drugs business markets to hospitals in China that may make bulk purchases of a medicine only if that medicine is selected under a government-administered tender process that was initiated in 2018 and aimed at driving consolidation in the fragmented generic prescription drug market in China. Pursuant to this process, major cities bulk-buy certain generic drugs together, forcing companies to bid for contracts and driving down prices. The process was later expanded nationwide to cover more cities and drugs. This process, which only applies to generic prescription drugs, may reduce our Other Ventures’ product portfolio as some of our third-party generic drug partners may fail to win bids. Periodically, a bidding process is organized on a provincial or municipal basis. Whether a drug manufacturer is invited to participate in the tender depends on the level of interest that hospitals have in purchasing this drug. The interest of a hospital in a medicine is evidenced by: the inclusion of this medicine on the hospital’s formulary, which establishes the scope of drug physicians at this hospital may prescribe to their patients, and the willingness of physicians at this hospital to prescribe a particular drug to their patients. We believe that effective marketing efforts are critical in making and keeping hospitals interested in purchasing the prescription drugs sold through our Other Ventures so that we and our joint ventures are invited to submit the products to the tender. Even if we and our joint ventures are invited to do so, competitors may be able to substantially reduce the price of their products or services. If competitors are able to offer lower prices, our and our joint ventures’ ability to win tender bids during the hospital tender process will be materially affected, and could reduce our total revenue or decrease our profit. Counterfeit products could negatively impact our revenue, brand reputation, business and results of operations. Our products are subject to competition from counterfeit products, especially counterfeit pharmaceuticals which are manufactured without proper licenses or approvals and are fraudulently mislabeled with respect to their content and/or manufacturer. Counterfeiters may illegally manufacture and market products under our or our joint venture’s brand names, the brand names of the third-party products we or they sell, or those of our or their competitors. Counterfeit pharmaceuticals are generally sold at lower prices than the authentic products due to their low production costs, and in some cases are very similar in appearance to the authentic products. Counterfeit pharmaceuticals may or may not have the same chemical content as their authentic counterparts. If counterfeit pharmaceuticals illegally sold under our or our joint ventures’ brand names or the brand names of third-party products we or they sell result in adverse side effects to consumers, we or our joint ventures may be associated with any negative publicity resulting from such incidents. In addition, consumers may buy counterfeit pharmaceuticals that are in direct competition with products sold through our Oncology/Immunology and Other Ventures operations, which could have an adverse impact on our revenue, business and results of operations. The proliferation of counterfeit pharmaceuticals in China and globally may grow in the future. Any such increase in the sales and production of counterfeit pharmaceuticals in China, or the technological capabilities of the counterfeiters, could negatively impact our revenue, brand reputation, business and results of operations. candidates obsolete. Rapid changes in the pharmaceutical industry may render our Other Ventures’ products or our internally developed drugs and drug Future technological improvements by our competitors and continual product developments in the pharmaceutical market may render our and our joint ventures’ existing products, our or their third-party licensed products or our drug candidates obsolete or affect our viability and competitiveness. Therefore, our future success will largely depend on our and our joint ventures’ ability to: improve existing products; develop innovative drug candidates; diversify the product and drug candidate portfolio; • • • • • 32 33 In China, for example, the Ministry of Human Resources and Social Security of the PRC or provincial or local human resources and social security authorities, together with other government authorities, review the inclusion or removal of drugs from the Medicines Catalogue for the National Basic Medical Insurance, Labor Injury Insurance and Childbirth System in China, or the National Reimbursement Drug List, or NRDL, or provincial or local medical insurance catalogues for the National Medical Insurance Program, and the category under which a drug will be classified, both of which affect the amounts reimbursable to program participants for their purchases of those medicines. These determinations are made based on a number of factors, including price and efficacy. Depending on the category under which a drug is classified in the provincial medicine catalogue, a National Medical Insurance Program participant residing in that province can be reimbursed for the full cost of Category A medicine and for the majority of the cost of a Category B medicine. In some instances, if the price range designated by the local or provincial government decreases, it may adversely affect our business and could reduce our total revenue, and if our revenue falls below production costs, we may stop manufacturing certain products. In November 2019 and January 2022, Elunate and Sulanda were added to China’s NRDL as a Category B medicine, respectively. Orpathys has been added as a Category B medicine in the updated NRDL, effective from March 1, 2023. In addition, in order to access certain local or provincial-level markets, our joint ventures are periodically required to enter into competitive bidding processes for She Xiang Bao Xin (the best-selling product of our Shanghai Hutchison Pharmaceuticals joint venture) and other products with a pre-defined price range. The competitive bidding in effect sets price ceilings for those products, thereby limiting our profitability. In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs which may affect reimbursement rates of our drug candidates if approved. For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or the Affordable Care Act, was passed, which substantially changed the way health care is financed by both governmental and private insurers. The Affordable Care Act, among other things, established a new Medicare Part D coverage gap discount program, in which, effective 2019, manufacturers must agree to offer 70% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D. In addition, other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. Modifications to or repeal of all or certain provisions of the Affordable Care Act had been expected based on statements made by former President Trump and certain members of Congress. However, President Biden has indicated that his healthcare policy will build on the Affordable Care Act and that his administration will prioritize comprehensive drug pricing reform. We cannot predict the ultimate content, timing or effect of any changes to the Affordable Care Act or other federal and state reform efforts. Several U.S. states have also enacted laws to control drug pricing or require manufacturers to disclose information about drug pricing. There is no assurance that federal or state health care reform will not adversely affect our future business and financial results. We expect that additional U.S. state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our drug candidates or additional pricing pressures. We expect that the pharmaceutical industry will experience pricing pressures due to the increasing influence of managed care (and related implementation of managed care strategies to control utilization), consolidation in drug distribution industry, additional federal and state legislative and regulatory proposals to regulate pricing of drugs, limit coverage of drugs or reduce reimbursement for drugs, public scrutiny and recent regulatory initiatives to control the price of pharmaceuticals through government negotiations of drug prices in Medicare Part D and, eventually Medicare Part B, and importation of cheaper products from abroad. Moreover, eligibility for reimbursement in the United States does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim U.S. reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by U.S. government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Third-party payors in the United States often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for any approved drugs that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize drugs and our overall financial condition. Sales of our generic prescription drugs sold through our Other Ventures rely on the ability to win tender bids for the medicine purchases of hospitals in China. Our prescription drugs business markets to hospitals in China that may make bulk purchases of a medicine only if that medicine is selected under a government-administered tender process that was initiated in 2018 and aimed at driving consolidation in the fragmented generic prescription drug market in China. Pursuant to this process, major cities bulk-buy certain generic drugs together, forcing companies to bid for contracts and driving down prices. The process was later expanded nationwide to cover more cities and drugs. This process, which only applies to generic prescription drugs, may reduce our Other Ventures’ product portfolio as some of our third-party generic drug partners may fail to win bids. Periodically, a bidding process is organized on a provincial or municipal basis. Whether a drug manufacturer is invited to participate in the tender depends on the level of interest that hospitals have in purchasing this drug. The interest of a hospital in a medicine is evidenced by: • • the inclusion of this medicine on the hospital’s formulary, which establishes the scope of drug physicians at this hospital may prescribe to their patients, and the willingness of physicians at this hospital to prescribe a particular drug to their patients. We believe that effective marketing efforts are critical in making and keeping hospitals interested in purchasing the prescription drugs sold through our Other Ventures so that we and our joint ventures are invited to submit the products to the tender. Even if we and our joint ventures are invited to do so, competitors may be able to substantially reduce the price of their products or services. If competitors are able to offer lower prices, our and our joint ventures’ ability to win tender bids during the hospital tender process will be materially affected, and could reduce our total revenue or decrease our profit. Counterfeit products could negatively impact our revenue, brand reputation, business and results of operations. Our products are subject to competition from counterfeit products, especially counterfeit pharmaceuticals which are manufactured without proper licenses or approvals and are fraudulently mislabeled with respect to their content and/or manufacturer. Counterfeiters may illegally manufacture and market products under our or our joint venture’s brand names, the brand names of the third-party products we or they sell, or those of our or their competitors. Counterfeit pharmaceuticals are generally sold at lower prices than the authentic products due to their low production costs, and in some cases are very similar in appearance to the authentic products. Counterfeit pharmaceuticals may or may not have the same chemical content as their authentic counterparts. If counterfeit pharmaceuticals illegally sold under our or our joint ventures’ brand names or the brand names of third-party products we or they sell result in adverse side effects to consumers, we or our joint ventures may be associated with any negative publicity resulting from such incidents. In addition, consumers may buy counterfeit pharmaceuticals that are in direct competition with products sold through our Oncology/Immunology and Other Ventures operations, which could have an adverse impact on our revenue, business and results of operations. The proliferation of counterfeit pharmaceuticals in China and globally may grow in the future. Any such increase in the sales and production of counterfeit pharmaceuticals in China, or the technological capabilities of the counterfeiters, could negatively impact our revenue, brand reputation, business and results of operations. Rapid changes in the pharmaceutical industry may render our Other Ventures’ products or our internally developed drugs and drug candidates obsolete. Future technological improvements by our competitors and continual product developments in the pharmaceutical market may render our and our joint ventures’ existing products, our or their third-party licensed products or our drug candidates obsolete or affect our viability and competitiveness. Therefore, our future success will largely depend on our and our joint ventures’ ability to: • • • improve existing products; develop innovative drug candidates; diversify the product and drug candidate portfolio; 32 33 • • license diverse third-party products; and We are dependent on our joint ventures’ production facilities in Shanghai, China, our manufacturing facility in Suzhou, China and third-party manufacturing facilities for the manufacture of the principal products of our joint ventures and our own drug candidates develop new and competitively priced products which meet the requirements of the constantly changing market. and products. If we or our joint ventures fail to respond to this environment by improving our existing products, licensing new third-party products or developing new drug candidates in a timely fashion, or if such new or improved products do not achieve adequate market acceptance, our business and profitability may be materially and adversely affected. Certain of our joint ventures’ principal products involve the cultivation or sourcing of key raw materials including botanical products, and any quality control or supply failure or price fluctuations could adversely affect our ability to manufacture our products and/or could materially and adversely affect our operating results. The key raw materials used in the manufacturing process of certain of our joint ventures’ principal products are medicinal herbs whose properties are related to the regions and climatic conditions in which they are grown. Access to quality raw materials and products necessary for the manufacture of our products is not guaranteed. We rely on materials sourced from third-party growers and suppliers. The availability, quality and prices of these raw materials are dependent on and closely affected by weather conditions and other seasonal factors which have an impact on the yields of the harvests each year. The quality, in some instances, also depends on the operations of third-party growers or suppliers. There is a risk that such growers or suppliers sell or attempt to sell us or our joint ventures raw materials which are not authentic. If there is any supply interruption for an indeterminate period of time, our joint ventures may not be able to identify and obtain alternative supplies that comply with our quality standards in a timely manner. Any supply disruption could adversely affect our ability to satisfy demand for our products, and materially and adversely affect our product sales and operating results. Moreover, any use by us or our joint ventures of unauthentic materials illegally sold to us by third-party growers or suppliers in our or our joint ventures’ products may result in adverse side effects to the consumers, negative publicity, or product liability claims against us or our joint ventures, any of which may materially and adversely affect our operating results. The prices of necessary raw materials and products may be subject to price fluctuations according to market conditions, and any sudden increases in demand in the case of a widespread illness such as COVID-19, SARS, MERS or avian flu may impact the costs of production. Raw material price fluctuations could increase the cost to manufacture our products and adversely affect our operating results. The principal products sold by our Other Ventures are mainly produced or expected to be produced at our joint ventures’ manufacturing facilities in Shanghai, China. Our commercial supplies of Elunate and Sulanda sold by our Oncology/Immunology operations are manufactured at our manufacturing facility in Suzhou, China. We outsourced the manufacturing of active pharmaceutical ingredients and finished product of Orpathys to a third-party manufacturer based in Shanghai, China. Until construction of our new manufacturing facility in Shanghai is completed and it receives the requisite government approvals, we have no back-up manufacturing facility for fruquintinib and surufatinib, and our ability to produce such drugs will be negatively impacted if we experience any significant production problems at our Suzhou facility. A significant disruption at our, our joint ventures’ and/or our contract manufacturer’s facilities, even on a short-term basis, could impair our and/or our joint ventures’ ability to timely produce and ship products, which could have a material adverse effect on our business, financial position and results of operations. Our, our joint ventures’ and our contract manufacturer’s manufacturing operations are vulnerable to interruption and damage from natural and other types of disasters, including earthquake, fire, floods, environmental accidents, power loss, communications failures and similar events. If any disaster were to occur, our ability to operate our, our joint ventures’ or our contract manufacturer’s business at these facilities would be materially impaired. In addition, the nature of our production and research activities could cause significant delays in our programs and make it difficult for us to recover from a disaster or switch to other contract manufacturers. We and our joint ventures maintain insurance for business interruptions to cover some of our potential losses; however, such disasters could still disrupt our operations and thereby result in substantial costs and diversion of resources. In addition, our, our joint ventures’ and our contract manufacturer’s production process requires a continuous supply of electricity. We and they have encountered power shortages historically due to restricted power supply to industrial users during summers when the usage of electricity is high and supply is limited or as a result of damage to the electricity supply network. Because the duration of those power shortages was brief, they had no material impact on our or their operations. Interruptions of electricity supply could result in lengthy production shutdowns, increased costs associated with restarting production and the loss of production in progress. Any major suspension or termination of electricity or other unexpected business interruptions could have a material adverse impact on our business, financial condition and results of operations. Adverse publicity associated with our company, our joint ventures or our or their products or third-party licensed products or similar products manufactured by our competitors could have a material adverse effect on our results of operations. We may engage in strategic transactions, including acquisitions, investments, joint ventures or divestitures that may have an adverse effect on our business. If we engage in a strategic transaction, there is no assurance that the transaction will be consummated. Sales of our and our joint ventures’ products are highly dependent upon market perceptions of the safety and quality of such products, including proprietary products and third-party products we and they distribute. Concerns over the safety of biopharmaceutical products manufactured in China could have an adverse effect on the reputation of our industry and the sale of such products, including products manufactured or distributed by us and our joint ventures. We may pursue transactions as part of our business strategy, including continuing to actively evaluate non-core assets divestment opportunities. We are considering alternative ways to divest non-core businesses in our Other Ventures segment, including Shanghai Hutchison Pharmaceuticals for which we have started the process for a share reform. For more information, please refer to Item 4.A. “History and Development of the Company.” We and our joint ventures could be adversely affected if any of our or our joint ventures’ products, third-party licensed products or any similar products manufactured by other companies prove to be, or are alleged to be, harmful to patients. Any negative publicity associated with severe adverse reactions or other adverse effects resulting from patients’ use or misuse of our and our joint ventures’ products or any similar products manufactured by other companies could also have a material adverse impact on our results of operations. We and our joint ventures have not, to date, experienced any significant quality control or safety problems. If in the future we or our joint ventures become involved in incidents of the type described above, such problems could severely and adversely impact our financial position and reputation. Acquisitions and investments involve numerous risks such as difficulties in finding suitable partners or acquisition candidates, difficulties in obtaining financing on favorable terms, if at all, the assumption of certain known and unknown liabilities of acquired companies and difficulties in integrating operations, services, products and personnel. Divestitures also involve numerous risks. Any divestiture could result in a dilutive impact to our future earnings and significant write-offs, including those related to goodwill and other intangible assets, which could have a material adverse effect on our results of operations and financial condition. Divestitures could involve additional risks, including difficulties in the separation of operations, services, products and personnel, the diversion of management’s attention from other business concerns, the disruption of our business and the potential loss of key employees. We may not complete strategic transactions in a timely manner, on a cost-effective basis, or at all, and we may not realize the expected benefits of any transaction. We may not be successful in managing these or any other significant risks that we encounter if we engage in a strategic transaction. If we are not successful in managing the risks, uncertainties and potential disruptions, a strategic transaction could have a negative impact on our business, results of operations or financial position. 34 35 license diverse third-party products; and • • develop new and competitively priced products which meet the requirements of the constantly changing market. We are dependent on our joint ventures’ production facilities in Shanghai, China, our manufacturing facility in Suzhou, China and third-party manufacturing facilities for the manufacture of the principal products of our joint ventures and our own drug candidates and products. If we or our joint ventures fail to respond to this environment by improving our existing products, licensing new third-party products or developing new drug candidates in a timely fashion, or if such new or improved products do not achieve adequate market acceptance, our business and profitability may be materially and adversely affected. Certain of our joint ventures’ principal products involve the cultivation or sourcing of key raw materials including botanical products, and any quality control or supply failure or price fluctuations could adversely affect our ability to manufacture our products and/or could materially and adversely affect our operating results. The key raw materials used in the manufacturing process of certain of our joint ventures’ principal products are medicinal herbs whose properties are related to the regions and climatic conditions in which they are grown. Access to quality raw materials and products necessary for the manufacture of our products is not guaranteed. We rely on materials sourced from third-party growers and suppliers. The availability, quality and prices of these raw materials are dependent on and closely affected by weather conditions and other seasonal factors which have an impact on the yields of the harvests each year. The quality, in some instances, also depends on the operations of third-party growers or suppliers. There is a risk that such growers or suppliers sell or attempt to sell us or our joint ventures raw materials which are not authentic. If there is any supply interruption for an indeterminate period of time, our joint ventures may not be able to identify and obtain alternative supplies that comply with our quality standards in a timely manner. Any supply disruption could adversely affect our ability to satisfy demand for our products, and materially and adversely affect our product sales and operating results. Moreover, any use by us or our joint ventures of unauthentic materials illegally sold to us by third-party growers or suppliers in our or our joint ventures’ products may result in adverse side effects to the consumers, negative publicity, or product liability claims against us or our joint ventures, any of which may materially and adversely affect our operating results. The prices of necessary raw materials and products may be subject to price fluctuations according to market conditions, and any sudden increases in demand in the case of a widespread illness such as COVID-19, SARS, MERS or avian flu may impact the costs of production. Raw material price fluctuations could increase the cost to manufacture our products and adversely affect our operating results. The principal products sold by our Other Ventures are mainly produced or expected to be produced at our joint ventures’ manufacturing facilities in Shanghai, China. Our commercial supplies of Elunate and Sulanda sold by our Oncology/Immunology operations are manufactured at our manufacturing facility in Suzhou, China. We outsourced the manufacturing of active pharmaceutical ingredients and finished product of Orpathys to a third-party manufacturer based in Shanghai, China. Until construction of our new manufacturing facility in Shanghai is completed and it receives the requisite government approvals, we have no back-up manufacturing facility for fruquintinib and surufatinib, and our ability to produce such drugs will be negatively impacted if we experience any significant production problems at our Suzhou facility. A significant disruption at our, our joint ventures’ and/or our contract manufacturer’s facilities, even on a short-term basis, could impair our and/or our joint ventures’ ability to timely produce and ship products, which could have a material adverse effect on our business, financial position and results of operations. Our, our joint ventures’ and our contract manufacturer’s manufacturing operations are vulnerable to interruption and damage from natural and other types of disasters, including earthquake, fire, floods, environmental accidents, power loss, communications failures and similar events. If any disaster were to occur, our ability to operate our, our joint ventures’ or our contract manufacturer’s business at these facilities would be materially impaired. In addition, the nature of our production and research activities could cause significant delays in our programs and make it difficult for us to recover from a disaster or switch to other contract manufacturers. We and our joint ventures maintain insurance for business interruptions to cover some of our potential losses; however, such disasters could still disrupt our operations and thereby result in substantial costs and diversion of resources. In addition, our, our joint ventures’ and our contract manufacturer’s production process requires a continuous supply of electricity. We and they have encountered power shortages historically due to restricted power supply to industrial users during summers when the usage of electricity is high and supply is limited or as a result of damage to the electricity supply network. Because the duration of those power shortages was brief, they had no material impact on our or their operations. Interruptions of electricity supply could result in lengthy production shutdowns, increased costs associated with restarting production and the loss of production in progress. Any major suspension or termination of electricity or other unexpected business interruptions could have a material adverse impact on our business, financial condition and results of operations. Adverse publicity associated with our company, our joint ventures or our or their products or third-party licensed products or similar products manufactured by our competitors could have a material adverse effect on our results of operations. We may engage in strategic transactions, including acquisitions, investments, joint ventures or divestitures that may have an adverse effect on our business. If we engage in a strategic transaction, there is no assurance that the transaction will be consummated. Sales of our and our joint ventures’ products are highly dependent upon market perceptions of the safety and quality of such products, including proprietary products and third-party products we and they distribute. Concerns over the safety of biopharmaceutical products manufactured in China could have an adverse effect on the reputation of our industry and the sale of such products, including products manufactured or distributed by us and our joint ventures. We may pursue transactions as part of our business strategy, including continuing to actively evaluate non-core assets divestment opportunities. We are considering alternative ways to divest non-core businesses in our Other Ventures segment, including Shanghai Hutchison Pharmaceuticals for which we have started the process for a share reform. For more information, please refer to Item 4.A. “History and Development of the Company.” We and our joint ventures could be adversely affected if any of our or our joint ventures’ products, third-party licensed products or any similar products manufactured by other companies prove to be, or are alleged to be, harmful to patients. Any negative publicity associated with severe adverse reactions or other adverse effects resulting from patients’ use or misuse of our and our joint ventures’ products or any similar products manufactured by other companies could also have a material adverse impact on our results of operations. We and our joint ventures have not, to date, experienced any significant quality control or safety problems. If in the future we or our joint ventures become involved in incidents of the type described above, such problems could severely and adversely impact our financial position and reputation. Acquisitions and investments involve numerous risks such as difficulties in finding suitable partners or acquisition candidates, difficulties in obtaining financing on favorable terms, if at all, the assumption of certain known and unknown liabilities of acquired companies and difficulties in integrating operations, services, products and personnel. Divestitures also involve numerous risks. Any divestiture could result in a dilutive impact to our future earnings and significant write-offs, including those related to goodwill and other intangible assets, which could have a material adverse effect on our results of operations and financial condition. Divestitures could involve additional risks, including difficulties in the separation of operations, services, products and personnel, the diversion of management’s attention from other business concerns, the disruption of our business and the potential loss of key employees. We may not complete strategic transactions in a timely manner, on a cost-effective basis, or at all, and we may not realize the expected benefits of any transaction. We may not be successful in managing these or any other significant risks that we encounter if we engage in a strategic transaction. If we are not successful in managing the risks, uncertainties and potential disruptions, a strategic transaction could have a negative impact on our business, results of operations or financial position. 34 35 Risks Relating to Our Dependence on Third Parties Disagreements or disputes with our current or future collaboration partners, the amendment of any collaboration agreement or the termination of any collaboration arrangement, could cause delays in our product development and materially and adversely affect our business. Our collaborations, including those with our oncology drug partners AstraZeneca and Eli Lilly and our in-licensing arrangement with Epizyme, and expected collaborations, including with Takeda and any future collaborations that we enter into may not be successful. Disagreements or disputes between parties to a collaboration arrangement regarding issues such as clinical development and commercialization, intellectual property ownership and transfer, clinical supply of drug candidates or products, cost allocation and other matters can lead to delays in the development process or commercializing the applicable drug candidate and, in some cases, termination of the collaboration arrangement. In addition, we or our partners may seek to amend the terms of one or more our collaboration agreements to adjust, among other things, the respective roles of our company and our collaboration partners as circumstances change. Our interests may not always be aligned with those of our collaboration partners, for instance, we may be much smaller than our collaboration partners and because they or their affiliates may sell competing products. This may result in potential conflicts between our collaborators and us on matters that we may not be able to resolve on favorable terms or at all. Collaborations with pharmaceutical or biotechnology companies and other third parties, including our existing agreements with AstraZeneca, Eli Lilly and Takeda, are often terminable by the other party for any reason with certain advance notice. Any such termination or expiration would adversely affect us financially and could harm our business reputation. For instance, in the event one of the strategic alliances with a current collaborator is terminated, we may require significant time and resources to secure a new collaboration partner, if we are able to secure such an arrangement at all. As noted in the following risk factor, establishing new collaboration arrangements can be challenging and time-consuming. The loss of existing or future collaboration arrangements would not only delay or potentially terminate the possible development or commercialization of products we may derive from our technologies, but it may also delay or terminate our ability to test specific target candidates. We rely on our collaborations with third parties for certain of our drug development activities, and, if we are unable to establish new collaborations when desired on commercially attractive terms or at all, we may have to alter our development and commercialization plans. Certain of our drug development programs and the potential commercialization of certain drug candidates rely on collaborations, such as savolitinib with AstraZeneca and fruquintinib with Eli Lilly for China and with Takeda outside of China. In the future, we may decide to collaborate with additional pharmaceutical and biotechnology companies for the development and potential commercialization of our other drug candidates. We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA, NMPA or similar regulatory authorities outside the United States and China, the potential market for the subject drug candidate, the costs and complexities of manufacturing and delivering such drug candidate to patients, the potential of competing drugs, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge and industry and market conditions generally. The collaborator may also consider alternative drug candidates or technologies for similar indications that may be available to collaborate on and whether such collaboration could be more attractive than the one with us for our drug candidate. The terms of any additional collaboration or other arrangements that we may establish may not be favorable to us. We may also be restricted under existing collaboration agreements from entering into future agreements on certain terms with potential collaborators. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators. We may not be able to negotiate additional collaborations on a timely basis, on acceptable terms, or eventually close the deal. If we are unable to do so, we may have to curtail the development of the drug candidate for which we are seeking to collaborate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our drug candidates or bring them to market and generate drug revenue. In January 2023, we entered into a license agreement with a subsidiary of Takeda to further the global development, commercialization and manufacture of fruquintinib outside of mainland China, Hong Kong and Macau. The deal is subject to customary closing conditions, including completion of antitrust regulatory clearance. If the transaction contemplated by this license agreement is not consummated or is delayed, our expectations regarding future revenues, research and development costs, other operating expenses and operating cash flows associated with the development and commercialization of fruquintinib would be materially affected. For additional information regarding the fruquintinib collaboration with Takeda, please refer to “Business—Our Clinical Pipeline—3. Fruquintinib (HMPL-013), VEGFR 1, 2 and 3 Inhibitor—Overview of Elunate Commercial Launch. The third-party vendors upon whom we rely for the supply of the active pharmaceutical ingredients used in some of our drug candidates and drug products are our sole source of supply, and the loss of any of these suppliers could significantly harm our business. The active pharmaceutical ingredients used in some of our drug candidates and products are supplied to us from third-party vendors. Our ability to successfully develop our drug candidates, and to supply our commercial drugs in quantities sufficient to meet the market demand, depends in part on our ability to obtain the active pharmaceutical ingredients for these drugs in accordance with regulatory requirements and in sufficient quantities for commercialization and clinical testing. We currently obtain active pharmaceutical ingredients for each of our drug candidates from a limited number of suppliers. For example, a single supplier based in Shanghai manufactures and provides us active pharmaceutical ingredient for savolitinib. In the event any of our current suppliers of such active pharmaceutical ingredient cease operations for any reason, it may lead to an interruption in our production and supply of the product. For all of our drug candidates and products, we aim to identify and qualify a manufacturer to provide such active pharmaceutical ingredient prior to submission of an NDA to the FDA and/or NMPA. We are not certain, however, that our current supply arrangements will be able to meet our demand, either because of the nature of our agreements with third party suppliers, our limited experience with third party suppliers or our relative importance as a customer to those suppliers. It may be difficult for us to assess third party vendors’ ability to timely meet our demand in the future based on past performance. While our suppliers have generally met our demand on a timely basis in the past, they may subordinate our needs in the future to their other customers. Establishing additional or replacement suppliers for the active pharmaceutical ingredients used in our drug candidates and products, if required, may not be accomplished quickly. If we are able to find a replacement supplier, such alternative arrangements would need to be qualified and may require additional regulatory approval, which could result in further delay. While we seek to maintain adequate inventory of the active pharmaceutical ingredients used in our drug candidates and products, any interruption or delay in the supply of components or materials, or our inability to obtain such active pharmaceutical ingredient from alternate sources at acceptable prices in a timely manner could impede, delay, limit or prevent our development and commercialization efforts, which could harm our business, results of operations, financial condition and prospects. We and our collaborators rely, and expect to continue to rely, on third parties to conduct certain of our clinical trials for our drug candidates. If these third parties do not successfully carry out their contractual duties, comply with regulatory requirements or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our drug candidates and our business could be harmed. We do not have the ability to independently conduct large-scale clinical trials. We and our collaboration partners rely, and expect to continue to rely, on medical institutions, clinical investigators, contract laboratories and other third parties, such as CROs, to conduct or otherwise support certain clinical trials for our drug candidates. Nevertheless, we and our collaboration partners (as applicable) will be responsible for ensuring that each clinical trial is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards, and reliance on CROs will not relieve us of our regulatory responsibilities. For any violations of laws and regulations during the conduct of clinical trials for our drug candidates, we could be subject to warning letters or enforcement action that may include civil penalties up to and including criminal prosecution. 36 37 Risks Relating to Our Dependence on Third Parties Disagreements or disputes with our current or future collaboration partners, the amendment of any collaboration agreement or the termination of any collaboration arrangement, could cause delays in our product development and materially and adversely affect our business. Our collaborations, including those with our oncology drug partners AstraZeneca and Eli Lilly and our in-licensing arrangement with Epizyme, and expected collaborations, including with Takeda and any future collaborations that we enter into may not be successful. Disagreements or disputes between parties to a collaboration arrangement regarding issues such as clinical development and commercialization, intellectual property ownership and transfer, clinical supply of drug candidates or products, cost allocation and other matters can lead to delays in the development process or commercializing the applicable drug candidate and, in some cases, termination of the collaboration arrangement. In addition, we or our partners may seek to amend the terms of one or more our collaboration agreements to adjust, among other things, the respective roles of our company and our collaboration partners as circumstances change. Our interests may not always be aligned with those of our collaboration partners, for instance, we may be much smaller than our collaboration partners and because they or their affiliates may sell competing products. This may result in potential conflicts between our collaborators and us on matters that we may not be able to resolve on favorable terms or at all. Collaborations with pharmaceutical or biotechnology companies and other third parties, including our existing agreements with AstraZeneca, Eli Lilly and Takeda, are often terminable by the other party for any reason with certain advance notice. Any such termination or expiration would adversely affect us financially and could harm our business reputation. For instance, in the event one of the strategic alliances with a current collaborator is terminated, we may require significant time and resources to secure a new collaboration partner, if we are able to secure such an arrangement at all. As noted in the following risk factor, establishing new collaboration arrangements can be challenging and time-consuming. The loss of existing or future collaboration arrangements would not only delay or potentially terminate the possible development or commercialization of products we may derive from our technologies, but it may also delay or terminate our ability to test specific target candidates. We rely on our collaborations with third parties for certain of our drug development activities, and, if we are unable to establish new collaborations when desired on commercially attractive terms or at all, we may have to alter our development and commercialization plans. Certain of our drug development programs and the potential commercialization of certain drug candidates rely on collaborations, such as savolitinib with AstraZeneca and fruquintinib with Eli Lilly for China and with Takeda outside of China. In the future, we may decide to collaborate with additional pharmaceutical and biotechnology companies for the development and potential commercialization of our other drug candidates. We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA, NMPA or similar regulatory authorities outside the United States and China, the potential market for the subject drug candidate, the costs and complexities of manufacturing and delivering such drug candidate to patients, the potential of competing drugs, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge and industry and market conditions generally. The collaborator may also consider alternative drug candidates or technologies for similar indications that may be available to collaborate on and whether such collaboration could be more attractive than the one with us for our drug candidate. The terms of any additional collaboration or other arrangements that we may establish may not be favorable to us. We may also be restricted under existing collaboration agreements from entering into future agreements on certain terms with potential collaborators. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators. We may not be able to negotiate additional collaborations on a timely basis, on acceptable terms, or eventually close the deal. If we are unable to do so, we may have to curtail the development of the drug candidate for which we are seeking to collaborate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our drug candidates or bring them to market and generate drug revenue. In January 2023, we entered into a license agreement with a subsidiary of Takeda to further the global development, commercialization and manufacture of fruquintinib outside of mainland China, Hong Kong and Macau. The deal is subject to customary closing conditions, including completion of antitrust regulatory clearance. If the transaction contemplated by this license agreement is not consummated or is delayed, our expectations regarding future revenues, research and development costs, other operating expenses and operating cash flows associated with the development and commercialization of fruquintinib would be materially affected. For additional information regarding the fruquintinib collaboration with Takeda, please refer to “Business—Our Clinical Pipeline—3. Fruquintinib (HMPL-013), VEGFR 1, 2 and 3 Inhibitor—Overview of Elunate Commercial Launch. The third-party vendors upon whom we rely for the supply of the active pharmaceutical ingredients used in some of our drug candidates and drug products are our sole source of supply, and the loss of any of these suppliers could significantly harm our business. The active pharmaceutical ingredients used in some of our drug candidates and products are supplied to us from third-party vendors. Our ability to successfully develop our drug candidates, and to supply our commercial drugs in quantities sufficient to meet the market demand, depends in part on our ability to obtain the active pharmaceutical ingredients for these drugs in accordance with regulatory requirements and in sufficient quantities for commercialization and clinical testing. We currently obtain active pharmaceutical ingredients for each of our drug candidates from a limited number of suppliers. For example, a single supplier based in Shanghai manufactures and provides us active pharmaceutical ingredient for savolitinib. In the event any of our current suppliers of such active pharmaceutical ingredient cease operations for any reason, it may lead to an interruption in our production and supply of the product. For all of our drug candidates and products, we aim to identify and qualify a manufacturer to provide such active pharmaceutical ingredient prior to submission of an NDA to the FDA and/or NMPA. We are not certain, however, that our current supply arrangements will be able to meet our demand, either because of the nature of our agreements with third party suppliers, our limited experience with third party suppliers or our relative importance as a customer to those suppliers. It may be difficult for us to assess third party vendors’ ability to timely meet our demand in the future based on past performance. While our suppliers have generally met our demand on a timely basis in the past, they may subordinate our needs in the future to their other customers. Establishing additional or replacement suppliers for the active pharmaceutical ingredients used in our drug candidates and products, if required, may not be accomplished quickly. If we are able to find a replacement supplier, such alternative arrangements would need to be qualified and may require additional regulatory approval, which could result in further delay. While we seek to maintain adequate inventory of the active pharmaceutical ingredients used in our drug candidates and products, any interruption or delay in the supply of components or materials, or our inability to obtain such active pharmaceutical ingredient from alternate sources at acceptable prices in a timely manner could impede, delay, limit or prevent our development and commercialization efforts, which could harm our business, results of operations, financial condition and prospects. We and our collaborators rely, and expect to continue to rely, on third parties to conduct certain of our clinical trials for our drug candidates. If these third parties do not successfully carry out their contractual duties, comply with regulatory requirements or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our drug candidates and our business could be harmed. We do not have the ability to independently conduct large-scale clinical trials. We and our collaboration partners rely, and expect to continue to rely, on medical institutions, clinical investigators, contract laboratories and other third parties, such as CROs, to conduct or otherwise support certain clinical trials for our drug candidates. Nevertheless, we and our collaboration partners (as applicable) will be responsible for ensuring that each clinical trial is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards, and reliance on CROs will not relieve us of our regulatory responsibilities. For any violations of laws and regulations during the conduct of clinical trials for our drug candidates, we could be subject to warning letters or enforcement action that may include civil penalties up to and including criminal prosecution. 36 37 Although we or our collaboration partners design the clinical trials for our drug candidates, CROs conduct most of the clinical trials. As a result, many important aspects of our development programs, including their conduct and timing, are outside of our direct control. Our reliance on third parties to conduct clinical trials results in less control over the management of data developed through clinical trials than would be the case if we were relying entirely upon our own staff. Communicating with outside parties can also be challenging, potentially leading to mistakes as well as difficulties in coordinating activities. Outside parties may: • • • • • have staffing difficulties; fail to comply with contractual obligations; experience regulatory compliance issues; undergo changes in priorities or become financially distressed; or form relationships with other entities, some of which may be our competitors. These factors may materially and adversely affect the willingness or ability of third parties to conduct our and our collaboration partners’ clinical trials and may subject us or them to unexpected cost increases that are beyond our or their control. If any of our and our collaboration partners’ relationships with these third-party CROs terminate, we or they may not be able to enter into arrangements with alternative CROs on reasonable terms or at all. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, any clinical trials such CROs are associated with may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize our drug candidates. As a result, we believe that our financial results and the commercial prospects for our drug candidates in the subject indication would be harmed, our costs could increase and our ability to generate revenue could be delayed. We, our collaboration partners or our CROs may fail to comply with the regulatory requirements pertaining to clinical trials, which could result in fines, adverse publicity and civil or criminal sanctions. We, our collaboration partners and our CROs are required to comply with regulations for conducting, monitoring, recording and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate, and that the trial patients are adequately informed of the potential risks of participating in clinical trials and their rights are protected. These regulations are enforced by the FDA, the NMPA and comparable foreign regulatory authorities for any drugs in clinical development. In the United States, the FDA regulates GCP through periodic inspections of clinical trial sponsors, principal investigators and trial sites. If we, our collaboration partners or our CROs fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require additional clinical trials before approving the marketing applications for the relevant drug candidate. We cannot assure you that, upon inspection, the FDA or other applicable regulatory authority will determine that any of the future clinical trials for our drug candidates will comply with GCPs. In addition, clinical trials must be conducted with drug candidates produced under applicable manufacturing regulations. Our failure or the failure of our collaboration partners or CROs to comply with these regulations may require us or them to repeat clinical trials, which would delay the regulatory approval process and could also subject us to enforcement action. We are also required to register applicable clinical trials and post certain results of completed clinical trials on a U.S. government-sponsored database, ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines, adverse publicity and civil sanctions. Our collaboration partners, principal investigators, CROs and other third-party contractor and consultants may engage in misconduct or other improper activities. We are exposed to the risk that collaboration partners, principal investigators, CROs and other third-party contractor and consultants may engage in fraudulent or other illegal activity with respect to our business. Their misconduct could include intentional, reckless and/or negligent conduct or unauthorized activity that violates NMPA, FDA or other regulations, including but not limited to those laws requiring the reporting of true, complete and accurate information. In addition, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of insurance, pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. We may not be able to identify and deter such misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, our collaboration partners, principal investigators, CROs and other third-party contractor and consultants, and we and/or such other parties are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, contractual damages, reputational harm, diminished profits and future earnings and disruption of our operations. Joint ventures form an important part of our Other Ventures, and our ability to manage and develop the businesses conducted by these joint ventures depends in part on our relationship with our joint venture partners. We are party to joint venture agreements with each of Shanghai Pharmaceuticals, Sinopharm and Hain Celestial, which together form a major portion of our Other Ventures. Under these arrangements, our joint venture partners have certain operational responsibilities and/or certain rights to exercise control or influence over operations and decision-making. Our equity interests in these operating companies do not provide us with the unilateral ability to control actions which require shareholder approval. In addition, under the joint venture contracts for these entities, the consent of the directors nominated by our joint venture partners is required for the passing of resolutions in relation to certain matters concerning the operations of these companies. As a result, although we participate in the management and nominate the management and run the day-to-day operations of our joint ventures, Hutchison Sinopharm, Hutchison Hain Organic and Shanghai Hutchison Pharmaceuticals, we may not be able to secure the consent of our joint venture partners to pursue activities or strategic objectives that are beneficial to or that facilitate our overall business strategies. Furthermore, disagreements or disputes which arise between us and our joint venture partners may potentially require legal action to resolve and hinder the smooth operation of our Other Ventures or adversely affect our financial condition, results of operations and prospects. We are relying on third parties to construct our new manufacturing facility in Shanghai. Any delays in completing and receiving regulatory approvals for our new Shanghai facility, or any disruptions to the third parties’ performance of their obligations, could reduce or restrict our production capacity for the drug candidates used in our clinical trials or our commercial supply for any drug candidates which are approved. We are contracting with third parties to construct our new manufacturing facility in Shanghai. The new facility is expected to be a 55,000 square meter large-scale facility with a production capacity estimated to be five times that of our existing manufacturing plant in Suzhou. The first phase will be primarily for small molecule production, with production capacity expected to be able to produce 250 million tablets and capsules per year. The second phase is expected to include expansion into large molecule production. Third parties will be responsible for the construction of the buildings, including the production lines and other production facilities within such buildings. 38 39 Although we or our collaboration partners design the clinical trials for our drug candidates, CROs conduct most of the clinical trials. As a result, many important aspects of our development programs, including their conduct and timing, are outside of our direct control. Our reliance on third parties to conduct clinical trials results in less control over the management of data developed through clinical trials than would be the case if we were relying entirely upon our own staff. Communicating with outside parties can also be challenging, potentially leading to mistakes as well as difficulties in coordinating activities. Outside parties may: have staffing difficulties; fail to comply with contractual obligations; experience regulatory compliance issues; • • • • • undergo changes in priorities or become financially distressed; or form relationships with other entities, some of which may be our competitors. These factors may materially and adversely affect the willingness or ability of third parties to conduct our and our collaboration partners’ clinical trials and may subject us or them to unexpected cost increases that are beyond our or their control. If any of our and our collaboration partners’ relationships with these third-party CROs terminate, we or they may not be able to enter into arrangements with alternative CROs on reasonable terms or at all. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, any clinical trials such CROs are associated with may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize our drug candidates. As a result, we believe that our financial results and the commercial prospects for our drug candidates in the subject indication would be harmed, our costs could increase and our ability to generate revenue could be delayed. We, our collaboration partners or our CROs may fail to comply with the regulatory requirements pertaining to clinical trials, which could result in fines, adverse publicity and civil or criminal sanctions. We, our collaboration partners and our CROs are required to comply with regulations for conducting, monitoring, recording and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate, and that the trial patients are adequately informed of the potential risks of participating in clinical trials and their rights are protected. These regulations are enforced by the FDA, the NMPA and comparable foreign regulatory authorities for any drugs in clinical development. In the United States, the FDA regulates GCP through periodic inspections of clinical trial sponsors, principal investigators and trial sites. If we, our collaboration partners or our CROs fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require additional clinical trials before approving the marketing applications for the relevant drug candidate. We cannot assure you that, upon inspection, the FDA or other applicable regulatory authority will determine that any of the future clinical trials for our drug candidates will comply with GCPs. In addition, clinical trials must be conducted with drug candidates produced under applicable manufacturing regulations. Our failure or the failure of our collaboration partners or CROs to comply with these regulations may require us or them to repeat clinical trials, which would delay the regulatory approval process and could also subject us to enforcement action. We are also required to register applicable clinical trials and post certain results of completed clinical trials on a U.S. government-sponsored database, ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines, adverse publicity and civil sanctions. Our collaboration partners, principal investigators, CROs and other third-party contractor and consultants may engage in misconduct or other improper activities. We are exposed to the risk that collaboration partners, principal investigators, CROs and other third-party contractor and consultants may engage in fraudulent or other illegal activity with respect to our business. Their misconduct could include intentional, reckless and/or negligent conduct or unauthorized activity that violates NMPA, FDA or other regulations, including but not limited to those laws requiring the reporting of true, complete and accurate information. In addition, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of insurance, pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. We may not be able to identify and deter such misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, our collaboration partners, principal investigators, CROs and other third-party contractor and consultants, and we and/or such other parties are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, contractual damages, reputational harm, diminished profits and future earnings and disruption of our operations. Joint ventures form an important part of our Other Ventures, and our ability to manage and develop the businesses conducted by these joint ventures depends in part on our relationship with our joint venture partners. We are party to joint venture agreements with each of Shanghai Pharmaceuticals, Sinopharm and Hain Celestial, which together form a major portion of our Other Ventures. Under these arrangements, our joint venture partners have certain operational responsibilities and/or certain rights to exercise control or influence over operations and decision-making. Our equity interests in these operating companies do not provide us with the unilateral ability to control actions which require shareholder approval. In addition, under the joint venture contracts for these entities, the consent of the directors nominated by our joint venture partners is required for the passing of resolutions in relation to certain matters concerning the operations of these companies. As a result, although we participate in the management and nominate the management and run the day-to-day operations of our joint ventures, Hutchison Sinopharm, Hutchison Hain Organic and Shanghai Hutchison Pharmaceuticals, we may not be able to secure the consent of our joint venture partners to pursue activities or strategic objectives that are beneficial to or that facilitate our overall business strategies. Furthermore, disagreements or disputes which arise between us and our joint venture partners may potentially require legal action to resolve and hinder the smooth operation of our Other Ventures or adversely affect our financial condition, results of operations and prospects. We are relying on third parties to construct our new manufacturing facility in Shanghai. Any delays in completing and receiving regulatory approvals for our new Shanghai facility, or any disruptions to the third parties’ performance of their obligations, could reduce or restrict our production capacity for the drug candidates used in our clinical trials or our commercial supply for any drug candidates which are approved. We are contracting with third parties to construct our new manufacturing facility in Shanghai. The new facility is expected to be a 55,000 square meter large-scale facility with a production capacity estimated to be five times that of our existing manufacturing plant in Suzhou. The first phase will be primarily for small molecule production, with production capacity expected to be able to produce 250 million tablets and capsules per year. The second phase is expected to include expansion into large molecule production. Third parties will be responsible for the construction of the buildings, including the production lines and other production facilities within such buildings. 38 39 We cannot assure you that we will not experience any disruptions to the third parties’ performance of their obligations, and there could be delays in completing and receiving regulatory approvals for our new manufacturing facility. If the construction of our manufacturing facility or our production lines encounter unanticipated delays or incur additional expenses than expected, if regulatory evaluation and/or approval of our new manufacturing facility is delayed, or if our third party contracts are terminated or adversely affected, our manufacturing capacity of our drug candidates may be limited, which would delay or limit our development and commercialization activities and our opportunities for growth. Cost overruns associated with constructing or maintaining our Shanghai facility could also require us to raise additional funds from other sources. Any disruption that impedes our ability to manufacture our drug candidates in a timely manner could materially adversely affect our business, financial condition, results of operations and prospects. We and our joint ventures rely on our distributors for logistics and distribution services. We and our joint ventures rely on distributors to perform certain operational activities, including invoicing, logistics and delivery of the products we and they market to the end customers. Because we and our joint ventures rely on third-party distributors, we have less control than if we handled distribution logistics directly and can be adversely impacted by the actions of our distributors. Any disruption of our distribution network, including failure to renew existing distribution agreements with desired distributors, could negatively affect our ability to effectively sell our products and materially and adversely affect the business, financial condition and results of operations of us and our joint ventures. There is no assurance that the benefits currently enjoyed by virtue of our association with CK Hutchison will continue to be available. Historically, we have relied on the reputation and experience of, and support provided by, our founding shareholder, a wholly owned subsidiary of CK Hutchison, to advance our joint ventures and collaborations in China and elsewhere. CK Hutchison is interested in approximately 38.5% of our total outstanding share capital as of February 15, 2023. We believe that CK Hutchison group’s reputation in China has given us an advantage in negotiating collaborations and obtaining opportunities. We also benefit from sharing certain services with the CK Hutchison group including, among others, legal and regulatory services, company secretarial support services, tax and internal audit services, participation in the CK Hutchison group’s pension, medical and insurance plans, participation in the CK Hutchison group’s procurement projects with third-party vendors/suppliers, other staff benefits and staff training services, company functions and activities and operation advisory and support services. We pay a management fee to an affiliate of CK Hutchison for the provision of such services. In each of the years ended December 31, 2020, 2021 and 2022, we paid a management fee of approximately $1.0 million, $1.0 million and $1.0 million respectively. In addition, we benefit from the fact that two retail chains affiliated with the CK Hutchison group, PARKnSHOP and Watsons, sell certain of our Other Ventures’ products in their stores throughout Hong Kong and in other Asian countries. For the years ended December 31, 2020, 2021 and 2022, sales of our products to members of the CK Hutchison group amounted to $5.5 million, $4.3 million and $3.6 million, respectively. Our business also depends on certain intellectual property rights licensed to us by the CK Hutchison group. See “—Risks Relating to Intellectual Property—We and our joint ventures are dependent on trademark and other intellectual property rights licensed from others. If we lose our licenses for any of our products, we or our joint ventures may not be able to continue developing such products or may be required to change the way we market such products” for more information on risks associated with such intellectual property licensed to us. There can be no assurance the CK Hutchison group will continue to provide the same benefits or support that they have provided to our business historically. Such benefit or support may no longer be available to us, in particular, if CK Hutchison’s ownership interest in our company significantly decreases in the future. Other Risks and Risks Relating to Doing Business in China The COVID-19 pandemic and other adverse public health developments could materially and adversely affect our business. In December 2019, an outbreak of a novel strain of coronavirus (COVID-19) was reported and has since spread around the world. In March 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. After the initial outbreak of COVID-19, from time to time, some instances of COVID-19 or its variants infections have emerged, such as the infections caused by the Omicron variants emerged in late 2021 and spread across the globe including in China in early 2022. In response to the pandemic and the evolving strands of different variants, many governments around the world implemented a variety of measures to reduce the spread of COVID-19, including travel restrictions and bans, instructions to residents to practice social distancing, quarantine advisories, shelter-in-place orders and required closures of non-essential businesses. Such restrictive measures and the outbreak of COVID-19 itself have in the past negatively impacted and may continue to negatively impact our operations, given the disruption they may have on the manufacturing and supply chain, our sales and marketing and clinical trial operations and those of our collaboration partners, and the ability to advance our research and development activities and pursue development of any of our drug candidates, each of which could have an adverse impact on our business and our financial results. For instance, COVID-19 had an impact on our research, clinical studies and our commercial activities in 2022 because of hospital lockdowns, travel restrictions and disruptions in logistics. Our clinical sites in Shanghai were particularly affected during April and May in 2022, and in response, we put in place measures to reduce the disruptions, including online patient follow-up and the retention of core research teams on-site to maintain critical activities. Although the restrictive measures related to the COVID-19 pandemic have gradually been lifted around the world, including in China starting from December 2022, and we expect the travel, social and economic activities to gradually normalize and the impact of COVID-19 to be reduced in the regions we operate, the COVID-19 pandemic or any other adverse public health developments may continue to have a negatively impact on our business, our clinical trials, our research programs, healthcare systems or the global economy as a whole, which could have a material adverse effect on our business, financial condition and results of operations and cash flows. We are subject to stringent privacy and cybersecurity laws, information security policies and contractual obligations related to data privacy and security, and we may be exposed to risks related to our management of the medical data of subjects enrolled in our clinical trials and other personal or sensitive information. We routinely receive, collect, generate, store, process, transmit and maintain medical data, treatment records and other personal details of the subjects enrolled in our clinical trials, along with other personal or sensitive information. As such, we are subject to the relevant local, state, national and international data protection and privacy laws, directives regulations, and standards that apply to the collection, use, retention, protection, disclosure, transfer and other processing of personal data in the various jurisdictions in which we operate and conduct our clinical trials. We are also subject to contractual obligations regarding the processing of personal data. Legal requirements regarding data protection and privacy continue to evolve and may result in ever-increasing public scrutiny and escalating levels of enforcement and sanctions and increased costs of compliance. Failure to comply with any of these laws could result in enforcement action against us, including investigations, civil and criminal enforcement action, fines, imprisonment of company officers and public censure, claims for damages by customers and other affected individuals, damage to our reputation and loss of goodwill, any of which could have a material adverse effect on our business, financial condition, results of operations or prospects. 40 41 We cannot assure you that we will not experience any disruptions to the third parties’ performance of their obligations, and there could be delays in completing and receiving regulatory approvals for our new manufacturing facility. If the construction of our manufacturing facility or our production lines encounter unanticipated delays or incur additional expenses than expected, if regulatory evaluation and/or approval of our new manufacturing facility is delayed, or if our third party contracts are terminated or adversely affected, our manufacturing capacity of our drug candidates may be limited, which would delay or limit our development and commercialization activities and our opportunities for growth. Cost overruns associated with constructing or maintaining our Shanghai facility could also require us to raise additional funds from other sources. Any disruption that impedes our ability to manufacture our drug candidates in a timely manner could materially adversely affect our business, financial condition, results of operations and prospects. We and our joint ventures rely on our distributors for logistics and distribution services. We and our joint ventures rely on distributors to perform certain operational activities, including invoicing, logistics and delivery of the products we and they market to the end customers. Because we and our joint ventures rely on third-party distributors, we have less control than if we handled distribution logistics directly and can be adversely impacted by the actions of our distributors. Any disruption of our distribution network, including failure to renew existing distribution agreements with desired distributors, could negatively affect our ability to effectively sell our products and materially and adversely affect the business, financial condition and results of operations of us and our joint ventures. There is no assurance that the benefits currently enjoyed by virtue of our association with CK Hutchison will continue to be available. Historically, we have relied on the reputation and experience of, and support provided by, our founding shareholder, a wholly owned subsidiary of CK Hutchison, to advance our joint ventures and collaborations in China and elsewhere. CK Hutchison is interested in approximately 38.5% of our total outstanding share capital as of February 15, 2023. We believe that CK Hutchison group’s reputation in China has given us an advantage in negotiating collaborations and obtaining opportunities. We also benefit from sharing certain services with the CK Hutchison group including, among others, legal and regulatory services, company secretarial support services, tax and internal audit services, participation in the CK Hutchison group’s pension, medical and insurance plans, participation in the CK Hutchison group’s procurement projects with third-party vendors/suppliers, other staff benefits and staff training services, company functions and activities and operation advisory and support services. We pay a management fee to an affiliate of CK Hutchison for the provision of such services. In each of the years ended December 31, 2020, 2021 and 2022, we paid a management fee of approximately $1.0 million, $1.0 million and $1.0 million respectively. In addition, we benefit from the fact that two retail chains affiliated with the CK Hutchison group, PARKnSHOP and Watsons, sell certain of our Other Ventures’ products in their stores throughout Hong Kong and in other Asian countries. For the years ended December 31, 2020, 2021 and 2022, sales of our products to members of the CK Hutchison group amounted to $5.5 million, $4.3 million and $3.6 million, respectively. Our business also depends on certain intellectual property rights licensed to us by the CK Hutchison group. See “—Risks Relating to Intellectual Property—We and our joint ventures are dependent on trademark and other intellectual property rights licensed from others. If we lose our licenses for any of our products, we or our joint ventures may not be able to continue developing such products or may be required to change the way we market such products” for more information on risks associated with such intellectual property licensed to us. There can be no assurance the CK Hutchison group will continue to provide the same benefits or support that they have provided to our business historically. Such benefit or support may no longer be available to us, in particular, if CK Hutchison’s ownership interest in our company significantly decreases in the future. Other Risks and Risks Relating to Doing Business in China The COVID-19 pandemic and other adverse public health developments could materially and adversely affect our business. In December 2019, an outbreak of a novel strain of coronavirus (COVID-19) was reported and has since spread around the world. In March 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. After the initial outbreak of COVID-19, from time to time, some instances of COVID-19 or its variants infections have emerged, such as the infections caused by the Omicron variants emerged in late 2021 and spread across the globe including in China in early 2022. In response to the pandemic and the evolving strands of different variants, many governments around the world implemented a variety of measures to reduce the spread of COVID-19, including travel restrictions and bans, instructions to residents to practice social distancing, quarantine advisories, shelter-in-place orders and required closures of non-essential businesses. Such restrictive measures and the outbreak of COVID-19 itself have in the past negatively impacted and may continue to negatively impact our operations, given the disruption they may have on the manufacturing and supply chain, our sales and marketing and clinical trial operations and those of our collaboration partners, and the ability to advance our research and development activities and pursue development of any of our drug candidates, each of which could have an adverse impact on our business and our financial results. For instance, COVID-19 had an impact on our research, clinical studies and our commercial activities in 2022 because of hospital lockdowns, travel restrictions and disruptions in logistics. Our clinical sites in Shanghai were particularly affected during April and May in 2022, and in response, we put in place measures to reduce the disruptions, including online patient follow-up and the retention of core research teams on-site to maintain critical activities. Although the restrictive measures related to the COVID-19 pandemic have gradually been lifted around the world, including in China starting from December 2022, and we expect the travel, social and economic activities to gradually normalize and the impact of COVID-19 to be reduced in the regions we operate, the COVID-19 pandemic or any other adverse public health developments may continue to have a negatively impact on our business, our clinical trials, our research programs, healthcare systems or the global economy as a whole, which could have a material adverse effect on our business, financial condition and results of operations and cash flows. We are subject to stringent privacy and cybersecurity laws, information security policies and contractual obligations related to data privacy and security, and we may be exposed to risks related to our management of the medical data of subjects enrolled in our clinical trials and other personal or sensitive information. We routinely receive, collect, generate, store, process, transmit and maintain medical data, treatment records and other personal details of the subjects enrolled in our clinical trials, along with other personal or sensitive information. As such, we are subject to the relevant local, state, national and international data protection and privacy laws, directives regulations, and standards that apply to the collection, use, retention, protection, disclosure, transfer and other processing of personal data in the various jurisdictions in which we operate and conduct our clinical trials. We are also subject to contractual obligations regarding the processing of personal data. Legal requirements regarding data protection and privacy continue to evolve and may result in ever-increasing public scrutiny and escalating levels of enforcement and sanctions and increased costs of compliance. Failure to comply with any of these laws could result in enforcement action against us, including investigations, civil and criminal enforcement action, fines, imprisonment of company officers and public censure, claims for damages by customers and other affected individuals, damage to our reputation and loss of goodwill, any of which could have a material adverse effect on our business, financial condition, results of operations or prospects. 40 41 Data protection and privacy laws and regulations generally require clinical trial sponsors and operators and their personnel to protect the privacy of their enrolled subjects and prohibit unauthorized disclosure of personal information. We have established procedures to protect the confidentiality of medical records and personal data of subjects enrolled in our clinical trials. Access to clinical trial data has been strictly limited to authorized personnel only according to the relevant rules and regulations. External parties involved in clinical trials are also required to comply with all relevant data protection and confidentiality requirements. Data are to be used only for the intended use, as agreed by the patients and consistent with the patients’ informed consent form. While we have adopted security policies and measures to protect our proprietary data and patients’ privacy, personal patient information could be subject to leaks caused by hacking activities, human error, employee misconduct or negligence or system breakdown. We also cooperate with third parties including collaboration partners, principal investigators, hospitals, CROs and other third-party contractor and consultants for our clinical trials and operations. Any leakage or abuse of patient data by our third-party partners may be perceived by the patients as a result of our failure. Furthermore, any change in applicable laws and regulations could affect our ability to use medical data and subject us to liability for the use of such data for previously permitted purposes. For instance, we may be subject to additional regulations, laws and policies adopted by the PRC government to apply more stringent social and ethical standards in data privacy resulting from the increased global focus on this area. Any failure or perceived failure by us to prevent information security breaches or to comply with privacy policies or privacy-related legal obligations, or any compromise of information security that results in the unauthorized release or transfer of personally identifiable information or other patient data, could cause our customers to lose trust in us and could expose us to regulatory action and legal claims. There are numerous U.S. federal and state laws and regulations relating to the privacy and security of personal information. In particular, regulations promulgated pursuant to the Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended, establish privacy and security standards that limit the use and disclosure of individually identifiable health information (known as “protected health information”), require the implementation of administrative, physical and technological safeguards to protect the privacy of protected health information and ensure the confidentiality, integrity and availability of electronic protected health information, and create breach reporting obligations in cases of certain unauthorized uses or disclosures. Determining whether protected health information has been handled in compliance with applicable privacy standards and our contractual obligations can require complex factual and statistical analyses and may be subject to changing interpretations. Although we take measures to protect sensitive data from unauthorized access, use or disclosure, and whenever possible contractually require third-party partners to do the same, our information technology and infrastructure and those of our third-party partners may be vulnerable to attacks by hackers or viruses or breached due to employee error, malfeasance or other malicious or inadvertent disruptions. Any such breach or interruption could compromise those networks and the information stored there could be accessed by unauthorized parties, manipulated, publicly disclosed, lost or stolen. Any such access, breach, or other loss of information relating to our information technology and infrastructure or that of our third-party partners may subject us to liability including legal claims or proceedings and liability under federal or state laws that protect the privacy of personal information, such as HIPAA, the Health Information Technology for Economic and Clinical Health (“HITECH”) Act, and regulatory penalties. If we or a third-party partner suffers a breach, we may need to send breach notifications to affected individuals and, if 500 or more individuals were affected, also notify the Secretary of the Department of Health and Human Services. Breach notifications may separately be required under applicable state breach notification laws, which may include notifications to affected individuals, and for extensive breaches, to the media, credit reporting agencies, and/or State Attorneys General. Such notices could harm our reputation and our ability to compete and could potentially attract enforcement scrutiny from governmental authorities. Regulatory authorities in China have implemented a number of legislative and regulatory proposals concerning data protection. The PRC Cyber Security Law, which became effective in June 2017, created China’s first national-level data protection for “network operators,” which may include all organizations in China that provide services over the internet or another information network. The PRC Data Security Law, which took effect in September 2021, provides for a security review procedure for the data activities that may affect national security. The PRC Personal Information Protection Law, which took effect from November 2021, provides the circumstances under which a personal information processor could process personal information and the requirements for such circumstances. The PRC Personal Information Protection Law clarifies the scope of application, the definition of personal information and sensitive personal information, the legal basis of personal information processing and the basic requirements of notice and consent. The Measures for Cybersecurity Review, which took effect on February 15, 2022, provides that critical information infrastructure operators that purchase network products and services and online platform operators engaging in data processing activities that affect or may affect national security shall be subject to the cybersecurity review, and elaborates the factors to be considered when assessing the national security risks of the relevant activities. The Measures for Cybersecurity Review further stipulates that online platform operators holding personal information of over one million users shall apply with the Cybersecurity Review Office for a cybersecurity review before any public listing in a foreign country. As of the date of this annual report, we have not received any formal notice from any PRC cybersecurity regulator that we should apply for or otherwise be subject to the cybersecurity review, or subject to any investigation or received any inquiry, notice or sanction on cybersecurity review. The exact scope of “critical information infrastructure operators” under the current regulatory regime remains unclear, and the PRC government authorities may have wide discretion in the interpretation and enforcement of the applicable laws. Therefore, it is uncertain whether we would be deemed to be a critical information infrastructure operator under PRC law. If we are deemed to be a critical information infrastructure operator under the PRC cybersecurity laws and regulations, we may be subject to obligations in addition to what we have fulfilled under the PRC cybersecurity laws and regulations. In addition, on November 14, 2021, the Data Security Management Measures (Draft for Comments) was published by the CAC for public comments, which provides that data processors conducting the following activities shall apply for cybersecurity review: (i) a merger, reorganization or division of online platform operators that have acquired a large number of data resources related to national security, economic development or public interests which affect or may affect national security; (ii) a listing abroad when the data processor processes over one million users’ personal information; (iii) a listing in Hong Kong which affects or may affect national security; or (iv) other data processing activities that affect or may affect national security. It also requires data processors processing important data or listed outside China to carry out a data security assessment annually by itself or through a third party data security service provider and submit an assessment report to the local agency of the CAC. As there are still uncertainties regarding the further enactment of new laws and regulations as well as the revision, interpretation and implementation of those existing laws and regulations, we cannot assure you that we will be able to comply with such regulations in all respects. The Measures on Security Assessment of Cross-border Data Transfer, or the Security Assessment Measures, were published on July 7, 2022, and became effective on September 1, 2022. The Security Assessment Measures specify that data controllers and/or critical information infrastructure operators will be subject to security assessment under the following circumstances: (i) data controllers exporting important data (which, under the Security Assessment Measures, is defined as data which if tampered with, damaged, leaked, or if obtained or used illegally may endanger national security, the economy, social stability, and public health and safety, etc.), (ii) critical information infrastructure operators or data controllers processing the personal information of one million people or more exporting personal information, (iii) data controllers who have exported the personal information of 100,000 people or the sensitive personal information of 10,000 people since January 1 of the previous year, or (iv) other situations provided for by the CAC that require a security assessment. As of the date of this annual report, we have not received any formal notice from any PRC cybersecurity regulator that the Company should apply for or otherwise be subject to security assessment, or subject to any investigation or received any inquiry, notice or sanction on security assessment. PRC government authorities may have wide discretion in the interpretation and enforcement of the Security Assessment Measures, including whether we have exported “important data” as defined thereunder, and thus there is uncertainty as to whether we may be subject to security assessment. Further, drafts of some of these measures have now been published, including the Measures on Security Assessment for Individual Information Cross-border Transfer (Draft for Comments) in June 2019, which may, upon enactment, require security review before transferring human health-related data out of China. 42 43 Data protection and privacy laws and regulations generally require clinical trial sponsors and operators and their personnel to protect the privacy of their enrolled subjects and prohibit unauthorized disclosure of personal information. We have established procedures to protect the confidentiality of medical records and personal data of subjects enrolled in our clinical trials. Access to clinical trial data has been strictly limited to authorized personnel only according to the relevant rules and regulations. External parties involved in clinical trials are also required to comply with all relevant data protection and confidentiality requirements. Data are to be used only for the intended use, as agreed by the patients and consistent with the patients’ informed consent form. While we have adopted security policies and measures to protect our proprietary data and patients’ privacy, personal patient information could be subject to leaks caused by hacking activities, human error, employee misconduct or negligence or system breakdown. We also cooperate with third parties including collaboration partners, principal investigators, hospitals, CROs and other third-party contractor and consultants for our clinical trials and operations. Any leakage or abuse of patient data by our third-party partners may be perceived by the patients as a result of our failure. Furthermore, any change in applicable laws and regulations could affect our ability to use medical data and subject us to liability for the use of such data for previously permitted purposes. For instance, we may be subject to additional regulations, laws and policies adopted by the PRC government to apply more stringent social and ethical standards in data privacy resulting from the increased global focus on this area. Any failure or perceived failure by us to prevent information security breaches or to comply with privacy policies or privacy-related legal obligations, or any compromise of information security that results in the unauthorized release or transfer of personally identifiable information or other patient data, could cause our customers to lose trust in us and could expose us to regulatory action and legal claims. There are numerous U.S. federal and state laws and regulations relating to the privacy and security of personal information. In particular, regulations promulgated pursuant to the Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended, establish privacy and security standards that limit the use and disclosure of individually identifiable health information (known as “protected health information”), require the implementation of administrative, physical and technological safeguards to protect the privacy of protected health information and ensure the confidentiality, integrity and availability of electronic protected health information, and create breach reporting obligations in cases of certain unauthorized uses or disclosures. Determining whether protected health information has been handled in compliance with applicable privacy standards and our contractual obligations can require complex factual and statistical analyses and may be subject to changing interpretations. Although we take measures to protect sensitive data from unauthorized access, use or disclosure, and whenever possible contractually require third-party partners to do the same, our information technology and infrastructure and those of our third-party partners may be vulnerable to attacks by hackers or viruses or breached due to employee error, malfeasance or other malicious or inadvertent disruptions. Any such breach or interruption could compromise those networks and the information stored there could be accessed by unauthorized parties, manipulated, publicly disclosed, lost or stolen. Any such access, breach, or other loss of information relating to our information technology and infrastructure or that of our third-party partners may subject us to liability including legal claims or proceedings and liability under federal or state laws that protect the privacy of personal information, such as HIPAA, the Health Information Technology for Economic and Clinical Health (“HITECH”) Act, and regulatory penalties. If we or a third-party partner suffers a breach, we may need to send breach notifications to affected individuals and, if 500 or more individuals were affected, also notify the Secretary of the Department of Health and Human Services. Breach notifications may separately be required under applicable state breach notification laws, which may include notifications to affected individuals, and for extensive breaches, to the media, credit reporting agencies, and/or State Attorneys General. Such notices could harm our reputation and our ability to compete and could potentially attract enforcement scrutiny from governmental authorities. Regulatory authorities in China have implemented a number of legislative and regulatory proposals concerning data protection. The PRC Cyber Security Law, which became effective in June 2017, created China’s first national-level data protection for “network operators,” which may include all organizations in China that provide services over the internet or another information network. The PRC Data Security Law, which took effect in September 2021, provides for a security review procedure for the data activities that may affect national security. The PRC Personal Information Protection Law, which took effect from November 2021, provides the circumstances under which a personal information processor could process personal information and the requirements for such circumstances. The PRC Personal Information Protection Law clarifies the scope of application, the definition of personal information and sensitive personal information, the legal basis of personal information processing and the basic requirements of notice and consent. The Measures for Cybersecurity Review, which took effect on February 15, 2022, provides that critical information infrastructure operators that purchase network products and services and online platform operators engaging in data processing activities that affect or may affect national security shall be subject to the cybersecurity review, and elaborates the factors to be considered when assessing the national security risks of the relevant activities. The Measures for Cybersecurity Review further stipulates that online platform operators holding personal information of over one million users shall apply with the Cybersecurity Review Office for a cybersecurity review before any public listing in a foreign country. As of the date of this annual report, we have not received any formal notice from any PRC cybersecurity regulator that we should apply for or otherwise be subject to the cybersecurity review, or subject to any investigation or received any inquiry, notice or sanction on cybersecurity review. The exact scope of “critical information infrastructure operators” under the current regulatory regime remains unclear, and the PRC government authorities may have wide discretion in the interpretation and enforcement of the applicable laws. Therefore, it is uncertain whether we would be deemed to be a critical information infrastructure operator under PRC law. If we are deemed to be a critical information infrastructure operator under the PRC cybersecurity laws and regulations, we may be subject to obligations in addition to what we have fulfilled under the PRC cybersecurity laws and regulations. In addition, on November 14, 2021, the Data Security Management Measures (Draft for Comments) was published by the CAC for public comments, which provides that data processors conducting the following activities shall apply for cybersecurity review: (i) a merger, reorganization or division of online platform operators that have acquired a large number of data resources related to national security, economic development or public interests which affect or may affect national security; (ii) a listing abroad when the data processor processes over one million users’ personal information; (iii) a listing in Hong Kong which affects or may affect national security; or (iv) other data processing activities that affect or may affect national security. It also requires data processors processing important data or listed outside China to carry out a data security assessment annually by itself or through a third party data security service provider and submit an assessment report to the local agency of the CAC. As there are still uncertainties regarding the further enactment of new laws and regulations as well as the revision, interpretation and implementation of those existing laws and regulations, we cannot assure you that we will be able to comply with such regulations in all respects. The Measures on Security Assessment of Cross-border Data Transfer, or the Security Assessment Measures, were published on July 7, 2022, and became effective on September 1, 2022. The Security Assessment Measures specify that data controllers and/or critical information infrastructure operators will be subject to security assessment under the following circumstances: (i) data controllers exporting important data (which, under the Security Assessment Measures, is defined as data which if tampered with, damaged, leaked, or if obtained or used illegally may endanger national security, the economy, social stability, and public health and safety, etc.), (ii) critical information infrastructure operators or data controllers processing the personal information of one million people or more exporting personal information, (iii) data controllers who have exported the personal information of 100,000 people or the sensitive personal information of 10,000 people since January 1 of the previous year, or (iv) other situations provided for by the CAC that require a security assessment. As of the date of this annual report, we have not received any formal notice from any PRC cybersecurity regulator that the Company should apply for or otherwise be subject to security assessment, or subject to any investigation or received any inquiry, notice or sanction on security assessment. PRC government authorities may have wide discretion in the interpretation and enforcement of the Security Assessment Measures, including whether we have exported “important data” as defined thereunder, and thus there is uncertainty as to whether we may be subject to security assessment. Further, drafts of some of these measures have now been published, including the Measures on Security Assessment for Individual Information Cross-border Transfer (Draft for Comments) in June 2019, which may, upon enactment, require security review before transferring human health-related data out of China. 42 43 In addition, certain industry-specific laws and regulations affect the collection and transfer of personal data in China. For example, the Regulations of the PRC on the Administration of Human Genetic Resources, or HGR Regulations, which became effective and implemented on July 1, 2019, stipulates that use of Chinese human genetic resources, or HGR, for the purposes of carrying out collaborative international scientific research shall be approved by the administrative department of science and technology under the State Council, with which the two parties shall file the type, quantity and usage of the human genetic resources, to be used before clinical trials. However, no approval is required for “international collaboration in clinical trials” that do not involve the export of HGR materials; the two parties to the international collaboration shall file the type, quantity and usage of the HGR to be used with the administrative department of science and technology under the State Council before clinical trials. The PRC Biosecurity Law, which took effect on April 15, 2021, stipulates that foreign organizations and individuals, as well as institutions they establish or are the actual controllers of, must not collect or preserve HGR within the territory of China and must not provide China’s HGR to overseas. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our practices, potentially resulting in confiscation of HGR samples and associated data and administrative fines, penalties and negative publicity. Our clinical trial programs may implicate European data privacy laws, including the General Data Protection Regulation, or the GDPR, and local laws further implementing or supplementing the GDPR. The GDPR implements more stringent operational requirements for processors and controllers of personal data including requirements for such companies to be able to ensure and be able to demonstrate compliance with the GDPR. If our or our third-party partners’ privacy or data security measures fail to comply with the GDPR requirements, we may be subject to litigation, regulatory investigations, enforcement notices requiring us to change the way we use personal data and/or fines of up to 20 million Euros or up to 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher. In addition to statutory enforcement, non-compliance can lead to compensation claims by affected individuals, negative publicity and a potential loss of business. We are also subject to European laws on personal data export, as we may transfer personal data from the E.U. (or U.K.) to other jurisdictions which are not considered by the European Commission to offer “adequate” protection of personal data (such as Hong Kong or the United States). Following the Schrems II decision of the European Court of Justice in 2020, there has been intensified focus on exports of personal data which do not meet the high standards of protection expected by the E.U. Certain supervisory authorities in the E.U. have now begun to take enforcement action in this area, ordering restrictions on certain transfers of personal data to third countries such as the United States. These changes could require us to make operational changes and could increase costs and may lead to governmental enforcement actions, litigation, fines and penalties or adverse publicity that could have an adverse effect on our business. We believe, to the best of our knowledge, our business operations do not violate any of the above laws and regulations currently in force in all material aspects. We have been taking and will continue to take reasonable measures to comply with applicable data privacy, data protection and cybersecurity laws. We cannot guarantee the effectiveness of the measures undertaken by us and business partners, and such measures may still be determined as insufficient, improper, or even as user-privacy invasive, by the relevant authorities, which may result in penalties against us. Complying with all applicable laws, regulations, standards and obligations relating to data privacy, security, and transfers may cause us to incur substantial operational costs or require us to modify our data processing practices and processes. To the extent that we need to alter our business model or practices to adapt to these announcement and provisions and future regulations, laws and policies, we could incur additional expenses. We cannot assure you we can adapt our operations to it in a timely manner. Non-compliance could result in proceedings against us by data protection authorities, governmental entities or others, including class action privacy litigation in certain jurisdictions, which would subject us to significant fines, penalties, judgments and negative publicity. In addition, if our practices are not consistent or viewed as not consistent with legal and regulatory requirements, including changes in laws, regulations and standards or new interpretations or applications of existing laws, regulations and standards, we may become subject to audits, inquiries, whistleblower complaints, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions and reputational damage. Any of the foregoing could have a material adverse effect on our competitive position, business, financial conditions, results of operations and prospects. Product liability claims or lawsuits could cause us, our collaborators or our joint ventures to incur substantial liabilities. We, our collaborators and our joint ventures face an inherent risk of product liability exposure related to the use of our drug candidates in clinical trials, sales of our or our joint ventures’ products or the products we or they license from third parties. If we, our collaborators and our joint ventures cannot successfully defend against claims that the use of such drug candidates in our clinical trials or any products sold by us or our joint ventures, including fruquintinib, surufatinib, savolitinib and/or any of our drug candidates which receive regulatory approval, caused injuries, we, our collaborators and our joint ventures could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in: • decreased demand for our and our joint ventures’ products; • significant negative media attention and reputational damage; • withdrawal of clinical trial participants; significant costs to defend the related litigation; substantial monetary awards to trial participants or patients; loss of revenue; and • • • • the inability to commercialize any drug candidates that we may develop. Our principal insurance policies cover product liability for fruquintinib, surufatinib, savolitinib, certain prescription drugs and health supplements, property loss due to accidents or natural disasters and adverse events in clinical trials. Existing PRC laws and regulations do not require us, our collaborators or our joint ventures to have, nor do we or they, maintain liability insurance to cover product liability claims except with respect to fruquintinib, surufatinib, savolitinib, certain prescription drugs and health supplements, and liability with respect to our oncology and immunology clinical trials. Any litigation might, result in substantial costs and diversion of resources. While we maintain liability insurance for clinical trials and products, this insurance may not fully cover our potential liabilities. Inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could prevent or inhibit the commercialization of products that we or our collaborators develop. We and our joint ventures may be exposed to liabilities under the U.S. Foreign Corrupt Practices Act, or FCPA, U.S. healthcare fraud and abuse laws, the Bribery Act 2010 of the United Kingdom, or U.K. Bribery Act, and Chinese anti-corruption laws, and any determination that we have violated these laws could have a material adverse effect on our business or our reputation. In the day-to-day conduct of our business, we and our joint ventures are in frequent contact with persons who may be considered government officials under applicable anti-corruption, anti-bribery and anti-kickback laws, which include doctors at public hospitals in China and elsewhere. Therefore, we and our joint ventures are subject to risk of violations under the FCPA, the U.K. Bribery Act, and other laws in the countries where we do business. We and our joint ventures have operations in China, agreements with third parties in China, and we and our joint ventures make most of our sales in China. The PRC laws and regulations also strictly prohibit bribery of government officials. Our and our joint ventures’ activities in China create the risk of unauthorized payments or offers of payments by the directors, employees, representatives, distributors, consultants or agents of our company or our joint ventures, even though they may not always be subject to our control. It is our policy to implement safeguards to discourage these practices by our and our joint ventures’ employees and third parties. We have implemented and adopted policies designed by the R&D-based Pharmaceutical Association Committee, an industry association representing approximately 40 global biopharmaceutical companies, to ensure compliance by us and our joint ventures and our and their directors, officers, employees, representatives, distributors, consultants and agents with the anti- corruption laws and regulations. We cannot assure you, however, that our existing safeguards are sufficient or that our or our joint ventures’ directors, officers, employees, representatives, distributors, consultants and agents have not engaged and will not engage in conduct for which we may be held responsible, nor can we assure you that our business partners have not engaged and will not engage in conduct that could materially affect their ability to perform their contractual obligations to us or even result in our being held liable for such conduct. Violations of the FCPA, the U.K. Bribery Act or Chinese anti-corruption laws may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could have a material adverse effect on our business, reputation, financial condition, cash flows and results of operations. If we begin to commercialize products in the United States and secure governmental reimbursement of our products, we also will be subject to the risk of violating U.S. federal and state healthcare fraud and abuse laws, including the Anti-Kickback Statute and the False Claims Act. These laws broadly prohibit providing or receiving kickbacks in connection with government-reimbursed healthcare items or services, as well submitting or causing the submission of false or fraudulent claims to government healthcare programs. Violations of these laws may result in severe criminal or civil sanctions and other administrative sanctions, which could have a material adverse effect on our business, reputation, financial condition, cash flows and results of operations. 44 45 In addition, certain industry-specific laws and regulations affect the collection and transfer of personal data in China. For example, the Regulations of the PRC on the Administration of Human Genetic Resources, or HGR Regulations, which became effective and implemented on July 1, 2019, stipulates that use of Chinese human genetic resources, or HGR, for the purposes of carrying out collaborative international scientific research shall be approved by the administrative department of science and technology under the State Council, with which the two parties shall file the type, quantity and usage of the human genetic resources, to be used before clinical trials. However, no approval is required for “international collaboration in clinical trials” that do not involve the export of HGR materials; the two parties to the international collaboration shall file the type, quantity and usage of the HGR to be used with the administrative department of science and technology under the State Council before clinical trials. The PRC Biosecurity Law, which took effect on April 15, 2021, stipulates that foreign organizations and individuals, as well as institutions they establish or are the actual controllers of, must not collect or preserve HGR within the territory of China and must not provide China’s HGR to overseas. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our practices, potentially resulting in confiscation of HGR samples and associated data and administrative fines, penalties and negative publicity. Our clinical trial programs may implicate European data privacy laws, including the General Data Protection Regulation, or the GDPR, and local laws further implementing or supplementing the GDPR. The GDPR implements more stringent operational requirements for processors and controllers of personal data including requirements for such companies to be able to ensure and be able to demonstrate compliance with the GDPR. If our or our third-party partners’ privacy or data security measures fail to comply with the GDPR requirements, we may be subject to litigation, regulatory investigations, enforcement notices requiring us to change the way we use personal data and/or fines of up to 20 million Euros or up to 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher. In addition to statutory enforcement, non-compliance can lead to compensation claims by affected individuals, negative publicity and a potential loss of business. We are also subject to European laws on personal data export, as we may transfer personal data from the E.U. (or U.K.) to other jurisdictions which are not considered by the European Commission to offer “adequate” protection of personal data (such as Hong Kong or the United States). Following the Schrems II decision of the European Court of Justice in 2020, there has been intensified focus on exports of personal data which do not meet the high standards of protection expected by the E.U. Certain supervisory authorities in the E.U. have now begun to take enforcement action in this area, ordering restrictions on certain transfers of personal data to third countries such as the United States. These changes could require us to make operational changes and could increase costs and may lead to governmental enforcement actions, litigation, fines and penalties or adverse publicity that could have an adverse effect on our business. We believe, to the best of our knowledge, our business operations do not violate any of the above laws and regulations currently in force in all material aspects. We have been taking and will continue to take reasonable measures to comply with applicable data privacy, data protection and cybersecurity laws. We cannot guarantee the effectiveness of the measures undertaken by us and business partners, and such measures may still be determined as insufficient, improper, or even as user-privacy invasive, by the relevant authorities, which may result in penalties against us. Complying with all applicable laws, regulations, standards and obligations relating to data privacy, security, and transfers may cause us to incur substantial operational costs or require us to modify our data processing practices and processes. To the extent that we need to alter our business model or practices to adapt to these announcement and provisions and future regulations, laws and policies, we could incur additional expenses. We cannot assure you we can adapt our operations to it in a timely manner. Non-compliance could result in proceedings against us by data protection authorities, governmental entities or others, including class action privacy litigation in certain jurisdictions, which would subject us to significant fines, penalties, judgments and negative publicity. In addition, if our practices are not consistent or viewed as not consistent with legal and regulatory requirements, including changes in laws, regulations and standards or new interpretations or applications of existing laws, regulations and standards, we may become subject to audits, inquiries, whistleblower complaints, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions and reputational damage. Any of the foregoing could have a material adverse effect on our competitive position, business, financial conditions, results of operations and prospects. Product liability claims or lawsuits could cause us, our collaborators or our joint ventures to incur substantial liabilities. We, our collaborators and our joint ventures face an inherent risk of product liability exposure related to the use of our drug candidates in clinical trials, sales of our or our joint ventures’ products or the products we or they license from third parties. If we, our collaborators and our joint ventures cannot successfully defend against claims that the use of such drug candidates in our clinical trials or any products sold by us or our joint ventures, including fruquintinib, surufatinib, savolitinib and/or any of our drug candidates which receive regulatory approval, caused injuries, we, our collaborators and our joint ventures could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in: • decreased demand for our and our joint ventures’ products; • significant negative media attention and reputational damage; • withdrawal of clinical trial participants; • • • • significant costs to defend the related litigation; substantial monetary awards to trial participants or patients; loss of revenue; and the inability to commercialize any drug candidates that we may develop. Our principal insurance policies cover product liability for fruquintinib, surufatinib, savolitinib, certain prescription drugs and health supplements, property loss due to accidents or natural disasters and adverse events in clinical trials. Existing PRC laws and regulations do not require us, our collaborators or our joint ventures to have, nor do we or they, maintain liability insurance to cover product liability claims except with respect to fruquintinib, surufatinib, savolitinib, certain prescription drugs and health supplements, and liability with respect to our oncology and immunology clinical trials. Any litigation might, result in substantial costs and diversion of resources. While we maintain liability insurance for clinical trials and products, this insurance may not fully cover our potential liabilities. Inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could prevent or inhibit the commercialization of products that we or our collaborators develop. We and our joint ventures may be exposed to liabilities under the U.S. Foreign Corrupt Practices Act, or FCPA, U.S. healthcare fraud and abuse laws, the Bribery Act 2010 of the United Kingdom, or U.K. Bribery Act, and Chinese anti-corruption laws, and any determination that we have violated these laws could have a material adverse effect on our business or our reputation. In the day-to-day conduct of our business, we and our joint ventures are in frequent contact with persons who may be considered government officials under applicable anti-corruption, anti-bribery and anti-kickback laws, which include doctors at public hospitals in China and elsewhere. Therefore, we and our joint ventures are subject to risk of violations under the FCPA, the U.K. Bribery Act, and other laws in the countries where we do business. We and our joint ventures have operations in China, agreements with third parties in China, and we and our joint ventures make most of our sales in China. The PRC laws and regulations also strictly prohibit bribery of government officials. Our and our joint ventures’ activities in China create the risk of unauthorized payments or offers of payments by the directors, employees, representatives, distributors, consultants or agents of our company or our joint ventures, even though they may not always be subject to our control. It is our policy to implement safeguards to discourage these practices by our and our joint ventures’ employees and third parties. We have implemented and adopted policies designed by the R&D-based Pharmaceutical Association Committee, an industry association representing approximately 40 global biopharmaceutical companies, to ensure compliance by us and our joint ventures and our and their directors, officers, employees, representatives, distributors, consultants and agents with the anti- corruption laws and regulations. We cannot assure you, however, that our existing safeguards are sufficient or that our or our joint ventures’ directors, officers, employees, representatives, distributors, consultants and agents have not engaged and will not engage in conduct for which we may be held responsible, nor can we assure you that our business partners have not engaged and will not engage in conduct that could materially affect their ability to perform their contractual obligations to us or even result in our being held liable for such conduct. Violations of the FCPA, the U.K. Bribery Act or Chinese anti-corruption laws may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could have a material adverse effect on our business, reputation, financial condition, cash flows and results of operations. If we begin to commercialize products in the United States and secure governmental reimbursement of our products, we also will be subject to the risk of violating U.S. federal and state healthcare fraud and abuse laws, including the Anti-Kickback Statute and the False Claims Act. These laws broadly prohibit providing or receiving kickbacks in connection with government-reimbursed healthcare items or services, as well submitting or causing the submission of false or fraudulent claims to government healthcare programs. Violations of these laws may result in severe criminal or civil sanctions and other administrative sanctions, which could have a material adverse effect on our business, reputation, financial condition, cash flows and results of operations. 44 45 Ensuring that our and our joint ventures’ future business arrangements with third parties comply with applicable laws could also involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our or our joint ventures’ operations were found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, individual imprisonment and exclusion from government funded healthcare programs, any of which could substantially disrupt our operations. If the physicians, hospitals or other providers or entities with whom we and our joint ventures do business are found not to be in compliance with applicable laws, they may also be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs. If we or our joint ventures fail to comply with environmental, health and safety laws and regulations, we or they could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business. We and our joint ventures are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemical materials. Our operations also produce hazardous waste products. We and our joint ventures are therefore subject to PRC laws and regulations concerning the discharge of waste water, gaseous waste and solid waste during our manufacturing processes. We and our joint ventures are required to establish and maintain facilities to dispose of waste and report the volume of waste to the relevant government authorities, which conduct scheduled or unscheduled inspections of our facilities and treatment of such discharge. We and our joint ventures may not at all times comply fully with environmental regulations. Any violation of these regulations may result in substantial fines, criminal sanctions, revocations of operating permits, shutdown of our facilities and obligation to take corrective measures. We and our joint ventures generally contract with third parties for the disposal of these materials and waste. We and our joint ventures cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from the use of hazardous materials, we and/or our joint ventures could be held liable for any resulting damages, and any liability could exceed our resources. We and/or our joint ventures also could incur significant costs associated with civil or criminal fines and penalties. Although we and our joint ventures maintain workers’ compensation insurance to cover costs and expenses incurred due to on-the-job injuries to our employees and third-party liability insurance for injuries caused by unexpected seepage, pollution or contamination, this insurance may not provide adequate coverage against potential liabilities. Furthermore, the PRC government may take steps towards the adoption of more stringent environmental regulations. Due to the possibility of unanticipated regulatory or other developments, the amount and timing of future environmental expenditures may vary substantially from those currently anticipated. If there is any unanticipated change in the environmental regulations, we and our joint ventures may need to incur substantial capital expenditures to install, replace, upgrade or supplement our equipment or make operational changes to limit any adverse impact or potential adverse impact on the environment in order to comply with new environmental protection laws and regulations. If such costs become prohibitively expensive, we may be forced to cease certain aspects of our or our joint ventures’ business operations. We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents, could harm our ability to operate our business effectively. We are heavily dependent on critical, complex and interdependent information technology systems, including internet-based systems, to support our business processes. Our information technology system security is continuously reviewed, maintained and upgraded in response to possible security breach incidents. Despite the implementation of these measures, our information technology systems and those of third parties with which we contract are vulnerable to damage from external or internal security incidents, breakdowns, malicious intrusions, cybercrimes, including State-sponsored cybercrimes, malware, misplaced or lost data, programming or human errors or other similar events. System failures, accidents or security breaches could cause interruptions in our operations and could result in inappropriately accessed, tampered with, modified or stolen scientific data or a material disruption of our clinical activities and business operations, in addition to possibly requiring substantial expenditures of resources to remedy. Such event could significantly harm our Oncology/Immunology operations, including resulting in the loss of clinical trial data which could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Such events could also lead to the loss of important information such as trade secrets or other intellectual property and could accelerate the development or manufacturing of competing products by third parties. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and our research and development programs and the development of our drug candidates could be delayed. We have granted, and may continue to grant, options, long-term incentive scheme (“LTIP”) awards and other types of awards under our Option Schemes and our LTIP, or collectively the Schemes, which may result in increased share-based compensation expenses and give rise to potential employment related disputes. We have adopted the Options Schemes for the purpose of granting share-based compensation awards to certain management, directors, employees and other eligible grantees as a means to retain, incentivize, reward, remunerate, compensate and/or provide benefits to eligible grantees. We recognized share-based compensation expenses of $19.6 million, $42.0 million and $30.6 million for the years ended December 31, 2020, 2021 and 2022, respectively, in our consolidated financial statements in accordance with U.S. GAAP. We believe the granting of share-based compensation is of significant importance to our ability to attract and retain key personnel and employees, and we will continue to grant share-based compensation in the future. As a result, our expenses associated with share- based compensation may increase, which may have an adverse effect on our results of operations. We may re-evaluate the vesting schedules, exercise price or other key terms applicable to the grants under our currently effective Schemes from time to time, which may result in a substantial change in our share-based compensation expenses in the reporting periods. In addition, we could in the future become involved in disputes or legal proceedings with our employees or former employees on employment related matters (including disputes on the entitlement of options, awards and other share-based compensation or in connection with the employees’ incentive or compensation arrangements). If such disputes or legal proceedings arise, there can be no assurance that we will prevail in them, and in any event defending against these disputes or legal proceedings could cause us to incur legal and other costs. Any adverse outcome of these disputes or legal proceedings could have a material adverse effect on our reputation, business and results of operations. For more information on the Schemes, please refer to Item 6.B. “Directors, Senior Management and Employees,” “Compensation,” “Equity Compensation Schemes and Other Benefit Plans.” The PRC’s economic, political and social conditions, as well as governmental policies, could affect the business environment and financial markets in China, our ability to operate our business, our liquidity and our access to capital. Substantially all of our and our joint ventures’ business operations are conducted in China. Accordingly, our results of operations, financial condition and prospects are subject to economic, political and legal developments in China to a significant degree. China’s economy differs from the economies of developed countries in many respects, including with respect to the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. If the business environment in China deteriorates from the perspective of domestic or international investors, our or our joint ventures’ business in China may also be adversely affected. Although the PRC government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government also exercises significant control over China’s economic growth by allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, regulating financial services and institutions and providing preferential treatment to particular industries or companies. See also “The PRC government exerts substantial influence over the manner in which we conduct our business activities. Its oversight and discretion over our business could result in a material adverse change in our operations and the value of our ordinary shares and ADSs. Changes in laws, regulations and policies in China and uncertainties with respect to the PRC legal system could materially and adversely affect us. In addition, rules and regulations in China can change quickly with little advance notice.” While the PRC economy has experienced significant growth in the past 40 years, growth has been uneven across different regions and among various economic sectors of China. The PRC government has implemented various measures to encourage economic development and guide the allocation of resources. Some of these measures benefit the overall PRC economy, but may have a negative effect on us or our joint ventures. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us or our joint ventures. 46 47 Ensuring that our and our joint ventures’ future business arrangements with third parties comply with applicable laws could also involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our or our joint ventures’ operations were found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, individual imprisonment and exclusion from government funded healthcare programs, any of which could substantially disrupt our operations. If the physicians, hospitals or other providers or entities with whom we and our joint ventures do business are found not to be in compliance with applicable laws, they may also be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs. If we or our joint ventures fail to comply with environmental, health and safety laws and regulations, we or they could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business. We and our joint ventures are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemical materials. Our operations also produce hazardous waste products. We and our joint ventures are therefore subject to PRC laws and regulations concerning the discharge of waste water, gaseous waste and solid waste during our manufacturing processes. We and our joint ventures are required to establish and maintain facilities to dispose of waste and report the volume of waste to the relevant government authorities, which conduct scheduled or unscheduled inspections of our facilities and treatment of such discharge. We and our joint ventures may not at all times comply fully with environmental regulations. Any violation of these regulations may result in substantial fines, criminal sanctions, revocations of operating permits, shutdown of our facilities and obligation to take corrective measures. We and our joint ventures generally contract with third parties for the disposal of these materials and waste. We and our joint ventures cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from the use of hazardous materials, we and/or our joint ventures could be held liable for any resulting damages, and any liability could exceed our resources. We and/or our joint ventures also could incur significant costs associated with civil or criminal fines and penalties. Although we and our joint ventures maintain workers’ compensation insurance to cover costs and expenses incurred due to on-the-job injuries to our employees and third-party liability insurance for injuries caused by unexpected seepage, pollution or contamination, this insurance may not provide adequate coverage against potential liabilities. Furthermore, the PRC government may take steps towards the adoption of more stringent environmental regulations. Due to the possibility of unanticipated regulatory or other developments, the amount and timing of future environmental expenditures may vary substantially from those currently anticipated. If there is any unanticipated change in the environmental regulations, we and our joint ventures may need to incur substantial capital expenditures to install, replace, upgrade or supplement our equipment or make operational changes to limit any adverse impact or potential adverse impact on the environment in order to comply with new environmental protection laws and regulations. If such costs become prohibitively expensive, we may be forced to cease certain aspects of our or our joint ventures’ business operations. We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents, could harm our ability to operate our business effectively. We are heavily dependent on critical, complex and interdependent information technology systems, including internet-based systems, to support our business processes. Our information technology system security is continuously reviewed, maintained and upgraded in response to possible security breach incidents. Despite the implementation of these measures, our information technology systems and those of third parties with which we contract are vulnerable to damage from external or internal security incidents, breakdowns, malicious intrusions, cybercrimes, including State-sponsored cybercrimes, malware, misplaced or lost data, programming or human errors or other similar events. System failures, accidents or security breaches could cause interruptions in our operations and could result in inappropriately accessed, tampered with, modified or stolen scientific data or a material disruption of our clinical activities and business operations, in addition to possibly requiring substantial expenditures of resources to remedy. Such event could significantly harm our Oncology/Immunology operations, including resulting in the loss of clinical trial data which could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Such events could also lead to the loss of important information such as trade secrets or other intellectual property and could accelerate the development or manufacturing of competing products by third parties. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and our research and development programs and the development of our drug candidates could be delayed. We have granted, and may continue to grant, options, long-term incentive scheme (“LTIP”) awards and other types of awards under our Option Schemes and our LTIP, or collectively the Schemes, which may result in increased share-based compensation expenses and give rise to potential employment related disputes. We have adopted the Options Schemes for the purpose of granting share-based compensation awards to certain management, directors, employees and other eligible grantees as a means to retain, incentivize, reward, remunerate, compensate and/or provide benefits to eligible grantees. We recognized share-based compensation expenses of $19.6 million, $42.0 million and $30.6 million for the years ended December 31, 2020, 2021 and 2022, respectively, in our consolidated financial statements in accordance with U.S. GAAP. We believe the granting of share-based compensation is of significant importance to our ability to attract and retain key personnel and employees, and we will continue to grant share-based compensation in the future. As a result, our expenses associated with share- based compensation may increase, which may have an adverse effect on our results of operations. We may re-evaluate the vesting schedules, exercise price or other key terms applicable to the grants under our currently effective Schemes from time to time, which may result in a substantial change in our share-based compensation expenses in the reporting periods. In addition, we could in the future become involved in disputes or legal proceedings with our employees or former employees on employment related matters (including disputes on the entitlement of options, awards and other share-based compensation or in connection with the employees’ incentive or compensation arrangements). If such disputes or legal proceedings arise, there can be no assurance that we will prevail in them, and in any event defending against these disputes or legal proceedings could cause us to incur legal and other costs. Any adverse outcome of these disputes or legal proceedings could have a material adverse effect on our reputation, business and results of operations. For more information on the Schemes, please refer to Item 6.B. “Directors, Senior Management and Employees,” “Compensation,” “Equity Compensation Schemes and Other Benefit Plans.” The PRC’s economic, political and social conditions, as well as governmental policies, could affect the business environment and financial markets in China, our ability to operate our business, our liquidity and our access to capital. Substantially all of our and our joint ventures’ business operations are conducted in China. Accordingly, our results of operations, financial condition and prospects are subject to economic, political and legal developments in China to a significant degree. China’s economy differs from the economies of developed countries in many respects, including with respect to the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. If the business environment in China deteriorates from the perspective of domestic or international investors, our or our joint ventures’ business in China may also be adversely affected. Although the PRC government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government also exercises significant control over China’s economic growth by allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, regulating financial services and institutions and providing preferential treatment to particular industries or companies. See also “The PRC government exerts substantial influence over the manner in which we conduct our business activities. Its oversight and discretion over our business could result in a material adverse change in our operations and the value of our ordinary shares and ADSs. Changes in laws, regulations and policies in China and uncertainties with respect to the PRC legal system could materially and adversely affect us. In addition, rules and regulations in China can change quickly with little advance notice.” While the PRC economy has experienced significant growth in the past 40 years, growth has been uneven across different regions and among various economic sectors of China. The PRC government has implemented various measures to encourage economic development and guide the allocation of resources. Some of these measures benefit the overall PRC economy, but may have a negative effect on us or our joint ventures. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us or our joint ventures. 46 47 Besides policies directly related to its economic development, the PRC government may also impose other policies from time to time that may affect our ability to operate our business and the general business environment in China. For example, in response to the COVID-19 outbreak, the PRC government implemented a series of policies to contain the spread of the virus which may have negatively impacted various aspects of our operations. Since December 2022, the PRC government started to gradually lift the restrictive measures under such policies and we expect the travel, social and economic activities in the regions we operate will normalize. See also “The COVID-19 pandemic and other adverse public health developments could materially and adversely affect our business.” The PRC government exerts substantial influence over the manner in which we conduct our business activities. Its oversight and discretion over our business could result in a material adverse change in our operations and the value of our ordinary shares and ADSs. Changes in laws, regulations and policies in China and uncertainties with respect to the PRC legal system could materially and adversely affect us. In addition, rules and regulations in China can change quickly with little advance notice. We conduct a substantial portion of our business through our subsidiaries and joint ventures in China. PRC laws and regulations govern our and their operations in China. The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. For example, the PRC government has recently published new policies that significantly affected certain industries such as the education and internet industries, and we cannot rule out the possibility that it will in the future release regulations or policies regarding our industry that could adversely affect our business, financial condition and results of operations. See also “The PRC’s economic, political and social conditions, as well as governmental policies, could affect the business environment and financial markets in China, our ability to operate our business, our liquidity and our access to capital” and “The PRC government has increasingly strengthened oversight in offerings conducted overseas or on foreign investment in China-based issuers, which could result in a material change in our operations and our ordinary shares and ADSs could decline in value or become worthless.” Our ability to operate in China may be harmed by changes in its laws and regulations. The central or local governments may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. For instance, regulations introduced by the NMPA concerning drug inspection, investigation, evidence collection and disposal are relatively new, and because of the limited volume of published judicial decisions, which are non-binding in nature, the interpretation and enforcement of these laws and regulations are uncertain. In addition, the implementation of laws and regulations may be in part based on government policies and internal rules that are subject to the interpretation and discretion of different government agencies (some of which are not published on a timely basis or at all) that may have a retroactive effect. As a result, we may not be aware of our, our collaboration partners’ or our joint ventures’ violation of these policies and rules until sometime after the violation. The imposition of new regulations or interpretations of existing regulations can occur quickly with little advance notice. We may incur penalties for any failure to comply with PRC laws and regulations. In addition, any litigation in China, regardless of outcome, may be protracted and result in substantial costs and diversion of resources and management attention. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. For further information regarding government regulation in China and other jurisdictions, see Item 4.B. “Business Overview— Regulations—Government Regulation of Pharmaceutical Product Development and Approval—PRC Regulation of Pharmaceutical Product Development and Approval,” “Business Overview—Regulations—Coverage and Reimbursement—PRC Coverage and Reimbursement” and “Business Overview—Regulations—Other Healthcare Laws—Other PRC Healthcare Laws.” The PRC government has increasingly strengthened oversight in offerings conducted overseas or on foreign investment in China- based issuers, which could result in a material change in our operations and our ordinary shares and ADSs could decline in value or become worthless. The PRC government has recently indicated an intent to take actions to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers. For example, on July 6, 2021, the relevant PRC government authorities made public the Opinions on Strictly Scrutinizing Illegal Securities Activities in Accordance with the Law, or the Opinions. These Opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision of overseas listings by China-based companies and proposed to take effective measures, such as promoting the construction of relevant regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies. On December 24, 2021, the CSRC issued the Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) and the Administrative Measures for the Filing of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments), collectively the Draft Overseas Listing Regulations, for public comment until January 23, 2022. Following issuance of the Draft Overseas Listing Regulations, on February 17, 2023, the CSRC issued the Notice on Filing Arrangements for Overseas Securities Offering and Listing by Domestic Companies (the “CSRC Filing Notice”), stating that the CSRC has published the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Measures”) and five supporting guidelines (the “Listing Guidelines”), collectively the Trial Measures and Listing Guidelines. Among others, the Trial Measures and Listing Guidelines provide that overseas offerings and listings by PRC domestic companies shall: (i) require submission of relevant materials that contain a filing report and a legal opinion, providing truthful, accurate and complete information on matters including but not limited to the shareholders of the issuer. Where the filing documents are complete and in compliance with stipulated requirements, the CSRC shall, within 20 working days after receipt of filing documents, conclude the filing procedure and publish filing results on the CSRC website. Where filing documents are incomplete or do not conform to stipulated requirements, the CSRC shall request supplementation and amendment thereto within five working days after receipt of the filing documents. The issuer should then complete supplementation and amendment within 30 working days; (ii) abide by laws, administrative regulations and relevant state rules concerning foreign investment in China, state-owned asset administration, industry regulation and outbound investment, and shall not disrupt the PRC domestic market order, harm state or public interests or undermine the lawful rights and interests of PRC domestic investors; (iii) abide by national secrecy laws and relevant provisions. Necessary measures shall be taken to fulfill confidentiality obligations. Divulgence of state secrets or working secrets of government agencies is strictly prohibited. Provision of personal information and important data, etc., to overseas parties in relation to overseas offering and listing of PRC domestic companies shall be in compliance with applicable laws, administrative regulations and relevant state rules; and (iv) be made in strict compliance with relevant laws, administrative regulations and rules concerning national security in the spheres of foreign investment, cybersecurity, data security, etc., and issuers shall duly fulfill their obligations to protect national security. If the intended overseas offering and listing necessitates a national security review, relevant security review procedures shall be completed according to the law before the application for such offering and listing is submitted to any overseas parties such as securities regulatory agencies and trading venues; The Trial Measures will come into effect on March 31, 2023. PRC domestic companies seeking to offer and list securities (which, for the purposes of the Trial Measures, are defined thereunder as equity shares, depository receipts, corporate bonds convertible to equity shares, and other equity securities that are offered and listed overseas, either directly or indirectly, by PRC domestic companies) in overseas markets, either via direct or indirect means, must file with the CSRC within three working days after their application for an overseas listing is submitted. The Trial Measures provide that where a PRC domestic company seeks to indirectly offer and list securities in overseas markets, the issuer shall designate a major domestic operating entity, which shall, as the domestic entity responsible, file with the CSRC. The Trial Measures stipulate that an overseas listing will be determined as “indirect” if the issuer meets both of the following conditions: (1) 50% or more of any of the issuer’s operating revenue, total profit, total assets or net assets as documented in its audited consolidated financial statements for the most recent accounting year are accounted for by PRC domestic companies (“Condition I”), and (2) the main parts of the issuer’s business activities are conducted in the PRC, or its main places of business are located in the PRC, or the senior managers in charge of its business operations and management are mostly Chinese citizens or domiciled in the PRC (“Condition II”); whether Chinese citizens from Taiwan, Hong Kong, and Macau are included in the foregoing specification is not specified. The determination as to whether or not an overseas offering and listing by PRC domestic companies is indirect shall be made on a ‘substance over form’ basis; the Listing Guidelines further stipulate that if an issuer not satisfying Condition I submits an application for issuance and listing in overseas markets in accordance with relevant non-PRC issuance regulations requiring such issuer to disclose risk factors mainly related to the PRC, the securities firm(s) and the issuer’s PRC counsel should follow the principle of ‘substance over form’ in order to identify and argue whether the issuer should complete a filing under the Trial Measures. 48 49 Besides policies directly related to its economic development, the PRC government may also impose other policies from time to time that may affect our ability to operate our business and the general business environment in China. For example, in response to the COVID-19 outbreak, the PRC government implemented a series of policies to contain the spread of the virus which may have negatively impacted various aspects of our operations. Since December 2022, the PRC government started to gradually lift the restrictive measures under such policies and we expect the travel, social and economic activities in the regions we operate will normalize. See also “The COVID-19 pandemic and other adverse public health developments could materially and adversely affect our business.” The PRC government exerts substantial influence over the manner in which we conduct our business activities. Its oversight and discretion over our business could result in a material adverse change in our operations and the value of our ordinary shares and ADSs. Changes in laws, regulations and policies in China and uncertainties with respect to the PRC legal system could materially and adversely affect us. In addition, rules and regulations in China can change quickly with little advance notice. We conduct a substantial portion of our business through our subsidiaries and joint ventures in China. PRC laws and regulations govern our and their operations in China. The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. For example, the PRC government has recently published new policies that significantly affected certain industries such as the education and internet industries, and we cannot rule out the possibility that it will in the future release regulations or policies regarding our industry that could adversely affect our business, financial condition and results of operations. See also “The PRC’s economic, political and social conditions, as well as governmental policies, could affect the business environment and financial markets in China, our ability to operate our business, our liquidity and our access to capital” and “The PRC government has increasingly strengthened oversight in offerings conducted overseas or on foreign investment in China-based issuers, which could result in a material change in our operations and our ordinary shares and ADSs could decline in value or become worthless.” Our ability to operate in China may be harmed by changes in its laws and regulations. The central or local governments may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. For instance, regulations introduced by the NMPA concerning drug inspection, investigation, evidence collection and disposal are relatively new, and because of the limited volume of published judicial decisions, which are non-binding in nature, the interpretation and enforcement of these laws and regulations are uncertain. In addition, the implementation of laws and regulations may be in part based on government policies and internal rules that are subject to the interpretation and discretion of different government agencies (some of which are not published on a timely basis or at all) that may have a retroactive effect. As a result, we may not be aware of our, our collaboration partners’ or our joint ventures’ violation of these policies and rules until sometime after the violation. The imposition of new regulations or interpretations of existing regulations can occur quickly with little advance notice. We may incur penalties for any failure to comply with PRC laws and regulations. In addition, any litigation in China, regardless of outcome, may be protracted and result in substantial costs and diversion of resources and management attention. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. For further information regarding government regulation in China and other jurisdictions, see Item 4.B. “Business Overview— Regulations—Government Regulation of Pharmaceutical Product Development and Approval—PRC Regulation of Pharmaceutical Product Development and Approval,” “Business Overview—Regulations—Coverage and Reimbursement—PRC Coverage and Reimbursement” and “Business Overview—Regulations—Other Healthcare Laws—Other PRC Healthcare Laws.” The PRC government has increasingly strengthened oversight in offerings conducted overseas or on foreign investment in China- based issuers, which could result in a material change in our operations and our ordinary shares and ADSs could decline in value or become worthless. The PRC government has recently indicated an intent to take actions to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers. For example, on July 6, 2021, the relevant PRC government authorities made public the Opinions on Strictly Scrutinizing Illegal Securities Activities in Accordance with the Law, or the Opinions. These Opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision of overseas listings by China-based companies and proposed to take effective measures, such as promoting the construction of relevant regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies. On December 24, 2021, the CSRC issued the Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) and the Administrative Measures for the Filing of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments), collectively the Draft Overseas Listing Regulations, for public comment until January 23, 2022. Following issuance of the Draft Overseas Listing Regulations, on February 17, 2023, the CSRC issued the Notice on Filing Arrangements for Overseas Securities Offering and Listing by Domestic Companies (the “CSRC Filing Notice”), stating that the CSRC has published the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Measures”) and five supporting guidelines (the “Listing Guidelines”), collectively the Trial Measures and Listing Guidelines. Among others, the Trial Measures and Listing Guidelines provide that overseas offerings and listings by PRC domestic companies shall: (i) require submission of relevant materials that contain a filing report and a legal opinion, providing truthful, accurate and complete information on matters including but not limited to the shareholders of the issuer. Where the filing documents are complete and in compliance with stipulated requirements, the CSRC shall, within 20 working days after receipt of filing documents, conclude the filing procedure and publish filing results on the CSRC website. Where filing documents are incomplete or do not conform to stipulated requirements, the CSRC shall request supplementation and amendment thereto within five working days after receipt of the filing documents. The issuer should then complete supplementation and amendment within 30 working days; (ii) abide by laws, administrative regulations and relevant state rules concerning foreign investment in China, state-owned asset administration, industry regulation and outbound investment, and shall not disrupt the PRC domestic market order, harm state or public interests or undermine the lawful rights and interests of PRC domestic investors; (iii) abide by national secrecy laws and relevant provisions. Necessary measures shall be taken to fulfill confidentiality obligations. Divulgence of state secrets or working secrets of government agencies is strictly prohibited. Provision of personal information and important data, etc., to overseas parties in relation to overseas offering and listing of PRC domestic companies shall be in compliance with applicable laws, administrative regulations and relevant state rules; and (iv) be made in strict compliance with relevant laws, administrative regulations and rules concerning national security in the spheres of foreign investment, cybersecurity, data security, etc., and issuers shall duly fulfill their obligations to protect national security. If the intended overseas offering and listing necessitates a national security review, relevant security review procedures shall be completed according to the law before the application for such offering and listing is submitted to any overseas parties such as securities regulatory agencies and trading venues; The Trial Measures will come into effect on March 31, 2023. PRC domestic companies seeking to offer and list securities (which, for the purposes of the Trial Measures, are defined thereunder as equity shares, depository receipts, corporate bonds convertible to equity shares, and other equity securities that are offered and listed overseas, either directly or indirectly, by PRC domestic companies) in overseas markets, either via direct or indirect means, must file with the CSRC within three working days after their application for an overseas listing is submitted. The Trial Measures provide that where a PRC domestic company seeks to indirectly offer and list securities in overseas markets, the issuer shall designate a major domestic operating entity, which shall, as the domestic entity responsible, file with the CSRC. The Trial Measures stipulate that an overseas listing will be determined as “indirect” if the issuer meets both of the following conditions: (1) 50% or more of any of the issuer’s operating revenue, total profit, total assets or net assets as documented in its audited consolidated financial statements for the most recent accounting year are accounted for by PRC domestic companies (“Condition I”), and (2) the main parts of the issuer’s business activities are conducted in the PRC, or its main places of business are located in the PRC, or the senior managers in charge of its business operations and management are mostly Chinese citizens or domiciled in the PRC (“Condition II”); whether Chinese citizens from Taiwan, Hong Kong, and Macau are included in the foregoing specification is not specified. The determination as to whether or not an overseas offering and listing by PRC domestic companies is indirect shall be made on a ‘substance over form’ basis; the Listing Guidelines further stipulate that if an issuer not satisfying Condition I submits an application for issuance and listing in overseas markets in accordance with relevant non-PRC issuance regulations requiring such issuer to disclose risk factors mainly related to the PRC, the securities firm(s) and the issuer’s PRC counsel should follow the principle of ‘substance over form’ in order to identify and argue whether the issuer should complete a filing under the Trial Measures. 48 49 Subsequent securities offerings of an issuer in (i) the same overseas market where it has previously offered and listed securities, and (ii) an overseas market other than one where the issuer has previously offered and listed securities shall be filed with the CSRC within three working days after offerings are completed. Additionally, the Trial Measures stipulate that after an issuer has offered and listed securities in an overseas market, the issuer shall submit a report to the CSRC within three working days after the occurrence and public disclosure of (i) a change of control thereof, (ii) investigations of or sanctions imposed on the issuer by overseas securities regulators or relevant competent authorities, (iii) changes of listing status or transfers of listing segment, and (iv) a voluntary or mandatory delisting. The CSRC Filing Notice states that, beginning from March 31, 2023, PRC domestic enterprises which have already issued and listed securities overseas and fall within the scope of filing under the Trial Measures shall be considered “existing enterprises” (“Existing Listed Enterprises”). Existing Listed Enterprises are not required to complete filings immediately; rather, Existing Listed Enterprises should complete filings if they are subsequently involved in matters require filings, such as follow-on financing activities, in accordance with the Trial Measures. There is a possibility that we may be deemed as an Existing Listed Enterprise as defined under the CSRC Filing Notice, and that future offerings of listed securities or listings outside China by us may be subject to CSRC filing requirements in accordance with the Trial Measures. Given that the Trial Measures and Listing Guidelines have been introduced recently, and that there remain substantial uncertainties surrounding the enforcement thereof, we cannot assure you that, if required, we would be able to complete the filings and fully comply with the relevant new rules on a timely basis, if at all. Further, as of the date of this annual report, the aforementioned Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) issued on December 24, 2021 remain in draft form and final and effective versions are yet to be published. In addition, the Measures for Cybersecurity Review, which took effect on February 15, 2022, requires, among others, prior cybersecurity review for online platform operators holding over one million users’ personal information before any public listing in a foreign country. The Measures on Security Assessment of Cross-border Data Transfer, effective on September 1, 2022, specify that data controllers and/or critical information infrastructure operators will be subject to security assessment. There remain uncertainties as to whether such measures are applicable to our business. See also “We are subject to stringent privacy and cybersecurity laws, information security policies and contractual obligations related to data privacy and security, and we may be exposed to risks related to our management of the medical data of subjects enrolled in our clinical trials and other personal or sensitive information.” On February 24, 2023, the CSRC and other PRC governmental authorities jointly issued the Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies (the “Confidentiality Provisions”), which will come into effect on March 31, 2023. According to the Confidentiality Provisions, PRC domestic companies that directly or indirectly conduct overseas offerings and listings shall strictly abide by the laws and regulations on confidentiality when providing or publicly disclosing, whether directly or through their overseas listed entities, materials to securities services providers. In the event such materials contain state secrets or working secrets of government agencies, PRC domestic companies shall first obtain approval from authorities, and file with the secrecy administrative department at the same level with the approving authority; in the event that such materials, if divulged, will jeopardize national security or public interest, PRC domestic companies shall comply with procedures stipulated by national regulations. PRC domestic companies shall also provide a written statement of the specific sensitive information provided when providing materials to securities service providers, and such written statements shall be retained for inspection. As the Confidentiality Provisions were recently promulgated and are yet to take effect, their interpretation and implementation remain substantially uncertain. If (i) we mistakenly conclude that certain regulatory filings, permissions and approvals are not required or (ii) applicable laws, regulations, or interpretations change and (iii) we are required to obtain such filings, permissions or approvals in the future, we may be unable to obtain them in a timely manner, or at all, and such filings, permissions or approvals may be denied or rescinded even if obtained. We may face adverse actions or sanctions by the CSRC or other PRC regulatory agencies if we are unable to comply with such requirements, which may result in fines and penalties, restrictions on our operations, having to delist from a stock exchange outside of China, the halting of securities offerings to foreign investors and other actions that could materially and adversely affect our operations and the interest of our investors and cause a significant depreciation in the price of our ordinary shares and ADSs. Certain PRC regulations may make it more difficult for us to pursue growth through acquisitions. Any failure or perceived failure by us to comply with PRC anti-monopoly laws and regulations may result in governmental investigations or enforcement actions, litigation or claims against us and could have an adverse effect on our business, financial condition and results of operations. We may pursue potential strategic acquisitions that are complementary to our business and operations. In doing so, we will be subject to a variety of PRC anti-monopoly laws. The Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in 2006 and amended in 2009, established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex. For example, the M&A Rules require that the MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise if (i) any important industry is concerned, (ii) such transaction involves factors that have or may have impact on the national economic security or (iii) such transaction will lead to a change in control of a domestic enterprise which holds a famous trademark or PRC time-honored brand. The approval from the MOFCOM must be obtained in circumstances where overseas companies established or controlled by PRC enterprises or residents acquire affiliated domestic companies. Mergers, acquisitions or contractual arrangements that allow one market player to take control of or to exert decisive impact on another market player must also be notified in advance to the SAMR when the threshold under the Provisions on Thresholds for Prior Notification of Concentrations of Undertakings, or the Prior Notification Rules, issued by the State Council in 2008 and amended in 2018, is triggered. PRC national security review rules, which became effective in September 2011, require a strict review of (a) mergers and acquisitions by foreign investors that raise “national defense and security” concerns and (b) mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns. The rules also prohibit any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement. Further, the Measures for the Security Review of Foreign Investments promulgated by the NDRC and MOFCOM, which became effective from January 2021, require that a security review by relevant governmental authorities must be conducted for foreign investments that affect or may affect national security in accordance with the provisions thereunder. The PRC anti-monopoly enforcement agencies have in recent years strengthened enforcement under the PRC Anti-Monopoly Law. In March 2018, the SAMR was formed as a new governmental agency to take over, among other things, the anti-monopoly enforcement functions from the relevant departments under the MOFCOM, the NDRC and SAMR. Since its inception, the SAMR has continued to strengthen anti-monopoly enforcement. In November 2021, the State Council inaugurated the National Anti-Monopoly Bureau, which aims to further implement fair competition policies and strengthen anti-monopoly supervision in the PRC, particularly to strengthen oversight and law enforcement in areas involving innovation, science and technology, information security and people’s livelihoods. Complying with the requirements of these regulations when pursuing acquisitive transactions could be time-consuming, and any required approval processes, including obtaining approval or clearance from the MOFCOM, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share. Due to the enhanced enforcement of the Anti-Monopoly Law, we may receive greater scrutiny and attention from regulators and more frequent and rigid investigations or review by regulators, which may increase our compliance costs and subject us to heightened risks and challenges. In addition, there are significant uncertainties on the evolving legislative activities and varied local implementation practices of anti-monopoly and competition laws and regulations in China. The amended Anti-Monopoly Law, published in October 2021 in draft form for public comment, became effective in August 2022. It imposes a higher regulatory requirement to complete an acquisitive transaction. Any failure or perceived failure by us to comply with the anti-monopoly laws and regulations may result in governmental investigations or enforcement actions, lawsuits or claims against us and could have an adverse effect on our business, financial condition and results of operations. See also “Risks Relating to Sales of Our Internally Developed Drugs and Other Drugs—We may engage in strategic transactions, including acquisitions, investments, joint ventures or divestitures that may have an adverse effect on our business. If we engage in a strategic transaction, there is no assurance that the transaction will be consummated.” 50 51 Subsequent securities offerings of an issuer in (i) the same overseas market where it has previously offered and listed securities, and (ii) an overseas market other than one where the issuer has previously offered and listed securities shall be filed with the CSRC within three working days after offerings are completed. Additionally, the Trial Measures stipulate that after an issuer has offered and listed securities in an overseas market, the issuer shall submit a report to the CSRC within three working days after the occurrence and public disclosure of (i) a change of control thereof, (ii) investigations of or sanctions imposed on the issuer by overseas securities regulators or relevant competent authorities, (iii) changes of listing status or transfers of listing segment, and (iv) a voluntary or mandatory delisting. The CSRC Filing Notice states that, beginning from March 31, 2023, PRC domestic enterprises which have already issued and listed securities overseas and fall within the scope of filing under the Trial Measures shall be considered “existing enterprises” (“Existing Listed Enterprises”). Existing Listed Enterprises are not required to complete filings immediately; rather, Existing Listed Enterprises should complete filings if they are subsequently involved in matters require filings, such as follow-on financing activities, in accordance with the Trial Measures. There is a possibility that we may be deemed as an Existing Listed Enterprise as defined under the CSRC Filing Notice, and that future offerings of listed securities or listings outside China by us may be subject to CSRC filing requirements in accordance with the Trial Measures. Given that the Trial Measures and Listing Guidelines have been introduced recently, and that there remain substantial uncertainties surrounding the enforcement thereof, we cannot assure you that, if required, we would be able to complete the filings and fully comply with the relevant new rules on a timely basis, if at all. Further, as of the date of this annual report, the aforementioned Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) issued on December 24, 2021 remain in draft form and final and effective versions are yet to be published. In addition, the Measures for Cybersecurity Review, which took effect on February 15, 2022, requires, among others, prior cybersecurity review for online platform operators holding over one million users’ personal information before any public listing in a foreign country. The Measures on Security Assessment of Cross-border Data Transfer, effective on September 1, 2022, specify that data controllers and/or critical information infrastructure operators will be subject to security assessment. There remain uncertainties as to whether such measures are applicable to our business. See also “We are subject to stringent privacy and cybersecurity laws, information security policies and contractual obligations related to data privacy and security, and we may be exposed to risks related to our management of the medical data of subjects enrolled in our clinical trials and other personal or sensitive information.” On February 24, 2023, the CSRC and other PRC governmental authorities jointly issued the Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies (the “Confidentiality Provisions”), which will come into effect on March 31, 2023. According to the Confidentiality Provisions, PRC domestic companies that directly or indirectly conduct overseas offerings and listings shall strictly abide by the laws and regulations on confidentiality when providing or publicly disclosing, whether directly or through their overseas listed entities, materials to securities services providers. In the event such materials contain state secrets or working secrets of government agencies, PRC domestic companies shall first obtain approval from authorities, and file with the secrecy administrative department at the same level with the approving authority; in the event that such materials, if divulged, will jeopardize national security or public interest, PRC domestic companies shall comply with procedures stipulated by national regulations. PRC domestic companies shall also provide a written statement of the specific sensitive information provided when providing materials to securities service providers, and such written statements shall be retained for inspection. As the Confidentiality Provisions were recently promulgated and are yet to take effect, their interpretation and implementation remain substantially uncertain. If (i) we mistakenly conclude that certain regulatory filings, permissions and approvals are not required or (ii) applicable laws, regulations, or interpretations change and (iii) we are required to obtain such filings, permissions or approvals in the future, we may be unable to obtain them in a timely manner, or at all, and such filings, permissions or approvals may be denied or rescinded even if obtained. We may face adverse actions or sanctions by the CSRC or other PRC regulatory agencies if we are unable to comply with such requirements, which may result in fines and penalties, restrictions on our operations, having to delist from a stock exchange outside of China, the halting of securities offerings to foreign investors and other actions that could materially and adversely affect our operations and the interest of our investors and cause a significant depreciation in the price of our ordinary shares and ADSs. Certain PRC regulations may make it more difficult for us to pursue growth through acquisitions. Any failure or perceived failure by us to comply with PRC anti-monopoly laws and regulations may result in governmental investigations or enforcement actions, litigation or claims against us and could have an adverse effect on our business, financial condition and results of operations. We may pursue potential strategic acquisitions that are complementary to our business and operations. In doing so, we will be subject to a variety of PRC anti-monopoly laws. The Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in 2006 and amended in 2009, established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex. For example, the M&A Rules require that the MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise if (i) any important industry is concerned, (ii) such transaction involves factors that have or may have impact on the national economic security or (iii) such transaction will lead to a change in control of a domestic enterprise which holds a famous trademark or PRC time-honored brand. The approval from the MOFCOM must be obtained in circumstances where overseas companies established or controlled by PRC enterprises or residents acquire affiliated domestic companies. Mergers, acquisitions or contractual arrangements that allow one market player to take control of or to exert decisive impact on another market player must also be notified in advance to the SAMR when the threshold under the Provisions on Thresholds for Prior Notification of Concentrations of Undertakings, or the Prior Notification Rules, issued by the State Council in 2008 and amended in 2018, is triggered. PRC national security review rules, which became effective in September 2011, require a strict review of (a) mergers and acquisitions by foreign investors that raise “national defense and security” concerns and (b) mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns. The rules also prohibit any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement. Further, the Measures for the Security Review of Foreign Investments promulgated by the NDRC and MOFCOM, which became effective from January 2021, require that a security review by relevant governmental authorities must be conducted for foreign investments that affect or may affect national security in accordance with the provisions thereunder. The PRC anti-monopoly enforcement agencies have in recent years strengthened enforcement under the PRC Anti-Monopoly Law. In March 2018, the SAMR was formed as a new governmental agency to take over, among other things, the anti-monopoly enforcement functions from the relevant departments under the MOFCOM, the NDRC and SAMR. Since its inception, the SAMR has continued to strengthen anti-monopoly enforcement. In November 2021, the State Council inaugurated the National Anti-Monopoly Bureau, which aims to further implement fair competition policies and strengthen anti-monopoly supervision in the PRC, particularly to strengthen oversight and law enforcement in areas involving innovation, science and technology, information security and people’s livelihoods. Complying with the requirements of these regulations when pursuing acquisitive transactions could be time-consuming, and any required approval processes, including obtaining approval or clearance from the MOFCOM, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share. Due to the enhanced enforcement of the Anti-Monopoly Law, we may receive greater scrutiny and attention from regulators and more frequent and rigid investigations or review by regulators, which may increase our compliance costs and subject us to heightened risks and challenges. In addition, there are significant uncertainties on the evolving legislative activities and varied local implementation practices of anti-monopoly and competition laws and regulations in China. The amended Anti-Monopoly Law, published in October 2021 in draft form for public comment, became effective in August 2022. It imposes a higher regulatory requirement to complete an acquisitive transaction. Any failure or perceived failure by us to comply with the anti-monopoly laws and regulations may result in governmental investigations or enforcement actions, lawsuits or claims against us and could have an adverse effect on our business, financial condition and results of operations. See also “Risks Relating to Sales of Our Internally Developed Drugs and Other Drugs—We may engage in strategic transactions, including acquisitions, investments, joint ventures or divestitures that may have an adverse effect on our business. If we engage in a strategic transaction, there is no assurance that the transaction will be consummated.” 50 51 Restrictions on currency exchange may limit our ability to receive and use our revenue effectively. Substantially all of our revenue is denominated in renminbi, which currently is not a freely convertible currency. A portion of our revenue may be converted into other currencies to meet our foreign currency obligations, including, among others, payments of dividends declared, if any, in respect of our ordinary shares or ADSs. Under China’s existing foreign exchange regulations, our subsidiaries and joint ventures are able to pay dividends in foreign currencies or convert renminbi into other currencies for use in operations without prior approval from the PRC State Administration of Foreign Exchange, or the SAFE, by complying with certain procedural requirements. However, we cannot assure you that the PRC government will not take future measures to restrict access to foreign currencies for current account transactions. tax. If we are treated as a PRC tax resident, dividends distributed by us to our non-PRC shareholders and ADS holders or any gains realized by non-PRC shareholders and ADS holders from the transfer of our shares or ADSs may be subject to PRC tax. Under the EIT Law, dividends payable by a PRC enterprise to its foreign investor who is (i) a non-PRC resident enterprise with no office or premises established in China, or (ii) a non-PRC resident enterprise with an office or premises established in China but whose income (i.e. dividends received) has no de facto relationship with said office or premises, as well as gains on transfers of shares of a PRC enterprise by such a foreign investor will generally be subject to a 10% withholding tax, unless such non-PRC resident enterprise’s jurisdiction of tax residency has an applicable tax treaty with the PRC that provides for an exemption or a reduced rate of withholding Our PRC subsidiaries’ and joint ventures’ ability to obtain foreign exchange is subject to significant foreign exchange controls and, in the case of amounts under the capital account, requires the approval of and/or registration with PRC government authorities, including the SAFE. In particular, if we finance our PRC subsidiaries or joint ventures by means of foreign debt from us or other foreign lenders, the amount is not allowed to exceed either the cross-border financing risk weighted balance calculated based on a formula by the PBOC or the difference between the amount of total investment and the amount of the registered capital. Further, such loans must be filed with and registered with the SAFE or their local branches and the National Development and Reform Commission (if applicable). If we finance our PRC subsidiaries or joint ventures by means of additional capital contributions, the amount of these capital contributions must first be filed with the relevant government approval authority. These limitations could affect the ability of our PRC subsidiaries and joint ventures to obtain foreign exchange through debt or equity financing. Our business benefits from certain PRC government tax incentives. Any changes to, or our PRC subsidiaries/joint ventures failing to continuously meet the criteria for these incentives could have a material adverse effect on our operating results by significantly increasing our tax expenses. Certain of our PRC subsidiaries and a joint venture have been granted High and New Technology Enterprise, or HNTE, status by the relevant PRC authorities. This status allows the relevant enterprise to enjoy a reduced Enterprise Income Tax, or EIT, rate at 15% on its taxable profits. For the duration of its HNTE grant, the relevant PRC enterprise must continue to meet the relevant HNTE criteria or else the 25% standard EIT rate will be applied from the beginning of the calendar year when the enterprise fails to meet the relevant criteria. If the rules for such incentives are amended, it would be uncertain whether any criteria as amended can be met, in which case the higher EIT rate may apply resulting in increased tax burden which will impact our business, financial condition, results of operations and growth prospects. We may be treated as a resident enterprise for PRC Tax purposes under China’s Enterprise Income Tax Law and Implementation Rules, or the EIT Law, and our global income may therefore be subject to PRC income tax. China’s EIT Law defines the term “de facto management bodies” as “bodies that substantially carry out comprehensive management and control on the business operation, employees, accounts and assets of enterprises.” Under the EIT Law, an enterprise incorporated outside of China whose “de facto management bodies” are located in China is considered a “resident enterprise” and will be subject to a uniform 25% EIT rate on its global income. On April 22, 2009, China’s State Administration of Taxation, or the SAT, in the Notice Regarding the Determination of Chinese-Controlled Offshore-Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, or Circular 82, further specified certain criteria for the determination of what constitutes “de facto management bodies.” If all of these criteria are met, the relevant foreign enterprise may be regarded to have its “de facto management bodies” located in China and therefore be considered a resident enterprise in China. These criteria include: (i) the enterprise’s day-to-day operational management is primarily exercised in China; decisions relating to the enterprise’s financial and human resource matters are made or subject to approval by organizations or personnel in China; (ii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholders’ meeting minutes are located or maintained in China; and (iii) 50% or more of voting board members or senior executives of the enterprise habitually reside in China. Although Circular 82 only applies to foreign enterprises that are majority-owned and controlled by PRC enterprises, not those owned and controlled by foreign enterprises or individuals, the determining criteria set forth in Circular 82 may be adopted by the PRC tax authorities as the test for determining whether the enterprises are PRC tax residents, regardless of whether they are majority-owned and controlled by PRC enterprises. Except for our PRC subsidiaries and joint ventures incorporated in China, we believe that none of our entities incorporated outside of China is a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities, and uncertainties remain with respect to the interpretation of the term “de facto management body.” If the PRC tax authorities determine that we should be considered a PRC resident enterprise for EIT purposes, any dividends payable by us to our non-PRC resident enterprise shareholders or ADS holders, as well as gains realized by such investors from the transfer of our shares or ADSs may be subject to a 10% withholding tax. Furthermore, if we are considered a PRC resident enterprise for EIT purposes, it is unclear whether our non-PRC individual shareholders (including our ADS holders) would be subject to any PRC tax on dividends or gains obtained by such non-PRC individual shareholders. If any PRC tax were to apply to dividends or gains realized by non-PRC individuals, it would generally apply at a rate of up to 20% (which in the case of dividends may be withheld at source). The foregoing rates may be reduced by an applicable tax treaty, but it is unclear if a non-PRC resident shareholder or ADS holder would be able to obtain in practice the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. If dividends payable to our non-PRC resident shareholders, or gains from the transfer of our shares or ADSs by such shareholders are subject to PRC tax, the value of your investment in our shares or ADSs may decline significantly. There is uncertainty regarding the PRC withholding tax rate that will be applied to distributions from our PRC subsidiaries and joint ventures to their respective Hong Kong immediate holding companies, which could have a negative impact on our business. The EIT Law provides that a withholding tax at the rate of 10% is applicable to dividends payable by a PRC resident enterprise to investors who are “non-resident enterprises” (i.e., that do not have an establishment or place of business in the PRC or that have such establishment or place of business but the relevant dividend is not effectively connected with the establishment or place of business). However, pursuant to Article 10.2(1), or the Article, of the Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, or the Arrangement, withholding tax at a reduced rate of 5% may be applicable to dividends payable by PRC resident enterprises to beneficial owners of the dividends that are Hong Kong tax residents if certain requirements are met. There is uncertainty regarding whether the PRC tax authorities will consider us to be eligible to the reduced tax rate. If the Article is deemed not to apply to dividends payable by our PRC subsidiaries and joint ventures to their respective Hong Kong immediate holding companies that are ultimately owned by us, the withholding tax rate applicable to us will be the statutory rate of 10% instead of 5% which may potentially impact our business, financial condition, results of operations and growth prospects. Any failure to comply with PRC regulations regarding our employee equity incentive plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions, which could adversely affect our business, financial condition and results of operations. In February 2012, the SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plans of Overseas Publicly Listed Companies. Based on this regulation, PRC residents who are granted shares or share options by a company listed on an overseas stock market under its employee share option or share incentive plan are required to register with the SAFE or its local counterparts by following certain procedures. We and our employees who are PRC residents and individual beneficial owners who have been granted shares or share options have been subject to these rules due to our listing on the AIM market, Nasdaq and SEHK. We have registered the option schemes and the share incentive plan and will continue to assist our employees to register their share options or shares. However, any failure of our PRC individual beneficial owners and holders of share options or shares to comply with the SAFE registration requirements in the future may subject them to fines and legal sanctions and may, in rare instances, limit the ability of our PRC subsidiaries to distribute dividends to us. 52 53 Restrictions on currency exchange may limit our ability to receive and use our revenue effectively. Substantially all of our revenue is denominated in renminbi, which currently is not a freely convertible currency. A portion of our revenue may be converted into other currencies to meet our foreign currency obligations, including, among others, payments of dividends declared, if any, in respect of our ordinary shares or ADSs. Under China’s existing foreign exchange regulations, our subsidiaries and joint ventures are able to pay dividends in foreign currencies or convert renminbi into other currencies for use in operations without prior approval from the PRC State Administration of Foreign Exchange, or the SAFE, by complying with certain procedural requirements. However, we cannot assure you that the PRC government will not take future measures to restrict access to foreign currencies for current account transactions. Our PRC subsidiaries’ and joint ventures’ ability to obtain foreign exchange is subject to significant foreign exchange controls and, in the case of amounts under the capital account, requires the approval of and/or registration with PRC government authorities, including the SAFE. In particular, if we finance our PRC subsidiaries or joint ventures by means of foreign debt from us or other foreign lenders, the amount is not allowed to exceed either the cross-border financing risk weighted balance calculated based on a formula by the PBOC or the difference between the amount of total investment and the amount of the registered capital. Further, such loans must be filed with and registered with the SAFE or their local branches and the National Development and Reform Commission (if applicable). If we finance our PRC subsidiaries or joint ventures by means of additional capital contributions, the amount of these capital contributions must first be filed with the relevant government approval authority. These limitations could affect the ability of our PRC subsidiaries and joint ventures to obtain foreign exchange through debt or equity financing. Our business benefits from certain PRC government tax incentives. Any changes to, or our PRC subsidiaries/joint ventures failing to continuously meet the criteria for these incentives could have a material adverse effect on our operating results by significantly increasing our tax expenses. Certain of our PRC subsidiaries and a joint venture have been granted High and New Technology Enterprise, or HNTE, status by the relevant PRC authorities. This status allows the relevant enterprise to enjoy a reduced Enterprise Income Tax, or EIT, rate at 15% on its taxable profits. For the duration of its HNTE grant, the relevant PRC enterprise must continue to meet the relevant HNTE criteria or else the 25% standard EIT rate will be applied from the beginning of the calendar year when the enterprise fails to meet the relevant criteria. If the rules for such incentives are amended, it would be uncertain whether any criteria as amended can be met, in which case the higher EIT rate may apply resulting in increased tax burden which will impact our business, financial condition, results of operations and growth prospects. We may be treated as a resident enterprise for PRC Tax purposes under China’s Enterprise Income Tax Law and Implementation Rules, or the EIT Law, and our global income may therefore be subject to PRC income tax. China’s EIT Law defines the term “de facto management bodies” as “bodies that substantially carry out comprehensive management and control on the business operation, employees, accounts and assets of enterprises.” Under the EIT Law, an enterprise incorporated outside of China whose “de facto management bodies” are located in China is considered a “resident enterprise” and will be subject to a uniform 25% EIT rate on its global income. On April 22, 2009, China’s State Administration of Taxation, or the SAT, in the Notice Regarding the Determination of Chinese-Controlled Offshore-Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, or Circular 82, further specified certain criteria for the determination of what constitutes “de facto management bodies.” If all of these criteria are met, the relevant foreign enterprise may be regarded to have its “de facto management bodies” located in China and therefore be considered a resident enterprise in China. These criteria include: (i) the enterprise’s day-to-day operational management is primarily exercised in China; decisions relating to the enterprise’s financial and human resource matters are made or subject to approval by organizations or personnel in China; (ii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholders’ meeting minutes are located or maintained in China; and (iii) 50% or more of voting board members or senior executives of the enterprise habitually reside in China. Although Circular 82 only applies to foreign enterprises that are majority-owned and controlled by PRC enterprises, not those owned and controlled by foreign enterprises or individuals, the determining criteria set forth in Circular 82 may be adopted by the PRC tax authorities as the test for determining whether the enterprises are PRC tax residents, regardless of whether they are majority-owned and controlled by PRC enterprises. Except for our PRC subsidiaries and joint ventures incorporated in China, we believe that none of our entities incorporated outside of China is a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities, and uncertainties remain with respect to the interpretation of the term “de facto management body.” If we are treated as a PRC tax resident, dividends distributed by us to our non-PRC shareholders and ADS holders or any gains realized by non-PRC shareholders and ADS holders from the transfer of our shares or ADSs may be subject to PRC tax. Under the EIT Law, dividends payable by a PRC enterprise to its foreign investor who is (i) a non-PRC resident enterprise with no office or premises established in China, or (ii) a non-PRC resident enterprise with an office or premises established in China but whose income (i.e. dividends received) has no de facto relationship with said office or premises, as well as gains on transfers of shares of a PRC enterprise by such a foreign investor will generally be subject to a 10% withholding tax, unless such non-PRC resident enterprise’s jurisdiction of tax residency has an applicable tax treaty with the PRC that provides for an exemption or a reduced rate of withholding tax. If the PRC tax authorities determine that we should be considered a PRC resident enterprise for EIT purposes, any dividends payable by us to our non-PRC resident enterprise shareholders or ADS holders, as well as gains realized by such investors from the transfer of our shares or ADSs may be subject to a 10% withholding tax. Furthermore, if we are considered a PRC resident enterprise for EIT purposes, it is unclear whether our non-PRC individual shareholders (including our ADS holders) would be subject to any PRC tax on dividends or gains obtained by such non-PRC individual shareholders. If any PRC tax were to apply to dividends or gains realized by non-PRC individuals, it would generally apply at a rate of up to 20% (which in the case of dividends may be withheld at source). The foregoing rates may be reduced by an applicable tax treaty, but it is unclear if a non-PRC resident shareholder or ADS holder would be able to obtain in practice the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. If dividends payable to our non-PRC resident shareholders, or gains from the transfer of our shares or ADSs by such shareholders are subject to PRC tax, the value of your investment in our shares or ADSs may decline significantly. There is uncertainty regarding the PRC withholding tax rate that will be applied to distributions from our PRC subsidiaries and joint ventures to their respective Hong Kong immediate holding companies, which could have a negative impact on our business. The EIT Law provides that a withholding tax at the rate of 10% is applicable to dividends payable by a PRC resident enterprise to investors who are “non-resident enterprises” (i.e., that do not have an establishment or place of business in the PRC or that have such establishment or place of business but the relevant dividend is not effectively connected with the establishment or place of business). However, pursuant to Article 10.2(1), or the Article, of the Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, or the Arrangement, withholding tax at a reduced rate of 5% may be applicable to dividends payable by PRC resident enterprises to beneficial owners of the dividends that are Hong Kong tax residents if certain requirements are met. There is uncertainty regarding whether the PRC tax authorities will consider us to be eligible to the reduced tax rate. If the Article is deemed not to apply to dividends payable by our PRC subsidiaries and joint ventures to their respective Hong Kong immediate holding companies that are ultimately owned by us, the withholding tax rate applicable to us will be the statutory rate of 10% instead of 5% which may potentially impact our business, financial condition, results of operations and growth prospects. Any failure to comply with PRC regulations regarding our employee equity incentive plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions, which could adversely affect our business, financial condition and results of operations. In February 2012, the SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plans of Overseas Publicly Listed Companies. Based on this regulation, PRC residents who are granted shares or share options by a company listed on an overseas stock market under its employee share option or share incentive plan are required to register with the SAFE or its local counterparts by following certain procedures. We and our employees who are PRC residents and individual beneficial owners who have been granted shares or share options have been subject to these rules due to our listing on the AIM market, Nasdaq and SEHK. We have registered the option schemes and the share incentive plan and will continue to assist our employees to register their share options or shares. However, any failure of our PRC individual beneficial owners and holders of share options or shares to comply with the SAFE registration requirements in the future may subject them to fines and legal sanctions and may, in rare instances, limit the ability of our PRC subsidiaries to distribute dividends to us. 52 53 In addition, the SAT has issued circulars concerning employee share options or restricted shares. Under these circulars, employees working in the PRC who exercise share options, or whose restricted shares vest, will be subject to PRC individual income tax. The PRC subsidiaries of an overseas listed company have obligations to file documents related to employee share options or restricted shares with relevant tax authorities and to withhold individual income tax of those employees related to their share options or restricted shares. Although the PRC subsidiaries currently withhold individual income tax from the PRC employees in connection with their exercise of share options, if they fail to report and pay the tax withheld according to relevant laws, rules and regulations, the PRC subsidiaries may face sanctions imposed by the tax authorities or other PRC government authorities. We may be involved in litigation, legal disputes, claims or administrative proceedings which could be costly and time-consuming to resolve. We may become subject, from time to time, to legal proceedings and claims that arise in the ordinary course of business or pursuant to governmental or regulatory enforcement activity. Any litigation or proceeding to which we become a party might result in substantial costs and divert management’s attention and resources. Furthermore, any litigation, legal disputes, claims or administrative proceedings which are initially not of material importance may escalate and become important to us due to a variety of factors, such as changes in the facts and circumstances of the cases, the likelihood of loss, the monetary amount at stake and the parties involved. Our insurance might not cover claims brought against us, provide sufficient payments to financially cover all of the costs to resolve such claims or continue to be available on terms acceptable to us. The political relationships between China and other countries may affect our business operations. We conduct our business primarily through our subsidiaries and joint ventures in China, but we also have clinical operations in the United States and other foreign jurisdictions. As a result, China’s political relationships with the United States and other jurisdictions may affect our business operations. There can be no assurance that our clinical trial participants or customers will not alter their perception of us or their preferences as a result of adverse changes to the state of political relationships between China and the relevant foreign jurisdictions. Any tensions and political concerns between China and the relevant foreign jurisdictions may adversely affect our business, financial condition, results of operations, cash flows and prospects. Risks Relating to Intellectual Property If we, our joint ventures or our collaboration partners are unable to protect our or their products and drug candidates through intellectual property rights, our competitors may compete directly against us or them. Our success depends, in part, on our, our joint venture partners’ and our collaboration partners’ ability to protect our and our joint ventures’ and our collaboration partners’ products and drug candidates from competition by establishing, maintaining and enforcing our or their intellectual property rights. We, our joint ventures and our collaboration partners seek to protect the products and technology that we and they consider commercially important by filing PRC and international patent applications, relying on trade secrets or pharmaceutical regulatory protection or employing a combination of these methods. As of December 31, 2022, we had 232 issued patents, including 18 Chinese patents, 22 U.S. patents and 12 European patents, 295 patent applications pending in major market jurisdictions, and 7 pending Patent Cooperation Treaty, or PCT, patent applications relating to the drug candidates of our Oncology/Immunology operations. For more details, see Item 4.B. “Business Overview—Patents and Other Intellectual Property.” Patents may become invalid and patent applications may not be granted for a number of reasons, including known or unknown prior art, deficiencies in the patent application or the lack of originality of the technology. In addition, the PRC and the United States have adopted the “first-to-file” system under which whoever first files an invention patent application will be awarded the patent. Under the first-to- file system, third parties may be granted a patent relating to a technology which we invented. Furthermore, the terms of patents are finite. The patents we hold and patents to be issued from our currently pending patent applications generally have a twenty-year protection period starting from the date of application. We, our joint ventures and/or our collaboration partners may become involved in patent litigation against third parties to enforce our or their patent rights, to invalidate patents held by such third parties, or to defend against such claims. A court may refuse to stop the other party from using the technology at issue on the grounds that our or our joint ventures’ patents do not cover the third-party technology in question. Further, such third parties could counterclaim that we or our joint ventures infringe their intellectual property or that a patent we, our joint ventures or our collaboration partners have asserted against them is invalid or unenforceable. In patent litigation, defendant counterclaims challenging the validity, enforceability or scope of asserted patents are commonplace. In addition, third parties may initiate legal proceedings against us or our intellectual property to assert such challenges to our intellectual property rights. The outcome of any such proceeding is generally unpredictable. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Patents may be unenforceable if someone connected with prosecution of the patent withheld relevant information or made a misleading statement during prosecution. It is possible that prior art of which we, our joint ventures or our collaboration partners and the patent examiner were unaware during prosecution exists, which could render our or their patents invalid. Moreover, it is also possible that prior art may exist that we, our joint ventures or our collaboration partners are aware of but do not believe is relevant to our or their current or future patents, but that could nevertheless be determined to render our patents invalid. The cost to us or our joint ventures of any patent litigation or similar proceeding could be substantial, and it may consume significant management time. We and our joint ventures do not maintain insurance to cover intellectual property infringement. An adverse result in any litigation proceeding could put one or more of our or our joint ventures’ patents at risk of being invalidated or interpreted narrowly. If a defendant were to prevail on a legal assertion of invalidity or unenforceability of our patents covering one of our or our joint ventures’ products or our drug candidates, we could lose at least part, and perhaps all, of the patent protection covering such product or drug candidate. Competing drugs may also be sold in other countries in which our or our joint ventures’ patent coverage might not exist or be as strong. If we lose a foreign patent lawsuit, alleging our or our joint ventures’ infringement of a competitor’s patents, we could be prevented from marketing our drugs in one or more foreign countries. Any of these outcomes would have a materially adverse effect on our business. 54 55 In addition, the SAT has issued circulars concerning employee share options or restricted shares. Under these circulars, employees working in the PRC who exercise share options, or whose restricted shares vest, will be subject to PRC individual income tax. The PRC subsidiaries of an overseas listed company have obligations to file documents related to employee share options or restricted shares with relevant tax authorities and to withhold individual income tax of those employees related to their share options or restricted shares. Although the PRC subsidiaries currently withhold individual income tax from the PRC employees in connection with their exercise of share options, if they fail to report and pay the tax withheld according to relevant laws, rules and regulations, the PRC subsidiaries may face sanctions imposed by the tax authorities or other PRC government authorities. We may be involved in litigation, legal disputes, claims or administrative proceedings which could be costly and time-consuming to resolve. We may become subject, from time to time, to legal proceedings and claims that arise in the ordinary course of business or pursuant to governmental or regulatory enforcement activity. Any litigation or proceeding to which we become a party might result in substantial costs and divert management’s attention and resources. Furthermore, any litigation, legal disputes, claims or administrative proceedings which are initially not of material importance may escalate and become important to us due to a variety of factors, such as changes in the facts and circumstances of the cases, the likelihood of loss, the monetary amount at stake and the parties involved. Our insurance might not cover claims brought against us, provide sufficient payments to financially cover all of the costs to resolve such claims or continue to be available on terms acceptable to us. The political relationships between China and other countries may affect our business operations. We conduct our business primarily through our subsidiaries and joint ventures in China, but we also have clinical operations in the United States and other foreign jurisdictions. As a result, China’s political relationships with the United States and other jurisdictions may affect our business operations. There can be no assurance that our clinical trial participants or customers will not alter their perception of us or their preferences as a result of adverse changes to the state of political relationships between China and the relevant foreign jurisdictions. Any tensions and political concerns between China and the relevant foreign jurisdictions may adversely affect our business, financial condition, results of operations, cash flows and prospects. Risks Relating to Intellectual Property If we, our joint ventures or our collaboration partners are unable to protect our or their products and drug candidates through intellectual property rights, our competitors may compete directly against us or them. Our success depends, in part, on our, our joint venture partners’ and our collaboration partners’ ability to protect our and our joint ventures’ and our collaboration partners’ products and drug candidates from competition by establishing, maintaining and enforcing our or their intellectual property rights. We, our joint ventures and our collaboration partners seek to protect the products and technology that we and they consider commercially important by filing PRC and international patent applications, relying on trade secrets or pharmaceutical regulatory protection or employing a combination of these methods. As of December 31, 2022, we had 232 issued patents, including 18 Chinese patents, 22 U.S. patents and 12 European patents, 295 patent applications pending in major market jurisdictions, and 7 pending Patent Cooperation Treaty, or PCT, patent applications relating to the drug candidates of our Oncology/Immunology operations. For more details, see Item 4.B. “Business Overview—Patents and Other Intellectual Property.” Patents may become invalid and patent applications may not be granted for a number of reasons, including known or unknown prior art, deficiencies in the patent application or the lack of originality of the technology. In addition, the PRC and the United States have adopted the “first-to-file” system under which whoever first files an invention patent application will be awarded the patent. Under the first-to- file system, third parties may be granted a patent relating to a technology which we invented. Furthermore, the terms of patents are finite. The patents we hold and patents to be issued from our currently pending patent applications generally have a twenty-year protection period starting from the date of application. We, our joint ventures and/or our collaboration partners may become involved in patent litigation against third parties to enforce our or their patent rights, to invalidate patents held by such third parties, or to defend against such claims. A court may refuse to stop the other party from using the technology at issue on the grounds that our or our joint ventures’ patents do not cover the third-party technology in question. Further, such third parties could counterclaim that we or our joint ventures infringe their intellectual property or that a patent we, our joint ventures or our collaboration partners have asserted against them is invalid or unenforceable. In patent litigation, defendant counterclaims challenging the validity, enforceability or scope of asserted patents are commonplace. In addition, third parties may initiate legal proceedings against us or our intellectual property to assert such challenges to our intellectual property rights. The outcome of any such proceeding is generally unpredictable. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Patents may be unenforceable if someone connected with prosecution of the patent withheld relevant information or made a misleading statement during prosecution. It is possible that prior art of which we, our joint ventures or our collaboration partners and the patent examiner were unaware during prosecution exists, which could render our or their patents invalid. Moreover, it is also possible that prior art may exist that we, our joint ventures or our collaboration partners are aware of but do not believe is relevant to our or their current or future patents, but that could nevertheless be determined to render our patents invalid. The cost to us or our joint ventures of any patent litigation or similar proceeding could be substantial, and it may consume significant management time. We and our joint ventures do not maintain insurance to cover intellectual property infringement. An adverse result in any litigation proceeding could put one or more of our or our joint ventures’ patents at risk of being invalidated or interpreted narrowly. If a defendant were to prevail on a legal assertion of invalidity or unenforceability of our patents covering one of our or our joint ventures’ products or our drug candidates, we could lose at least part, and perhaps all, of the patent protection covering such product or drug candidate. Competing drugs may also be sold in other countries in which our or our joint ventures’ patent coverage might not exist or be as strong. If we lose a foreign patent lawsuit, alleging our or our joint ventures’ infringement of a competitor’s patents, we could be prevented from marketing our drugs in one or more foreign countries. Any of these outcomes would have a materially adverse effect on our business. 54 55 Intellectual property and confidentiality legal regimes in China may not afford protection to the same extent as in the United States or other countries. Implementation and enforcement of PRC intellectual property laws may be deficient and ineffective. Policing unauthorized use of proprietary technology is difficult and expensive, and we or our joint ventures may need to resort to litigation to enforce or defend patents issued to us or them or to determine the enforceability, scope and validity of our proprietary rights or those of others. The experience and capabilities of PRC courts in handling intellectual property litigation varies, and outcomes are unpredictable. Further, such litigation may require a significant expenditure of cash and may divert management’s attention from our or our joint ventures’ operations, which could harm our business, financial condition and results of operations. An adverse determination in any such litigation could materially impair our or our joint ventures’ intellectual property rights and may harm our business, prospects and reputation. Developments in patent law could have a negative impact on our business. From time to time, authorities in the United States, China and other government authorities may change the standards of patentability, and any such changes could have a negative impact on our business. For example, in the United States, the Leahy-Smith America Invents Act, or the America Invents Act, which was signed into law in 2011, includes a number of significant changes to U.S. patent law. These changes include a transition from a “first-to-invent” system to a “first-to-file” system, changes to the way issued patents are challenged, and changes to the way patent applications are disputed during the examination process. As a result of these changes, patent law in the United States may favor larger and more established companies that have greater resources to devote to patent application filing and prosecution. The U.S. Patent and Trademark Office, or USPTO, has developed regulations and procedures to govern the full implementation of the America Invents Act, and many of the substantive changes to patent law associated with the America Invents Act, and, in particular, the first-to-file provisions became effective on March 16, 2013. Substantive changes to patent law associated with the America Invents Act, including continually developing case law, may affect our ability to obtain patents, and if obtained, to enforce or defend them. Accordingly, it is not clear what, if any, impact the America Invents Act will have on the cost of prosecuting our or our joint ventures’ patent applications and our or their ability to obtain patents based on our or our joint ventures’ discoveries and to enforce or defend any patents that may issue from our or their patent applications, all of which could have a material adverse effect on our business. If we are unable to maintain the confidentiality of our and our joint ventures’ trade secrets, the business and competitive position of ourselves and our joint ventures may be harmed. In addition to the protection afforded by patents and the PRC’s State Secret certification, we and our joint ventures rely upon unpatented trade secret protection, unpatented know-how and continuing technological innovation to develop and maintain our competitive position. We seek to protect our and our joint ventures’ proprietary technology and processes, in part, by entering into confidentiality agreements with our and their collaborators, scientific advisors, employees and consultants, and invention assignment agreements with our and their consultants and employees. We and our joint ventures may not be able to prevent the unauthorized disclosure or use of our or their technical know-how or other trade secrets by the parties to these agreements, however, despite the existence generally of confidentiality agreements and other contractual restrictions. If any of the collaborators, scientific advisors, employees and consultants who are parties to these agreements breaches or violates the terms of any of these agreements, we and our joint ventures may not have adequate remedies for any such breach or violation, and we could lose our trade secrets as a result. Enforcing a claim that a third-party illegally obtained and is using our or our joint ventures’ trade secrets, like patent litigation, is expensive and time consuming, and the outcome is unpredictable. In addition, courts in China and other jurisdictions outside the United States are sometimes less prepared or willing to protect trade secrets. Our and our joint ventures’ trade secrets could otherwise become known or be independently discovered by our or their competitors. For example, competitors could purchase our drugs and attempt to replicate some or all of the competitive advantages we derive from our development efforts, willfully infringe our intellectual property rights, design around our protected technology or develop their own competitive technologies that fall outside of our intellectual property rights. If any of our or our joint ventures’ trade secrets were to be lawfully obtained or independently developed by a competitor, we and our joint ventures would have no right to prevent them, or others to whom they communicate it, from using that technology or information to compete against us or our joint ventures. If our or our joint ventures’ trade secrets are unable to adequately protect our business against competitors’ drugs, our competitive position could be adversely affected, as could our business. We and our joint ventures are dependent on trademark and other intellectual property rights licensed from others. If we lose our licenses for any of our products, we or our joint ventures may not be able to continue developing such products or may be required to change the way we market such products. We and our joint ventures are parties to licenses that give us or them rights to third-party intellectual property that are necessary or useful for our or our joint ventures’ businesses. In particular, the “Hutchison”, “Chi-Med”, “Hutchison China MediTech” and “HUTCHMED” brands, among others, have been licensed to us by Hutchison Whampoa Enterprises Limited, an affiliate of our largest shareholder, Hutchison Healthcare Holdings Limited. Hutchison Whampoa Enterprises Limited grants us a royalty-free, worldwide license to such brands. For more details, please see “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions—Relationship with CK Hutchison—Intellectual property licensed by the CK Hutchison group.” Under the terms of our brand license agreement, Hutchison Whampoa Enterprises Limited has the right to terminate the license if, among other things, we commit a material breach of the agreement, or within any twelve-month period the aggregate direct or indirect shareholding in our company held by CK Hutchison is reduced to less than 35%, 30% or 20%. Furthermore, the trademarks of Elunate and Orpathys are licensed to us in China by our collaboration partner Eli Lilly and AstraZeneca, respectively. In some cases, our licensors have retained the right to prosecute and defend intellectual property rights licensed to us or our joint ventures. We depend in part on the ability of our licensors to obtain, maintain and enforce intellectual property protection for such licensed intellectual property. Such licensors may not successfully maintain their intellectual property, may determine not to pursue litigation against other companies that are infringing on such intellectual property, or may pursue litigation less aggressively than we or our joint ventures would. Without protection for the intellectual property we or our joint ventures license, other companies might be able to offer substantially identical products or branding, which could adversely affect our competitive business position and harm our business prospects. If our or our joint ventures’ products or drug candidates infringe the intellectual property rights of third parties, we and they may incur substantial liabilities, and we and they may be unable to sell these products. Our commercial success depends significantly on our and our joint ventures’ ability to operate without infringing the patents and other proprietary rights of third parties. In the PRC, invention patent applications are generally maintained in confidence until their publication 18 months from the filing date. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made and invention patent applications are filed. Even after reasonable investigation, we may not know with certainty whether any third-party may have filed a patent application without our knowledge while we or our joint ventures are still developing or producing that product. While the success of pending patent applications and applicability of any of them to our or our joint ventures’ programs are uncertain, if asserted against us or them, we could incur substantial costs and we or they may have to: obtain licenses, which may not be available on commercially reasonable terms, if at all; redesign products or processes to avoid infringement; and • • • their products. stop producing products using the patents held by others, which could cause us or them to lose the use of one or more of our or To date, we and our joint ventures have not received any material claims of infringement by any third parties. If a third-party claims that we or our joint ventures infringe its proprietary rights, any of the following may occur: • we or our joint ventures may have to defend litigation or administrative proceedings that may be costly whether we or they win or lose, and which could result in a substantial diversion of management resources; • we or our joint ventures may become liable for substantial damages for past infringement if a court decides that our technology infringes a third-party’s intellectual property rights; • a court may prohibit us or our joint ventures from producing and selling our or their product(s) without a license from the holder of the intellectual property rights, which may not be available on commercially acceptable terms, if at all; and 56 57 Intellectual property and confidentiality legal regimes in China may not afford protection to the same extent as in the United States or other countries. Implementation and enforcement of PRC intellectual property laws may be deficient and ineffective. Policing unauthorized use of proprietary technology is difficult and expensive, and we or our joint ventures may need to resort to litigation to enforce or defend patents issued to us or them or to determine the enforceability, scope and validity of our proprietary rights or those of others. The experience and capabilities of PRC courts in handling intellectual property litigation varies, and outcomes are unpredictable. Further, such litigation may require a significant expenditure of cash and may divert management’s attention from our or our joint ventures’ operations, which could harm our business, financial condition and results of operations. An adverse determination in any such litigation could materially impair our or our joint ventures’ intellectual property rights and may harm our business, prospects and reputation. Developments in patent law could have a negative impact on our business. From time to time, authorities in the United States, China and other government authorities may change the standards of patentability, and any such changes could have a negative impact on our business. For example, in the United States, the Leahy-Smith America Invents Act, or the America Invents Act, which was signed into law in 2011, includes a number of significant changes to U.S. patent law. These changes include a transition from a “first-to-invent” system to a “first-to-file” system, changes to the way issued patents are challenged, and changes to the way patent applications are disputed during the examination process. As a result of these changes, patent law in the United States may favor larger and more established companies that have greater resources to devote to patent application filing and prosecution. The U.S. Patent and Trademark Office, or USPTO, has developed regulations and procedures to govern the full implementation of the America Invents Act, and many of the substantive changes to patent law associated with the America Invents Act, and, in particular, the first-to-file provisions became effective on March 16, 2013. Substantive changes to patent law associated with the America Invents Act, including continually developing case law, may affect our ability to obtain patents, and if obtained, to enforce or defend them. Accordingly, it is not clear what, if any, impact the America Invents Act will have on the cost of prosecuting our or our joint ventures’ patent applications and our or their ability to obtain patents based on our or our joint ventures’ discoveries and to enforce or defend any patents that may issue from our or their patent applications, all of which could have a material adverse effect on our business. If we are unable to maintain the confidentiality of our and our joint ventures’ trade secrets, the business and competitive position of ourselves and our joint ventures may be harmed. In addition to the protection afforded by patents and the PRC’s State Secret certification, we and our joint ventures rely upon unpatented trade secret protection, unpatented know-how and continuing technological innovation to develop and maintain our competitive position. We seek to protect our and our joint ventures’ proprietary technology and processes, in part, by entering into confidentiality agreements with our and their collaborators, scientific advisors, employees and consultants, and invention assignment agreements with our and their consultants and employees. We and our joint ventures may not be able to prevent the unauthorized disclosure or use of our or their technical know-how or other trade secrets by the parties to these agreements, however, despite the existence generally of confidentiality agreements and other contractual restrictions. If any of the collaborators, scientific advisors, employees and consultants who are parties to these agreements breaches or violates the terms of any of these agreements, we and our joint ventures may not have adequate remedies for any such breach or violation, and we could lose our trade secrets as a result. Enforcing a claim that a third-party illegally obtained and is using our or our joint ventures’ trade secrets, like patent litigation, is expensive and time consuming, and the outcome is unpredictable. In addition, courts in China and other jurisdictions outside the United States are sometimes less prepared or willing to protect trade secrets. Our and our joint ventures’ trade secrets could otherwise become known or be independently discovered by our or their competitors. For example, competitors could purchase our drugs and attempt to replicate some or all of the competitive advantages we derive from our development efforts, willfully infringe our intellectual property rights, design around our protected technology or develop their own competitive technologies that fall outside of our intellectual property rights. If any of our or our joint ventures’ trade secrets were to be lawfully obtained or independently developed by a competitor, we and our joint ventures would have no right to prevent them, or others to whom they communicate it, from using that technology or information to compete against us or our joint ventures. If our or our joint ventures’ trade secrets are unable to adequately protect our business against competitors’ drugs, our competitive position could be adversely affected, as could our business. We and our joint ventures are dependent on trademark and other intellectual property rights licensed from others. If we lose our licenses for any of our products, we or our joint ventures may not be able to continue developing such products or may be required to change the way we market such products. We and our joint ventures are parties to licenses that give us or them rights to third-party intellectual property that are necessary or useful for our or our joint ventures’ businesses. In particular, the “Hutchison”, “Chi-Med”, “Hutchison China MediTech” and “HUTCHMED” brands, among others, have been licensed to us by Hutchison Whampoa Enterprises Limited, an affiliate of our largest shareholder, Hutchison Healthcare Holdings Limited. Hutchison Whampoa Enterprises Limited grants us a royalty-free, worldwide license to such brands. For more details, please see “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions—Relationship with CK Hutchison—Intellectual property licensed by the CK Hutchison group.” Under the terms of our brand license agreement, Hutchison Whampoa Enterprises Limited has the right to terminate the license if, among other things, we commit a material breach of the agreement, or within any twelve-month period the aggregate direct or indirect shareholding in our company held by CK Hutchison is reduced to less than 35%, 30% or 20%. Furthermore, the trademarks of Elunate and Orpathys are licensed to us in China by our collaboration partner Eli Lilly and AstraZeneca, respectively. In some cases, our licensors have retained the right to prosecute and defend intellectual property rights licensed to us or our joint ventures. We depend in part on the ability of our licensors to obtain, maintain and enforce intellectual property protection for such licensed intellectual property. Such licensors may not successfully maintain their intellectual property, may determine not to pursue litigation against other companies that are infringing on such intellectual property, or may pursue litigation less aggressively than we or our joint ventures would. Without protection for the intellectual property we or our joint ventures license, other companies might be able to offer substantially identical products or branding, which could adversely affect our competitive business position and harm our business prospects. If our or our joint ventures’ products or drug candidates infringe the intellectual property rights of third parties, we and they may incur substantial liabilities, and we and they may be unable to sell these products. Our commercial success depends significantly on our and our joint ventures’ ability to operate without infringing the patents and other proprietary rights of third parties. In the PRC, invention patent applications are generally maintained in confidence until their publication 18 months from the filing date. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made and invention patent applications are filed. Even after reasonable investigation, we may not know with certainty whether any third-party may have filed a patent application without our knowledge while we or our joint ventures are still developing or producing that product. While the success of pending patent applications and applicability of any of them to our or our joint ventures’ programs are uncertain, if asserted against us or them, we could incur substantial costs and we or they may have to: • • • obtain licenses, which may not be available on commercially reasonable terms, if at all; redesign products or processes to avoid infringement; and stop producing products using the patents held by others, which could cause us or them to lose the use of one or more of our or their products. To date, we and our joint ventures have not received any material claims of infringement by any third parties. If a third-party claims that we or our joint ventures infringe its proprietary rights, any of the following may occur: • we or our joint ventures may have to defend litigation or administrative proceedings that may be costly whether we or they win or lose, and which could result in a substantial diversion of management resources; • we or our joint ventures may become liable for substantial damages for past infringement if a court decides that our technology infringes a third-party’s intellectual property rights; • a court may prohibit us or our joint ventures from producing and selling our or their product(s) without a license from the holder of the intellectual property rights, which may not be available on commercially acceptable terms, if at all; and 56 57 • we or our joint ventures may have to reformulate product(s) so that it does not infringe the intellectual property rights of others, which may not be possible or could be very expensive and time consuming. Any costs incurred in connection with such events or the inability to sell our or our joint ventures’ products may have a material adverse effect on our business and results of operations. We, our joint ventures and our collaboration partners may not be able to effectively enforce our intellectual property rights throughout the world. Filing, prosecuting and defending patents on our or our joint venture’s products or drug candidates in all countries throughout the world would be prohibitively expensive. The requirements for patentability may differ in certain countries, particularly in developing countries. Moreover, our, our joint ventures’ or our collaboration partners’ ability to protect and enforce our or their intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws. Additionally, the patent laws of some foreign countries do not afford intellectual property protection to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, may not favor the enforcement of patents and other intellectual property rights. This could make it difficult for us or our joint ventures to stop the infringement of our or their patents or the misappropriation of our or their other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. Consequently, we may not be able to prevent third parties from practicing our or our joint ventures’ inventions throughout the world. Competitors may use our or our joint ventures’ technologies in jurisdictions where we or they have not obtained patent protection to develop their own drugs and, further, may export otherwise infringing drugs to territories where we or our joint ventures have patent protection, if our, our joint ventures’ or our collaboration partners’ ability to enforce our or their patents to stop infringing activities is inadequate. These drugs may compete with our drug candidates, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Proceedings to enforce our or our joint ventures’ patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our or their efforts and resources from other aspects of our and their businesses. While we intend to protect our intellectual property rights in the major markets for our drug candidates, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish to market our drug candidates. Furthermore, some of our collaborators are responsible for enforcing our intellectual property rights, for example, AstraZeneca is responsible for enforcing our intellectual property rights with respect to savolitinib on our behalf, we may be unable to ensure that such rights are enforced or maintained in all jurisdictions. Accordingly, our efforts to protect the intellectual property rights of our drug candidates in such countries may be inadequate. We and our joint ventures may be subject to damages resulting from claims that we or they, or our or their employees, have wrongfully used or disclosed alleged trade secrets of competitors or are in breach of non-competition or non-solicitation agreements with competitors. We and our joint ventures could in the future be subject to claims that we or they, or our or their employees, have inadvertently or otherwise used or disclosed alleged trade secrets or other proprietary information of former employers or competitors. Although we try to ensure that our and our joint ventures’ employees and consultants do not improperly use the intellectual property, proprietary information, know-how or trade secrets of others in their work for us or our joint ventures, we or our joint ventures may in the future be subject to claims that we or they caused an employee to breach the terms of his or her non-competition or non-solicitation agreement, or that we, our joint ventures, or these individuals have, inadvertently or otherwise, used or disclosed the alleged trade secrets or other proprietary information of a former employer or competitor. Litigation may be necessary to defend against these claims. Even if we and our joint ventures are successful in defending against these claims, litigation could result in substantial costs and could be a distraction to management. If our or our joint ventures’ defenses to these claims fail, in addition to requiring us and them to pay monetary damages, a court could prohibit us or our joint ventures from using technologies or features that are essential to our or their products or our drug candidates, if such technologies or features are found to incorporate or be derived from the trade secrets or other proprietary information of the former employers. An inability to incorporate such technologies or features would have a material adverse effect on our business, and may prevent us from successfully commercializing our drug candidates. In addition, we or our joint ventures may lose valuable intellectual property rights or personnel as a result of such claims. Moreover, any such litigation or the threat thereof may adversely affect our or our joint ventures’ ability to hire employees or contract with independent sales representatives. A loss of key personnel or their work product could hamper or prevent our ability to commercialize our drug candidates, which would have an adverse effect on our business, results of operations and financial condition. Patent terms may be inadequate to protect the competitive position of our drug candidates for an adequate amount of time, and the absence of patent linkage, patent term extension and data and market exclusivity for NMPA-approved pharmaceutical products could increase the risk of early generic competition for our drug candidates in China. In the United States, the Drug Price Competition and Patent Term Restoration Act of 1984, generally referred to as the Hatch- Waxman Amendments, and similar legislation in the E.U. and certain other countries, provides the opportunity for limited patent term extension. The Hatch-Waxman Amendments permit a patent-term extension of up to five years to reflect patent term lost during certain portions of product development and the FDA regulatory review process. However, a patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of drug approval; only one patent may be extended and only those claims covering the approved drug, a method for using it, or a method for manufacturing it may be extended. The application for the extension must be submitted prior to the expiration of the patent for which extension is sought. A patent that covers multiple products for which approval is sought can only be extended in connection with one of the approvals. Depending upon the timing, duration and specifics of any FDA marketing approval process for any drug candidates we may develop, one or more of our U.S. patents may be eligible for limited patent term extension under the Hatch-Waxman Amendments. However, we may not be granted an extension because of, for example, failing to exercise due diligence during the testing phase or regulatory review process, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents, or otherwise failing to satisfy applicable requirements. Moreover, the applicable period or the scope of patent protection afforded could be less than we request. In addition, to the extent we wish to pursue patent term extension based on a patent that we in-license from a third party, we would need the cooperation of that third party. If we fail to obtain patent term extensions or if the term of any such extension is less than we request, our competitors may obtain approval of competing products following our patent expiration, and thus our revenue could be reduced. Further, if this occurs, our competitors may take advantage of our investment in development and trials by referencing our clinical and pre-clinical data and launch their product earlier than might otherwise be expected, and our competitive position, business, financial condition, results of operations and prospects could be materially adversely affected. The Hatch-Waxman Amendments also include a process for patent linkage, pursuant to which the FDA will stay approval of certain follow-on applications during the pendency of litigation between the follow-on applicant and the patent holder or licensee, generally for a period of 30 months. Moreover, the Hatch-Waxman Amendments provide for statutory exclusivities that can prevent submission or approval of certain follow-on marketing applications. For example, federal law provides a five-year period of exclusivity within the United States to the first applicant to obtain approval of a new chemical entity and three years of exclusivity protecting certain innovations to previously approved active ingredients where the applicant was required to conduct new clinical investigations to obtain approval for the modification. Similarly, the U.S. Orphan Drug Act provides seven years of market exclusivity for certain drugs to treat rare diseases, where the FDA designates the drug candidate as an orphan drug and the drug is approved for the designated orphan indication. See “Risks Relating to Our Oncology/Immunology Operations and Development of Our Drug Candidates—Although we have obtained orphan drug designation for surufatinib for the treatment of pancreatic NETs in the United States, we may not be able to obtain or maintain the benefits associated with orphan drug status, including market exclusivity.” Chinese regulators have set forth a framework for integrating patent linkage and data exclusivity into the China regulatory regime, as well as for establishing a pilot program for patent term extension. To be implemented, this framework will require adoption of regulations. On October 17, 2020, the Standing Committee of the National People’s Congress published the Patent Law of PRC (Amended in 2020), which came into effect on June 1, 2021, or the Amended Patent Law. The Amended Patent Law provides that, among other things, the owner of the patent for an innovative new drug that has been granted the marketing authorization in China is entitled to request the Patent Administration Department under the State Council to grant a patent term extension of up to five years, in order to compensate the time required for the regulatory approval for the commercialization of such innovative new drug, provided that the patent term of such innovative new drug shall not exceed a total of 14 years. Furthermore, the PRC government entered into the Economic and Trade Agreement Between the Government of the People’s Republic of China and the Government of the United States of America with the U.S. government in January 2020 which provides that the owner of the patent for an innovative new drug that has been granted the marketing authorization in China is entitled to request a patent term extension of up to five years, provided that the patent term of such innovative new drug shall not exceed a total of 14 years from the date of marketing approval in China. If we are unable to obtain patent term extension, or the term of any such extension is less than that we request, our competitors or other third parties may obtain approval of competing products following our patent expiration. Any of the foregoing could have a material adverse effect on our competitive position, business, financial condition, results of operations and prospects. 58 59 • we or our joint ventures may have to reformulate product(s) so that it does not infringe the intellectual property rights of others, which may not be possible or could be very expensive and time consuming. Any costs incurred in connection with such events or the inability to sell our or our joint ventures’ products may have a material adverse effect on our business and results of operations. We, our joint ventures and our collaboration partners may not be able to effectively enforce our intellectual property rights throughout the world. Filing, prosecuting and defending patents on our or our joint venture’s products or drug candidates in all countries throughout the world would be prohibitively expensive. The requirements for patentability may differ in certain countries, particularly in developing countries. Moreover, our, our joint ventures’ or our collaboration partners’ ability to protect and enforce our or their intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws. Additionally, the patent laws of some foreign countries do not afford intellectual property protection to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, may not favor the enforcement of patents and other intellectual property rights. This could make it difficult for us or our joint ventures to stop the infringement of our or their patents or the misappropriation of our or their other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. Consequently, we may not be able to prevent third parties from practicing our or our joint ventures’ inventions throughout the world. Competitors may use our or our joint ventures’ technologies in jurisdictions where we or they have not obtained patent protection to develop their own drugs and, further, may export otherwise infringing drugs to territories where we or our joint ventures have patent protection, if our, our joint ventures’ or our collaboration partners’ ability to enforce our or their patents to stop infringing activities is inadequate. These drugs may compete with our drug candidates, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Proceedings to enforce our or our joint ventures’ patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our or their efforts and resources from other aspects of our and their businesses. While we intend to protect our intellectual property rights in the major markets for our drug candidates, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish to market our drug candidates. Furthermore, some of our collaborators are responsible for enforcing our intellectual property rights, for example, AstraZeneca is responsible for enforcing our intellectual property rights with respect to savolitinib on our behalf, we may be unable to ensure that such rights are enforced or maintained in all jurisdictions. Accordingly, our efforts to protect the intellectual property rights of our drug candidates in such countries may be inadequate. We and our joint ventures may be subject to damages resulting from claims that we or they, or our or their employees, have wrongfully used or disclosed alleged trade secrets of competitors or are in breach of non-competition or non-solicitation agreements with competitors. We and our joint ventures could in the future be subject to claims that we or they, or our or their employees, have inadvertently or otherwise used or disclosed alleged trade secrets or other proprietary information of former employers or competitors. Although we try to ensure that our and our joint ventures’ employees and consultants do not improperly use the intellectual property, proprietary information, know-how or trade secrets of others in their work for us or our joint ventures, we or our joint ventures may in the future be subject to claims that we or they caused an employee to breach the terms of his or her non-competition or non-solicitation agreement, or that we, our joint ventures, or these individuals have, inadvertently or otherwise, used or disclosed the alleged trade secrets or other proprietary information of a former employer or competitor. Litigation may be necessary to defend against these claims. Even if we and our joint ventures are successful in defending against these claims, litigation could result in substantial costs and could be a distraction to management. If our or our joint ventures’ defenses to these claims fail, in addition to requiring us and them to pay monetary damages, a court could prohibit us or our joint ventures from using technologies or features that are essential to our or their products or our drug candidates, if such technologies or features are found to incorporate or be derived from the trade secrets or other proprietary information of the former employers. An inability to incorporate such technologies or features would have a material adverse effect on our business, and may prevent us from successfully commercializing our drug candidates. In addition, we or our joint ventures may lose valuable intellectual property rights or personnel as a result of such claims. Moreover, any such litigation or the threat thereof may adversely affect our or our joint ventures’ ability to hire employees or contract with independent sales representatives. A loss of key personnel or their work product could hamper or prevent our ability to commercialize our drug candidates, which would have an adverse effect on our business, results of operations and financial condition. Patent terms may be inadequate to protect the competitive position of our drug candidates for an adequate amount of time, and the absence of patent linkage, patent term extension and data and market exclusivity for NMPA-approved pharmaceutical products could increase the risk of early generic competition for our drug candidates in China. In the United States, the Drug Price Competition and Patent Term Restoration Act of 1984, generally referred to as the Hatch- Waxman Amendments, and similar legislation in the E.U. and certain other countries, provides the opportunity for limited patent term extension. The Hatch-Waxman Amendments permit a patent-term extension of up to five years to reflect patent term lost during certain portions of product development and the FDA regulatory review process. However, a patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of drug approval; only one patent may be extended and only those claims covering the approved drug, a method for using it, or a method for manufacturing it may be extended. The application for the extension must be submitted prior to the expiration of the patent for which extension is sought. A patent that covers multiple products for which approval is sought can only be extended in connection with one of the approvals. Depending upon the timing, duration and specifics of any FDA marketing approval process for any drug candidates we may develop, one or more of our U.S. patents may be eligible for limited patent term extension under the Hatch-Waxman Amendments. However, we may not be granted an extension because of, for example, failing to exercise due diligence during the testing phase or regulatory review process, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents, or otherwise failing to satisfy applicable requirements. Moreover, the applicable period or the scope of patent protection afforded could be less than we request. In addition, to the extent we wish to pursue patent term extension based on a patent that we in-license from a third party, we would need the cooperation of that third party. If we fail to obtain patent term extensions or if the term of any such extension is less than we request, our competitors may obtain approval of competing products following our patent expiration, and thus our revenue could be reduced. Further, if this occurs, our competitors may take advantage of our investment in development and trials by referencing our clinical and pre-clinical data and launch their product earlier than might otherwise be expected, and our competitive position, business, financial condition, results of operations and prospects could be materially adversely affected. The Hatch-Waxman Amendments also include a process for patent linkage, pursuant to which the FDA will stay approval of certain follow-on applications during the pendency of litigation between the follow-on applicant and the patent holder or licensee, generally for a period of 30 months. Moreover, the Hatch-Waxman Amendments provide for statutory exclusivities that can prevent submission or approval of certain follow-on marketing applications. For example, federal law provides a five-year period of exclusivity within the United States to the first applicant to obtain approval of a new chemical entity and three years of exclusivity protecting certain innovations to previously approved active ingredients where the applicant was required to conduct new clinical investigations to obtain approval for the modification. Similarly, the U.S. Orphan Drug Act provides seven years of market exclusivity for certain drugs to treat rare diseases, where the FDA designates the drug candidate as an orphan drug and the drug is approved for the designated orphan indication. See “Risks Relating to Our Oncology/Immunology Operations and Development of Our Drug Candidates—Although we have obtained orphan drug designation for surufatinib for the treatment of pancreatic NETs in the United States, we may not be able to obtain or maintain the benefits associated with orphan drug status, including market exclusivity.” Chinese regulators have set forth a framework for integrating patent linkage and data exclusivity into the China regulatory regime, as well as for establishing a pilot program for patent term extension. To be implemented, this framework will require adoption of regulations. On October 17, 2020, the Standing Committee of the National People’s Congress published the Patent Law of PRC (Amended in 2020), which came into effect on June 1, 2021, or the Amended Patent Law. The Amended Patent Law provides that, among other things, the owner of the patent for an innovative new drug that has been granted the marketing authorization in China is entitled to request the Patent Administration Department under the State Council to grant a patent term extension of up to five years, in order to compensate the time required for the regulatory approval for the commercialization of such innovative new drug, provided that the patent term of such innovative new drug shall not exceed a total of 14 years. Furthermore, the PRC government entered into the Economic and Trade Agreement Between the Government of the People’s Republic of China and the Government of the United States of America with the U.S. government in January 2020 which provides that the owner of the patent for an innovative new drug that has been granted the marketing authorization in China is entitled to request a patent term extension of up to five years, provided that the patent term of such innovative new drug shall not exceed a total of 14 years from the date of marketing approval in China. If we are unable to obtain patent term extension, or the term of any such extension is less than that we request, our competitors or other third parties may obtain approval of competing products following our patent expiration. Any of the foregoing could have a material adverse effect on our competitive position, business, financial condition, results of operations and prospects. 58 59 Risks Relating to Our ADSs The listings of our shares in multiple venues may adversely affect the liquidity and value of them. The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of such inspections. Our auditor, the independent registered public accounting firm that issues the audit report included elsewhere in this annual report, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. The auditor is located in mainland China, a jurisdiction where the PCAOB was historically unable to conduct inspections and investigations completely before 2022. As a result, we and investors in the ADSs were deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China in the past has made it more difficult to evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. However, if the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong, and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the Securities and Exchange Commission, we and investors in our ADSs would be deprived of the benefits of such PCAOB inspections again, which could cause investors and potential investors in the ADSs to lose confidence in our audit procedures and reported financial information and the quality of our financial statements. Our ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or investigate completely auditors located in China. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment. Pursuant to the HFCAA, if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspections by the PCAOB for two consecutive years, the SEC will prohibit our shares or ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States. On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong and our auditor was subject to that determination. In March 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA following the filing of our annual report on Form 20-F for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. For this reason, we do not expect to be identified as a Commission-Identified Issuer under the HFCAA after we file this annual report on Form 20-F for the fiscal year ended December 31, 2022. Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the Securities and Exchange Commission, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year. In accordance with the HFCAA, our securities would be prohibited from being traded on a national securities exchange or in the over-the- counter trading market in the United States if we are identified as a Commission-Identified Issuer for two consecutive years in the future. Although our ordinary shares have been listed on the SEHK and AIM and the ADSs and ordinary shares are fully fungible, we cannot assure your that an active trading market for our ordinary shares on the Hong Kong Stock Exchange or AIM of the London Stock Exchange will be sustained or that the ADSs can be converted and traded with sufficient market recognition and liquidity, if our shares and ADSs are prohibited from trading in the United States. A prohibition of being able to trade in the United States would substantially impair your ability to sell or purchase our ADSs when you wish to do so, and the risk and uncertainty associated with delisting would have a negative impact on the price of our ADSs. Also, such a prohibition would significantly affect our ability to raise capital on terms acceptable to us, or at all, which would have a material adverse impact on our business, financial condition, and prospects. Our ADSs continue to be listed on Nasdaq, and our shares continue to be admitted to trading on the AIM. Our shares were listed on the SEHK in June 2021. The listing of the shares on the AIM and the SEHK, and the ADSs on Nasdaq, may reduce the liquidity of these securities in one or each of these markets and may adversely affect the development of an active trading market for the shares in each of these markets. The price of the shares could also be adversely affected by trading on Nasdaq. Similarly, the price of the ADSs could also be adversely affected by trading on the AIM and the SEHK. We may also seek further listings on other stock exchanges such as the Shanghai Stock Exchange, which could further affect the liquidity and value of the shares and the ADSs. Furthermore, the shares trade on the SEHK largely in electronic book-entry form. However, the ADSs are backed by physical ordinary share certificates, and the depositary for our ADS program is unable to accept book-entry interests into its custody in order to issue ADSs. As a result, if a holder of the shares wishes to deposit the shares into the ADS program and hold ADSs for trading on Nasdaq or vice versa, the issuance and cancellation process may be longer than if the depositary could accept such book-entry interests. Our largest shareholder owns a significant percentage of our ordinary shares, which may limit the ability of other shareholders to influence corporate matters. As of February 15, 2023, Hutchison Healthcare Holdings Limited owned approximately 38.5% of our ordinary shares. Accordingly, Hutchison Healthcare Holdings Limited can influence the outcome of any corporate transaction or other matter submitted to shareholders for approval and the interests of Hutchison Healthcare Holdings Limited may differ from the interests of our other shareholders. Under our Articles of Association, certain matters, such as amendments to our amended and restated Memorandum and Articles of Association, require the approval of not less than three-fourths of votes cast by such shareholders as, being entitled so to do, vote in person (or, in the case of such shareholders as are corporations, by their respective duly authorized representative) or by proxy. Therefore, Hutchison Healthcare Holdings Limited’s approval will be required to achieve any such threshold. In addition, Hutchison Healthcare Holdings Limited has and will continue to have a significant influence over the management and the strategic direction of our company. Substantial future sales or perceived potential sales of our ADSs, ordinary shares or other equity or equity-linked securities in the public market could cause the price of our ADSs to decline significantly. Sales of our ADSs, ordinary shares or other equity or equity-linked securities in the public market, or the perception that these sales could occur, could cause the market price of our ADSs to decline significantly. All of our ordinary shares represented by ADSs are freely transferable by persons other than our affiliates without restriction or additional registration under the Securities Act of 1933, or the Securities Act. The ordinary shares held by our affiliates are also available for sale, subject to volume and other restrictions as applicable under Rules 144 and 701 under the Securities Act, under sales plans adopted pursuant to Rule 10b5-1 or otherwise. We have filed with the SEC registration statements on Form F-3, commonly referred to as a “shelf registration,” that permit us to sell any number of ADSs in a registered offering at our discretion. We have completed registered offerings raising aggregate gross proceeds of approximately $537.9 million under such shelf registration statements. Furthermore, our largest shareholder has completed registered secondary offerings raising aggregate gross proceeds of approximately $310.4 million for it as a selling shareholder under a shelf registration statement. In addition, we completed our initial public offering in Hong Kong and global offering of our ordinary shares in 2021, raising aggregate gross proceeds of approximately $614.9 million, including $80.2 million through the fulfillment of the over-allotment. We may decide to conduct future offerings from time to time, and such sales could cause the price of our ADSs to decline significantly. In connection with the issuance of ordinary shares in private placements in 2020 and 2021, we agreed to provide three shareholders Form F-3 registration rights. Registration of the ordinary shares held by such shareholders may result in these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration. Sales of these shares, or the perception that such sales could occur, could cause the price of our ADSs to decline. In addition, any changes in the investment strategies or philosophies of our major shareholders may lead to the sale of our ADSs and other securities, which could cause the price of our ADSs to decline. 60 61 Risks Relating to Our ADSs The listings of our shares in multiple venues may adversely affect the liquidity and value of them. The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of such inspections. Our auditor, the independent registered public accounting firm that issues the audit report included elsewhere in this annual report, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. The auditor is located in mainland China, a jurisdiction where the PCAOB was historically unable to conduct inspections and investigations completely before 2022. As a result, we and investors in the ADSs were deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China in the past has made it more difficult to evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. However, if the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong, and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the Securities and Exchange Commission, we and investors in our ADSs would be deprived of the benefits of such PCAOB inspections again, which could cause investors and potential investors in the ADSs to lose confidence in our audit procedures and reported financial information and the quality of our financial statements. Our ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or investigate completely auditors located in China. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment. Pursuant to the HFCAA, if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspections by the PCAOB for two consecutive years, the SEC will prohibit our shares or ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States. On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong and our auditor was subject to that determination. In March 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA following the filing of our annual report on Form 20-F for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. For this reason, we do not expect to be identified as a Commission-Identified Issuer under the HFCAA after we file this annual report on Form 20-F for the fiscal year ended December 31, 2022. Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the Securities and Exchange Commission, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year. In accordance with the HFCAA, our securities would be prohibited from being traded on a national securities exchange or in the over-the- counter trading market in the United States if we are identified as a Commission-Identified Issuer for two consecutive years in the future. Although our ordinary shares have been listed on the SEHK and AIM and the ADSs and ordinary shares are fully fungible, we cannot assure your that an active trading market for our ordinary shares on the Hong Kong Stock Exchange or AIM of the London Stock Exchange will be sustained or that the ADSs can be converted and traded with sufficient market recognition and liquidity, if our shares and ADSs are prohibited from trading in the United States. A prohibition of being able to trade in the United States would substantially impair your ability to sell or purchase our ADSs when you wish to do so, and the risk and uncertainty associated with delisting would have a negative impact on the price of our ADSs. Also, such a prohibition would significantly affect our ability to raise capital on terms acceptable to us, or at all, which would have a material adverse impact on our business, financial condition, and prospects. Our ADSs continue to be listed on Nasdaq, and our shares continue to be admitted to trading on the AIM. Our shares were listed on the SEHK in June 2021. The listing of the shares on the AIM and the SEHK, and the ADSs on Nasdaq, may reduce the liquidity of these securities in one or each of these markets and may adversely affect the development of an active trading market for the shares in each of these markets. The price of the shares could also be adversely affected by trading on Nasdaq. Similarly, the price of the ADSs could also be adversely affected by trading on the AIM and the SEHK. We may also seek further listings on other stock exchanges such as the Shanghai Stock Exchange, which could further affect the liquidity and value of the shares and the ADSs. Furthermore, the shares trade on the SEHK largely in electronic book-entry form. However, the ADSs are backed by physical ordinary share certificates, and the depositary for our ADS program is unable to accept book-entry interests into its custody in order to issue ADSs. As a result, if a holder of the shares wishes to deposit the shares into the ADS program and hold ADSs for trading on Nasdaq or vice versa, the issuance and cancellation process may be longer than if the depositary could accept such book-entry interests. Our largest shareholder owns a significant percentage of our ordinary shares, which may limit the ability of other shareholders to influence corporate matters. As of February 15, 2023, Hutchison Healthcare Holdings Limited owned approximately 38.5% of our ordinary shares. Accordingly, Hutchison Healthcare Holdings Limited can influence the outcome of any corporate transaction or other matter submitted to shareholders for approval and the interests of Hutchison Healthcare Holdings Limited may differ from the interests of our other shareholders. Under our Articles of Association, certain matters, such as amendments to our amended and restated Memorandum and Articles of Association, require the approval of not less than three-fourths of votes cast by such shareholders as, being entitled so to do, vote in person (or, in the case of such shareholders as are corporations, by their respective duly authorized representative) or by proxy. Therefore, Hutchison Healthcare Holdings Limited’s approval will be required to achieve any such threshold. In addition, Hutchison Healthcare Holdings Limited has and will continue to have a significant influence over the management and the strategic direction of our company. Substantial future sales or perceived potential sales of our ADSs, ordinary shares or other equity or equity-linked securities in the public market could cause the price of our ADSs to decline significantly. Sales of our ADSs, ordinary shares or other equity or equity-linked securities in the public market, or the perception that these sales could occur, could cause the market price of our ADSs to decline significantly. All of our ordinary shares represented by ADSs are freely transferable by persons other than our affiliates without restriction or additional registration under the Securities Act of 1933, or the Securities Act. The ordinary shares held by our affiliates are also available for sale, subject to volume and other restrictions as applicable under Rules 144 and 701 under the Securities Act, under sales plans adopted pursuant to Rule 10b5-1 or otherwise. We have filed with the SEC registration statements on Form F-3, commonly referred to as a “shelf registration,” that permit us to sell any number of ADSs in a registered offering at our discretion. We have completed registered offerings raising aggregate gross proceeds of approximately $537.9 million under such shelf registration statements. Furthermore, our largest shareholder has completed registered secondary offerings raising aggregate gross proceeds of approximately $310.4 million for it as a selling shareholder under a shelf registration statement. In addition, we completed our initial public offering in Hong Kong and global offering of our ordinary shares in 2021, raising aggregate gross proceeds of approximately $614.9 million, including $80.2 million through the fulfillment of the over-allotment. We may decide to conduct future offerings from time to time, and such sales could cause the price of our ADSs to decline significantly. In connection with the issuance of ordinary shares in private placements in 2020 and 2021, we agreed to provide three shareholders Form F-3 registration rights. Registration of the ordinary shares held by such shareholders may result in these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration. Sales of these shares, or the perception that such sales could occur, could cause the price of our ADSs to decline. In addition, any changes in the investment strategies or philosophies of our major shareholders may lead to the sale of our ADSs and other securities, which could cause the price of our ADSs to decline. 60 61 We may be at a risk of securities litigation. We may in the future lose our foreign private issuer status under U.S. securities laws, which could result in significant additional Historically, securities litigation, particularly class action lawsuits brought in the United States, have often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology and biopharmaceutical companies have experienced significant share price volatility in recent years. If we were to be sued, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business. If securities analysts do not publish research or reports about our business or if they publish negative evaluations of our business, the price of our ADSs could decline. The trading market for our ADSs will rely in part on the research and reports that industry or financial analysts publish about us or our business. We may not be able to maintain continuous research coverage by industry or financial analysts. If one or more of the analysts covering our business downgrade their evaluations of our stock, the price of our stock could decline. If one or more of these analysts cease to cover our stock, we could lose visibility in the market for our stock, which in turn could cause our stock price to decline. As a foreign private issuer, we are not subject to certain U.S. securities law disclosure requirements that apply to a domestic U.S. issuer, which may limit the information publicly available to our shareholders. Fluctuations in the value of the renminbi may have a material adverse effect on your investment. As a foreign private issuer, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act and therefore there may be less publicly available information about us than if we were a U.S. domestic issuer. For example, we are not required to file quarterly reports on Form 10-Q. We are also not subject to the proxy rules in the United States, and we are not required to follow the related disclosure requirements with respect to our annual general meetings, including disclosing a compensation discussion and analysis. Our disclosure with respect to our annual general meetings will be governed by the AIM Rules for Companies, or the AIM Rules, listing rules in Hong Kong and Cayman Islands requirements. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules thereunder. Therefore, our shareholders may not know on a timely basis when our officers, directors and principal shareholders purchase or sell our ordinary shares or ADSs. As a foreign private issuer, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from Nasdaq corporate governance listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with corporate governance listing standards. As a foreign private issuer, we are permitted to take advantage of certain provisions in the Nasdaq listing rules that allow us to follow Cayman Islands law for certain governance matters. Certain corporate governance practices in the Cayman Islands may differ significantly from corporate governance listing standards as, except for general fiduciary duties and duties of care, Cayman Islands law has no corporate governance regime which prescribes specific corporate governance standards. We intend to continue to follow Cayman Islands corporate governance practices in lieu of the corporate governance requirements of the Nasdaq Global Select Market in respect of the following: (i) the majority independent director requirement under Section 5605(b)(1) of the Nasdaq listing rules, (ii) the requirement under Section 5605(d) of the Nasdaq listing rules that a remuneration committee comprised solely of independent directors governed by a remuneration committee charter oversee executive compensation and (iii) the requirement under Section 5605(e) of the Nasdaq listing rules that director nominees be selected or recommended for selection by either a majority of the independent directors or a nominations committee comprised solely of independent directors. Cayman Islands law does not impose a requirement that our board of directors consist of a majority of independent directors, nor does Cayman Islands law impose specific requirements on the establishment of a remuneration committee or nominating committee or nominating process. Therefore, our shareholders may be afforded less protection than they otherwise would have under corporate governance listing standards applicable to U.S. domestic issuers. We have voluntarily complied with the Corporate Governance Code contained in Appendix 14 of the Rules Governing the Listing of Securities on SEHK. See Item 6.C. “Board Practice—Hong Kong Corporate Governance Code” for more details. costs and expenses. We are a foreign private issuer as defined in the Securities Act, and therefore, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act. The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter, and, accordingly, the next determination will be made with respect to us on June 30, 2023. We would lose our foreign private issuer status if, for example, more than 50% of our ordinary shares are directly or indirectly held by residents of the United States on June 30, 2023 and we fail to meet additional requirements necessary to maintain our foreign private issuer status. If we lose our foreign private issuer status on this date, we will be required to file with the SEC periodic reports and registration statements on U.S. domestic issuer forms beginning on January 1, 2024, which are more detailed and extensive than the forms available to a foreign private issuer. We will also have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. In addition, we will lose our ability to rely upon exemptions from certain corporate governance requirements under the Nasdaq listing rules. As a U.S.-listed public company, should we lose our foreign private issuer status, we will incur significant additional legal, accounting and other expenses that we would not incur as a foreign private issuer. The value of the renminbi against the U.S. dollar and other currencies fluctuates and is affected by, among other things, changes in China’s and international political and economic conditions and the PRC government’s fiscal and currency policies. Since 1994, the conversion of renminbi into foreign currencies, including U.S. dollars, has been based on rates set by the PBOC, which are set daily based on the previous business day’s inter-bank foreign exchange market rates and current exchange rates on the world financial markets. It is expected that China may further reform its exchange rate system in the future. Significant revaluation of the renminbi may have a material adverse effect on your investment. For example, to the extent that we need to convert U.S. dollars into renminbi for our operations, appreciation of the renminbi against the U.S. dollar would have an adverse effect on the renminbi amount we would receive from the conversion. Conversely, if we decide to convert our renminbi into U.S. dollars, appreciation of the U.S. dollar against the renminbi would have a negative effect on the U.S. dollar amount available to us. Appreciation or depreciation in the value of the renminbi relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms regardless of any underlying change in our business or results of operations. In addition, our operating transactions and assets and liabilities in the PRC are mainly denominated in renminbi. Such amounts are translated into U.S. dollars for purpose of preparing our consolidated financial statements, with translation adjustments reflected in accumulated other comprehensive income/(loss) in shareholders’ equity. We recorded a foreign currency translation gain of $9.5 million, a foreign currency translation gain of $3.0 million and a foreign currency translation loss of $8.5 million for the years ended December 31, 2020, 2021 and 2022, respectively. Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert renminbi into foreign currency. We do not currently intend to pay dividends on our securities, and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of the ADSs. We have never declared or paid any dividends on our ordinary shares. We currently intend to invest our future earnings, if any, to fund our growth. Therefore, you are not likely to receive any dividends on your ADSs at least in the near term, and the success of an investment in ADSs will depend upon any future appreciation in its value. Consequently, investors may need to sell all or part of their holdings of ADSs after price appreciation, which may never occur, to realize any future gains on their investment. There is no guarantee that the ADSs will appreciate in value or even maintain the price at which our shareholders have purchased the ADSs. The trading prices for our ADSs may be volatile which could result in substantial losses to you. The market price of our ADSs has been volatile. From March 17, 2016 to January 31, 2023, the closing sale price of our ADSs ranged from a high of $43.94 to a low of $7.39 per ADS. 62 63 We may be at a risk of securities litigation. Historically, securities litigation, particularly class action lawsuits brought in the United States, have often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology and biopharmaceutical companies have experienced significant share price volatility in recent years. If we were to be sued, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business. If securities analysts do not publish research or reports about our business or if they publish negative evaluations of our business, the price of our ADSs could decline. The trading market for our ADSs will rely in part on the research and reports that industry or financial analysts publish about us or our business. We may not be able to maintain continuous research coverage by industry or financial analysts. If one or more of the analysts covering our business downgrade their evaluations of our stock, the price of our stock could decline. If one or more of these analysts cease to cover our stock, we could lose visibility in the market for our stock, which in turn could cause our stock price to decline. We may in the future lose our foreign private issuer status under U.S. securities laws, which could result in significant additional costs and expenses. We are a foreign private issuer as defined in the Securities Act, and therefore, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act. The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter, and, accordingly, the next determination will be made with respect to us on June 30, 2023. We would lose our foreign private issuer status if, for example, more than 50% of our ordinary shares are directly or indirectly held by residents of the United States on June 30, 2023 and we fail to meet additional requirements necessary to maintain our foreign private issuer status. If we lose our foreign private issuer status on this date, we will be required to file with the SEC periodic reports and registration statements on U.S. domestic issuer forms beginning on January 1, 2024, which are more detailed and extensive than the forms available to a foreign private issuer. We will also have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. In addition, we will lose our ability to rely upon exemptions from certain corporate governance requirements under the Nasdaq listing rules. As a U.S.-listed public company, should we lose our foreign private issuer status, we will incur significant additional legal, accounting and other expenses that we would not incur as a foreign private issuer. As a foreign private issuer, we are not subject to certain U.S. securities law disclosure requirements that apply to a domestic U.S. issuer, which may limit the information publicly available to our shareholders. Fluctuations in the value of the renminbi may have a material adverse effect on your investment. As a foreign private issuer, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act and therefore there may be less publicly available information about us than if we were a U.S. domestic issuer. For example, we are not required to file quarterly reports on Form 10-Q. We are also not subject to the proxy rules in the United States, and we are not required to follow the related disclosure requirements with respect to our annual general meetings, including disclosing a compensation discussion and analysis. Our disclosure with respect to our annual general meetings will be governed by the AIM Rules for Companies, or the AIM Rules, listing rules in Hong Kong and Cayman Islands requirements. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules thereunder. Therefore, our shareholders may not know on a timely basis when our officers, directors and principal shareholders purchase or sell our ordinary shares or ADSs. As a foreign private issuer, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from Nasdaq corporate governance listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with corporate governance listing standards. As a foreign private issuer, we are permitted to take advantage of certain provisions in the Nasdaq listing rules that allow us to follow Cayman Islands law for certain governance matters. Certain corporate governance practices in the Cayman Islands may differ significantly from corporate governance listing standards as, except for general fiduciary duties and duties of care, Cayman Islands law has no corporate governance regime which prescribes specific corporate governance standards. We intend to continue to follow Cayman Islands corporate governance practices in lieu of the corporate governance requirements of the Nasdaq Global Select Market in respect of the following: (i) the majority independent director requirement under Section 5605(b)(1) of the Nasdaq listing rules, (ii) the requirement under Section 5605(d) of the Nasdaq listing rules that a remuneration committee comprised solely of independent directors governed by a remuneration committee charter oversee executive compensation and (iii) the requirement under Section 5605(e) of the Nasdaq listing rules that director nominees be selected or recommended for selection by either a majority of the independent directors or a nominations committee comprised solely of independent directors. Cayman Islands law does not impose a requirement that our board of directors consist of a majority of independent directors, nor does Cayman Islands law impose specific requirements on the establishment of a remuneration committee or nominating committee or nominating process. Therefore, our shareholders may be afforded less protection than they otherwise would have under corporate governance listing standards applicable to U.S. domestic issuers. We have voluntarily complied with the Corporate Governance Code contained in Appendix 14 of the Rules Governing the Listing of Securities on SEHK. See Item 6.C. “Board Practice—Hong Kong Corporate Governance Code” for more details. The value of the renminbi against the U.S. dollar and other currencies fluctuates and is affected by, among other things, changes in China’s and international political and economic conditions and the PRC government’s fiscal and currency policies. Since 1994, the conversion of renminbi into foreign currencies, including U.S. dollars, has been based on rates set by the PBOC, which are set daily based on the previous business day’s inter-bank foreign exchange market rates and current exchange rates on the world financial markets. It is expected that China may further reform its exchange rate system in the future. Significant revaluation of the renminbi may have a material adverse effect on your investment. For example, to the extent that we need to convert U.S. dollars into renminbi for our operations, appreciation of the renminbi against the U.S. dollar would have an adverse effect on the renminbi amount we would receive from the conversion. Conversely, if we decide to convert our renminbi into U.S. dollars, appreciation of the U.S. dollar against the renminbi would have a negative effect on the U.S. dollar amount available to us. Appreciation or depreciation in the value of the renminbi relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms regardless of any underlying change in our business or results of operations. In addition, our operating transactions and assets and liabilities in the PRC are mainly denominated in renminbi. Such amounts are translated into U.S. dollars for purpose of preparing our consolidated financial statements, with translation adjustments reflected in accumulated other comprehensive income/(loss) in shareholders’ equity. We recorded a foreign currency translation gain of $9.5 million, a foreign currency translation gain of $3.0 million and a foreign currency translation loss of $8.5 million for the years ended December 31, 2020, 2021 and 2022, respectively. Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert renminbi into foreign currency. We do not currently intend to pay dividends on our securities, and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of the ADSs. We have never declared or paid any dividends on our ordinary shares. We currently intend to invest our future earnings, if any, to fund our growth. Therefore, you are not likely to receive any dividends on your ADSs at least in the near term, and the success of an investment in ADSs will depend upon any future appreciation in its value. Consequently, investors may need to sell all or part of their holdings of ADSs after price appreciation, which may never occur, to realize any future gains on their investment. There is no guarantee that the ADSs will appreciate in value or even maintain the price at which our shareholders have purchased the ADSs. The trading prices for our ADSs may be volatile which could result in substantial losses to you. The market price of our ADSs has been volatile. From March 17, 2016 to January 31, 2023, the closing sale price of our ADSs ranged from a high of $43.94 to a low of $7.39 per ADS. 62 63 The market price for our ADSs is likely to be highly volatile and subject to wide fluctuations in response to factors, including the The depositary for our ADSs gives us a discretionary proxy to vote our ordinary shares underlying your ADSs if you do not vote at following: shareholders’ meetings, except in limited circumstances, which could adversely affect your interests. • • • • • • • • announcements of competitive developments; regulatory developments affecting us, our customers or our competitors; announcements regarding litigation or administrative proceedings involving us; actual or anticipated fluctuations in our period-to-period operating results; changes in financial estimates by securities research analysts; additions or departures of our executive officers; release or expiry of lock-up or other transfer restrictions on our outstanding ordinary shares or ADSs; and sales or perceived sales of additional ordinary shares or ADSs. In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. Prolonged global capital markets volatility may affect overall investor sentiment towards our ADSs, which would also negatively affect the trading prices for our ADSs. The triple listing of our ordinary shares and the ADSs may adversely affect the liquidity and value of the ADSs. Our ordinary shares are listed on the AIM market and on the SEHK. The triple listing of our ordinary shares and the ADSs may dilute the liquidity of these securities in one or more of these markets and may adversely affect the development of an active trading market for the ADSs in the United States or shares in Hong Kong and the United Kingdom. The price of the ADSs could also be adversely affected by trading in our ordinary shares on the AIM market and the SEHK. Fluctuations in the exchange rate between the U.S. dollar, Hong Kong dollar and the pound sterling may increase the risk of holding the ADSs. Our share price is quoted on the SEHK and AIM market in Hong Kong dollar and pence sterling, respectively, while the ADSs trade on Nasdaq in U.S. dollars. Fluctuations in the exchange rate between the U.S. dollar, Hong Kong dollar and the pound sterling may result in temporary differences between the value of the ADSs and the value of our ordinary shares, which may result in heavy trading by investors seeking to exploit such differences. In addition, as a result of fluctuations in the exchange rate between the U.S. dollar, Hong Kong dollar and the pound sterling, the U.S. dollar equivalent of the proceeds that a holder of the ADSs would receive upon the sale in Hong Kong of any ordinary shares or in the United Kingdom of any ordinary shares withdrawn from the depositary and the dollar equivalent of any cash dividends paid in Hong Kong dollar or pound sterling on our shares represented by the ADSs could also decline. Securities traded on the AIM market or on the SEHK may carry or be perceived to carry a higher risk than shares traded on other exchanges and may impact the value of your investment. Our ordinary shares are currently traded on the AIM market and on the SEHK. Investment in equities traded on AIM and the SEHK may be perceived by some to carry a higher risk than an investment in equities quoted on exchanges, such as the New York Stock Exchange or the Nasdaq. You should be aware that the value of our ordinary shares may be influenced by many factors, some of which may be specific to us and some of which may affect AIM-listed or Hong Kong-listed companies generally, including the depth and liquidity of the market, our performance, a large or small volume of trading in our ordinary shares, legislative changes and general economic, political or regulatory conditions, and that the prices may be volatile and subject to extensive fluctuations. Therefore, the market price of our ordinary shares underlying the ADSs may not reflect the underlying value of our company. Under the deposit agreement for the ADSs, the depositary gives us a discretionary proxy to vote our ordinary shares underlying your ADSs at shareholders’ meetings if you do not vote, unless: • we do not wish a discretionary proxy to be given; • we are aware or should reasonably be aware that there is substantial opposition as to a matter to be voted on at the meeting; or • a matter to be voted on at the meeting would materially and adversely affect the rights of shareholders. The effect of this discretionary proxy is that you cannot prevent our ordinary shares underlying your ADSs from being voted, absent the situations described above, and it may make it more difficult for shareholders to influence the management of our company. Holders of our ordinary shares are not subject to this discretionary proxy. Holders of ADSs have fewer rights than shareholders and must act through the depositary to exercise their rights. Holders of our ADSs do not have the same rights as our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement. Under our amended and restated Memorandum and Articles of Association, an annual general meeting shall be called by notice with not less than 21 clear days, and all other general meetings (including an extraordinary general meeting) shall be called by notice with not less than 14 clear days. When a general meeting is convened, you may not receive sufficient notice of a shareholders’ meeting to permit you to withdraw the ordinary shares underlying your ADSs to allow you to vote with respect to any specific matter. If we ask for your instructions, we will give the depositary notice of any such meeting and details concerning the matters to be voted upon at least 30 days in advance of the meeting date and the depositary will send a notice to you about the upcoming vote and will arrange to deliver our voting materials to you. The depositary and its agents, however, may not be able to send voting instructions to you or carry out your voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to you in a timely manner, but we cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote the ordinary shares underlying your ADSs. Furthermore, the depositary will not be liable for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, you may not be able to exercise your right to vote and you may lack recourse if your ADSs are not voted as you request. In addition, in your capacity as an ADS holder, you will not be able to call a shareholders’ meeting. You may not receive distributions on our ADSs or any value for them if such distribution is illegal or if any required government approval cannot be obtained in order to make such distribution available to you. Although we do not have any present plan to pay any dividends, the depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities underlying our ADSs, after deducting its fees and expenses and any applicable taxes and governmental charges. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities whose offering would require registration under the Securities Act but is not so properly registered or distributed under an applicable exemption from registration. The depositary may also determine that it is not reasonably practicable to distribute certain property. In these cases, the depositary may determine not to distribute such property. We have no obligation to register under the U.S. securities laws any offering of ADSs, ordinary shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of our ADSs. 64 65 following: announcements of competitive developments; regulatory developments affecting us, our customers or our competitors; announcements regarding litigation or administrative proceedings involving us; actual or anticipated fluctuations in our period-to-period operating results; changes in financial estimates by securities research analysts; additions or departures of our executive officers; • • • • • • • • release or expiry of lock-up or other transfer restrictions on our outstanding ordinary shares or ADSs; and sales or perceived sales of additional ordinary shares or ADSs. In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. Prolonged global capital markets volatility may affect overall investor sentiment towards our ADSs, which would also negatively affect the trading prices for our ADSs. The triple listing of our ordinary shares and the ADSs may adversely affect the liquidity and value of the ADSs. Our ordinary shares are listed on the AIM market and on the SEHK. The triple listing of our ordinary shares and the ADSs may dilute the liquidity of these securities in one or more of these markets and may adversely affect the development of an active trading market for the ADSs in the United States or shares in Hong Kong and the United Kingdom. The price of the ADSs could also be adversely affected by trading in our ordinary shares on the AIM market and the SEHK. Fluctuations in the exchange rate between the U.S. dollar, Hong Kong dollar and the pound sterling may increase the risk of holding the ADSs. also decline. Our share price is quoted on the SEHK and AIM market in Hong Kong dollar and pence sterling, respectively, while the ADSs trade on Nasdaq in U.S. dollars. Fluctuations in the exchange rate between the U.S. dollar, Hong Kong dollar and the pound sterling may result in temporary differences between the value of the ADSs and the value of our ordinary shares, which may result in heavy trading by investors seeking to exploit such differences. In addition, as a result of fluctuations in the exchange rate between the U.S. dollar, Hong Kong dollar and the pound sterling, the U.S. dollar equivalent of the proceeds that a holder of the ADSs would receive upon the sale in Hong Kong of any ordinary shares or in the United Kingdom of any ordinary shares withdrawn from the depositary and the dollar equivalent of any cash dividends paid in Hong Kong dollar or pound sterling on our shares represented by the ADSs could Securities traded on the AIM market or on the SEHK may carry or be perceived to carry a higher risk than shares traded on other exchanges and may impact the value of your investment. Our ordinary shares are currently traded on the AIM market and on the SEHK. Investment in equities traded on AIM and the SEHK may be perceived by some to carry a higher risk than an investment in equities quoted on exchanges, such as the New York Stock Exchange or the Nasdaq. You should be aware that the value of our ordinary shares may be influenced by many factors, some of which may be specific to us and some of which may affect AIM-listed or Hong Kong-listed companies generally, including the depth and liquidity of the market, our performance, a large or small volume of trading in our ordinary shares, legislative changes and general economic, political or regulatory conditions, and that the prices may be volatile and subject to extensive fluctuations. Therefore, the market price of our ordinary shares underlying the ADSs may not reflect the underlying value of our company. The market price for our ADSs is likely to be highly volatile and subject to wide fluctuations in response to factors, including the The depositary for our ADSs gives us a discretionary proxy to vote our ordinary shares underlying your ADSs if you do not vote at shareholders’ meetings, except in limited circumstances, which could adversely affect your interests. Under the deposit agreement for the ADSs, the depositary gives us a discretionary proxy to vote our ordinary shares underlying your ADSs at shareholders’ meetings if you do not vote, unless: • we do not wish a discretionary proxy to be given; • we are aware or should reasonably be aware that there is substantial opposition as to a matter to be voted on at the meeting; or • a matter to be voted on at the meeting would materially and adversely affect the rights of shareholders. The effect of this discretionary proxy is that you cannot prevent our ordinary shares underlying your ADSs from being voted, absent the situations described above, and it may make it more difficult for shareholders to influence the management of our company. Holders of our ordinary shares are not subject to this discretionary proxy. Holders of ADSs have fewer rights than shareholders and must act through the depositary to exercise their rights. Holders of our ADSs do not have the same rights as our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement. Under our amended and restated Memorandum and Articles of Association, an annual general meeting shall be called by notice with not less than 21 clear days, and all other general meetings (including an extraordinary general meeting) shall be called by notice with not less than 14 clear days. When a general meeting is convened, you may not receive sufficient notice of a shareholders’ meeting to permit you to withdraw the ordinary shares underlying your ADSs to allow you to vote with respect to any specific matter. If we ask for your instructions, we will give the depositary notice of any such meeting and details concerning the matters to be voted upon at least 30 days in advance of the meeting date and the depositary will send a notice to you about the upcoming vote and will arrange to deliver our voting materials to you. The depositary and its agents, however, may not be able to send voting instructions to you or carry out your voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to you in a timely manner, but we cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote the ordinary shares underlying your ADSs. Furthermore, the depositary will not be liable for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, you may not be able to exercise your right to vote and you may lack recourse if your ADSs are not voted as you request. In addition, in your capacity as an ADS holder, you will not be able to call a shareholders’ meeting. You may not receive distributions on our ADSs or any value for them if such distribution is illegal or if any required government approval cannot be obtained in order to make such distribution available to you. Although we do not have any present plan to pay any dividends, the depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities underlying our ADSs, after deducting its fees and expenses and any applicable taxes and governmental charges. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities whose offering would require registration under the Securities Act but is not so properly registered or distributed under an applicable exemption from registration. The depositary may also determine that it is not reasonably practicable to distribute certain property. In these cases, the depositary may determine not to distribute such property. We have no obligation to register under the U.S. securities laws any offering of ADSs, ordinary shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of our ADSs. 64 65 Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings. We may be treated as a resident enterprise for U.K. corporate tax purposes, and our global income may therefore be subject to U.K. corporation tax. We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights available to you in the United States unless we register the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available. Also, under the deposit agreement, the depositary bank will not make rights available to you unless either both the rights and any related securities are registered under the Securities Act, or the distribution of them to ADS holders is exempted from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. If the depositary does not distribute the rights, it may, under the deposit agreement, either sell them, if possible, or allow them to lapse. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings. U.K. resident companies are taxable in the United Kingdom on their worldwide profits. A company incorporated outside of the United Kingdom would be regarded as a resident if its central management and control resides in the United Kingdom. The place of central management and control generally means the place where the high-level strategic decisions of a company are made. We are an investment holding company incorporated in the Cayman Islands and are admitted to trading on the AIM market of the London Stock Exchange or the AIM market. Our central management and control resides in Hong Kong, and therefore we believe that we are not a U.K. resident for corporate tax purposes. However, the tax resident status of a non-resident entity could be challenged by the U.K. tax authorities. If we are a passive foreign investment company for any taxable year, U.S. investors could be subject to adverse U.S. federal income tax consequences. If the U.K. tax authorities determine that we are a U.K. tax resident, our profits will be subject to U.K. Corporation Tax rate at 19%, subject to the potential availability of certain exemptions related to dividend income and capital gains. This may have a material adverse The rules governing passive foreign investment companies, or PFICs, can have adverse U.S. federal income tax consequences for U.S. investors of non-U.S. corporations. The PFIC status of a non-U.S. corporation for any taxable year depends upon the composition of its income and assets, the value of its assets and the classification of items of its income and assets as active or passive under the PFIC rules, as discussed further in Item 10.E. “Taxation—U.S. Taxation—Material U.S. Federal Income Tax Considerations with Respect to Ordinary Shares and ADSs.” Based on the composition of our income and assets and the estimated average value of our assets (including goodwill), we believe that we were not a PFIC for our taxable year ended December 31, 2022. However, our PFIC status is a factual determination that is made on an annual basis and depends on particular facts and circumstances (such as the value of our assets, including goodwill and other intangible assets). We hold a substantial amount of cash and financial investments and while this continues to be the case, our PFIC status depends primarily on the average value of our goodwill. The value of our goodwill may be determined, in large part, by reference to our market capitalization, which has been, and may continue to be, volatile. Therefore, if our market capitalization declines we may become a PFIC. In addition, there is uncertainty as to how to apply the PFIC rules for purposes of classifying certain of our income and assets as active or passive. In light of the foregoing, no assurance can be provided that we are not, or will not be, a PFIC for any taxable year. If we are or become a PFIC, U.S. investors in our ordinary shares and ADSs generally will be subject to adverse U.S. federal income tax consequences, such as ineligibility for any preferential tax rates on capital gains or on actual or deemed dividends, interest charges on certain taxes treated as deferred, and additional reporting requirements under U.S. federal income tax laws and regulations. We do not expect to provide the information regarding our income that would be necessary in order for a U.S. investor to make a qualified electing fund, or QEF, election if we are a PFIC for any taxable year. U.S. investors in our ordinary shares or ADSs should consult their tax advisors regarding all aspects of the application of the PFIC rules to the ordinary shares and ADSs. Under certain attribution rules, certain of our non-U.S. subsidiaries are expected to be treated as “controlled foreign corporations” for U.S. federal income tax purposes, and, as a result, there could be adverse U.S. federal income tax consequences to U.S. investors that own (directly or indirectly) our ordinary shares or ADSs and are treated as “Ten Percent Shareholders.” Certain “Ten Percent Shareholders” (as defined below) in a non-U.S. corporation that is a “controlled foreign corporation” (a “CFC”) for U.S. federal income tax purposes generally are required to include in income for U.S. federal income tax purposes their pro rata share of the CFC’s “Subpart F income,” investment of earnings in U.S. property, and “global intangible low-taxed income,” even if the CFC has made no distributions to its shareholders. A non-U.S. corporation generally will be a CFC for U.S. federal income tax purposes if Ten Percent Shareholders own, directly, indirectly or constructively (through attribution), more than 50% of either the total combined voting power of all classes of stock of such corporation entitled to vote or of the total value of the stock of such corporation. A “Ten Percent Shareholder” is a United States person (as defined by the U.S. Internal Revenue Code of 1986, as amended) that owns directly or indirectly, or is considered to own constructively, 10% or more of the total combined voting power of all classes of stock entitled to vote of such corporation or 10% or more of the total value of the stock of such corporation. We are not expected to be a CFC. However, under certain “downward attribution” rules, certain of our non-U.S. subsidiaries are expected to be treated as CFCs by virtue of being constructively owned by our U.S. subsidiaries. As a non-U.S. company, we do not intend to take these U.S. tax rules into consideration in structuring its operations, nor do we intend to provide information to Ten Percent Shareholders that may be required in order for those shareholders to properly report their U.S. taxable income with respect to our operations. U.S. investors that are or may become Ten Percent Shareholders who directly or indirectly own our ordinary shares or ADSs should consult their tax advisors with respect to the application of the CFC rules to them. effect on our financial condition and results of operations. You may have difficulty enforcing judgments obtained against us. We are a company incorporated under the laws of the Cayman Islands, and substantially all of our assets are located outside the United States. Substantially all of our current operations are conducted in the PRC. In addition, most of our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons are located outside the United States. As a result, it may be difficult for you to effect service of process within the United States upon these persons. It may also be difficult for you to enforce in U.S. courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors, all of whom are not residents in the United States and whose assets are located outside the United States. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state. You may be subject to limitations on transfers of your ADSs. Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason. It may be difficult for overseas regulators to conduct investigations or collect evidence within China. Shareholder claims or regulatory investigation that are common in the United States generally are difficult to pursue as a matter of law or practicality in China. For example, in China, there are significant legal and other obstacles to providing information needed for regulatory investigations or litigation initiated outside China. Although the authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such cooperation with the securities regulatory authorities in the Unities States may not be efficient in the absence of mutual and practical cooperation mechanisms. Furthermore, according to Article 177 of the PRC Securities Law, or Article 177, which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigations or evidence collection activities within the territory of the PRC. While detailed interpretations of or implementation rules under Article 177 have yet to be promulgated, the inability for an overseas securities regulator to directly conduct investigations or evidence collection activities within China may further increase difficulties you may face in protecting your interests. 66 67 Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings. We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights available to you in the United States unless we register the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available. Also, under the deposit agreement, the depositary bank will not make rights available to you unless either both the rights and any related securities are registered under the Securities Act, or the distribution of them to ADS holders is exempted from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. If the depositary does not distribute the rights, it may, under the deposit agreement, either sell them, if possible, or allow them to lapse. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings. If we are a passive foreign investment company for any taxable year, U.S. investors could be subject to adverse U.S. federal income tax consequences. The rules governing passive foreign investment companies, or PFICs, can have adverse U.S. federal income tax consequences for U.S. investors of non-U.S. corporations. The PFIC status of a non-U.S. corporation for any taxable year depends upon the composition of its income and assets, the value of its assets and the classification of items of its income and assets as active or passive under the PFIC rules, as discussed further in Item 10.E. “Taxation—U.S. Taxation—Material U.S. Federal Income Tax Considerations with Respect to Ordinary Shares and ADSs.” Based on the composition of our income and assets and the estimated average value of our assets (including goodwill), we believe that we were not a PFIC for our taxable year ended December 31, 2022. However, our PFIC status is a factual determination that is made on an annual basis and depends on particular facts and circumstances (such as the value of our assets, including goodwill and other intangible assets). We hold a substantial amount of cash and financial investments and while this continues to be the case, our PFIC status depends primarily on the average value of our goodwill. The value of our goodwill may be determined, in large part, by reference to our market capitalization, which has been, and may continue to be, volatile. Therefore, if our market capitalization declines we may become a PFIC. In addition, there is uncertainty as to how to apply the PFIC rules for purposes of classifying certain of our income and assets as active or passive. In light of the foregoing, no assurance can be provided that we are not, or will not be, a PFIC for any taxable year. If we are or become a PFIC, U.S. investors in our ordinary shares and ADSs generally will be subject to adverse U.S. federal income tax consequences, such as ineligibility for any preferential tax rates on capital gains or on actual or deemed dividends, interest charges on certain taxes treated as deferred, and additional reporting requirements under U.S. federal income tax laws and regulations. We do not expect to provide the information regarding our income that would be necessary in order for a U.S. investor to make a qualified electing fund, or QEF, election if we are a PFIC for any taxable year. U.S. investors in our ordinary shares or ADSs should consult their tax advisors regarding all aspects of the application of the PFIC rules to the ordinary shares and ADSs. Under certain attribution rules, certain of our non-U.S. subsidiaries are expected to be treated as “controlled foreign corporations” for U.S. federal income tax purposes, and, as a result, there could be adverse U.S. federal income tax consequences to U.S. investors that own (directly or indirectly) our ordinary shares or ADSs and are treated as “Ten Percent Shareholders.” Certain “Ten Percent Shareholders” (as defined below) in a non-U.S. corporation that is a “controlled foreign corporation” (a “CFC”) for U.S. federal income tax purposes generally are required to include in income for U.S. federal income tax purposes their pro rata share of the CFC’s “Subpart F income,” investment of earnings in U.S. property, and “global intangible low-taxed income,” even if the CFC has made no distributions to its shareholders. A non-U.S. corporation generally will be a CFC for U.S. federal income tax purposes if Ten Percent Shareholders own, directly, indirectly or constructively (through attribution), more than 50% of either the total combined voting power of all classes of stock of such corporation entitled to vote or of the total value of the stock of such corporation. A “Ten Percent Shareholder” is a United States person (as defined by the U.S. Internal Revenue Code of 1986, as amended) that owns directly or indirectly, or is considered to own constructively, 10% or more of the total combined voting power of all classes of stock entitled to vote of such corporation or 10% or more of the total value of the stock of such corporation. We are not expected to be a CFC. However, under certain “downward attribution” rules, certain of our non-U.S. subsidiaries are expected to be treated as CFCs by virtue of being constructively owned by our U.S. subsidiaries. As a non-U.S. company, we do not intend to take these U.S. tax rules into consideration in structuring its operations, nor do we intend to provide information to Ten Percent Shareholders that may be required in order for those shareholders to properly report their U.S. taxable income with respect to our operations. U.S. investors that are or may become Ten Percent Shareholders who directly or indirectly own our ordinary shares or ADSs should consult their tax advisors with respect to the application of the CFC rules to them. We may be treated as a resident enterprise for U.K. corporate tax purposes, and our global income may therefore be subject to U.K. corporation tax. U.K. resident companies are taxable in the United Kingdom on their worldwide profits. A company incorporated outside of the United Kingdom would be regarded as a resident if its central management and control resides in the United Kingdom. The place of central management and control generally means the place where the high-level strategic decisions of a company are made. We are an investment holding company incorporated in the Cayman Islands and are admitted to trading on the AIM market of the London Stock Exchange or the AIM market. Our central management and control resides in Hong Kong, and therefore we believe that we are not a U.K. resident for corporate tax purposes. However, the tax resident status of a non-resident entity could be challenged by the U.K. tax authorities. If the U.K. tax authorities determine that we are a U.K. tax resident, our profits will be subject to U.K. Corporation Tax rate at 19%, subject to the potential availability of certain exemptions related to dividend income and capital gains. This may have a material adverse effect on our financial condition and results of operations. You may have difficulty enforcing judgments obtained against us. We are a company incorporated under the laws of the Cayman Islands, and substantially all of our assets are located outside the United States. Substantially all of our current operations are conducted in the PRC. In addition, most of our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons are located outside the United States. As a result, it may be difficult for you to effect service of process within the United States upon these persons. It may also be difficult for you to enforce in U.S. courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors, all of whom are not residents in the United States and whose assets are located outside the United States. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state. You may be subject to limitations on transfers of your ADSs. Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason. It may be difficult for overseas regulators to conduct investigations or collect evidence within China. Shareholder claims or regulatory investigation that are common in the United States generally are difficult to pursue as a matter of law or practicality in China. For example, in China, there are significant legal and other obstacles to providing information needed for regulatory investigations or litigation initiated outside China. Although the authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such cooperation with the securities regulatory authorities in the Unities States may not be efficient in the absence of mutual and practical cooperation mechanisms. Furthermore, according to Article 177 of the PRC Securities Law, or Article 177, which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigations or evidence collection activities within the territory of the PRC. While detailed interpretations of or implementation rules under Article 177 have yet to be promulgated, the inability for an overseas securities regulator to directly conduct investigations or evidence collection activities within China may further increase difficulties you may face in protecting your interests. 66 67 We are a Cayman Islands company. As judicial precedent regarding the rights of shareholders under Cayman Islands law is different from U.S. law, English law or Hong Kong law, shareholders may have different shareholder rights than they would have under U.S. law, English law or Hong Kong law and may face difficulties in protecting your interests. We are an exempted company with limited liability incorporated in the Cayman Islands. Our corporate affairs are governed by our Articles of Association (as may be further amended from time to time), the Companies Act (As Revised) of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors are to a large extent governed by the common law of the Cayman Islands. This common law is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The laws of the Cayman Islands relating to the protection of the interests of minority shareholders differ in some aspects from those in the United States, the United Kingdom and Hong Kong. Such differences mean that the remedies available to our minority shareholders may be different from those they would have under the laws of United States, the United Kingdom, Hong Kong or other jurisdictions. In addition, some states in the United States, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, as a Cayman Islands exempted company, our shareholders have no general rights under Cayman Islands law to inspect corporate records and accounts or to obtain copies of lists of shareholders of these companies with the exception that the shareholders may request a copy of the Articles of Association. Our directors have discretion under our Articles of Association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest. As a Cayman Islands company, we may not have standing to initiate a derivative action in U.S. federal courts, English courts or Hong Kong courts. As a result, you may be limited in your ability to protect your interests if you are harmed in a manner that would otherwise enable you to sue in U.S. federal courts, English courts or Hong Kong courts. In addition, shareholders of Cayman Islands companies may not have standing to initiate a shareholder derivative action in U.S. federal courts, English courts or Hong Kong courts. Most of our directors and executive officers reside outside of the United States and a substantial portion of their assets are located outside of the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the securities laws of the United States or otherwise. In addition, some of our operating subsidiaries are incorporated in China. To the extent our directors and executive officers reside in China or their assets are located in China, it may not be possible for investors to effect service of process upon us or our management inside China. Even if you are successful in bringing an action, the laws of the Cayman Islands and China may render you unable to enforce a judgment against our assets or the assets of our directors and officers. There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, Hong Kong or China, although the courts of the Cayman Islands will generally recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits subject to certain conditions. As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of an English company, a U.S. company or a Hong Kong company. We cannot assure you that our ordinary shares will remain listed on the AIM or the SEHK or our ADSs will remain listed on Nasdaq. Although it is currently intended that our ordinary shares and ADSs will remain listed on the AIM, the SEHK and Nasdaq, as applicable, there is no guarantee of the continued listing of our securities on any of these exchanges. We may decide at some point in the future to delist voluntarily (subject to the applicable regulatory requirements) from one or more of these exchanges, or we may be delisted involuntarily if, among other factors, we do not continue to satisfy the listing requirements of the applicable exchange or comply with applicable law. For example, we could be delisted from the Nasdaq if the PCAOB continues to be unable to inspect our independent registered public accounting firm for three consecutive years. The AIM Rules for companies provide that a voluntary cancellation of admission to AIM is conditional upon the consent of not less than 75% of votes cast by its shareholders at a general meeting unless the London Stock Exchange otherwise agrees. Circumstances where the London Stock Exchange might otherwise agree that shareholder consent at a general meeting is not required would include the situation where the AIM securities are already admitted to trading on an “AIM Designated Market” (which includes Nasdaq) to enable shareholders to trade their AIM securities in the future. The SEHK rules allow an issuer whose primary listing is on SEHK and which has an alternative listing on another stock exchange to withdraw its listing with the prior approval of shareholders by ordinary resolution obtained at a duly convened meeting of the shareholders and the satisfaction of other requirements. SEHK may also cancel the listing of any securities that have been suspended from trading for a continuous period of 18 months. We cannot predict the effect a delisting of our shares on the SEHK or AIM market or our ADSs on Nasdaq would have on the market price of our shares and/or ADSs. We may also seek further listings on other stock exchanges such as the Shanghai Stock Exchange. However, there is no assurance that we would proceed with a listing and if we do proceed, that a listing would materialize. The characteristics of the Hong Kong, U.S. and U.K. capital markets are different. The SEHK, Nasdaq and the AIM have different trading hours, trading characteristics (including trading volume and liquidity), trading and listing rules, market regulations, and investor bases (including different levels of retail and institutional participation). As a result of these differences, the trading prices of the shares and the ADSs might not be the same, even allowing for currency differences. Circumstances peculiar to the U.S. capital markets could materially and adversely affect the price of the shares. Because of the different characteristics of the Hong Kong, U.S. and U.K. equity markets, the historical market prices of our securities may not be indicative of the performance of the shares. We are subject to Hong Kong, Nasdaq and AIM listing and regulatory requirements concurrently. As we are listed on the SEHK, the Nasdaq and the AIM, we are required to comply with the listing rules (where applicable) and other regulatory regimes of each stock exchange, unless otherwise agreed by the relevant regulators. We may also seek further listings on other stock exchanges such as the Shanghai Stock Exchange. Accordingly, we may incur additional costs and resources in complying with the requirements of each stock exchange. ITEM 4. INFORMATION ON THE COMPANY A. History and Development of the Company. HUTCHMED (China) Limited (formerly known as Hutchison China MediTech Limited) was incorporated in the Cayman Islands on December 18, 2000 as an exempted company with limited liability under the Companies Act (As Revised) of the Cayman Islands. Our company was founded by a wholly owned subsidiary of CK Hutchison, a multinational conglomerate with operations in over 50 countries. CK Hutchison is the ultimate parent company of our largest shareholder Hutchison Healthcare Holdings Limited. We launched our novel drug research and development operations in 2002 with the establishment of our subsidiary HUTCHMED Limited, which is focused on discovering, developing and marketing drugs for the treatment of cancer and immunological diseases. A dozen of our in-house discovered drug candidates have entered clinical trials around the world and three have so far been approved for sale. Since 2001, we have also developed drug marketing and distribution platforms in China, which primarily focus on prescription drug and consumer health products through several joint ventures and subsidiary companies and are included in our Other Ventures. We listed our ordinary shares on the AIM market in 2006, ADSs on the Nasdaq Global Select Market in 2016 and our ordinary shares on the SEHK in 2021. 68 69 We are a Cayman Islands company. As judicial precedent regarding the rights of shareholders under Cayman Islands law is different We cannot assure you that our ordinary shares will remain listed on the AIM or the SEHK or our ADSs will remain listed on Nasdaq. from U.S. law, English law or Hong Kong law, shareholders may have different shareholder rights than they would have under U.S. law, English law or Hong Kong law and may face difficulties in protecting your interests. We are an exempted company with limited liability incorporated in the Cayman Islands. Our corporate affairs are governed by our Articles of Association (as may be further amended from time to time), the Companies Act (As Revised) of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors are to a large extent governed by the common law of the Cayman Islands. This common law is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The laws of the Cayman Islands relating to the protection of the interests of minority shareholders differ in some aspects from those in the United States, the United Kingdom and Hong Kong. Such differences mean that the remedies available to our minority shareholders may be different from those they would have under the laws of United States, the United Kingdom, Hong Kong or other jurisdictions. In addition, some states in the United States, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, as a Cayman Islands exempted company, our shareholders have no general rights under Cayman Islands law to inspect corporate records and accounts or to obtain copies of lists of shareholders of these companies with the exception that the shareholders may request a copy of the Articles of Association. Our directors have discretion under our Articles of Association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest. As a Cayman Islands company, we may not have standing to initiate a derivative action in U.S. federal courts, English courts or Hong Kong courts. As a result, you may be limited in your ability to protect your interests if you are harmed in a manner that would otherwise enable you to sue in U.S. federal courts, English courts or Hong Kong courts. In addition, shareholders of Cayman Islands companies may not have standing to initiate a shareholder derivative action in U.S. federal courts, English courts or Hong Kong courts. Most of our directors and executive officers reside outside of the United States and a substantial portion of their assets are located outside of the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the securities laws of the United States or otherwise. In addition, some of our operating subsidiaries are incorporated in China. To the extent our directors and executive officers reside in China or their assets are located in China, it may not be possible for investors to effect service of process upon us or our management inside China. Even if you are successful in bringing an action, the laws of the Cayman Islands and China may render you unable to enforce a judgment against our assets or the assets of our directors and officers. There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, Hong Kong or China, although the courts of the Cayman Islands will generally recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits subject to certain conditions. As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of an English company, a U.S. company or a Hong Kong company. Although it is currently intended that our ordinary shares and ADSs will remain listed on the AIM, the SEHK and Nasdaq, as applicable, there is no guarantee of the continued listing of our securities on any of these exchanges. We may decide at some point in the future to delist voluntarily (subject to the applicable regulatory requirements) from one or more of these exchanges, or we may be delisted involuntarily if, among other factors, we do not continue to satisfy the listing requirements of the applicable exchange or comply with applicable law. For example, we could be delisted from the Nasdaq if the PCAOB continues to be unable to inspect our independent registered public accounting firm for three consecutive years. The AIM Rules for companies provide that a voluntary cancellation of admission to AIM is conditional upon the consent of not less than 75% of votes cast by its shareholders at a general meeting unless the London Stock Exchange otherwise agrees. Circumstances where the London Stock Exchange might otherwise agree that shareholder consent at a general meeting is not required would include the situation where the AIM securities are already admitted to trading on an “AIM Designated Market” (which includes Nasdaq) to enable shareholders to trade their AIM securities in the future. The SEHK rules allow an issuer whose primary listing is on SEHK and which has an alternative listing on another stock exchange to withdraw its listing with the prior approval of shareholders by ordinary resolution obtained at a duly convened meeting of the shareholders and the satisfaction of other requirements. SEHK may also cancel the listing of any securities that have been suspended from trading for a continuous period of 18 months. We cannot predict the effect a delisting of our shares on the SEHK or AIM market or our ADSs on Nasdaq would have on the market price of our shares and/or ADSs. We may also seek further listings on other stock exchanges such as the Shanghai Stock Exchange. However, there is no assurance that we would proceed with a listing and if we do proceed, that a listing would materialize. The characteristics of the Hong Kong, U.S. and U.K. capital markets are different. The SEHK, Nasdaq and the AIM have different trading hours, trading characteristics (including trading volume and liquidity), trading and listing rules, market regulations, and investor bases (including different levels of retail and institutional participation). As a result of these differences, the trading prices of the shares and the ADSs might not be the same, even allowing for currency differences. Circumstances peculiar to the U.S. capital markets could materially and adversely affect the price of the shares. Because of the different characteristics of the Hong Kong, U.S. and U.K. equity markets, the historical market prices of our securities may not be indicative of the performance of the shares. We are subject to Hong Kong, Nasdaq and AIM listing and regulatory requirements concurrently. As we are listed on the SEHK, the Nasdaq and the AIM, we are required to comply with the listing rules (where applicable) and other regulatory regimes of each stock exchange, unless otherwise agreed by the relevant regulators. We may also seek further listings on other stock exchanges such as the Shanghai Stock Exchange. Accordingly, we may incur additional costs and resources in complying with the requirements of each stock exchange. ITEM 4. INFORMATION ON THE COMPANY A. History and Development of the Company. HUTCHMED (China) Limited (formerly known as Hutchison China MediTech Limited) was incorporated in the Cayman Islands on December 18, 2000 as an exempted company with limited liability under the Companies Act (As Revised) of the Cayman Islands. Our company was founded by a wholly owned subsidiary of CK Hutchison, a multinational conglomerate with operations in over 50 countries. CK Hutchison is the ultimate parent company of our largest shareholder Hutchison Healthcare Holdings Limited. We launched our novel drug research and development operations in 2002 with the establishment of our subsidiary HUTCHMED Limited, which is focused on discovering, developing and marketing drugs for the treatment of cancer and immunological diseases. A dozen of our in-house discovered drug candidates have entered clinical trials around the world and three have so far been approved for sale. Since 2001, we have also developed drug marketing and distribution platforms in China, which primarily focus on prescription drug and consumer health products through several joint ventures and subsidiary companies and are included in our Other Ventures. We listed our ordinary shares on the AIM market in 2006, ADSs on the Nasdaq Global Select Market in 2016 and our ordinary shares on the SEHK in 2021. 68 69 On March 4, 2021 we announced the consolidation of the two corporate identities that we have used since our inception. Hutchison China MediTech, or Chi-Med, which had been used as our group identity, while Hutchison MediPharma had been the identity of our novel drug research and development operations under which our oncology products had been developed and marketed. The brand HUTCHMED immediately replaced Chi-Med as our abbreviated name, and we changed our group company name at our Annual General Meeting in April 2021 from Hutchison China MediTech Limited to HUTCHMED (China) Limited. Comprehensive global in-house discovery and development capabilities. We have a comprehensive drug discovery and development operation covering chemistry, biology, pharmacology, toxicology, chemistry and manufacturing controls for clinical and commercial supply, clinical and regulatory and other functions. It is led by a team of approximately 960 scientists, who have created one of the broadest global clinical pipelines among our peer oncology and immunology focused biotechnology companies. Currently, we are conducting approximately 40 different clinical studies in oncology patients globally, including over 15 Phase III registration and On September 28, 2021, we disposed of our entire investment in Hutchison Baiyunshan, our non-core and non-consolidated over- the-counter drug joint venture business, to GL Mountrose Investment Two Limited, a company controlled and managed by GL Capital Group. GL Capital Group is an investment firm that focuses on buyout and growth opportunities in China’s healthcare industry. As our focus is the discovery and development of novel therapies in oncology and immunology, the sale of our interest in Hutchison Baiyunshan allows us to focus resources on our primary aim of accelerating investment in our Oncology/Immunology assets. We are also considering divesting other non-core businesses in our Other Ventures segment, including Shanghai Hutchison Pharmaceuticals. Our principal executive offices are located at 48th Floor, Cheung Kong Center, 2 Queen’s Road Central, Hong Kong. Our telephone number at that address is +852 2121 8200. The address of our registered office in the Cayman Islands is P.O. Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. See Item 5.B. “Liquidity and Capital Resources” for details on our capital expenditures for the years ended December 31, 2020, 2021 and 2022. We are subject to the informational requirements of the Exchange Act and are required to file reports and other information with the SEC. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system. We also make available on our website’s investor relations page, free of charge, our annual report and the text of our reports on Form 6-K, including any amendments to these reports, as well as certain other SEC filings, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. The address for our investor relations page is www.hutch-med.com/shareholder-information. The information contained on our website is not incorporated by reference in this annual report. B. Business Overview. Overview We are a global commercial-stage biopharmaceutical company focused on the discovery, development and commercialization of targeted therapies and immunotherapies for the treatment of patients with cancer and immunological diseases. Our company started in China in 2000 and has since developed fully integrated capabilities and expanded oncology and immunology drug development operations globally. Our operational achievements and capabilities to date include: Broad pipeline of differentiated targeted therapies and immunotherapies built for the global market. We have a pipeline of differentiated drug candidates covering both novel and validated targets, including MET, VEGFR, FGFR, CSF-1R, PI3Kδ, Syk, EZH2, IDH, ERK, BTK, CD47 and EGFR. The aim of our research is to develop drugs with high selectivity and superior safety profiles, a key benefit of which is that our drug candidates have the potential to be effectively paired with other oncology and immunology therapies at effective dosages with fewer side effects. Commercially launching products while continuing to discover new assets. In China, three of our internally developed drugs, Elunate (fruquintinib), Sulanda (surufatinib) and Orpathys (savolitinib) are commercially available to patients. All three drugs are in late-stage development outside of China, with the most advanced being fruquintinib for which a rolling NDA submission to the United States FDA is being submitted. To accelerate the availability of our innovative medicines for patients globally, we seek partnerships to commercialize our drugs outside of China, such as our partnership with AstraZeneca on savolitinib, and our recently agreed partnership with Takeda on fruquintinib. In addition, we have eleven additional drug candidates that have entered clinical development and several pre-clinical drug candidates. Phase II registration-intent studies underway. Long-standing drug marketing and distribution experience to support the realization of in-house oncology innovations in China. We have built large-scale and profitable drug marketing and distribution capabilities through our Other Ventures operations, which primarily manufacture, market and distribute prescription drugs in China. Our more than 20 years of track record and deep institutional knowledge of the drug marketing and distribution process are being leveraged to bring our in-house oncology innovations to patients. We have built and continue to expand our in-house oncology drug sales team to over 870 persons at end of 2022 to support the commercialization of Elunate, Sulanda and our other innovative drugs, if approved, throughout mainland China, Hong Kong and Macau. Our oncology drug sales team covers over 3,000 hospitals and over 33,000 oncology physicians in China, a network that we estimate represents over 90% of oncology drug sales in China. Our Strategies Our vision is to be a global leader in the discovery, development and commercialization of targeted therapies and immunotherapies for the treatment of patients with cancer and immunological diseases. Key elements of our strategy are to: Realize the global potential of our oncology drug candidates Our first wave of innovation - namely, fruquintinib (partnered in China with Eli Lilly and to be partnered outside of China with Takeda), savolitinib (partnered globally with AstraZeneca) and surufatinib (unpartnered) - are either commercialized, under review for marketing authorization or in registrational studies in multiple jurisdictions. In tandem with our ongoing progression of such drugs, we will continue to invest in the future with our deep pipeline of unpartnered next wave of oncology assets for which we own all rights globally and have significant flexibility in driving their development. We intend to accelerate our global drug development by leveraging our advanced clinical trial data from China, selectively conducting early-stage and proof-of-concept clinical trials in other jurisdictions so that the programs progress globally, then form partnerships to complete late-stage development and/or commercial launch outside Continue designing and creating molecules to develop into medicines with specific and differentiated characteristics for the China. benefit of patients We believe our world-class drug discovery engine is our key competitive advantage. We strive to create differentiated novel oncology and immunology treatments with global potential. Our drug discovery team has utilized our expertise in advanced medicinal chemistry to develop next-generation TKI that have both high selectivity and superior pharmacokinetic properties. Equally importantly, we will continue to design chemical and biologic drug candidates with profiles that allow them to be used in innovative combinations with other selective inhibitors, chemotherapy agents and immunotherapies. Such combination therapies enable treatment of cancer via multiple pathways and modalities simultaneously, which has the potential to significantly improve treatment outcomes. We plan to continue to build out our global pipeline of self-discovered drug candidates by advancing a rich pipeline of early-stage drug candidates, which include small molecule drugs targeting new pathways and biologics addressing novel targets designed for use in combination with our small molecules, as well as potentially a broad range of third-party therapies. Build and scale our marketing and commercialization capabilities globally We plan to leverage our long-standing drug marketing and distribution know-how and infrastructure to support our innovative oncology product launches, focusing in particular on the Chinese market. We have a more than 20-year track record of marketing and selling products in China. We aim to steadily grow our in-house oncology drug sales team in mainland China, Hong Kong and Macau from over 870 at the end of 2022. Outside of China, we look to form collaborations with leading biopharmaceutical companies and/or contract sales organizations to fully realize the value of our assets. We will also continue to scale our manufacturing capacity to support the sales of our approved drugs, including through the expansion beyond our existing Suzhou production facility after the completion of our new plant in Shanghai, which will provide a five-fold increase in our existing production capacity. 70 71 On March 4, 2021 we announced the consolidation of the two corporate identities that we have used since our inception. Hutchison China MediTech, or Chi-Med, which had been used as our group identity, while Hutchison MediPharma had been the identity of our novel drug research and development operations under which our oncology products had been developed and marketed. The brand HUTCHMED immediately replaced Chi-Med as our abbreviated name, and we changed our group company name at our Annual General Meeting in April 2021 from Hutchison China MediTech Limited to HUTCHMED (China) Limited. On September 28, 2021, we disposed of our entire investment in Hutchison Baiyunshan, our non-core and non-consolidated over- the-counter drug joint venture business, to GL Mountrose Investment Two Limited, a company controlled and managed by GL Capital Group. GL Capital Group is an investment firm that focuses on buyout and growth opportunities in China’s healthcare industry. As our focus is the discovery and development of novel therapies in oncology and immunology, the sale of our interest in Hutchison Baiyunshan allows us to focus resources on our primary aim of accelerating investment in our Oncology/Immunology assets. We are also considering divesting other non-core businesses in our Other Ventures segment, including Shanghai Hutchison Pharmaceuticals. Our principal executive offices are located at 48th Floor, Cheung Kong Center, 2 Queen’s Road Central, Hong Kong. Our telephone number at that address is +852 2121 8200. The address of our registered office in the Cayman Islands is P.O. Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. See Item 5.B. “Liquidity and Capital Resources” for details on our capital expenditures for the years ended December 31, 2020, 2021 and 2022. Comprehensive global in-house discovery and development capabilities. We have a comprehensive drug discovery and development operation covering chemistry, biology, pharmacology, toxicology, chemistry and manufacturing controls for clinical and commercial supply, clinical and regulatory and other functions. It is led by a team of approximately 960 scientists, who have created one of the broadest global clinical pipelines among our peer oncology and immunology focused biotechnology companies. Currently, we are conducting approximately 40 different clinical studies in oncology patients globally, including over 15 Phase III registration and Phase II registration-intent studies underway. Long-standing drug marketing and distribution experience to support the realization of in-house oncology innovations in China. We have built large-scale and profitable drug marketing and distribution capabilities through our Other Ventures operations, which primarily manufacture, market and distribute prescription drugs in China. Our more than 20 years of track record and deep institutional knowledge of the drug marketing and distribution process are being leveraged to bring our in-house oncology innovations to patients. We have built and continue to expand our in-house oncology drug sales team to over 870 persons at end of 2022 to support the commercialization of Elunate, Sulanda and our other innovative drugs, if approved, throughout mainland China, Hong Kong and Macau. Our oncology drug sales team covers over 3,000 hospitals and over 33,000 oncology physicians in China, a network that we estimate represents over 90% of oncology drug sales in China. Our Strategies Our vision is to be a global leader in the discovery, development and commercialization of targeted therapies and immunotherapies for the treatment of patients with cancer and immunological diseases. Key elements of our strategy are to: We are subject to the informational requirements of the Exchange Act and are required to file reports and other information with the SEC. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information Realize the global potential of our oncology drug candidates Our first wave of innovation - namely, fruquintinib (partnered in China with Eli Lilly and to be partnered outside of China with Takeda), savolitinib (partnered globally with AstraZeneca) and surufatinib (unpartnered) - are either commercialized, under review for marketing authorization or in registrational studies in multiple jurisdictions. In tandem with our ongoing progression of such drugs, we will continue to invest in the future with our deep pipeline of unpartnered next wave of oncology assets for which we own all rights globally and have significant flexibility in driving their development. We intend to accelerate our global drug development by leveraging our advanced clinical trial data from China, selectively conducting early-stage and proof-of-concept clinical trials in other jurisdictions so that the programs progress globally, then form partnerships to complete late-stage development and/or commercial launch outside China. Continue designing and creating molecules to develop into medicines with specific and differentiated characteristics for the benefit of patients We believe our world-class drug discovery engine is our key competitive advantage. We strive to create differentiated novel oncology and immunology treatments with global potential. Our drug discovery team has utilized our expertise in advanced medicinal chemistry to develop next-generation TKI that have both high selectivity and superior pharmacokinetic properties. Equally importantly, we will continue to design chemical and biologic drug candidates with profiles that allow them to be used in innovative combinations with other selective inhibitors, chemotherapy agents and immunotherapies. Such combination therapies enable treatment of cancer via multiple pathways and modalities simultaneously, which has the potential to significantly improve treatment outcomes. We plan to continue to build out our global pipeline of self-discovered drug candidates by advancing a rich pipeline of early-stage drug candidates, which include small molecule drugs targeting new pathways and biologics addressing novel targets designed for use in combination with our small molecules, as well as potentially a broad range of third-party therapies. States FDA is being submitted. To accelerate the availability of our innovative medicines for patients globally, we seek partnerships to Build and scale our marketing and commercialization capabilities globally We plan to leverage our long-standing drug marketing and distribution know-how and infrastructure to support our innovative oncology product launches, focusing in particular on the Chinese market. We have a more than 20-year track record of marketing and selling products in China. We aim to steadily grow our in-house oncology drug sales team in mainland China, Hong Kong and Macau from over 870 at the end of 2022. Outside of China, we look to form collaborations with leading biopharmaceutical companies and/or contract sales organizations to fully realize the value of our assets. We will also continue to scale our manufacturing capacity to support the sales of our approved drugs, including through the expansion beyond our existing Suzhou production facility after the completion of our new plant in Shanghai, which will provide a five-fold increase in our existing production capacity. 70 71 regarding registrants that make electronic filings with the SEC using its EDGAR system. We also make available on our website’s investor relations page, free of charge, our annual report and the text of our reports on Form 6-K, including any amendments to these reports, as well as certain other SEC filings, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. The address for our investor relations page is www.hutch-med.com/shareholder-information. The information contained on our website is not incorporated by reference in this annual report. B. Business Overview. Overview We are a global commercial-stage biopharmaceutical company focused on the discovery, development and commercialization of targeted therapies and immunotherapies for the treatment of patients with cancer and immunological diseases. Our company started in China in 2000 and has since developed fully integrated capabilities and expanded oncology and immunology drug development operations globally. Our operational achievements and capabilities to date include: Broad pipeline of differentiated targeted therapies and immunotherapies built for the global market. We have a pipeline of differentiated drug candidates covering both novel and validated targets, including MET, VEGFR, FGFR, CSF-1R, PI3Kδ, Syk, EZH2, IDH, ERK, BTK, CD47 and EGFR. The aim of our research is to develop drugs with high selectivity and superior safety profiles, a key benefit of which is that our drug candidates have the potential to be effectively paired with other oncology and immunology therapies at effective dosages with fewer side effects. Commercially launching products while continuing to discover new assets. In China, three of our internally developed drugs, Elunate (fruquintinib), Sulanda (surufatinib) and Orpathys (savolitinib) are commercially available to patients. All three drugs are in late-stage development outside of China, with the most advanced being fruquintinib for which a rolling NDA submission to the United commercialize our drugs outside of China, such as our partnership with AstraZeneca on savolitinib, and our recently agreed partnership with Takeda on fruquintinib. In addition, we have eleven additional drug candidates that have entered clinical development and several pre-clinical drug candidates. Identify China business development opportunities to complement our internal research and development activities We plan to explore opportunities to in-license complementary late-stage drug candidates in China to supplement our in-house research and development capabilities, with a focus on drug candidates with the potential to both complement our existing drug pipeline including through having synergistic effects and augment our oncology commercial portfolio, such as Tazverik from Ipsen. In addition, we expect to progress some of our drug candidates by pursuing business development opportunities with other biopharmaceutical companies in China such as our collaborations to evaluate combining fruquintinib with anti-PD-1 antibodies for the treatment of various solid tumor cancers. We will also continue to work with our partners, AstraZeneca, Eli Lilly and Takeda (subject to closing of our recent agreement), to optimize the potential of our drug candidates savolitinib (globally with AstraZeneca) and fruquintinib (outside China with Takeda and in China with Eli Lilly). We are collaborating with Eli Lilly on the development and commercialization in China. Under the terms of our agreement with Eli Lilly, we manage all on-the-ground medical detailing, promotion and local and regional marketing activities for Elunate in China. We recognize as revenues approximately 70-80% of Elunate in-market sales from manufacturing fees, service fees and royalties paid to us by Eli Lilly. In 2022, we recognized $69.9 million in revenue for Elunate, equal to 74.8% of in-market sales. In January 2023, we entered into an agreement with a subsidiary of Takeda whereby it will receive an exclusive worldwide license to develop, manufacture and commercialize fruquintinib in all indications and territories outside of China. In China, it is marketed and will continue to be marketed by us in partnership with Eli Lilly. The deal is subject to customary closing conditions, including completion of antitrust regulatory reviews. Following these clearances, Takeda will become solely responsible for the development and commercialization of fruquintinib in all the included territories. Capitalize on regulatory reforms currently underway in China aimed at addressing existing unmet medical needs and improving the health of its people Surufatinib We believe the Chinese oncology market, which comprises approximately a quarter of the global oncology patient population, represents a substantial and fast-growing market opportunity. Over the past decade, the PRC government has endeavored to foster an innovative biopharmaceutical ecosystem, and in the last few years, the pace of reforms has accelerated with a clear focus on providing Chinese patients access to world-class oncology therapies through expanded insurance reimbursement and reduced time for clinical trials and drug approvals. As a result, the oncology drug market in China is growing rapidly. Having invested in drug innovation in China for over 20 years, beginning at a time when almost no other domestic companies were involved in innovative oncology research, we believe we are well positioned to capture this market opportunity. Oncology Commercial Operations Savolitinib Surufatinib launched as Sulanda in 2021 for the treatment of all advanced NETs for which there is an approximate incidence of 34,000 new patients per year in China. In 2021, Sulanda was sold as a self-pay drug. We used means-tested early access and patient access programs to help patients afford Sulanda. Despite these access programs, duration of treatment was often affected by the economic constraints of patients. Following negotiations with the China NHSA, Sulanda was included in the NRDL starting in January 2022 at a 52% discount on our main 50mg dosage form, relative to the 2021 self-pay price. Under the NRDL, actual out-of-pocket costs for patients in 2022 represented approximately 15-20% of the 2021 self-pay price. As a result of inclusion in the NRDL and our continued marketing activities, patient access to Sulanda, as well as duration of treatment, have been expanding with total sales in 2022 increasing by 178% to $32.3 million (2021: $11.6 million). In 2022, approximately 12,000 new patients were treated with Sulanda, representing approximately 2.5 times the approximately 4,800 new In late June 2021, savolitinib became the first-in-class selective MET inhibitor to be approved in China and was launched as Orpathys. Our partner, AstraZeneca, then launched Orpathys in mid-July 2021, less than three weeks after its conditional approval by the NMPA for patients with MET exon 14 skipping alteration NSCLC. More than a third of the world’s lung cancer patients are in China. Among those with NSCLC globally, approximately 2-3% have tumors with MET exon 14 skipping alterations. patients in 2021. Tazemetostat In April 2022, surufatinib was approved in the Macau Special Administrative Region. In 2021 and 2022, Orpathys was sold as a self-pay drug. AstraZeneca introduced a patient access program in late 2021 which subsidizes use of Orpathys, through progressive disease. In-market sales for Orpathys grew by 159% in 2022 to $41.2 million (2021: $15.9m) resulting in our consolidation of $22.3 million (2021: $11.3m) in revenues from manufacturing fees and royalties in 2022. Following negotiations with the China NHSA in January 2023, starting on March 1, 2023, Orpathys will be included in the updated NRDL, broadening patient access to this medicine. In May 2022, tazemetostat was approved by the Health Commission and Medical Products Administration of Hainan Province to be used in the Hainan Boao Lecheng International Medical Tourism Pilot Zone (Hainan Pilot Zone), under the Clinically Urgently Needed Imported Drugs scheme, for the treatment of certain patients with epithelioid sarcoma and follicular lymphoma consistent with the label as approved by the FDA. Launched in 2013 and located in China, the Hainan Pilot Zone is a destination for international medical tourism and global hub for scientific innovation, welcoming 83,900 medical tourists in 2020, according to official data. Market understanding of the need for MET testing has improved significantly, with Orpathys’s brand share more than doubling since the end of 2021 in the rapidly growing targeted therapy area. In the National Health Commission’s Treatment Guidelines for Primary Lung Cancer 2022 and the China Medical Association Oncology Committee Lung Cancer Group’s China Medical Association Guideline for Clinical Diagnosis and Treatment of Lung Cancer, Orpathys was identified as the only targeted therapy recommended for MET exon 14 patients, while similar guideline from CSCO also recommended Orpathys as the standard of care for such patients. Hong Kong. Clinical Drug Development Summary Following inclusion in the 2022 CSCO guidelines for epithelioid carcinoma, three patients began treatment in 2022, with the first patient having remained on medication for over six months. In December 2022, a market authorization application was submitted in Fruquintinib Fruquintinib is approved for the treatment of third-line metastatic CRC for which there is an approximate incidence of 83,000 new patients per year in China and was launched as Elunate. We estimate that in 2022, approximately 32,000 (2021: approximately 22,000) new patients were treated with Elunate in China resulting in in-market sales of $93.5 million, up 32% versus 2021 ($71.0 million). Following negotiations with the China NHSA, Elunate continues to be included in the NRDL for a new two-year term starting in January 2022. For this renewal, we agreed to a discount of 5% relative to the 2021 NRDL price. In January 2022, Elunate was approved in the Macau Special Administrative Region, our first drug to be approved in the territory and the first based on NMPA approval, following the latest update to the Macau provisions on new drug importation which allow drugs approved in one or more specified jurisdictions to be authorized for use in Macau. We are the Marketing Authorization Holder in China of three internally discovered and developed innovative oncology medicines, savolitnib, fruquintinib and surufatinib, which are marketed as Orpathys, Elunate and Sulanda, respectively. Besides the three marketed drugs, we have additional drug candidates in earlier stage clinical development. Several of our oncology drug candidates are in development outside China including savolitinib, for which we are in a global partnership with AstraZeneca, fruquintinib, for which we have agreed to license non-China rights to Takeda. The following table summarizes the status of our clinical drug portfolio’s development as of the date of the filing of this annual report: 72 73 Identify China business development opportunities to complement our internal research and development activities We plan to explore opportunities to in-license complementary late-stage drug candidates in China to supplement our in-house research and development capabilities, with a focus on drug candidates with the potential to both complement our existing drug pipeline including through having synergistic effects and augment our oncology commercial portfolio, such as Tazverik from Ipsen. In addition, we expect to progress some of our drug candidates by pursuing business development opportunities with other biopharmaceutical companies in China such as our collaborations to evaluate combining fruquintinib with anti-PD-1 antibodies for the treatment of various solid tumor cancers. We will also continue to work with our partners, AstraZeneca, Eli Lilly and Takeda (subject to closing of our recent agreement), to optimize the potential of our drug candidates savolitinib (globally with AstraZeneca) and fruquintinib (outside China with Takeda and in China with Eli Lilly). We are collaborating with Eli Lilly on the development and commercialization in China. Under the terms of our agreement with Eli Lilly, we manage all on-the-ground medical detailing, promotion and local and regional marketing activities for Elunate in China. We recognize as revenues approximately 70-80% of Elunate in-market sales from manufacturing fees, service fees and royalties paid to us by Eli Lilly. In 2022, we recognized $69.9 million in revenue for Elunate, equal to 74.8% of in-market sales. In January 2023, we entered into an agreement with a subsidiary of Takeda whereby it will receive an exclusive worldwide license to develop, manufacture and commercialize fruquintinib in all indications and territories outside of China. In China, it is marketed and will continue to be marketed by us in partnership with Eli Lilly. The deal is subject to customary closing conditions, including completion of antitrust regulatory reviews. Following these clearances, Takeda will become solely responsible for the development and commercialization of fruquintinib in all the included territories. Capitalize on regulatory reforms currently underway in China aimed at addressing existing unmet medical needs and improving Surufatinib the health of its people We believe the Chinese oncology market, which comprises approximately a quarter of the global oncology patient population, 34,000 new patients per year in China. Surufatinib launched as Sulanda in 2021 for the treatment of all advanced NETs for which there is an approximate incidence of represents a substantial and fast-growing market opportunity. Over the past decade, the PRC government has endeavored to foster an innovative biopharmaceutical ecosystem, and in the last few years, the pace of reforms has accelerated with a clear focus on providing Chinese patients access to world-class oncology therapies through expanded insurance reimbursement and reduced time for clinical trials and drug approvals. As a result, the oncology drug market in China is growing rapidly. Having invested in drug innovation in China for over 20 years, beginning at a time when almost no other domestic companies were involved in innovative oncology research, we believe we are well positioned to capture this market opportunity. Oncology Commercial Operations Savolitinib In 2021, Sulanda was sold as a self-pay drug. We used means-tested early access and patient access programs to help patients afford Sulanda. Despite these access programs, duration of treatment was often affected by the economic constraints of patients. Following negotiations with the China NHSA, Sulanda was included in the NRDL starting in January 2022 at a 52% discount on our main 50mg dosage form, relative to the 2021 self-pay price. Under the NRDL, actual out-of-pocket costs for patients in 2022 represented approximately 15-20% of the 2021 self-pay price. As a result of inclusion in the NRDL and our continued marketing activities, patient access to Sulanda, as well as duration of treatment, have been expanding with total sales in 2022 increasing by 178% to $32.3 million (2021: $11.6 million). In 2022, approximately 12,000 new patients were treated with Sulanda, representing approximately 2.5 times the approximately 4,800 new patients in 2021. In late June 2021, savolitinib became the first-in-class selective MET inhibitor to be approved in China and was launched as Orpathys. Our partner, AstraZeneca, then launched Orpathys in mid-July 2021, less than three weeks after its conditional approval by In April 2022, surufatinib was approved in the Macau Special Administrative Region. the NMPA for patients with MET exon 14 skipping alteration NSCLC. More than a third of the world’s lung cancer patients are in China. Among those with NSCLC globally, approximately 2-3% have tumors with MET exon 14 skipping alterations. Tazemetostat In 2021 and 2022, Orpathys was sold as a self-pay drug. AstraZeneca introduced a patient access program in late 2021 which subsidizes use of Orpathys, through progressive disease. In-market sales for Orpathys grew by 159% in 2022 to $41.2 million (2021: $15.9m) resulting in our consolidation of $22.3 million (2021: $11.3m) in revenues from manufacturing fees and royalties in 2022. Following negotiations with the China NHSA in January 2023, starting on March 1, 2023, Orpathys will be included in the updated NRDL, broadening patient access to this medicine. In May 2022, tazemetostat was approved by the Health Commission and Medical Products Administration of Hainan Province to be used in the Hainan Boao Lecheng International Medical Tourism Pilot Zone (Hainan Pilot Zone), under the Clinically Urgently Needed Imported Drugs scheme, for the treatment of certain patients with epithelioid sarcoma and follicular lymphoma consistent with the label as approved by the FDA. Launched in 2013 and located in China, the Hainan Pilot Zone is a destination for international medical tourism and global hub for scientific innovation, welcoming 83,900 medical tourists in 2020, according to official data. Market understanding of the need for MET testing has improved significantly, with Orpathys’s brand share more than doubling since the end of 2021 in the rapidly growing targeted therapy area. In the National Health Commission’s Treatment Guidelines for Primary Lung Cancer 2022 and the China Medical Association Oncology Committee Lung Cancer Group’s China Medical Association Guideline for Clinical Diagnosis and Treatment of Lung Cancer, Orpathys was identified as the only targeted therapy recommended for MET exon 14 patients, while similar guideline from CSCO also recommended Orpathys as the standard of care for such patients. Fruquintinib Fruquintinib is approved for the treatment of third-line metastatic CRC for which there is an approximate incidence of 83,000 new patients per year in China and was launched as Elunate. We estimate that in 2022, approximately 32,000 (2021: approximately 22,000) new patients were treated with Elunate in China resulting in in-market sales of $93.5 million, up 32% versus 2021 ($71.0 million). Following negotiations with the China NHSA, Elunate continues to be included in the NRDL for a new two-year term starting in January 2022. For this renewal, we agreed to a discount of 5% relative to the 2021 NRDL price. In January 2022, Elunate was approved in the Macau Special Administrative Region, our first drug to be approved in the territory and the first based on NMPA approval, following the latest update to the Macau provisions on new drug importation which allow drugs approved in one or more specified jurisdictions to be authorized for use in Macau. Following inclusion in the 2022 CSCO guidelines for epithelioid carcinoma, three patients began treatment in 2022, with the first patient having remained on medication for over six months. In December 2022, a market authorization application was submitted in Hong Kong. Clinical Drug Development Summary We are the Marketing Authorization Holder in China of three internally discovered and developed innovative oncology medicines, savolitnib, fruquintinib and surufatinib, which are marketed as Orpathys, Elunate and Sulanda, respectively. Besides the three marketed drugs, we have additional drug candidates in earlier stage clinical development. Several of our oncology drug candidates are in development outside China including savolitinib, for which we are in a global partnership with AstraZeneca, fruquintinib, for which we have agreed to license non-China rights to Takeda. The following table summarizes the status of our clinical drug portfolio’s development as of the date of the filing of this annual report: 72 73 Program Investigational treatment Disease Target patient Study name Sites Dose �inding / safety run-in Proof-of-concept Registration Savoli�nib + Tagrisso Savoli�nib + Tagrisso NSCLC NSCLC 2L/3L EGFRm; Tagrisso ref.; MET+ SAVANNAH Global 2L/3L EGFRm; Tagrisso ref.; MET+ SAFFRON Global * ** Savoli�nib + Imfinzi (PD-L1) Papillary RCC Savoli�nib + Imfinzi (PD-L1) Papillary RCC MET+ All SAMETA Global CALYPSO UK/Spain *** Savolitinib Savoli�nib + Imfinzi (PD-L1) Clear cell RCC VEGFR TKI refractory CALYPSO UK/Spain *** MET Savoli�nib Savoli�nib Savoli�nib + Tagrisso Savoli�nib + Tagrisso Gastric cancer MET+ VIKTORY S Korea *** NSCLC NSCLC NSCLC MET Exon 14 skipping Naïve MET+ & EGFRm NSCLC SANOVO 2L EGFR TKI ref. NSCLC; MET+ SACHI China China China Marketed Note: AITL = Angioimmunoblastic T-cell lymphoma; AML = Acute myeloid leukemia; BC = Breast cancer; BTC = Biliary tract Program Savoli�nib Inves(cid:20)ga(cid:20)onal treatment Gastric cancer Disease 2L; MET+ Target pa(cid:20)ent Study name Country/ region Dose finding / China safety run-in Proof of concept Registra(cid:20)on Approved Surufa�nib Fruquin(cid:20)nib Surufa�nib Fruquin(cid:20)nib CRC NET CRC, BC NET Fruquin(cid:20)nib + (cid:31)slelizumab (PD-1) MSS -CRC^ NET Solid tumors^ Surufatinib Surufa�nib VEGFR 1/2/3; FGFR 1; CSF-1R Fruquin(cid:20)nib VEGFR-1, -2, -3 Fruquin(cid:20)nib + (cid:31)slelizumab (PD-1) Surufa�nib + �slelizumab (PD-1) Fruquin(cid:20)nib Surufa�nib Fruquin(cid:20)nib + paclitaxel Surufa�nib Fruquin(cid:20)nib + sin(cid:31)limab (PD-1) Solid tumors CRC ≥3L; chemotherapy refractory FRESCO Pancrea�c NET GC 2L Non-Pancrea�c NET EMC All All FRUTIGA Refractory Refractory FRESCO-2 Global Refractory US Korea/China Korea/China China SANET-p China SANET-ep China (Bridging) US EU JP US/EU China China Surufa�nib + Tuoyi (PD-1) Fruquin(cid:20)nib + sin(cid:31)limab (PD-1) RCC NEC Fruquin(cid:20)nib + sin(cid:31)limab (PD-1) Surufa�nib + Tuoyi (PD-1) CRC ESCC Fruquin(cid:20)nib + sin(cid:31)limab (PD-1) Surufa�nib + Tuoyi (PD-1) GI, NSCLC, Cervical GC, SCLC Fruquin(cid:20)nib + (cid:31)slelizumab (PD-1) CRC^ Surufa�nib + Tuoyi (PD-1) BTC, Sarcoma Note: ^ The Phase II study in China and Korea for GC, CRC or NSCLC is led by BeiGene. Surufa�nib + Tuoyi (PD-1) TC, EMC, NSCLC SURTORI-01 China China China China China China China China China Savoli(cid:20)nib + osimer(cid:31)nib (EFGR) NSCLC EGFRm/MET+ osimer(cid:31)nib-refractory SAVANNAH Global * Fruquin�nib Savoli(cid:20)nib + osimer(cid:31)nib (EFGR) Colorectal cancer NSCLC EGFRm/MET+ osimer(cid:31)nib-refractory Refractory SAFFRON FRESCO-2 Global US/EU/JP Savoli(cid:20)nib MET Fruquintinib VEGFR 1/2/3 Fruquin�nib Savoli(cid:20)nib + durvalumab (PD-L1) Papillary RCC Breast cancer MET+ SAMETA Global Savoli(cid:20)nib Fruquin�nib + �slelizumab (PD-1) NSCLC TN breast cancer, EMC MET exon 14 skipping altera(cid:31)on Savoli(cid:25)nib Fruquin�nib + �slelizumab (PD-1) Savoli(cid:25)nib + osimer(cid:31)nib (EFGR) Fruquin�nib NSCLC Solid tumors NSCLC Colorectal cancer MET exon 14 skipping altera(cid:31)on Treatment-naïve, MET+ /EGFRm SANOVO ≥3L; chemotherapy refractory Savoli(cid:25)nib + osimer(cid:31)nib (EFGR) NSCLC 2L, MET+ /EGFR TKI-refractory SACHI Fruquin�nib + Taxol Savoli(cid:25)nib Gastric cancer GC 2L 2L, MET+ China China China FRESCO China FRUTIGA China Fruquin�nib + Tyvyt (PD-1) Savoli(cid:25)nib + durvalumab (PD-L1) NSCLC EMC MET driven; EGFR wild type SOUND China US US (Confirmatory) S Korea China China China Fruquin�nib + Tyvyt (PD-1) China Note: HUTCHMED is inves(cid:31)ga(cid:31)ng savoli(cid:31)nib in a global collabora(cid:31)on with AstraZeneca. AstraZeneca leads development outside of China. CRC Fruquin�nib + Tyvyt (PD-1) Surufa(cid:25)nib RCC, HCC NET Fruquin�nib + Tyvyt (PD-1) Surufa(cid:25)nib GI tumors Pancrea(cid:31)c NET Surufa(cid:25)nib VEGFR-1, -2, -3, FGFR1, CSF-1R Fruquin�nib + �slelizumab (PD-1) Surufa(cid:25)nib Solid tumors Non-Pancrea(cid:31)c NET Surufa(cid:25)nib + toripalimab (PD-1) NEC Amdizalisib Surufa(cid:25)nib + toripalimab (PD-1) Indolent NHL, PTCL SCLC Amdizalisib Surufa(cid:25)nib + toripalimab (PD-1) Healthy volunteers BTC, Solid tumors All All SANET-p China SANET-ep China SURTORI-01 China Japan China (Bridging) China China US/EU Australia China China China China Australia US/EU China (Bridging) China China China China China US/EU China China China ESLIM-01 China China Amdizalisib (HMPL-689) Amdizalisib (HMPL-689) PI3Kδ PI3Kδ Sovleplenib (HMPL-523) SYK Amdizalisib Amdizalisib Amdizalisib Amdizalisib Amdizalisib Sovleplenib Amdizalisib Sovleplenib Sovleplenib Sovleplenib Sovleplenib (HMPL-523 Tazemetostat EZH2 Tazemetostat Sovleplenib Tazemetostat Sovleplenib Relapsed/refractory Relapsed/refractory FL FL MZL MZL MCL, DLBCL HL/NHL CLL/SLL, HL ITP wAIHA Indolent NHL All Relapsed/refractory ESLIM-01 China Sovleplenib Tazemetostat ES, FL Indolent NHL Syk ) Tazemetostat + amdizalisib Sovleplenib Lymphoma wAIHA Note: Tazemetostat developed by Epizyme. Approved in the US for ES and FL as a monotherapy. HUTCHMED rights are for Greater China – bridging study being planned. China ** ITP Relapsed/refractory All SYMPHONY-1 FL FL 3L B-cell malignancies All Relapsed/refractory All HMPL-453 Tazemetostat FGFR1, 2, 3 EZH2 Tazemetostat **** HMPL-453 FL IHCC Relapsed/Refractory SYMPHONY-1 China Tazemetostat **** HMPL-453 + mul(cid:31)ple combos FL Solid tumors 3L China China China ** ** (Bridging) Note: Tazemetostat developed by Epizyme. Approved in the U.S. for ES and FL as a monotherapy. HUTCHMED rights are for Greater China – bridging study being planned. HMPL-306 Solid tumors Relapsed/refractory US/EU HMPL-306 IDH 1/2 HMPL-306 HMPL-306 HMPL-306 HMPL-306 HMPL-306 HMPL-295 IDH 1/2 ERK, MAPK pathway HMPL-306 HMPL-295 HMPL-760 HMPL-760 BTK BTK, 3G HMPL-453 HMPL-653 CSF-1R FGFR 1/2/3 HMPL-A83 HMPL-295 CD47 HMPL-760 HMPL-760 HMPL-760 HMPL-453 HMPL-653 HMPL-453 HMPL-295 HMPL-A83 ERK, MAPK pathway HMPL-653 HMPL-653 CSF-1R Global China AITL, AML, MDS, MPN Relapsed/refractory Solid tumors AML, CMML, MDS, MPN Heme. malignancies Relapsed/ refractory Solid tumors Heme. malignancies Relapsed/refractory B-Cell NHL NHL B-Cell NHL IHCC Solid tumors, TGCT Solid tumors Mul�ple combos Malignant Neoplasms Solid tumors Advanced Solid tumors, TGCT US/EU China China China China China US/EU US/EU China US/EU China China China China China * Phase II registration-intent study subject to regulatory discussion; 74 NDA under review MMA under review Marketed Marketed Marketed Marketed Marketed Marketed Marketed Marketed (Hainan Pilot Zone) GGlloobbaall CChhiinnaa cancer; CD-47 = Cluster of differentiation 47; CMML = Chronic myelomonocytic leukemia; CRC = Colorectal cancer; ERK = Extracellular signal-regulated kinase; ES = Epithelioid sarcoma; EZH2 = Enhancer of zeste homolog 2; FL = follicular lymphoma; GC= gastric cancer; GI= gastrointestinal; HL = Hodgkin’s lymphoma; IHCC = Intrahepatic cholangiocarcinoma; ITP = Immune thrombocytopenia purpura; NDA = New Drug Application; NEC = Neuroendocrine carcinoma; MAA = Marketing Authorization Application; MAPK pathway = RAS-RAF-MEK-ERK signaling cascade; MDS = myelodysplastic syndrome; MDS = Myelodysplastic syndromes; MET = mesenchymal epithelial transition receptor; MZL = marginal zone lymphoma; NSCLC = non-small cell lung cancer; EGFRm = epidermal growth factor receptor mutation; RCC = renal cell carcinoma; VEGFR = vascular endothelial growth factor receptor; TKI = tyrosine kinase inhibitor; FGFR 1 = fibroblast growth factor receptor 1; CSF-1R = colony stimulating factor-1 receptor; NET = neuroendocrine tumors; TN = triple negative; EMC = endometrial cancer; PI3Kδ = Phosphatidylinositol-3-Kinase delta; NHL = Non-Hodgkin’s Lymphoma; PTCL = peripheral T-cell lymphoma; Syk = spleen tyrosine kinase; SCLC = Small cell lung cancer; IDH 1/2 = isocitrate dehydrogenase 1/2; BTK = Bruton’s tyrosine kinase; TGCT = Tenosynovial giant cell tumor; wAIHA = warm autoimmune hemolytic anemia. Savolitinib – selective MET inhibitor in late-stage clinical development as a monotherapy and in combination therapies in global partnership with AstraZeneca Savolitinib is a potent and selective small molecule inhibitor of the MET receptor tyrosine kinase, an enzyme which has been shown to function abnormally in many types of solid tumors. We designed savolitinib through chemical structure modification to specifically address kidney toxicity, the primary issue that halted development of several other selective MET inhibitors. In clinical trials to date in over 1,500 patients globally, savolitinib has shown promising signs of clinical efficacy in patients with multiple types of MET gene alterations in lung cancer, kidney cancer and gastric cancer with an acceptable safety profile. In June 2021, the NMPA approved savolitinib for marketing for the treatment of NSCLC with MET exon 14 skipping alterations, making savolitinib the first-in-class selective MET inhibitor in China. This approval follows a priority review designation by the NMPA and is the first regulatory approval globally for this oral, potent and selective MET TKI. The approval by the NMPA was based on positive results from a Phase II trial conducted in China in patients with NSCLC with this mutation, including patients with the more aggressive pulmonary sarcomatoid carcinoma subtype. Savolitinib demonstrated effective anti-tumor activity based on an independent review of objective response rate (“ORR”) and disease control rate (“DCR”). The approval is conditional upon successful completion of an ongoing confirmatory study in this patient population. The results reviewed by the NMPA when it approved savolitinib were also published in The Lancet Respiratory Medicine. We are currently testing savolitinib in global partnership with AstraZeneca, both as a monotherapy and in combination with immunotherapy and targeted therapy. Most notably, MET-aberration is a major mechanism for acquired resistance to both first- generation EGFR TKIs as well as third-generation EGFR TKIs like Tagrisso. Savolitinib has been studied extensively in these patients in the TATTON and SAVANNAH studies. Final results from the TATTON study were presented at World Conference on Lung Cancers (“WCLC”), in January 2021, and preliminary results from SAVANNAH were presented at WCLC in August 2022. Findings based on SAVANNAH and the TATTON studies supported the initiation of the SAFFRON global Phase III study in patients with EGFR-mutated, MET-driven, locally advanced or metastatic NSCLC whose disease progressed on first- or second-line treatment with Targrisso as the most recent therapy, with no prior chemotherapy in the metastatic setting allowed. China-based Phase III studies SACHI and SANOVO were also initiated. Savolitinib was granted fast track designation by the FDA for the combination treatment with Tagrisso of NSCLC patients harboring MET overexpression and/or amplification following progression on Targrisso. Proof-of-concept studies of savolitinib in kidney cancer (as a monotherapy as well as in combination with a PD-L1 inhibitor) and gastric cancer (as a monotherapy as well as in combinations with chemotherapy) have demonstrated positive results, with subsequent clinical development ongoing or in planning. For example, we initiated a global Phase III pivotal trial (SAMETA) in October 2021 for savolitinib in combination with Imfinzi, AstraZeneca’s anti-PD-L1 antibody durvalumab, in MET positive patients with papillary renal cell carcinoma or PRCC, a form of kidney cancer. Savolitinib opportunities are also continuing to be explored in multiple other MET- driven tumor settings via investigator-initiated studies. 75 Program Investigational treatment Disease Target patient Study name Sites Dose �inding / safety run-in Proof-of-concept Registration Savoli�nib + Tagrisso Savoli�nib + Tagrisso NSCLC NSCLC 2L/3L EGFRm; Tagrisso ref.; MET+ SAVANNAH Global 2L/3L EGFRm; Tagrisso ref.; MET+ SAFFRON Global * ** Savoli�nib + Imfinzi (PD-L1) Papillary RCC Savoli�nib + Imfinzi (PD-L1) Papillary RCC MET+ All SAMETA Global CALYPSO UK/Spain *** Savoli�nib + Imfinzi (PD-L1) Clear cell RCC VEGFR TKI refractory CALYPSO UK/Spain *** Gastric cancer MET+ VIKTORY S Korea *** MET Exon 14 skipping Naïve MET+ & EGFRm NSCLC SANOVO 2L EGFR TKI ref. NSCLC; MET+ SACHI Savolitinib MET Savoli�nib Savoli�nib Savoli�nib + Tagrisso Savoli�nib + Tagrisso Savoli�nib Surufa�nib Surufa�nib Surufa�nib NSCLC NSCLC NSCLC NET NET NET Gastric cancer 2L; MET+ Refractory Refractory Surufatinib VEGFR 1/2/3; FGFR 1; CSF-1R Surufa�nib Surufa�nib Surufa�nib + �slelizumab (PD-1) Solid tumors Pancrea�c NET Non-Pancrea�c NET All All (Bridging) SANET-p SANET-ep SURTORI-01 China Marketed NDA under review MMA under review Marketed Marketed Colorectal cancer Refractory FRESCO-2 US/EU/JP Fruquin�nib Colorectal cancer ≥3L; chemotherapy refractory FRESCO Marketed Fruquintinib Fruquin�nib + Taxol Gastric cancer 2L FRUTIGA China China China China US EU JP US/EU China China China China China China US US S Korea China China China China China China China US/EU Australia Australia China China China China US/EU China China China China China US/EU US/EU China US/EU China China China China China Surufa�nib + Tuoyi (PD-1) Surufa�nib + Tuoyi (PD-1) NEC ESCC Surufa�nib + Tuoyi (PD-1) GC, SCLC Surufa�nib + Tuoyi (PD-1) BTC, Sarcoma Surufa�nib + Tuoyi (PD-1) TC, EMC, NSCLC Fruquin�nib Fruquin�nib Breast cancer Fruquin�nib + �slelizumab (PD-1) TN breast cancer, EMC Fruquin�nib + �slelizumab (PD-1) Solid tumors VEGFR 1/2/3 Fruquin�nib + Tyvyt (PD-1) Fruquin�nib + Tyvyt (PD-1) EMC CRC Fruquin�nib + Tyvyt (PD-1) RCC, HCC Fruquin�nib + Tyvyt (PD-1) GI tumors Fruquin�nib + �slelizumab (PD-1) Solid tumors Amdizalisib (HMPL-689) PI3Kδ Amdizalisib Amdizalisib Amdizalisib Amdizalisib Amdizalisib Amdizalisib Sovleplenib Sovleplenib Sovleplenib Sovleplenib (HMPL-523 Syk Sovleplenib ) Sovleplenib Tazemetostat Tazemetostat **** Tazemetostat **** EZH2 HMPL-306 IDH 1/2 HMPL-760 BTK, 3G HMPL-453 FGFR 1/2/3 HMPL-295 HMPL-306 HMPL-306 HMPL-306 HMPL-760 HMPL-760 HMPL-453 HMPL-453 HMPL-295 Indolent NHL, PTCL Healthy volunteers FL MZL MCL, DLBCL CLL/SLL, HL Indolent NHL Indolent NHL wAIHA ITP FL FL B-cell malignancies Solid tumors Heme. malignancies Heme. malignancies B-Cell NHL B-Cell NHL IHCC Solid tumors Solid tumors Mul�ple combos ERK, MAPK pathway HMPL-653 HMPL-653 Solid tumors, TGCT CSF-1R Global China * Phase II registration-intent study subject to regulatory discussion; 74 ESLIM-01 All All All 3L Relapsed/Refractory SYMPHONY-1 ** ** ** (Bridging) Note: Tazemetostat developed by Epizyme. Approved in the U.S. for ES and FL as a monotherapy. HUTCHMED rights are for Greater China – bridging study being planned. Note: AITL = Angioimmunoblastic T-cell lymphoma; AML = Acute myeloid leukemia; BC = Breast cancer; BTC = Biliary tract cancer; CD-47 = Cluster of differentiation 47; CMML = Chronic myelomonocytic leukemia; CRC = Colorectal cancer; ERK = Extracellular signal-regulated kinase; ES = Epithelioid sarcoma; EZH2 = Enhancer of zeste homolog 2; FL = follicular lymphoma; GC= gastric cancer; GI= gastrointestinal; HL = Hodgkin’s lymphoma; IHCC = Intrahepatic cholangiocarcinoma; ITP = Immune thrombocytopenia purpura; NDA = New Drug Application; NEC = Neuroendocrine carcinoma; MAA = Marketing Authorization Application; MAPK pathway = RAS-RAF-MEK-ERK signaling cascade; MDS = myelodysplastic syndrome; MDS = Myelodysplastic syndromes; MET = mesenchymal epithelial transition receptor; MZL = marginal zone lymphoma; NSCLC = non-small cell lung cancer; EGFRm = epidermal growth factor receptor mutation; RCC = renal cell carcinoma; VEGFR = vascular endothelial growth factor receptor; TKI = tyrosine kinase inhibitor; FGFR 1 = fibroblast growth factor receptor 1; CSF-1R = colony stimulating factor-1 receptor; NET = neuroendocrine tumors; TN = triple negative; EMC = endometrial cancer; PI3Kδ = Phosphatidylinositol-3-Kinase delta; NHL = Non-Hodgkin’s Lymphoma; PTCL = peripheral T-cell lymphoma; Syk = spleen tyrosine kinase; SCLC = Small cell lung cancer; IDH 1/2 = isocitrate dehydrogenase 1/2; BTK = Bruton’s tyrosine kinase; TGCT = Tenosynovial giant cell tumor; wAIHA = warm autoimmune hemolytic anemia. Savolitinib – selective MET inhibitor in late-stage clinical development as a monotherapy and in combination therapies in global partnership with AstraZeneca Savolitinib is a potent and selective small molecule inhibitor of the MET receptor tyrosine kinase, an enzyme which has been shown to function abnormally in many types of solid tumors. We designed savolitinib through chemical structure modification to specifically address kidney toxicity, the primary issue that halted development of several other selective MET inhibitors. In clinical trials to date in over 1,500 patients globally, savolitinib has shown promising signs of clinical efficacy in patients with multiple types of MET gene alterations in lung cancer, kidney cancer and gastric cancer with an acceptable safety profile. In June 2021, the NMPA approved savolitinib for marketing for the treatment of NSCLC with MET exon 14 skipping alterations, making savolitinib the first-in-class selective MET inhibitor in China. This approval follows a priority review designation by the NMPA and is the first regulatory approval globally for this oral, potent and selective MET TKI. The approval by the NMPA was based on positive results from a Phase II trial conducted in China in patients with NSCLC with this mutation, including patients with the more aggressive pulmonary sarcomatoid carcinoma subtype. Savolitinib demonstrated effective anti-tumor activity based on an independent review of objective response rate (“ORR”) and disease control rate (“DCR”). The approval is conditional upon successful completion of an ongoing confirmatory study in this patient population. The results reviewed by the NMPA when it approved savolitinib were also published in The Lancet Respiratory Medicine. We are currently testing savolitinib in global partnership with AstraZeneca, both as a monotherapy and in combination with immunotherapy and targeted therapy. Most notably, MET-aberration is a major mechanism for acquired resistance to both first- generation EGFR TKIs as well as third-generation EGFR TKIs like Tagrisso. Savolitinib has been studied extensively in these patients in the TATTON and SAVANNAH studies. Final results from the TATTON study were presented at World Conference on Lung Cancers (“WCLC”), in January 2021, and preliminary results from SAVANNAH were presented at WCLC in August 2022. Findings based on SAVANNAH and the TATTON studies supported the initiation of the SAFFRON global Phase III study in patients with EGFR-mutated, MET-driven, locally advanced or metastatic NSCLC whose disease progressed on first- or second-line treatment with Targrisso as the most recent therapy, with no prior chemotherapy in the metastatic setting allowed. China-based Phase III studies SACHI and SANOVO were also initiated. Savolitinib was granted fast track designation by the FDA for the combination treatment with Tagrisso of NSCLC patients harboring MET overexpression and/or amplification following progression on Targrisso. Proof-of-concept studies of savolitinib in kidney cancer (as a monotherapy as well as in combination with a PD-L1 inhibitor) and gastric cancer (as a monotherapy as well as in combinations with chemotherapy) have demonstrated positive results, with subsequent clinical development ongoing or in planning. For example, we initiated a global Phase III pivotal trial (SAMETA) in October 2021 for savolitinib in combination with Imfinzi, AstraZeneca’s anti-PD-L1 antibody durvalumab, in MET positive patients with papillary renal cell carcinoma or PRCC, a form of kidney cancer. Savolitinib opportunities are also continuing to be explored in multiple other MET- driven tumor settings via investigator-initiated studies. 75 Fruquintinib—selective VEGFR 1, 2 and 3 inhibitor with the best selectivity for its targets in global NDA submission and commercially launched as Elunate in China in CRC in November 2018 We own all rights to surufatinib globally. Fruquintinib is a highly selective and potent oral inhibitor of vascular endothelial growth factor or VEGF receptors, known as VEGFR 1, 2 and 3. We believe that fruquintinib has the potential to become a selective small molecule VEGFR 1, 2 and 3 inhibitor for many types of solid tumors that has the highest selectivity, and we are currently studying fruquintinib in CRC, gastric cancer, endometrial cancer, kidney and other solid tumor types. Fruquintinib was designed to improve kinase selectivity to minimize off-target toxicities, improve tolerability and provide more consistent target coverage. The tolerability in patients to date, along with fruquintinib’s low potential for drug-drug interaction based on pre-clinical assessment, suggests that it may be highly suitable for combinations with other anti-cancer therapies. Building on the data collected from our successful Phase III trial in China, known as the FRESCO study, which supported fruquintinib’s approval in China, we initiated FRESCO-2, a large randomized controlled study of fruquintinib in the United States, Europe, Japan and Australia. The FDA granted fast track designation for the development of fruquintinib for the treatment of patients with mCRC in June 2020, enabling us to submit sections of the NDA on a rolling basis. Based on the successful results of the FRESCO- 2 study, we initiated the filing of a rolling submission of an NDA to the FDA for fruquintinib for the treatment of mCRC. Aside from its first approved indication of late-line CRC in China that is being applied for globally, we are conducting studies of fruquintinib in combination with other drugs in various indications. For example, we plan to submit a supplemental NDA in China for the treatment of gastric cancer in combination with paclitaxel following the results of the FRUTIGA Phase III study, and we have several ongoing registration-intent studies of fruquintinib combined with chemotherapy (FRUTIGA study in gastric cancer) or checkpoint inhibitors (Tyvyt combo, in endometrial cancer and RCC) in China. Fruquintinib is being commercialized and developed in partnership with Eli Lilly in China, where we are responsible for development, manufacturing, on-the-ground medical detailing, promotion and local and regional marketing activities. In January 2023, we entered into an agreement whereby Takeda will receive an exclusive worldwide license to develop, manufacture and commercialize fruquintinib in all indications and territories outside of China. The Takeda partnership is subject to customary closing conditions, including completion of antitrust regulatory reviews. Following these clearances, Takeda will become solely responsible for the development and commercialization of fruquintinib in all the included territories. Surufatinib—unique angio-immuno kinase inhibitor commercially launched as Sulanda in China in advanced NETs; first VEGFR/FGFR/CSF-1R inhibitor for all advanced NETs Surufatinib is a novel, oral angio-immuno kinase, small molecule inhibitor that selectively inhibits the tyrosine kinase activity associated with VEGFR and FGFR, which both inhibit angiogenesis, and colony stimulating factor-1 receptor, or CSF-1R, which regulates tumor-associated macrophages, promoting the body’s immune response against tumor cells. Its unique dual mechanism of action may be very suitable for possible combinations with other immunotherapies. We believe surufatinib is potentially the first VEGFR/FGFR/CSF-1R inhibitor for all advanced NETs. Surufatinib was approved by the NMPA in December 2020 for the treatment of non-pancreatic NETs and is now being marketed by us in China under the brand name Sulanda. This NMPA approval of surufatinib was based on results from the SANET-ep study, a Phase III trial in patients with advanced non-pancreatic NETs conducted in China. The positive results of this trial were highlighted in an oral presentation at the 2019 ESMO Congress and published in The Lancet Oncology in September 2020. In June 2021, surufatinib was approved by the NMPA for the treatment of advanced pancreatic NETs. This NMPA approval of surufatinib was based on results from the SANET-p study, a Phase III trial in patients with advanced pancreatic NETs conducted in China. The positive results of this trial were highlighted in an oral presentation at the 2020 ESMO Congress and published in The Lancet Oncology in September 2020. In 2022, we presented a pooled analysis of safety data from the SANET-p and SANET-ep studies at the 2022 ASCO annual meeting. Outside of China, we are conducting a bridging study to support registration of surufatinib for advanced NET in Japan. This Japan trial was initiated in September 2021 and the results are expected in the first half of 2023. In the United States and Europe, we submitted an NDA to the FDA and MAA to the EMA for surufatinib monotherapy for the treatment of NETs. After receiving a Complete Response Letter from the FDA and negative feedback from EMA reviewers, we withdrew our NDA and MAA. We have various additional clinical trials of surufatinib ongoing in combination with checkpoint inhibitors. Sovleplenib (HMPL-523)—potentially the first selective Syk inhibitor for hematological cancer Sovleplenib is a novel, highly selective, oral, small molecule inhibitor targeting the spleen tyrosine kinase, or Syk, for the treatment of hematological cancers and certain chronic immune diseases. Syk is a major component in B-cell receptor signaling and is an established therapeutic target in multiple subtypes of B-cell lymphomas. Because B-cell malignancies are heterogeneous and patients commonly experience relapse despite current therapies, there is a need for new therapies. We have various clinical trials of sovleplenib ongoing. Based on the encouraging data from Phase Ib study of sovleplenib in adult patients with immune thrombocytopenia, we commenced a Phase III study in the same indication and the final patient enrolled in the study received their first dose in December 2022. In January 2022, sovleplenib received the Breakthrough Therapy Designation in China for treatment of primary immune thrombocytopenia. The NMPA grants Breakthrough Therapy Designation to new drugs that treat life- threatening diseases or serious conditions for which there are no effective treatment options, and where clinical evidence demonstrates significant advantages over existing therapies. In September 2022, we also initiated a randomized, double-blind, placebo-controlled Phase II/III study to evaluate the efficacy, safety, tolerability, and pharmacokinetics of sovleplenib in the treatment of warm AIHA. We own all rights to sovleplenib globally. Amdizalisib (HMPL-689)—novel, highly selective PI3Kδ inhibitor with potential in hematological cancer Amdizalisib is a novel, highly selective and potent small molecule inhibitor targeting the isoform PI3Kδ. In pre-clinical pharmacokinetic studies, amdizalisib’s pharmacokinetic properties have been found to be favorable with good oral absorption, moderate tissue distribution and low clearance. Amdizalisib is also expected to have low risk of drug accumulation and drug-drug interaction and is highly potent, particularly at the whole blood level. Amdizalisib received Breakthrough Therapy Designation from the CDE of the NMPA in China for the treatment of refractory follicular lymphoma in September 2021. We have multiple ongoing clinical studies of amdizalisib for various subtypes of lymphomas. In April 2021, we commenced a registration-intent, single-arm, open-label Phase II trial in China in approximately 100 patients with relapsed/refractory follicular lymphoma and approximately 80 patients with relapsed/refractory marginal zone lymphoma, two subtypes of non-Hodgkin’s lymphoma. The trial is being conducted in over 35 sites in China, has fully enrolled the follicular lymphoma cohort and is expected to complete enrollment for the marginal zone lymphoma cohort around mid-year. We own all rights to amdizalisib globally. Tazemetostat In August 2021, we entered into a strategic collaboration with Epizyme, Inc. (a subsidiary of Ipsen Pharma SAS), to research, develop, manufacture and commercialize tazemetostat (Tazverik) in Greater China, including mainland China, Hong Kong, Macau and Taiwan. Tazemetostat is an inhibitor of EZH2 developed by Ipsen that is approved by the FDA for the treatment of certain epithelioid sarcoma and follicular lymphoma patients. It received accelerated approval from the FDA based on ORR and DoR in January and June 2020 for epithelioid sarcoma and follicular lymphoma, respectively. We are developing and plan to seek approval for tazemetostat in various hematological and solid tumors, in Greater China, through a bridging study and other studies including in combination with amdizalisib. We are participating in Ipsen’s SYMPHONY-1 (EZH- 302) study, leading it in Greater China. We have initiated a Phase II study of tazemetostat with amdizalisib in 2023. We will generally be responsible for funding all clinical trials of tazemetostat in Greater China, including the portion of global trials conducted there. We are responsible for the research, manufacturing and commercialization of tazemetostat in Greater China. 76 77 Fruquintinib—selective VEGFR 1, 2 and 3 inhibitor with the best selectivity for its targets in global NDA submission and We own all rights to surufatinib globally. commercially launched as Elunate in China in CRC in November 2018 Fruquintinib is a highly selective and potent oral inhibitor of vascular endothelial growth factor or VEGF receptors, known as VEGFR 1, 2 and 3. We believe that fruquintinib has the potential to become a selective small molecule VEGFR 1, 2 and 3 inhibitor for many types of solid tumors that has the highest selectivity, and we are currently studying fruquintinib in CRC, gastric cancer, endometrial cancer, kidney and other solid tumor types. Fruquintinib was designed to improve kinase selectivity to minimize off-target toxicities, improve tolerability and provide more consistent target coverage. The tolerability in patients to date, along with fruquintinib’s low potential for drug-drug interaction based on pre-clinical assessment, suggests that it may be highly suitable for combinations with other anti-cancer therapies. Building on the data collected from our successful Phase III trial in China, known as the FRESCO study, which supported fruquintinib’s approval in China, we initiated FRESCO-2, a large randomized controlled study of fruquintinib in the United States, Europe, Japan and Australia. The FDA granted fast track designation for the development of fruquintinib for the treatment of patients with mCRC in June 2020, enabling us to submit sections of the NDA on a rolling basis. Based on the successful results of the FRESCO- 2 study, we initiated the filing of a rolling submission of an NDA to the FDA for fruquintinib for the treatment of mCRC. Aside from its first approved indication of late-line CRC in China that is being applied for globally, we are conducting studies of fruquintinib in combination with other drugs in various indications. For example, we plan to submit a supplemental NDA in China for the treatment of gastric cancer in combination with paclitaxel following the results of the FRUTIGA Phase III study, and we have several ongoing registration-intent studies of fruquintinib combined with chemotherapy (FRUTIGA study in gastric cancer) or checkpoint inhibitors (Tyvyt combo, in endometrial cancer and RCC) in China. Fruquintinib is being commercialized and developed in partnership with Eli Lilly in China, where we are responsible for development, manufacturing, on-the-ground medical detailing, promotion and local and regional marketing activities. In January 2023, we entered into an agreement whereby Takeda will receive an exclusive worldwide license to develop, manufacture and commercialize fruquintinib in all indications and territories outside of China. The Takeda partnership is subject to customary closing conditions, including completion of antitrust regulatory reviews. Following these clearances, Takeda will become solely responsible for the development and commercialization of fruquintinib in all the included territories. Surufatinib—unique angio-immuno kinase inhibitor commercially launched as Sulanda in China in advanced NETs; first VEGFR/FGFR/CSF-1R inhibitor for all advanced NETs Surufatinib is a novel, oral angio-immuno kinase, small molecule inhibitor that selectively inhibits the tyrosine kinase activity associated with VEGFR and FGFR, which both inhibit angiogenesis, and colony stimulating factor-1 receptor, or CSF-1R, which regulates tumor-associated macrophages, promoting the body’s immune response against tumor cells. Its unique dual mechanism of action may be very suitable for possible combinations with other immunotherapies. We believe surufatinib is potentially the first VEGFR/FGFR/CSF-1R inhibitor for all advanced NETs. Surufatinib was approved by the NMPA in December 2020 for the treatment of non-pancreatic NETs and is now being marketed by us in China under the brand name Sulanda. This NMPA approval of surufatinib was based on results from the SANET-ep study, a Phase III trial in patients with advanced non-pancreatic NETs conducted in China. The positive results of this trial were highlighted in an oral presentation at the 2019 ESMO Congress and published in The Lancet Oncology in September 2020. In June 2021, surufatinib was approved by the NMPA for the treatment of advanced pancreatic NETs. This NMPA approval of surufatinib was based on results from the SANET-p study, a Phase III trial in patients with advanced pancreatic NETs conducted in China. The positive results of this trial were highlighted in an oral presentation at the 2020 ESMO Congress and published in The Lancet Oncology in September 2020. In 2022, we presented a pooled analysis of safety data from the SANET-p and SANET-ep studies at the 2022 ASCO annual meeting. Outside of China, we are conducting a bridging study to support registration of surufatinib for advanced NET in Japan. This Japan trial was initiated in September 2021 and the results are expected in the first half of 2023. In the United States and Europe, we submitted an NDA to the FDA and MAA to the EMA for surufatinib monotherapy for the treatment of NETs. After receiving a Complete Response Letter from the FDA and negative feedback from EMA reviewers, we withdrew our NDA and MAA. We have various additional clinical trials of surufatinib ongoing in combination with checkpoint inhibitors. Sovleplenib (HMPL-523)—potentially the first selective Syk inhibitor for hematological cancer Sovleplenib is a novel, highly selective, oral, small molecule inhibitor targeting the spleen tyrosine kinase, or Syk, for the treatment of hematological cancers and certain chronic immune diseases. Syk is a major component in B-cell receptor signaling and is an established therapeutic target in multiple subtypes of B-cell lymphomas. Because B-cell malignancies are heterogeneous and patients commonly experience relapse despite current therapies, there is a need for new therapies. We have various clinical trials of sovleplenib ongoing. Based on the encouraging data from Phase Ib study of sovleplenib in adult patients with immune thrombocytopenia, we commenced a Phase III study in the same indication and the final patient enrolled in the study received their first dose in December 2022. In January 2022, sovleplenib received the Breakthrough Therapy Designation in China for treatment of primary immune thrombocytopenia. The NMPA grants Breakthrough Therapy Designation to new drugs that treat life- threatening diseases or serious conditions for which there are no effective treatment options, and where clinical evidence demonstrates significant advantages over existing therapies. In September 2022, we also initiated a randomized, double-blind, placebo-controlled Phase II/III study to evaluate the efficacy, safety, tolerability, and pharmacokinetics of sovleplenib in the treatment of warm AIHA. We own all rights to sovleplenib globally. Amdizalisib (HMPL-689)—novel, highly selective PI3Kδ inhibitor with potential in hematological cancer Amdizalisib is a novel, highly selective and potent small molecule inhibitor targeting the isoform PI3Kδ. In pre-clinical pharmacokinetic studies, amdizalisib’s pharmacokinetic properties have been found to be favorable with good oral absorption, moderate tissue distribution and low clearance. Amdizalisib is also expected to have low risk of drug accumulation and drug-drug interaction and is highly potent, particularly at the whole blood level. Amdizalisib received Breakthrough Therapy Designation from the CDE of the NMPA in China for the treatment of refractory follicular lymphoma in September 2021. We have multiple ongoing clinical studies of amdizalisib for various subtypes of lymphomas. In April 2021, we commenced a registration-intent, single-arm, open-label Phase II trial in China in approximately 100 patients with relapsed/refractory follicular lymphoma and approximately 80 patients with relapsed/refractory marginal zone lymphoma, two subtypes of non-Hodgkin’s lymphoma. The trial is being conducted in over 35 sites in China, has fully enrolled the follicular lymphoma cohort and is expected to complete enrollment for the marginal zone lymphoma cohort around mid-year. We own all rights to amdizalisib globally. Tazemetostat In August 2021, we entered into a strategic collaboration with Epizyme, Inc. (a subsidiary of Ipsen Pharma SAS), to research, develop, manufacture and commercialize tazemetostat (Tazverik) in Greater China, including mainland China, Hong Kong, Macau and Taiwan. Tazemetostat is an inhibitor of EZH2 developed by Ipsen that is approved by the FDA for the treatment of certain epithelioid sarcoma and follicular lymphoma patients. It received accelerated approval from the FDA based on ORR and DoR in January and June 2020 for epithelioid sarcoma and follicular lymphoma, respectively. We are developing and plan to seek approval for tazemetostat in various hematological and solid tumors, in Greater China, through a bridging study and other studies including in combination with amdizalisib. We are participating in Ipsen’s SYMPHONY-1 (EZH- 302) study, leading it in Greater China. We have initiated a Phase II study of tazemetostat with amdizalisib in 2023. We will generally be responsible for funding all clinical trials of tazemetostat in Greater China, including the portion of global trials conducted there. We are responsible for the research, manufacturing and commercialization of tazemetostat in Greater China. 76 77 HMPL-306—potentially the first dual inhibitor of IDH1 and IDH2 with applications in hematological malignancies and solid HMPL-A83, IgG4-type humanized anti-CD47 monoclonal antibody tumors HMPL-306 is a novel small molecule dual-inhibitor of isocitrate dehydrogenase 1 and 2, or IDH 1 and 2, enzymes. IDH1 and IDH2 mutations have been implicated as drivers of certain hematological malignancies and solid tumors, particularly among acute myeloid leukemia patients. A Phase I trial in China was initiated in July 2020, in patients of relapsed or refractory hematological malignancies with an IDH1 and/or IDH2 mutation. We plan to initiate the dose expansion portion of this Phase I study in early 2023. We own all rights to HMPL-306 globally. HMPL-760—an investigational, highly selective, third-generation oral inhibitor of BTK with improved potency versus first generation BTK inhibitors against both wild type & C481S mutant enzymes HMPL-760 is an investigational, non-covalent, third-generation BTK inhibitor. It is a highly potent, selective, and reversible inhibitor with long target engagement against BTK, including wild-type and C481S-mutated BTK. In January 2022, we initiated a Phase I trial in China in patients with previously treated chronic lymphocytic leukemia/small lymphocytic lymphoma or other types of non- Hodgkin lymphoma, including patients treated with a prior regimen containing a BTK inhibitor, whose disease carries either wild-type BTK or acquired resistance to first generation BTK inhibitors due to additional mutations to BTK. The initial dose escalation stage to determine the maximum tolerated dose and/or the RP2D is to be followed by a dose expansion phase where patients will receive HMPL‑760 to further evaluate the safety, tolerability, and clinical activity at the RP2D. HMPL-A83 is an investigational IgG4-type humanized anti-CD47 monoclonal antibody that exhibits high affinity for CD47. HMPL-A83 blocks CD47 binding to Signal regulatory protein (SIRP) α and disrupts the “do not eat me” signal that cancer cells use to shield themselves from the immune system. We own all rights to HMPL-A83 globally. Discovery Research & Pre-clinical Development We have built a drug discovery engine based in China, which has already produced a pipeline of around 20 differentiated clinical and late pre-clinical stage drug candidates covering both novel and validated targets of which three are now marketed. We strive to create differentiated novel oncology and immunology treatments with global potential. These include furthering both small molecule and biologic therapies which address aberrant genetic drivers and cancer cell metabolism; modulate tumor immune microenvironment; and target immune cell checkpoints. We design drug candidates with profiles that enable them to be used in innovative combinations with other therapies, such as chemotherapy, immunotherapy and other targeted therapies in order to attack disease simultaneously through multiple modalities and pathways. We believe that this approach can significantly improve treatment outcomes for patients. Beyond these clinical and pre-clinical stage candidates, we continue to conduct research into discovering new types of drug candidates, including among others, small molecules addressing cancer-related apoptosis, cell signaling, epigenetics and protein translation; biologic drug candidates including bispecific antibodies; and novel technologies including antibody-drug conjugates and We own all rights to HMPL-760 globally. heterobifunctional small molecules. HMPL-453—highly selective FGFR 1/2/3 inhibitor with potential in solid tumors Manufacturing HMPL-453 is a novel, selective, oral inhibitor targeting FGFR 1/2/3. Aberrant FGFR signaling is associated with tumor growth, promotion of angiogenesis, as well as resistance to anti-tumor therapies. A Phase II study is ongoing in patients with advanced intrahepatic cholangiocarcinoma, or IHCC, with FGFR2 fusion that had failed at least one line of systemic therapy. We have recently agreed a registration enabling study design for HMPL-453 for IHCC with the CDE. IHCC is a cancer that develops within the bile ducts, the second most common primary hepatic malignancy after hepatocellular carcinoma. Approximately 10-15% of IHCC patients have tumors that harbor FGFR2 fusion. We also initiated a Phase I/II study of HMPL-453 in combination with chemotherapies or toripalimab for advanced solid tumors in China in January 2022. We use contract manufacturing organizations in China to produce our clinical and commercial API supplies. For manufacturing drug products, we currently use a combination of contract manufacturers and our internal manufacturing facility. We have a drug product facility in Suzhou which manufactures both clinical and commercial supplies for some of our products. We are building a new drug product facility in Pudong, Shanghai, which will increase our novel drug product manufacturing capacity by over five times. The construction and qualification of the Shanghai facility is expected to be completed in mid-2023 and technology transfer will start for some projects into the facility in late 2023. We expect to manufacture clinical supplies from the new facility starting in 2023 and commercial supplies around 2025 after the necessary regulatory filings and approvals. We own all rights to HMPL-453 globally. HMPL-295 – an investigative and highly selective small molecule inhibitor of ERK in the MAPK pathway with the potential to address intrinsic or acquired resistance from upstream mechanisms such as RAS-RAF-MEK We completed technology transfer for the API and drug product of amdizalisib and sovleplenib into the selected commercial manufacturing facilities in preparation for potential NDA filings. Process validation for these products (both API and drug product) is expected to complete in 2023. We also completed the NDA enabling work related to manufacturing for the global launch of fruquintinib at the commercial manufacturing sites. Process validation for API of this product has been completed, and process validation for drug product will be completed in the second half of 2023 in time for potential approval and launch. HMPL-295 is a novel ERK inhibitor. ERK is a downstream component of the RAS-RAF-MEK-ERK signaling cascade (MAPK pathway). This is our first of multiple candidates in discovery targeting the MAPK pathway. A China Phase I study of HMPL-295 as a monotherapy was initiated in July 2021. Other Ventures We own all rights to HMPL-295 globally. HMPL-653—CSF-1R inhibitor HMPL-653 is a novel, highly selective, and potent CSF-1R inhibitor designed to target CSF-1R driven tumors as a monotherapy or in combination with other drugs. We initiated a China Phase I study in January 2022. We own all rights to HMPL-653 globally. In addition to our Oncology/Immunology operations, our Other Ventures include large-scale drug marketing and distribution platforms covering about 290 cities and towns in China with approximately 2,900 manufacturing and commercial personnel as of December 31, 2022. Built over the past 20 years, it primarily focuses on prescription drug and consumer health products mainly through: (i) Shanghai Hutchison Pharmaceuticals, a non-consolidated joint venture with a commercial team of about 2,300 staff managing the medical detailing and marketing of a range of own-brand prescription drug products and (ii) Hutchison Sinopharm, a consolidated joint venture focused on providing commercial services for our own marketed drugs, as well as marketing third-party prescription drug products. Hutchison Baiyunshan, a former non-consolidated joint venture focused on the manufacturing, marketing and distribution of primarily own-brand OTC drugs, was also a part of our Other Ventures’ operations before its disposal in September 2021. 78 79 HMPL-306—potentially the first dual inhibitor of IDH1 and IDH2 with applications in hematological malignancies and solid HMPL-A83, IgG4-type humanized anti-CD47 monoclonal antibody tumors HMPL-306 is a novel small molecule dual-inhibitor of isocitrate dehydrogenase 1 and 2, or IDH 1 and 2, enzymes. IDH1 and IDH2 mutations have been implicated as drivers of certain hematological malignancies and solid tumors, particularly among acute myeloid leukemia patients. A Phase I trial in China was initiated in July 2020, in patients of relapsed or refractory hematological malignancies with an IDH1 and/or IDH2 mutation. We plan to initiate the dose expansion portion of this Phase I study in early 2023. We own all rights to HMPL-306 globally. HMPL-760—an investigational, highly selective, third-generation oral inhibitor of BTK with improved potency versus first generation BTK inhibitors against both wild type & C481S mutant enzymes HMPL-760 is an investigational, non-covalent, third-generation BTK inhibitor. It is a highly potent, selective, and reversible inhibitor with long target engagement against BTK, including wild-type and C481S-mutated BTK. In January 2022, we initiated a Phase I trial in China in patients with previously treated chronic lymphocytic leukemia/small lymphocytic lymphoma or other types of non- Hodgkin lymphoma, including patients treated with a prior regimen containing a BTK inhibitor, whose disease carries either wild-type BTK or acquired resistance to first generation BTK inhibitors due to additional mutations to BTK. The initial dose escalation stage to determine the maximum tolerated dose and/or the RP2D is to be followed by a dose expansion phase where patients will receive HMPL‑760 to further evaluate the safety, tolerability, and clinical activity at the RP2D. We own all rights to HMPL-760 globally. HMPL-A83 is an investigational IgG4-type humanized anti-CD47 monoclonal antibody that exhibits high affinity for CD47. HMPL-A83 blocks CD47 binding to Signal regulatory protein (SIRP) α and disrupts the “do not eat me” signal that cancer cells use to shield themselves from the immune system. We own all rights to HMPL-A83 globally. Discovery Research & Pre-clinical Development We have built a drug discovery engine based in China, which has already produced a pipeline of around 20 differentiated clinical and late pre-clinical stage drug candidates covering both novel and validated targets of which three are now marketed. We strive to create differentiated novel oncology and immunology treatments with global potential. These include furthering both small molecule and biologic therapies which address aberrant genetic drivers and cancer cell metabolism; modulate tumor immune microenvironment; and target immune cell checkpoints. We design drug candidates with profiles that enable them to be used in innovative combinations with other therapies, such as chemotherapy, immunotherapy and other targeted therapies in order to attack disease simultaneously through multiple modalities and pathways. We believe that this approach can significantly improve treatment outcomes for patients. Beyond these clinical and pre-clinical stage candidates, we continue to conduct research into discovering new types of drug candidates, including among others, small molecules addressing cancer-related apoptosis, cell signaling, epigenetics and protein translation; biologic drug candidates including bispecific antibodies; and novel technologies including antibody-drug conjugates and heterobifunctional small molecules. HMPL-453—highly selective FGFR 1/2/3 inhibitor with potential in solid tumors Manufacturing HMPL-453 is a novel, selective, oral inhibitor targeting FGFR 1/2/3. Aberrant FGFR signaling is associated with tumor growth, promotion of angiogenesis, as well as resistance to anti-tumor therapies. A Phase II study is ongoing in patients with advanced intrahepatic cholangiocarcinoma, or IHCC, with FGFR2 fusion that had failed at least one line of systemic therapy. We have recently agreed a registration enabling study design for HMPL-453 for IHCC with the CDE. IHCC is a cancer that develops within the bile ducts, the second most common primary hepatic malignancy after hepatocellular carcinoma. Approximately 10-15% of IHCC patients have tumors that harbor FGFR2 fusion. We also initiated a Phase I/II study of HMPL-453 in combination with chemotherapies or toripalimab for advanced solid tumors in China in January 2022. We own all rights to HMPL-453 globally. HMPL-295 – an investigative and highly selective small molecule inhibitor of ERK in the MAPK pathway with the potential to address intrinsic or acquired resistance from upstream mechanisms such as RAS-RAF-MEK We use contract manufacturing organizations in China to produce our clinical and commercial API supplies. For manufacturing drug products, we currently use a combination of contract manufacturers and our internal manufacturing facility. We have a drug product facility in Suzhou which manufactures both clinical and commercial supplies for some of our products. We are building a new drug product facility in Pudong, Shanghai, which will increase our novel drug product manufacturing capacity by over five times. The construction and qualification of the Shanghai facility is expected to be completed in mid-2023 and technology transfer will start for some projects into the facility in late 2023. We expect to manufacture clinical supplies from the new facility starting in 2023 and commercial supplies around 2025 after the necessary regulatory filings and approvals. We completed technology transfer for the API and drug product of amdizalisib and sovleplenib into the selected commercial manufacturing facilities in preparation for potential NDA filings. Process validation for these products (both API and drug product) is expected to complete in 2023. We also completed the NDA enabling work related to manufacturing for the global launch of fruquintinib at the commercial manufacturing sites. Process validation for API of this product has been completed, and process validation for drug product will be completed in the second half of 2023 in time for potential approval and launch. HMPL-295 is a novel ERK inhibitor. ERK is a downstream component of the RAS-RAF-MEK-ERK signaling cascade (MAPK pathway). This is our first of multiple candidates in discovery targeting the MAPK pathway. A China Phase I study of HMPL-295 as a Other Ventures monotherapy was initiated in July 2021. We own all rights to HMPL-295 globally. HMPL-653—CSF-1R inhibitor We own all rights to HMPL-653 globally. HMPL-653 is a novel, highly selective, and potent CSF-1R inhibitor designed to target CSF-1R driven tumors as a monotherapy or in combination with other drugs. We initiated a China Phase I study in January 2022. In addition to our Oncology/Immunology operations, our Other Ventures include large-scale drug marketing and distribution platforms covering about 290 cities and towns in China with approximately 2,900 manufacturing and commercial personnel as of December 31, 2022. Built over the past 20 years, it primarily focuses on prescription drug and consumer health products mainly through: (i) Shanghai Hutchison Pharmaceuticals, a non-consolidated joint venture with a commercial team of about 2,300 staff managing the medical detailing and marketing of a range of own-brand prescription drug products and (ii) Hutchison Sinopharm, a consolidated joint venture focused on providing commercial services for our own marketed drugs, as well as marketing third-party prescription drug products. Hutchison Baiyunshan, a former non-consolidated joint venture focused on the manufacturing, marketing and distribution of primarily own-brand OTC drugs, was also a part of our Other Ventures’ operations before its disposal in September 2021. 78 79 Net income attributable to our company from our Other Ventures totaled $72.8 million, $142.9 million and $54.6 million for the years ended December 31, 2020, 2021 and 2022, respectively, and are remitted to our group through dividend payments primarily from our non-consolidated joint venture mentioned above. In 2022, dividends of an aggregate amount of $43.7 million were distributed from Shanghai Hutchison Pharmaceuticals to our group, with aggregate dividends received by our group since inception of over $280 million. The following is a summary of the clinical pipeline for our drug candidates, many of which are being investigated against multiple Our Clinical Pipeline indications. 1. Savolitinib (HMPL-504), MET Inhibitor Savolitinib is a potent and selective inhibitor of MET, an enzyme which has been shown to function abnormally in many types of solid tumors. We designed savolitinib to address human metabolite-related renal toxicity, the primary issue that halted development of several other selective MET inhibitors. In clinical studies to date, savolitinib has shown promising signs of clinical efficacy in patients with MET gene alterations in NSCLC, PRCC, CRC and gastric cancer with an acceptable safety profile. In global partnership with AstraZeneca, savolitinib has been studied in over 1,500 patients to date, both as a monotherapy and in combinations. For more information regarding our partnership with AstraZeneca, see “—Overview of Our Collaborations—AstraZeneca.” Mechanism of Action MET is a signaling pathway that has specific roles in normal mammalian growth and development. However, the MET pathway has also been shown to function abnormally in a range of different cancers, primarily through MET gene amplification, overexpression and gene mutations. The aberrant activation of MET has been demonstrated to be highly correlated in many cancer indications, including kidney, lung, gastric, colorectal, esophageal and brain cancer. It plays a major role in cancer pathogenesis (i.e., the development of the cancer), including tumor growth, survival, invasion, metastasis, the suppression of cell death as well as tumor angiogenesis. MET also plays a role in drug resistance in many tumor types. For instance, MET gene aberrations has been found in NSCLC and CRC following anti-EGFR treatment, leading to drug resistance. Furthermore, MET dysregulation is considered to play a role in the immunosuppression and pathogenesis of kidney cancer. Savolitinib Research Background First generation selective MET inhibitors previously discovered by multinational pharmaceutical companies had positive pre- clinical data that supported their high MET selectivity and pharmacokinetic and toxicity profiles, but did not progress very far due to kidney toxicity. The issue appeared to be that certain metabolites of earlier compounds had dramatically reduced solubility and appeared to crystalize in the kidney, resulting in obstructive toxicity. With this understanding, we designed our compound, savolitinib (also known as AZD6094 and HMPL-504, formerly known as volitinib), differently while preserving high MET inhibition properties across multiple types of MET aberrations. Savolitinib has not shown any renal toxicity to date and does not appear to carry the same metabolite problems as the earlier selective MET compounds based on studies in over 1,500 patients conducted by AstraZeneca in global partnership with the company. Savolitinib Pre-clinical Evidence Savolitinib + Tagrisso SANOVO: Naïve Ongoing since 2021 NCT05009836 In pre-clinical trials, savolitinib demonstrated strong in vitro activity against MET, affecting its downstream signaling targets and thus blocking the related cellular functions effectively, including proliferation, migration, invasion, scattering and the secretion of VEGF that plays a pivotal role in tumor angiogenesis. One of our key areas of focus in our pre-clinical trials is to achieve superior selectivity on a number of kinases. A commonly used quantitative measure of selectivity is through comparing enzyme IC50, which represents the concentration of a drug that is required for 50% inhibition of the target kinase in vitro and the plasma concentration required for obtaining 50% of a maximum effect in vivo. High selectivity is achieved with a very low IC50 for the target cells, and a very high IC50 for the healthy cells (approximately 100 times higher than for the target cells). IC50 is measured in nM (nano-mole, a microscopic unit of measurement for the number of small molecules required to deliver the desired inhibitory effect). 80 In the MET enzymatic assay, savolitinib showed potent activity with IC50 of 5 nM. In a kinase selectivity screening with 274 kinases, savolitinib had potent activity against the MET Y1268T mutant (comparable to the wild-type), weaker activity against other MET mutants and almost no activity against all other kinases. Savolitinib was found to be approximately 1,000 times more potent to MET than the next non-MET kinase. Similarly, in cell-based assays measuring activity against MET phosphorylation, savolitinib demonstrated potent activity in both ligand-independent (gene amplified) and ligand-dependent (overexpressed) cells with IC50 at low nanomolar levels. In target related tumor cell function assays, savolitinib showed high potency with IC50 of less than 10 nM. Furthermore, savolitinib demonstrated cytotoxicity only on tumor cells that were MET gene amplified or MET overexpressed. In other cells, inhibition measurements demonstrated that IC50 amounts were over 30,000 nM, which is thousands of times higher than the IC50 on MET tumor cells. The data above suggest that (i) savolitinib has potent activity against tumor cell lines with MET gene amplification in the absence of hepatocyte growth factor, or HGF, indicating that there is HGF-independent MET activation in these cells; (ii) savolitinib has potent activity in tumor cell lines with MET overexpressed, but only in the presence of HGF, indicating HGF-dependent MET activation; and (iii) savolitinib has no activity in tumor cell lines with low MET overexpression/gene amplification, suggesting that savolitinib has strong kinase selectivity. Savolitinib Clinical Development Non-small Cell Lung Cancer As discussed below, we have tested, and are currently testing, savolitinib in partnership with AstraZeneca in multiple indications, both as a monotherapy and in combination with other targeted therapies. The table below shows a summary of clinical trials for savolitinib in NSCLC patients. Clinical Trials of Savolitinib in NSCLC Treatment Trial Name, Patient Focus Sites Phase Status/Plan Savolitinib monotherapy MET exon 14 skipping alterations China Approved Savolitinib monotherapy MET exon 14 skipping alterations China Registration and launched in 2021. Final OS analysis at ELCC 2022 Ongoing since 2021 Confirmatory Savolitinib + Imfinzi SOUND: MET-driven, EGFR wild type China Savolitinib + Tagrisso SAVANNAH: 2L/3L Global Ongoing since 2022 Ongoing. Data that Registration- supported Phase IIIs at WCLC 2022 Savolitinib + Tagrisso SAFFRON:2L/3L EGFRm+; Global Ongoing since 2022 NCT05261399 Savolitinib + Tagrisso SACHI: 2L EGFR TKI Ongoing since 2021 NCT05015608 NCT # NCT02897479 NCT04923945 NCT05374603 NCT03778229 II III II II III III intent III EGFRm+; Tagrisso refractory; MET+ Tagrisso refractory; MET+ refractory NSCLC; MET+ patients with EGFRm & MET+ Notes: Global = more than two countries; 2L = second line; 3L = third line; and refractory = resistant to prior treatment. Savolitinib Monotherapy More than one third of the world’s lung cancer patients are in China and, among those with NSCLC, approximately 2-3% have tumors with MET exon 14 skipping alterations. China China 81 Net income attributable to our company from our Other Ventures totaled $72.8 million, $142.9 million and $54.6 million for the years ended December 31, 2020, 2021 and 2022, respectively, and are remitted to our group through dividend payments primarily from our non-consolidated joint venture mentioned above. In 2022, dividends of an aggregate amount of $43.7 million were distributed from Shanghai Hutchison Pharmaceuticals to our group, with aggregate dividends received by our group since inception of over $280 million. The following is a summary of the clinical pipeline for our drug candidates, many of which are being investigated against multiple Our Clinical Pipeline indications. 1. Savolitinib (HMPL-504), MET Inhibitor Savolitinib is a potent and selective inhibitor of MET, an enzyme which has been shown to function abnormally in many types of solid tumors. We designed savolitinib to address human metabolite-related renal toxicity, the primary issue that halted development of several other selective MET inhibitors. In clinical studies to date, savolitinib has shown promising signs of clinical efficacy in patients with MET gene alterations in NSCLC, PRCC, CRC and gastric cancer with an acceptable safety profile. In global partnership with AstraZeneca, savolitinib has been studied in over 1,500 patients to date, both as a monotherapy and in combinations. For more information regarding our partnership with AstraZeneca, see “—Overview of Our Collaborations—AstraZeneca.” Mechanism of Action In the MET enzymatic assay, savolitinib showed potent activity with IC50 of 5 nM. In a kinase selectivity screening with 274 kinases, savolitinib had potent activity against the MET Y1268T mutant (comparable to the wild-type), weaker activity against other MET mutants and almost no activity against all other kinases. Savolitinib was found to be approximately 1,000 times more potent to MET than the next non-MET kinase. Similarly, in cell-based assays measuring activity against MET phosphorylation, savolitinib demonstrated potent activity in both ligand-independent (gene amplified) and ligand-dependent (overexpressed) cells with IC50 at low nanomolar levels. In target related tumor cell function assays, savolitinib showed high potency with IC50 of less than 10 nM. Furthermore, savolitinib demonstrated cytotoxicity only on tumor cells that were MET gene amplified or MET overexpressed. In other cells, inhibition measurements demonstrated that IC50 amounts were over 30,000 nM, which is thousands of times higher than the IC50 on MET tumor cells. The data above suggest that (i) savolitinib has potent activity against tumor cell lines with MET gene amplification in the absence of hepatocyte growth factor, or HGF, indicating that there is HGF-independent MET activation in these cells; (ii) savolitinib has potent activity in tumor cell lines with MET overexpressed, but only in the presence of HGF, indicating HGF-dependent MET activation; and (iii) savolitinib has no activity in tumor cell lines with low MET overexpression/gene amplification, suggesting that savolitinib has strong kinase selectivity. Savolitinib Clinical Development As discussed below, we have tested, and are currently testing, savolitinib in partnership with AstraZeneca in multiple indications, both as a monotherapy and in combination with other targeted therapies. MET is a signaling pathway that has specific roles in normal mammalian growth and development. However, the MET pathway has also been shown to function abnormally in a range of different cancers, primarily through MET gene amplification, overexpression and gene mutations. The aberrant activation of MET has been demonstrated to be highly correlated in many cancer indications, including kidney, lung, gastric, colorectal, esophageal and brain cancer. It plays a major role in cancer pathogenesis (i.e., the development of the cancer), including tumor growth, survival, invasion, metastasis, the suppression of cell death as well as tumor angiogenesis. Non-small Cell Lung Cancer The table below shows a summary of clinical trials for savolitinib in NSCLC patients. Clinical Trials of Savolitinib in NSCLC MET also plays a role in drug resistance in many tumor types. For instance, MET gene aberrations has been found in NSCLC and CRC following anti-EGFR treatment, leading to drug resistance. Furthermore, MET dysregulation is considered to play a role in the Treatment Trial Name, Patient Focus Savolitinib monotherapy MET exon 14 skipping alterations Sites China immunosuppression and pathogenesis of kidney cancer. Savolitinib Research Background Savolitinib monotherapy MET exon 14 skipping alterations China First generation selective MET inhibitors previously discovered by multinational pharmaceutical companies had positive pre- clinical data that supported their high MET selectivity and pharmacokinetic and toxicity profiles, but did not progress very far due to kidney toxicity. The issue appeared to be that certain metabolites of earlier compounds had dramatically reduced solubility and appeared to crystalize in the kidney, resulting in obstructive toxicity. With this understanding, we designed our compound, savolitinib (also known as AZD6094 and HMPL-504, formerly known as volitinib), differently while preserving high MET inhibition properties across multiple types of MET aberrations. Savolitinib has not shown any renal toxicity to date and does not appear to carry the same metabolite problems as the earlier selective MET compounds based on studies in over 1,500 patients conducted by AstraZeneca in global partnership with the company. Savolitinib Pre-clinical Evidence Savolitinib + Imfinzi Savolitinib + Tagrisso Savolitinib + Tagrisso Savolitinib + Tagrisso Savolitinib + Tagrisso SOUND: MET-driven, EGFR wild type China SAVANNAH: 2L/3L Global EGFRm+; Tagrisso refractory; MET+ SAFFRON:2L/3L EGFRm+; Tagrisso refractory; MET+ SACHI: 2L EGFR TKI refractory NSCLC; MET+ SANOVO: Naïve patients with EGFRm & MET+ Global China China Phase II Registration III Confirmatory II II Registration- intent III III III Status/Plan Approved and launched in 2021. Final OS analysis at ELCC 2022 Ongoing since 2021 NCT # NCT02897479 NCT04923945 Ongoing since 2022 Ongoing. Data that supported Phase IIIs at WCLC 2022 NCT05374603 NCT03778229 Ongoing since 2022 NCT05261399 Ongoing since 2021 NCT05015608 Ongoing since 2021 NCT05009836 Notes: Global = more than two countries; 2L = second line; 3L = third line; and refractory = resistant to prior treatment. Savolitinib Monotherapy More than one third of the world’s lung cancer patients are in China and, among those with NSCLC, approximately 2-3% have tumors with MET exon 14 skipping alterations. 80 81 In pre-clinical trials, savolitinib demonstrated strong in vitro activity against MET, affecting its downstream signaling targets and thus blocking the related cellular functions effectively, including proliferation, migration, invasion, scattering and the secretion of VEGF that plays a pivotal role in tumor angiogenesis. One of our key areas of focus in our pre-clinical trials is to achieve superior selectivity on a number of kinases. A commonly used quantitative measure of selectivity is through comparing enzyme IC50, which represents the concentration of a drug that is required for 50% inhibition of the target kinase in vitro and the plasma concentration required for obtaining 50% of a maximum effect in vivo. High selectivity is achieved with a very low IC50 for the target cells, and a very high IC50 for the healthy cells (approximately 100 times higher than for the target cells). IC50 is measured in nM (nano-mole, a microscopic unit of measurement for the number of small molecules required to deliver the desired inhibitory effect). Phase II study of savolitinib monotherapy in NSCLC patients with MET exon 14 alteration (NCT02897479). Phase II study of savolitinib monotherapy in NSCLC patients with MET exon 14 alteration (NCT02897479). Savolitinib in Combination with Tagrisso We have completed a 70-patient Phase II registration-enabling study in China of savolitinib as a monotherapy for MET exon 14 We have completed a 70-patient Phase II registration-enabling study in China of savolitinib as a monotherapy for MET exon 14 skipping NSCLC patients who have progressed following prior systemic therapy, or unable to receive chemotherapy. skipping NSCLC patients who have progressed following prior systemic therapy, or unable to receive chemotherapy. At the ASCO annual meeting in June 2020, we presented interim data on 70 treated patients, of which 61 patients were efficacy At the ASCO annual meeting in June 2020, we presented interim data on 70 treated patients, of which 61 patients were efficacy evaluable at the data cut-off date of March 31, 2020. The overall data were encouraging, with efficacy in line with other selective MET evaluable at the data cut-off date of March 31, 2020. The overall data were encouraging, with efficacy in line with other selective MET inhibitors, despite the inclusion of patients with a more aggressive subtype (36% with pulmonary sarcomatoid carcinoma) and with inhibitors, despite the inclusion of patients with a more aggressive subtype (36% with pulmonary sarcomatoid carcinoma) and with tolerable safety. Efficacy measurements included the objective response rate, or ORR, (the percentage of patients in the study who show tolerable safety. Efficacy measurements included the objective response rate, or ORR, (the percentage of patients in the study who show either partial response (tumor measurement reduction of greater than 30%) or complete response), disease control rate, median either partial response (tumor measurement reduction of greater than 30%) or complete response), disease control rate, median progression-free survival or PFS and median OS. progression-free survival or PFS and median OS. At subsequent data cut-off date of August 3, 2020, in the 61 evaluable patients, ORR was 49.2% and disease control rate was 93.4%. At subsequent data cut-off date of August 3, 2020, in the 61 evaluable patients, ORR was 49.2% and disease control rate was 93.4%. Median duration of response was 8.3 months (95% confidence interval: 5.3-16.6). Results from this study were published in The Lancet Median duration of response was 8.3 months (95% confidence interval: 5.3-16.6). Results from this study were published in The Lancet Respiratory Medicine and formed the basis for an NDA filing, which was approved by the NMPA in June 2021. Final OS and subgroup Respiratory Medicine and formed the basis for an NDA filing, which was approved by the NMPA in June 2021. Final OS and subgroup analysis was presented for this trial at European Lung Cancer Congress 2022 and published in the journal JTO Clinical and Research analysis was presented for this trial at European Lung Cancer Congress 2022 and published in the journal JTO Clinical and Research Reports. The updated results further confirmed the favorable benefit of savolitinib in these patients and in each subgroup and the Reports. The updated results further confirmed the favorable benefit of savolitinib in these patients and in each subgroup and the acceptable safety profile. At final data cut off-date of June 28, 2021. In the full analysis set of 70 patients, median PFS was 6.9 months acceptable safety profile. At final data cut off-date of June 28, 2021. In the full analysis set of 70 patients, median PFS was 6.9 months (95% confidence interval: 4.6-8.3). Median OS was 12.5 months (95% confidence interval: 10.5-21.4). A 95% confidence interval (95% confidence interval: 4.6-8.3). Median OS was 12.5 months (95% confidence interval: 10.5-21.4). A 95% confidence interval means that there is a 95% chance that the results will be within the stated range. CTC grade 3 or above TEAEs, with greater than 5% means that there is a 95% chance that the results will be within the stated range. CTC grade 3 or above TEAEs, with greater than 5% incidence related to savolitinib treatment were peripheral edema (9%), increased aspartate aminotransferase (13%) and increased alanine incidence related to savolitinib treatment were peripheral edema (9%), increased aspartate aminotransferase (13%) and increased alanine aminotransferase (10%). Clinical data demonstrated an acceptable safety profile with an adverse events-related discontinuations rate of aminotransferase (10%). Clinical data demonstrated an acceptable safety profile with an adverse events-related discontinuations rate of 14.3%. 14.3%. Phase II Study of Savolitinib Monotherapy Showing Effect in MET Exon 14 Alteration NSCLC Patients Phase II Study of Savolitinib Monotherapy Showing Effect in MET Exon 14 Alteration NSCLC Patients In 2015, AstraZeneca received FDA approval for Tagrisso, its drug for the treatment of T790M+ EGFRm+, TKI-resistant NSCLC. A drug with this type of activity is known as a third-generation EGFR inhibitor. In 2018, Tagrisso’s label was expanded to include previously untreated patients with EGFRm+ NSCLC. In December 2020, Tagrisso’s label was further expanded to include adjuvant therapy after tumor resection in EGFRm+ NSCLC patients. Tagrisso has been established as a new standard of care in the treatment of EGFRm+ NSCLC and has now been approved in over 80 countries. Understanding the mechanism of acquired resistance following Tagrisso treatment is a key clinical question to inform the next treatment choice. A portion of EGFRm+ TKI-resistant patients and a portion of T790M+ EGFRm+ TKI-resistant patients progress because of MET aberrations. Savolitinib was granted fast track designation by the FDA for the combination treatment with Tagrisso of NSCLC patients harboring MET overexpression and/or amplification following progression on Targrisso. As discussed in more detail below, we and AstraZeneca are studying savolitinib in combination with Tagrisso as a treatment choice for patients who have developed a resistance to TKI (primarily Tagrisso). The acceptance and uptake of Tagrisso indicates that the market potential for savolitinib in Tagrisso-resistant, NSCLC could be material. In January 2023, the U.S. FDA designated as a Fast Track development program the investigation of savolitinib for use in combination with Tagrisso for the treatment of patients with locally advanced or metastatic NSCLC whose tumors have MET overexpression and/or amplification, as detected by an FDA-approved test, and who have had disease progression during or following prior Tagrisso. (NCT03778229). SAVANNAH study: Phase II study of savolitinib in combination with Tagrisso in NSCLC Tagrisso-refractory EGFRm+ patients Based on the encouraging results of the multiple TATTON studies, we and AstraZeneca have initiated this global Phase II study in patients whose disease have progressed following Tagrisso due to MET amplification or overexpression, which has three dose cohorts of savolitinib combined with Tagrisso. In addition to continuing Tagrisso treatment, patients received savolitinib 300mg QD, 300mg BID, or 600mg QD. The study reopened for enrollment to further reinforce the strength of data, initially presented at WCLC 2022. Recruitment is expected to be completed in the second half of 2023. We continue to evaluate the possibility of using the SAVANNAH study as the basis for U.S. accelerated approval. The results presented at the WCLC 2022 were based on an analysis of 193 efficacy evaluable patients who received savolitinib 300mg once daily plus Tagrisso 80mg once daily at data cut-off date of August 27, 2021. Qualifying MET aberrations were FISH5+ or IHC50+. Importantly, additional analysis using a higher cut-off level of MET aberration were presented. The higher cut-off levels for MET aberration are FISH10+ and/or IHC90+. The prevalence of this higher cut-off levels of MET aberration was 34% of patients centrally tested for enrollment in this study versus 62% at the lower, qualifying cut-off level. Results showed a trend toward improved response rates with increasing level of MET aberration. Across all patients in this analysis, ORR was 32% (95% CI: 26-39%), median DoR was 8.3 months (95% CI: 6.9-9.7 months), and median PFS was 5.3 months (95% CI: 4.2-5.8 months). These results are consistent with the TATTON and ORCHARD global studies. Among the 108 SAVANNAH patients who met the criteria for higher cut-off levels of MET aberration, ORR was 49% (95% CI: 39-59%), median DoR was 9.3 months (95% CI: 7.6-10.6 months), and median PFS was 7.1 months (95% CI: 5.3-8.0 months). Pa esponse Stable disease Progressive disease Notes: N = number of patients; ORR = objective response rate; DCR = disease control rate; and CI = confidence interval. Notes: N = number of patients; ORR = objective response rate; DCR = disease control rate; and CI = confidence interval. Source: Lu S, Fang J et al. Once-daily savolitinib in Chinese patients with pulmonary sarcomatoid carcinomas and other non-small-cell Source: Lu S, Fang J et al. Once-daily savolitinib in Chinese patients with pulmonary sarcomatoid carcinomas and other non-small-cell lung cancers harboring MET exon 14 skipping alterations: a multicenter, single-arm, open-label, phase 2 study. Lancet Respir lung cancers harboring MET exon 14 skipping alterations: a multicenter, single-arm, open-label, phase 2 study. Lancet Respir Med. 2021;9(10):1154-1164. doi:10.1016/S2213-2600(21)00084-9 Med. 2021;9(10):1154-1164. doi:10.1016/S2213-2600(21)00084-9 82 82 83 Phase II study of savolitinib monotherapy in NSCLC patients with MET exon 14 alteration (NCT02897479). Phase II study of savolitinib monotherapy in NSCLC patients with MET exon 14 alteration (NCT02897479). Savolitinib in Combination with Tagrisso We have completed a 70-patient Phase II registration-enabling study in China of savolitinib as a monotherapy for MET exon 14 We have completed a 70-patient Phase II registration-enabling study in China of savolitinib as a monotherapy for MET exon 14 skipping NSCLC patients who have progressed following prior systemic therapy, or unable to receive chemotherapy. skipping NSCLC patients who have progressed following prior systemic therapy, or unable to receive chemotherapy. At the ASCO annual meeting in June 2020, we presented interim data on 70 treated patients, of which 61 patients were efficacy At the ASCO annual meeting in June 2020, we presented interim data on 70 treated patients, of which 61 patients were efficacy evaluable at the data cut-off date of March 31, 2020. The overall data were encouraging, with efficacy in line with other selective MET evaluable at the data cut-off date of March 31, 2020. The overall data were encouraging, with efficacy in line with other selective MET inhibitors, despite the inclusion of patients with a more aggressive subtype (36% with pulmonary sarcomatoid carcinoma) and with inhibitors, despite the inclusion of patients with a more aggressive subtype (36% with pulmonary sarcomatoid carcinoma) and with tolerable safety. Efficacy measurements included the objective response rate, or ORR, (the percentage of patients in the study who show tolerable safety. Efficacy measurements included the objective response rate, or ORR, (the percentage of patients in the study who show either partial response (tumor measurement reduction of greater than 30%) or complete response), disease control rate, median either partial response (tumor measurement reduction of greater than 30%) or complete response), disease control rate, median progression-free survival or PFS and median OS. progression-free survival or PFS and median OS. At subsequent data cut-off date of August 3, 2020, in the 61 evaluable patients, ORR was 49.2% and disease control rate was 93.4%. At subsequent data cut-off date of August 3, 2020, in the 61 evaluable patients, ORR was 49.2% and disease control rate was 93.4%. Median duration of response was 8.3 months (95% confidence interval: 5.3-16.6). Results from this study were published in The Lancet Median duration of response was 8.3 months (95% confidence interval: 5.3-16.6). Results from this study were published in The Lancet Respiratory Medicine and formed the basis for an NDA filing, which was approved by the NMPA in June 2021. Final OS and subgroup Respiratory Medicine and formed the basis for an NDA filing, which was approved by the NMPA in June 2021. Final OS and subgroup analysis was presented for this trial at European Lung Cancer Congress 2022 and published in the journal JTO Clinical and Research analysis was presented for this trial at European Lung Cancer Congress 2022 and published in the journal JTO Clinical and Research Reports. The updated results further confirmed the favorable benefit of savolitinib in these patients and in each subgroup and the Reports. The updated results further confirmed the favorable benefit of savolitinib in these patients and in each subgroup and the acceptable safety profile. At final data cut off-date of June 28, 2021. In the full analysis set of 70 patients, median PFS was 6.9 months acceptable safety profile. At final data cut off-date of June 28, 2021. In the full analysis set of 70 patients, median PFS was 6.9 months (95% confidence interval: 4.6-8.3). Median OS was 12.5 months (95% confidence interval: 10.5-21.4). A 95% confidence interval (95% confidence interval: 4.6-8.3). Median OS was 12.5 months (95% confidence interval: 10.5-21.4). A 95% confidence interval means that there is a 95% chance that the results will be within the stated range. CTC grade 3 or above TEAEs, with greater than 5% means that there is a 95% chance that the results will be within the stated range. CTC grade 3 or above TEAEs, with greater than 5% incidence related to savolitinib treatment were peripheral edema (9%), increased aspartate aminotransferase (13%) and increased alanine incidence related to savolitinib treatment were peripheral edema (9%), increased aspartate aminotransferase (13%) and increased alanine aminotransferase (10%). Clinical data demonstrated an acceptable safety profile with an adverse events-related discontinuations rate of aminotransferase (10%). Clinical data demonstrated an acceptable safety profile with an adverse events-related discontinuations rate of 14.3%. 14.3%. Phase II Study of Savolitinib Monotherapy Showing Effect in MET Exon 14 Alteration NSCLC Patients Phase II Study of Savolitinib Monotherapy Showing Effect in MET Exon 14 Alteration NSCLC Patients In 2015, AstraZeneca received FDA approval for Tagrisso, its drug for the treatment of T790M+ EGFRm+, TKI-resistant NSCLC. A drug with this type of activity is known as a third-generation EGFR inhibitor. In 2018, Tagrisso’s label was expanded to include previously untreated patients with EGFRm+ NSCLC. In December 2020, Tagrisso’s label was further expanded to include adjuvant therapy after tumor resection in EGFRm+ NSCLC patients. Tagrisso has been established as a new standard of care in the treatment of EGFRm+ NSCLC and has now been approved in over 80 countries. Understanding the mechanism of acquired resistance following Tagrisso treatment is a key clinical question to inform the next treatment choice. A portion of EGFRm+ TKI-resistant patients and a portion of T790M+ EGFRm+ TKI-resistant patients progress because of MET aberrations. Savolitinib was granted fast track designation by the FDA for the combination treatment with Tagrisso of NSCLC patients harboring MET overexpression and/or amplification following progression on Targrisso. As discussed in more detail below, we and AstraZeneca are studying savolitinib in combination with Tagrisso as a treatment choice for patients who have developed a resistance to TKI (primarily Tagrisso). The acceptance and uptake of Tagrisso indicates that the market potential for savolitinib in Tagrisso-resistant, NSCLC could be material. In January 2023, the U.S. FDA designated as a Fast Track development program the investigation of savolitinib for use in combination with Tagrisso for the treatment of patients with locally advanced or metastatic NSCLC whose tumors have MET overexpression and/or amplification, as detected by an FDA-approved test, and who have had disease progression during or following prior Tagrisso. SAVANNAH study: Phase II study of savolitinib in combination with Tagrisso in NSCLC Tagrisso-refractory EGFRm+ patients (NCT03778229). Based on the encouraging results of the multiple TATTON studies, we and AstraZeneca have initiated this global Phase II study in patients whose disease have progressed following Tagrisso due to MET amplification or overexpression, which has three dose cohorts of savolitinib combined with Tagrisso. In addition to continuing Tagrisso treatment, patients received savolitinib 300mg QD, 300mg BID, or 600mg QD. The study reopened for enrollment to further reinforce the strength of data, initially presented at WCLC 2022. Recruitment is expected to be completed in the second half of 2023. We continue to evaluate the possibility of using the SAVANNAH study as the basis for U.S. accelerated approval. The results presented at the WCLC 2022 were based on an analysis of 193 efficacy evaluable patients who received savolitinib 300mg once daily plus Tagrisso 80mg once daily at data cut-off date of August 27, 2021. Qualifying MET aberrations were FISH5+ or IHC50+. Importantly, additional analysis using a higher cut-off level of MET aberration were presented. The higher cut-off levels for MET aberration are FISH10+ and/or IHC90+. The prevalence of this higher cut-off levels of MET aberration was 34% of patients centrally tested for enrollment in this study versus 62% at the lower, qualifying cut-off level. Results showed a trend toward improved response rates with increasing level of MET aberration. Across all patients in this analysis, ORR was 32% (95% CI: 26-39%), median DoR was 8.3 months (95% CI: 6.9-9.7 months), and median PFS was 5.3 months (95% CI: 4.2-5.8 months). These results are consistent with the TATTON and ORCHARD global studies. Among the 108 SAVANNAH patients who met the criteria for higher cut-off levels of MET aberration, ORR was 49% (95% CI: 39-59%), median DoR was 9.3 months (95% CI: 7.6-10.6 months), and median PFS was 7.1 months (95% CI: 5.3-8.0 months). Notes: N = number of patients; ORR = objective response rate; DCR = disease control rate; and CI = confidence interval. Notes: N = number of patients; ORR = objective response rate; DCR = disease control rate; and CI = confidence interval. Source: Lu S, Fang J et al. Once-daily savolitinib in Chinese patients with pulmonary sarcomatoid carcinomas and other non-small-cell Source: Lu S, Fang J et al. Once-daily savolitinib in Chinese patients with pulmonary sarcomatoid carcinomas and other non-small-cell lung cancers harboring MET exon 14 skipping alterations: a multicenter, single-arm, open-label, phase 2 study. Lancet Respir lung cancers harboring MET exon 14 skipping alterations: a multicenter, single-arm, open-label, phase 2 study. Lancet Respir Med. 2021;9(10):1154-1164. doi:10.1016/S2213-2600(21)00084-9 Med. 2021;9(10):1154-1164. doi:10.1016/S2213-2600(21)00084-9 82 82 83 Importantly, among the 87 patients who did not receive prior chemotherapy, ORR was 52% (95% CI: 41-63%), median DoR was Importantly, among the 87 patients who did not receive prior chemotherapy, ORR was 52% (95% CI: 41-63%), median DoR was 9.6 months (95% CI: 7.6-14.9 months), and median PFS was 7.2 months (95% CI: 4.7-9.2 months). The safety profile of savolitinib 9.6 months (95% CI: 7.6-14.9 months), and median PFS was 7.2 months (95% CI: 4.7-9.2 months). The safety profile of savolitinib plus Tagrisso was consistent with the known profiles of the combination and each treatment alone. plus Tagrisso was consistent with the known profiles of the combination and each treatment alone. (NCT05015608). SACHI study: Phase III study of combination with Targrisso in 2L EGFR TKI refractory, MET amplified NSCLC patients Novel biomarker and patient enrichment strategy driven by SAVANNAH N=185* 300mg QD METE -TTTTTTTTTTTT-----high IHC90+ and/or FISH10+ MET-low IHC50 –90 and/or FISH 5 -10 Prevalence among patients screened 34% 28% Prior Chemo 20% No prior chemo subset Number of patients n=108 n=87 18% n=77 No prior chemo subset n=63 ORR, [95% CI] 49% [39–59] %%52% 5 52% 1111111––––––63] 41– [41 9% [4–18] 10% [4–20] mDoR, [95% CI] mPFS [95% CI] , 9.3 mo. [7.6 –10.6] 7.1 mo. [5.3 –8.0] 9.6 mo. mo.m6 m .6 9 6 14.9] [7.6 [77.66666 –1144.9] 7 6 – 7.2 mo. mo.m2 m .2 7. 7777 ––––––9.2] 4.7 – [4.7 6.9 mo. [4.1 –16.9] 2.8 mo. [2.6 –4.3] 7.3 mo. [4.1 –NC] 2.8 mo. [1.8 –4.2] * * Evaluable for efficacy defined as dosed patients with measurable disease at baseline who had ≥2 on-treatment RECIST scans. Evaluable for efficacy defined as dosed patients with measurable disease at baseline who had ≥2 on-treatment RECIST scans. Excludes eight patients with invalid or missing test results for IHC90+ and/or FISH10+ status, these patients were excluded from Excludes eight patients with invalid or missing test results for IHC90+ and/or FISH10+ status, these patients were excluded from the subgroup analyses based on MET levels. the subgroup analyses based on MET levels. Source: Ahn MJ, De Marinis F et al. EP08.02-140 MET Biomarker-based Preliminary Efficacy Analysis in SAVANNAH: Source: Ahn MJ, De Marinis F et al. EP08.02-140 MET Biomarker-based Preliminary Efficacy Analysis in SAVANNAH: savolitinib+osimertinib in EGFRm NSCLC Post-Osimertinib. .J Thorac Oncol. 2022 Sep;17(9):S469-S470. savolitinib+osimertinib in EGFRm NSCLC Post-Osimertinib. .J Thorac Oncol. 2022 Sep;17(9):S469-S470. WCLC 2022 Abstract # EP08.02-140. WCLC 2022 Abstract # EP08.02-140. SAFFRON study: Phase III study of savolitinib in combination with Tagrisso in NSCLC Tagrisso-refractory EGFRm+ patients SAFFRON study: Phase III study of savolitinib in combination with Tagrisso in NSCLC Tagrisso-refractory EGFRm+ patients (NCT05261399) (NCT05261399) Findings based on SAVANNAH and the TATTON studies supported the initiation of the SAFFRON global Phase III study in Findings based on SAVANNAH and the TATTON studies supported the initiation of the SAFFRON global Phase III study in patients with EGFR-mutated, MET-driven, locally advanced or metastatic NSCLC whose disease progressed on first- or second-line patients with EGFR-mutated, MET-driven, locally advanced or metastatic NSCLC whose disease progressed on first- or second-line treatment with Tagrisso as the most recent therapy, with no prior chemotherapy in the metastatic setting allowed. Patients are treatment with Tagrisso as the most recent therapy, with no prior chemotherapy in the metastatic setting allowed. Patients are prospectively selected for the higher level of MET aberration of FISH10+ and/or IHC90+. The SAFFRON study will evaluate the prospectively selected for the higher level of MET aberration of FISH10+ and/or IHC90+. The SAFFRON study will evaluate the efficacy and safety of savolitinib in combination with Tagrisso compared to pemetrexed plus platinum doublet-chemotherapy, the efficacy and safety of savolitinib in combination with Tagrisso compared to pemetrexed plus platinum doublet-chemotherapy, the current standard-of-care treatment in this setting. The primary endpoint of the study is PFS. Enrollment of SAVANNAH is being current standard-of-care treatment in this setting. The primary endpoint of the study is PFS. Enrollment of SAVANNAH is being prioritized until it is fully enrolled. prioritized until it is fully enrolled. We have initiated SACHI, a China Phase III study of savolitinib in combination with Tagrisso. The Phase III trial is a multi-center, open-label, randomized, controlled study in patients with locally advanced or metastatic EGFR mutation-positive NSCLC with MET amplification after disease progression on EGFR inhibitor therapy. The study will evaluate the efficacy and safety of savolitinib in combination with Tagrisso, compared to platinum-based doublet-chemotherapy (pemetrexed plus cisplatin or carboplatin), the standard of care treatment option in this setting. The primary endpoint of the study is median PFS as assessed by investigators. Other endpoints include median PFS assessed by an independent review committee, median overall survival, ORR, duration of response, disease control rate, time to response, and safety. The first patient was dosed in November 2021. We expect to complete the enrollment of this trial in 2024. (NCT05009836). SANOVO study: Phase III study of combination with Targrisso in naïve NSCLC patients with EGFR mutant and MET positive We have initiated SANOVO, a China Phase III study of savolitinib in combination with Targrisso as a first-line treatment in certain NSCLC patients whose tumors harbor EGFR mutations and overexpress MET. The Phase III trial is a blinded, randomized, controlled study in previously untreated patients with locally advanced or metastatic NSCLC with activating EGFR mutations and MET overexpression. The study will evaluate Targrisso in combination with savolitinib comparing to Targrisso alone, a standard of care treatment option for these patients. The primary endpoint of the study is median progression free survival as assessed by investigators. Other endpoints include median progression-free survival assessed by an independent review committee, median overall survival, ORR, duration of response, disease control rate, time to response and safety. The first patient was dosed in September 2021. We expect to complete the enrollment of this trial in 2024. Savolitinib in Combination with Imfinzi Imfinzi is a human monoclonal antibody developed by AstraZeneca that binds to the PD-L1 protein and blocks the interaction of PD-L1 with PD-1 and CD80 proteins, countering the tumor’s immune-evading tactics and releasing the inhibition of immune responses. SOUND study: Phase II study of combination with Imfinzi in EGFR/ALK/ROS1 wild-type, locally advanced or metastatic NSCLC patients with MET aberrations (NCT05374603). The SOUND Phase II trial is an open-label, interventional, multicenter, exploratory Phase II study to evaluate savolitinib combined with Imfinzi in EGFR/ALK/ROS1 wild-type, locally advanced or metastatic NSCLC patients with MET aberrations. The primary endpoint is PFS. Kidney Cancer The table below shows a summary of the clinical trial for savolitinib in kidney cancer patients. Clinical Trial of Savolitinib in Kidney Cancer Treatment Savolitinib + Imfinzi Trial Name, Patient Focus Sites SAMETA: MET-driven, unresectable and locally Global Phase III Status/Plan NCT # Ongoing since 2021 NCT05043090 advanced or metastatic PRCC Notes: PRCC = papillary renal cell carcinoma; Global = more than two countries; and MET = mesenchymal epithelial transition receptor. 84 84 85 Importantly, among the 87 patients who did not receive prior chemotherapy, ORR was 52% (95% CI: 41-63%), median DoR was Importantly, among the 87 patients who did not receive prior chemotherapy, ORR was 52% (95% CI: 41-63%), median DoR was 9.6 months (95% CI: 7.6-14.9 months), and median PFS was 7.2 months (95% CI: 4.7-9.2 months). The safety profile of savolitinib 9.6 months (95% CI: 7.6-14.9 months), and median PFS was 7.2 months (95% CI: 4.7-9.2 months). The safety profile of savolitinib plus Tagrisso was consistent with the known profiles of the combination and each treatment alone. plus Tagrisso was consistent with the known profiles of the combination and each treatment alone. * * Evaluable for efficacy defined as dosed patients with measurable disease at baseline who had ≥2 on-treatment RECIST scans. Evaluable for efficacy defined as dosed patients with measurable disease at baseline who had ≥2 on-treatment RECIST scans. Excludes eight patients with invalid or missing test results for IHC90+ and/or FISH10+ status, these patients were excluded from Excludes eight patients with invalid or missing test results for IHC90+ and/or FISH10+ status, these patients were excluded from the subgroup analyses based on MET levels. the subgroup analyses based on MET levels. Source: Ahn MJ, De Marinis F et al. EP08.02-140 MET Biomarker-based Preliminary Efficacy Analysis in SAVANNAH: Source: Ahn MJ, De Marinis F et al. EP08.02-140 MET Biomarker-based Preliminary Efficacy Analysis in SAVANNAH: savolitinib+osimertinib in EGFRm NSCLC Post-Osimertinib. .J Thorac Oncol. 2022 Sep;17(9):S469-S470. savolitinib+osimertinib in EGFRm NSCLC Post-Osimertinib. .J Thorac Oncol. 2022 Sep;17(9):S469-S470. WCLC 2022 Abstract # EP08.02-140. WCLC 2022 Abstract # EP08.02-140. (NCT05261399) (NCT05261399) SAFFRON study: Phase III study of savolitinib in combination with Tagrisso in NSCLC Tagrisso-refractory EGFRm+ patients SAFFRON study: Phase III study of savolitinib in combination with Tagrisso in NSCLC Tagrisso-refractory EGFRm+ patients Findings based on SAVANNAH and the TATTON studies supported the initiation of the SAFFRON global Phase III study in Findings based on SAVANNAH and the TATTON studies supported the initiation of the SAFFRON global Phase III study in patients with EGFR-mutated, MET-driven, locally advanced or metastatic NSCLC whose disease progressed on first- or second-line patients with EGFR-mutated, MET-driven, locally advanced or metastatic NSCLC whose disease progressed on first- or second-line treatment with Tagrisso as the most recent therapy, with no prior chemotherapy in the metastatic setting allowed. Patients are treatment with Tagrisso as the most recent therapy, with no prior chemotherapy in the metastatic setting allowed. Patients are prospectively selected for the higher level of MET aberration of FISH10+ and/or IHC90+. The SAFFRON study will evaluate the prospectively selected for the higher level of MET aberration of FISH10+ and/or IHC90+. The SAFFRON study will evaluate the efficacy and safety of savolitinib in combination with Tagrisso compared to pemetrexed plus platinum doublet-chemotherapy, the efficacy and safety of savolitinib in combination with Tagrisso compared to pemetrexed plus platinum doublet-chemotherapy, the current standard-of-care treatment in this setting. The primary endpoint of the study is PFS. Enrollment of SAVANNAH is being current standard-of-care treatment in this setting. The primary endpoint of the study is PFS. Enrollment of SAVANNAH is being prioritized until it is fully enrolled. prioritized until it is fully enrolled. SACHI study: Phase III study of combination with Targrisso in 2L EGFR TKI refractory, MET amplified NSCLC patients (NCT05015608). We have initiated SACHI, a China Phase III study of savolitinib in combination with Tagrisso. The Phase III trial is a multi-center, open-label, randomized, controlled study in patients with locally advanced or metastatic EGFR mutation-positive NSCLC with MET amplification after disease progression on EGFR inhibitor therapy. The study will evaluate the efficacy and safety of savolitinib in combination with Tagrisso, compared to platinum-based doublet-chemotherapy (pemetrexed plus cisplatin or carboplatin), the standard of care treatment option in this setting. The primary endpoint of the study is median PFS as assessed by investigators. Other endpoints include median PFS assessed by an independent review committee, median overall survival, ORR, duration of response, disease control rate, time to response, and safety. The first patient was dosed in November 2021. We expect to complete the enrollment of this trial in 2024. SANOVO study: Phase III study of combination with Targrisso in naïve NSCLC patients with EGFR mutant and MET positive (NCT05009836). We have initiated SANOVO, a China Phase III study of savolitinib in combination with Targrisso as a first-line treatment in certain NSCLC patients whose tumors harbor EGFR mutations and overexpress MET. The Phase III trial is a blinded, randomized, controlled study in previously untreated patients with locally advanced or metastatic NSCLC with activating EGFR mutations and MET overexpression. The study will evaluate Targrisso in combination with savolitinib comparing to Targrisso alone, a standard of care treatment option for these patients. The primary endpoint of the study is median progression free survival as assessed by investigators. Other endpoints include median progression-free survival assessed by an independent review committee, median overall survival, ORR, duration of response, disease control rate, time to response and safety. The first patient was dosed in September 2021. We expect to complete the enrollment of this trial in 2024. Savolitinib in Combination with Imfinzi Imfinzi is a human monoclonal antibody developed by AstraZeneca that binds to the PD-L1 protein and blocks the interaction of PD-L1 with PD-1 and CD80 proteins, countering the tumor’s immune-evading tactics and releasing the inhibition of immune responses. SOUND study: Phase II study of combination with Imfinzi in EGFR/ALK/ROS1 wild-type, locally advanced or metastatic NSCLC patients with MET aberrations (NCT05374603). The SOUND Phase II trial is an open-label, interventional, multicenter, exploratory Phase II study to evaluate savolitinib combined with Imfinzi in EGFR/ALK/ROS1 wild-type, locally advanced or metastatic NSCLC patients with MET aberrations. The primary endpoint is PFS. Kidney Cancer The table below shows a summary of the clinical trial for savolitinib in kidney cancer patients. Clinical Trial of Savolitinib in Kidney Cancer Treatment Savolitinib + Imfinzi Trial Name, Patient Focus SAMETA: MET-driven, unresectable and locally advanced or metastatic PRCC Sites Global Phase III Status/Plan NCT # Ongoing since 2021 NCT05043090 Notes: PRCC = papillary renal cell carcinoma; Global = more than two countries; and MET = mesenchymal epithelial transition receptor. 84 84 85 PRCC is a subtype of kidney cancer, representing about 15% of patients, with no treatments approved for patients with tumors that harbor MET-driven alterations. MET is a key genetic driver in papillary RCC, and emerging evidence suggests that combining immunotherapies with a MET inhibitor could enhance anti-tumor activity. Immune checkpoints such as PD-L1 are sometimes used by cancer cells to avoid being attacked by the immune system. As such, drugs that target these checkpoints are being developed or marketed as cancer treatments. Imfinzi is an anti-PD-L1 antibody owned by AstraZeneca. Anti-PD-L1 antibodies have been associated with clinical benefits in metastatic RCC, and MET dysregulation has been considered to play an important role in PRCC pathogenesis (including in our savolitinib Phase I and Phase II monotherapy studies) and is a mechanism of resistance against kinase inhibitors in clear cell RCC. Moreover, it is believed that the MET signaling pathway has a complex interplay with the immune system, including correlation with PD-L1 expression, immune suppression through angiogenesis and many other facets of the immune system. During an Australian Phase I study, our investigators noted positive outcomes among PRCC patients with a strong correlation to MET gene amplification status. Out of a total of eight PRCC patients in our Australia Phase I study who were treated with various doses of savolitinib, three achieved confirmed partial responses. A further three of these eight PRCC patients achieved stable disease, which means patients without partial response but with a tumor measurement increase of less than 20%. This aggregate ORR of 38% was very encouraging for PRCC, which has no effective approved treatments. These responses were also durable as demonstrated by a patient who has been on the therapy for over 30 months and had tumor measurement reduction of greater than 85%. Importantly, the level of tumor response among these PRCC patients correlated closely with the level of MET gene amplification. The patients with consistent MET gene amplification across the whole tumor responded most to savolitinib, and with those patients with the highest level of MET gene amplification responding most to the treatment. We have conducted multiple global studies of savolitinib in PRCC patients, including the SAVOIR monotherapy and CALYPSO combination therapy global Phase II trials, that both demonstrated highly encouraging results. These results led to the initiation of a global Phase III, the SAMETA study, in 2021. The CALYPSO study is an investigator-initiated open-label Phase II study of savolitinib in combination with Imfinzi. The study evaluated the safety and efficacy of the savolitinib and Imfinzi combination in PRCC patients at sites in the U.K. and Spain. Interim results of the PRCC cohort of the CALYPSO study were presented at the 2021 ASCO annual meeting and showed encouraging efficacy across all patients, both MET+ and MET-. In the 41 patients who were selected regardless of PD-L1 or MET status, ORR was 29% (12/41), while median PFS was 4.9 months (95% confidence interval: 2.5-10.0 months). Median OS was 14.1 months (95% confidence interval: 7.3-30.7 months). For the 14 patients whose tumors are MET-driven, ORR was 57% (8/14), median PFS was 10.5 months (95% confidence interval: 2.9-15.7), and median OS was 27.4 months (95% confidence interval: 7.3-NR). Tolerability was consistent with established single agent safety profiles. In the analysis previously presented at ASCO’s Genitourinary Cancers Symposium in 2020, there were 13 treatment related CTC grade 3 or above TEAEs that occurred in more than three patients, with edema (10%), nausea (5%) and transaminitis (5%) being most frequent. SAMETA study: Phase III in combination with Imfinzi PD-L1 inhibitor in MET-driven, unresectable and locally advanced or metastatic PRCC (NCT05043090) The Phase III trial is an open-label, randomized, controlled study in treatment-naïve patients with MET-driven, unresectable and locally advanced or metastatic PRCC, to evaluate the efficacy and safety of savolitinib in combination with Imfinzi compared to single agent Imfinzi or single agent Sutent, an oral multi-kinase inhibitor considered as the standard of care treatment option in PRCC. The primary endpoint of the study is median PFS. Other endpoints include median OS, ORR, duration of response, 6-months and 12-months DCR, time to second progression, safety, pharmacokinetics and quality of life. The first patient was dosed in October 2021. Gastric Cancer The table below shows a summary of clinical trial for savolitinib in gastric cancer patients. Clinical Trial of Savolitinib in Gastric Cancer Treatment Savolitinib monotherapy Trial Name, Patient Focus 2L+ gastric cancer with MET amplification. Two-stage, single-arm study Sites China Phase II registration intent Status/Plan Ongoing since 2021; Consult CDE on registration-intent in H1 2023 NCT # NCT04923932 MET-driven gastric cancer has a very poor prognosis. Multiple Phase II studies have been conducted in Asia to study savolitinib in MET-driven gastric cancer, which account for approximately 5% of all gastric cancer patients, demonstrated promising efficacy, including VIKTORY, which reported a 50% ORR with savolitinib monotherapy in gastric cancer patients whose tumors harbor MET amplification. The VIKTORY study is a biomarker-based, Phase II umbrella trial in gastric cancer conducted by the Samsung Medical Center in South Korea. Patients were allocated to one of 12 biomarker-driven arms, based on a master screening protocol with tissue-based molecular analyses. Patients that tested positive for MET amplification or overexpression were treated with either savolitinib monotherapy or a combination of savolitinib and Taxotere. A total of 715 gastric cancer patients were successfully sequenced and MET amplification was observed in 3.5% of these patients (25/715). Of the 10 associated clinical trials under the VIKTORY umbrella, the highest ORR was observed in the MET amplification arm in patients treated with savolitinib monotherapy, which reported an ORR of 50% (10/20, 95% confidence interval: 28.0-71.9) and met pre-specified 6-week PFS rates. While the savolitinib and Taxotere combination was well tolerated, the VIKTORY study investigators decided to stop enrollment in the two combination cohorts in order to direct patients to the savolitinib monotherapy arm of the VIKTORY study as discussed above. The VIKTORY study investigators concluded that encouraging clinical efficacy of savolitinib in MET-amplified gastric cancer warrants further study. Phase II study of savolitinib with potential for registration intent in 2L+ gastric cancer with MET amplification (NCT04923932) This Phase II registration-intent study is a two-stage and single-arm study to evaluate the efficacy, safety and pharmacokinetics of savolitinib in locally advanced or metastatic GC or GEJ patients whose disease progressed after at least one line of standard therapy. The primary endpoint is ORR as assessed by an independent review committee. Other endpoints include 12-week and 6-month progression-free survival rates, median progression-free survival, duration of response, disease control rate, median overall survival, safety, pharmacokinetics and quality of life. The first patient was dosed in July 2021. Subject to the results of the first stage of this study, we will discuss with the CDE of NMPA the appropriate approach and necessary criteria for registration. Overview of Orpathys Commercial Launch Sold under the brand name Orpathys, savolitinib was granted conditional approval in China by the NMPA and launched in July 2021 by our partner, AstraZeneca. Orpathys is for the treatment of patients with non-small cell lung cancer with MET exon 14 skipping alterations who have progressed following prior systemic therapy or are unable to receive chemotherapy. This approval follows a priority review designation by the NMPA. The revenues we generate from Orpathys are comprised of royalty revenue and revenue from the product sales of Orpathys which we source from a third-party manufacturer and sell to AstraZeneca at cost. In 2021, we generated $11.3 million in total revenue from Orpathys, of which $4.8 million was royalty revenue and $6.5 million was revenue from sales of goods to AstraZeneca. In 2022, we generated $22.3 million in total revenue from Orpathys, of which $12.4 million was royalty revenue and $9.9 million was revenue from sales of goods to AstraZeneca. Following negotiations with the China NHSA in January 2023, starting on March 1, 2023, Orpathys will be included in the updated NRDL, broadening patient access to this medicine. Partnership with AstraZeneca In December 2011, we entered into a global licensing, co-development, and commercialization agreement for savolitinib with AstraZeneca. As noted above, given the complexity of many of the signal transduction pathways and resistance mechanisms in oncology, the industry is increasingly studying combinations of targeted therapies (TKI, monoclonal antibodies and immunotherapies) and chemotherapy as potentially the best approach to treating this complex and constantly mutating disease. Based on savolitinib’s clinical progress as a highly selective MET inhibitor in a number of cancers, in August 2016, December 2020 and November 2021, we and AstraZeneca amended our global licensing, co-development, and commercialization agreement for savolitinib. We believe that AstraZeneca’s portfolio of proprietary targeted therapies is well suited to be used in combinations with savolitinib, and we are studying combinations with Tagrisso (EGFRm+, T790M+) and Imfinzi (PD-L1). These combinations of multiple global first-in-class compounds are difficult to replicate, and we believe represent a significant opportunity for us and AstraZeneca. For more information regarding our partnership with AstraZeneca, see “—Overview of Our Collaborations—AstraZeneca.” 86 87 PRCC is a subtype of kidney cancer, representing about 15% of patients, with no treatments approved for patients with tumors that harbor MET-driven alterations. MET is a key genetic driver in papillary RCC, and emerging evidence suggests that combining immunotherapies with a MET inhibitor could enhance anti-tumor activity. Immune checkpoints such as PD-L1 are sometimes used by cancer cells to avoid being attacked by the immune system. As such, drugs that target these checkpoints are being developed or marketed as cancer treatments. Imfinzi is an anti-PD-L1 antibody owned by AstraZeneca. Anti-PD-L1 antibodies have been associated with clinical benefits in metastatic RCC, and MET dysregulation has been considered to play an important role in PRCC pathogenesis (including in our savolitinib Phase I and Phase II monotherapy studies) and is a mechanism of resistance against kinase inhibitors in clear cell RCC. Moreover, it is believed that the MET signaling pathway has a complex interplay with the immune system, including correlation with PD-L1 expression, immune suppression through angiogenesis and many other facets of the immune system. During an Australian Phase I study, our investigators noted positive outcomes among PRCC patients with a strong correlation to MET gene amplification status. Out of a total of eight PRCC patients in our Australia Phase I study who were treated with various doses of savolitinib, three achieved confirmed partial responses. A further three of these eight PRCC patients achieved stable disease, which means patients without partial response but with a tumor measurement increase of less than 20%. This aggregate ORR of 38% was very encouraging for PRCC, which has no effective approved treatments. These responses were also durable as demonstrated by a patient who has been on the therapy for over 30 months and had tumor measurement reduction of greater than 85%. Importantly, the level of tumor response among these PRCC patients correlated closely with the level of MET gene amplification. The patients with consistent MET gene amplification across the whole tumor responded most to savolitinib, and with those patients with the highest level of MET gene amplification responding most to the treatment. We have conducted multiple global studies of savolitinib in PRCC patients, including the SAVOIR monotherapy and CALYPSO combination therapy global Phase II trials, that both demonstrated highly encouraging results. These results led to the initiation of a global Phase III, the SAMETA study, in 2021. The CALYPSO study is an investigator-initiated open-label Phase II study of savolitinib in combination with Imfinzi. The study evaluated the safety and efficacy of the savolitinib and Imfinzi combination in PRCC patients at sites in the U.K. and Spain. Interim results of the PRCC cohort of the CALYPSO study were presented at the 2021 ASCO annual meeting and showed encouraging efficacy across all patients, both MET+ and MET-. In the 41 patients who were selected regardless of PD-L1 or MET status, ORR was 29% (12/41), while median PFS was 4.9 months (95% confidence interval: 2.5-10.0 months). Median OS was 14.1 months (95% confidence interval: 7.3-30.7 months). For the 14 patients whose tumors are MET-driven, ORR was 57% (8/14), median PFS was 10.5 months (95% confidence interval: 2.9-15.7), and median OS was 27.4 months (95% confidence interval: 7.3-NR). Tolerability was consistent with established single agent safety profiles. In the analysis previously presented at ASCO’s Genitourinary Cancers Symposium in 2020, there were 13 treatment related CTC grade 3 or above TEAEs that occurred in more than three patients, with edema (10%), nausea (5%) and transaminitis (5%) being most frequent. SAMETA study: Phase III in combination with Imfinzi PD-L1 inhibitor in MET-driven, unresectable and locally advanced or metastatic PRCC (NCT05043090) The Phase III trial is an open-label, randomized, controlled study in treatment-naïve patients with MET-driven, unresectable and locally advanced or metastatic PRCC, to evaluate the efficacy and safety of savolitinib in combination with Imfinzi compared to single agent Imfinzi or single agent Sutent, an oral multi-kinase inhibitor considered as the standard of care treatment option in PRCC. The primary endpoint of the study is median PFS. Other endpoints include median OS, ORR, duration of response, 6-months and 12-months DCR, time to second progression, safety, pharmacokinetics and quality of life. The first patient was dosed in October 2021. Gastric Cancer The table below shows a summary of clinical trial for savolitinib in gastric cancer patients. Clinical Trial of Savolitinib in Gastric Cancer Treatment Trial Name, Patient Focus Sites Phase Status/Plan NCT # Savolitinib monotherapy 2L+ gastric cancer with MET China II registration Ongoing since 2021; Consult NCT04923932 amplification. Two-stage, single-arm study intent CDE on registration-intent in H1 2023 MET-driven gastric cancer has a very poor prognosis. Multiple Phase II studies have been conducted in Asia to study savolitinib in MET-driven gastric cancer, which account for approximately 5% of all gastric cancer patients, demonstrated promising efficacy, including VIKTORY, which reported a 50% ORR with savolitinib monotherapy in gastric cancer patients whose tumors harbor MET amplification. The VIKTORY study is a biomarker-based, Phase II umbrella trial in gastric cancer conducted by the Samsung Medical Center in South Korea. Patients were allocated to one of 12 biomarker-driven arms, based on a master screening protocol with tissue-based molecular analyses. Patients that tested positive for MET amplification or overexpression were treated with either savolitinib monotherapy or a combination of savolitinib and Taxotere. A total of 715 gastric cancer patients were successfully sequenced and MET amplification was observed in 3.5% of these patients (25/715). Of the 10 associated clinical trials under the VIKTORY umbrella, the highest ORR was observed in the MET amplification arm in patients treated with savolitinib monotherapy, which reported an ORR of 50% (10/20, 95% confidence interval: 28.0-71.9) and met pre-specified 6-week PFS rates. While the savolitinib and Taxotere combination was well tolerated, the VIKTORY study investigators decided to stop enrollment in the two combination cohorts in order to direct patients to the savolitinib monotherapy arm of the VIKTORY study as discussed above. The VIKTORY study investigators concluded that encouraging clinical efficacy of savolitinib in MET-amplified gastric cancer warrants further study. Phase II study of savolitinib with potential for registration intent in 2L+ gastric cancer with MET amplification (NCT04923932) This Phase II registration-intent study is a two-stage and single-arm study to evaluate the efficacy, safety and pharmacokinetics of savolitinib in locally advanced or metastatic GC or GEJ patients whose disease progressed after at least one line of standard therapy. The primary endpoint is ORR as assessed by an independent review committee. Other endpoints include 12-week and 6-month progression-free survival rates, median progression-free survival, duration of response, disease control rate, median overall survival, safety, pharmacokinetics and quality of life. The first patient was dosed in July 2021. Subject to the results of the first stage of this study, we will discuss with the CDE of NMPA the appropriate approach and necessary criteria for registration. Overview of Orpathys Commercial Launch Sold under the brand name Orpathys, savolitinib was granted conditional approval in China by the NMPA and launched in July 2021 by our partner, AstraZeneca. Orpathys is for the treatment of patients with non-small cell lung cancer with MET exon 14 skipping alterations who have progressed following prior systemic therapy or are unable to receive chemotherapy. This approval follows a priority review designation by the NMPA. The revenues we generate from Orpathys are comprised of royalty revenue and revenue from the product sales of Orpathys which we source from a third-party manufacturer and sell to AstraZeneca at cost. In 2021, we generated $11.3 million in total revenue from Orpathys, of which $4.8 million was royalty revenue and $6.5 million was revenue from sales of goods to AstraZeneca. In 2022, we generated $22.3 million in total revenue from Orpathys, of which $12.4 million was royalty revenue and $9.9 million was revenue from sales of goods to AstraZeneca. Following negotiations with the China NHSA in January 2023, starting on March 1, 2023, Orpathys will be included in the updated NRDL, broadening patient access to this medicine. Partnership with AstraZeneca In December 2011, we entered into a global licensing, co-development, and commercialization agreement for savolitinib with AstraZeneca. As noted above, given the complexity of many of the signal transduction pathways and resistance mechanisms in oncology, the industry is increasingly studying combinations of targeted therapies (TKI, monoclonal antibodies and immunotherapies) and chemotherapy as potentially the best approach to treating this complex and constantly mutating disease. Based on savolitinib’s clinical progress as a highly selective MET inhibitor in a number of cancers, in August 2016, December 2020 and November 2021, we and AstraZeneca amended our global licensing, co-development, and commercialization agreement for savolitinib. We believe that AstraZeneca’s portfolio of proprietary targeted therapies is well suited to be used in combinations with savolitinib, and we are studying combinations with Tagrisso (EGFRm+, T790M+) and Imfinzi (PD-L1). These combinations of multiple global first-in-class compounds are difficult to replicate, and we believe represent a significant opportunity for us and AstraZeneca. For more information regarding our partnership with AstraZeneca, see “—Overview of Our Collaborations—AstraZeneca.” 86 87 2. Fruquintinib (HMPL-013), VEGFR 1, 2 and 3 Inhibitor Fruquintinib Clinical Trials Fruquintinib is a novel, selective, oral inhibitor of VEGFR 1/2/3 kinases that was designed to improve kinase selectivity with the destination of minimizing off-target toxicity and thereby improve efficacy and tolerability. Fruquintinib has been studied in clinical trials with about 5,000 patients to date, both as a monotherapy and in combination with other agents. Fruquintinib Monotherapy - Colorectal Cancer Aside from its first approved indication of third-line CRC in China, several studies of fruquintinib combined with various checkpoint inhibitors (including Tyvyt and tislelizumab) are underway, some of which presented encouraging data in 2021. Registration-intent studies combined with chemotherapy (FRUTIGA study in gastric cancer) or checkpoint inhibitors (Tyvyt combo, in endometrial cancer and RCC) are completing or ongoing in China. We are partnered with Eli Lilly in China and have agreed to partner with Takeda outside of China. Mechanism of Action During the development of cancer, tumors at an advanced stage can secrete large amounts of VEGF, a protein ligand, to stimulate formation of excessive vasculature (angiogenesis) around the tumor in order to provide greater blood flow, oxygen, and nutrients to fuel the rapid growth of the tumor. Since essentially all solid tumors require angiogenesis to progress beyond a few millimeters in diameter, VEGFR drugs have demonstrated benefits in a wide variety of tumor types. VEGF and other ligands can bind to three VEGF receptors, VEGFR 1, 2 and 3, each of which has been shown to play a role in angiogenesis. Therefore, inhibition of the VEGF/VEGFR signaling pathway can act to stop the growth of the vasculature around the tumor and thereby starve the tumor of the nutrients and oxygen it needs to grow rapidly. This therapeutic strategy has been well validated with several first-generation VEGF inhibitors having been approved globally since 2005 and 2006. These include both small molecule multi-kinase inhibitor drugs such as Nexavar and Sutent as well as monoclonal antibodies such as Avastin. The success of these drugs validated VEGFR inhibition as a new class of therapy for the treatment of cancer. Fruquintinib Pre-clinical Evidence Pre-clinical trials have demonstrated that fruquintinib is a highly selective VEGFR 1, 2 and 3 inhibitor with high potency and low cell toxicity at the enzymatic and cellular levels. In a kinase selectivity screening, fruquintinib was found to be approximately 250 times more selective to VEGFR 3 than to the next non-VEGFR kinase. of PFS in 2014. As a result of off-target side effects, existing VEGFR inhibitors are often unable to be dosed high enough to completely inhibit VEGFR, the intended target. In addition, the complex off-target toxicities resulting from inhibition of multiple signaling pathways are often difficult to manage in clinical practice. Combining such drugs with chemotherapy can lead to severe toxicities that can cause more harm than benefit to patients. To date, the first generation VEGFR TKI have been rarely used in combination with other therapies, thereby limiting their potential. Because of the potency and selectivity of fruquintinib, we believe that it has the potential to be safely combined with other oncology drugs, which could significantly expand its clinical potential. The table below shows a summary of the clinical trials for fruquintinib in CRC patients. We have two additional trials in progress for fruquintinib in CRC in combination with a checkpoint inhibitor as discussed in more detail below under “— Fruquintinib Combinations with Checkpoint Inhibitors.” Current Clinical Trials of Fruquintinib in CRC Treatment Trial Name, Patient Focus Sites Phase Status/Plan NCT # Fruquintinib monotherapy FRESCO: ≥3L CRC; chemotherapy China Approved and launched NCT02314819 Fruquintinib monotherapy (1) FRESCO-2: mCRC refractory III III in 2018 U.S., EU, Japan filings to NCT04322539 U.S./Europe/ Japan/Australia complete in 2023; Results at ESMO 2022. 2022. Close to completion Fruquintinib monotherapy CRC, TN & HR+/HER2- breast U.S. I/Ib CRC data at ASCO GI NCT03251378 Notes: (1) The FDA granted fast track designation for the development of fruquintinib for the treatment of patients with mCRC in cancer June 2020. CRC = colorectal cancer; ≥3L= third line or above; refractory = resistant to prior treatment; TN = triple-negative; HR+ = hormone receptor-positive; and HER2 = human epidermal growth factor receptor 2. FRESCO study; Phase III study of fruquintinib monotherapy in third-line CRC (NCT02314819) In 2014, we initiated the FRESCO study, which is a randomized, double-blind, placebo-controlled, multi-center, Phase III pivotal trial in China in patients with locally advanced or mCRC who had failed at least two prior systemic antineoplastic therapies, including fluoropyrimidine, Eloxatin and Camptosar. At the time, no drug was approved in third-line CRC in China with best supportive care being the general standard of care. This study followed a Phase II proof-of-concept trial in third-line CRC that met its primary endpoint Enrollment was completed in May 2016, and 519 patients were screened. The intent-to-treat population of 416 patients was randomized at a 2:1 ratio to receive either: 5 mg of fruquintinib orally once daily, on a three-weeks-on/one-week-off cycle, plus best supportive care (278 patients) or placebo plus best supportive care (138 patients). Randomization was stratified for prior anti-VEGF therapy and K-RAS gene status. The trial concluded in January 2017. In June 2017, we presented the results of the FRESCO study in an oral presentation at the ASCO annual meeting. Results showed that FRESCO met all primary and secondary endpoints including significant improvements in OS and PFS with a manageable safety profile and lower off-target toxicities compared to other targeted therapies. The primary endpoint of median OS was 9.30 months (95% confidence interval: 8.18-10.45 months) in the fruquintinib group versus 6.57 months (95% confidence interval: 5.88-8.11 months) in the placebo group, with a hazard ratio of 0.65 (95% confidence interval: 0.51-0.83; two-sided p<0.001). The secondary endpoint of median PFS was 3.71 months (95% confidence interval: 3.65-4.63 months) in the fruquintinib group versus 1.84 months (95% confidence interval: 1.81-1.84 months) in the placebo group, with a hazard ratio of 0.26 (95% confidence interval: 0.21-0.34; two-sided p<0.001). Significant benefits were also seen in other secondary endpoints. The disease control rate in the fruquintinib group was 62% versus 12% for placebo (p<0.001), while the ORR based on confirmed responses was 5% versus 0% for placebo (p=0.012). 88 89 2. Fruquintinib (HMPL-013), VEGFR 1, 2 and 3 Inhibitor Fruquintinib Clinical Trials Fruquintinib is a novel, selective, oral inhibitor of VEGFR 1/2/3 kinases that was designed to improve kinase selectivity with the Fruquintinib Monotherapy - Colorectal Cancer destination of minimizing off-target toxicity and thereby improve efficacy and tolerability. Fruquintinib has been studied in clinical trials with about 5,000 patients to date, both as a monotherapy and in combination with other agents. Aside from its first approved indication of third-line CRC in China, several studies of fruquintinib combined with various checkpoint inhibitors (including Tyvyt and tislelizumab) are underway, some of which presented encouraging data in 2021. Registration-intent studies combined with chemotherapy (FRUTIGA study in gastric cancer) or checkpoint inhibitors (Tyvyt combo, in endometrial cancer and RCC) are completing or ongoing in China. We are partnered with Eli Lilly in China and have agreed to partner with Takeda outside of China. Mechanism of Action During the development of cancer, tumors at an advanced stage can secrete large amounts of VEGF, a protein ligand, to stimulate formation of excessive vasculature (angiogenesis) around the tumor in order to provide greater blood flow, oxygen, and nutrients to fuel the rapid growth of the tumor. Since essentially all solid tumors require angiogenesis to progress beyond a few millimeters in diameter, VEGFR drugs have demonstrated benefits in a wide variety of tumor types. VEGF and other ligands can bind to three VEGF receptors, VEGFR 1, 2 and 3, each of which has been shown to play a role in angiogenesis. Therefore, inhibition of the VEGF/VEGFR signaling pathway can act to stop the growth of the vasculature around the tumor and thereby starve the tumor of the nutrients and oxygen it needs to grow rapidly. This therapeutic strategy has been well validated with several first-generation VEGF inhibitors having been approved globally since 2005 and 2006. These include both small molecule multi-kinase inhibitor drugs such as Nexavar and Sutent as well as monoclonal antibodies such as Avastin. The success of these drugs validated VEGFR inhibition as a new class of therapy for the treatment of cancer. Fruquintinib Pre-clinical Evidence Pre-clinical trials have demonstrated that fruquintinib is a highly selective VEGFR 1, 2 and 3 inhibitor with high potency and low cell toxicity at the enzymatic and cellular levels. In a kinase selectivity screening, fruquintinib was found to be approximately 250 times more selective to VEGFR 3 than to the next non-VEGFR kinase. As a result of off-target side effects, existing VEGFR inhibitors are often unable to be dosed high enough to completely inhibit VEGFR, the intended target. In addition, the complex off-target toxicities resulting from inhibition of multiple signaling pathways are often difficult to manage in clinical practice. Combining such drugs with chemotherapy can lead to severe toxicities that can cause more harm than benefit to patients. To date, the first generation VEGFR TKI have been rarely used in combination with other therapies, thereby limiting their potential. Because of the potency and selectivity of fruquintinib, we believe that it has the potential to be safely combined with other oncology drugs, which could significantly expand its clinical potential. The table below shows a summary of the clinical trials for fruquintinib in CRC patients. We have two additional trials in progress for fruquintinib in CRC in combination with a checkpoint inhibitor as discussed in more detail below under “— Fruquintinib Combinations with Checkpoint Inhibitors.” Current Clinical Trials of Fruquintinib in CRC Treatment Fruquintinib monotherapy Fruquintinib monotherapy (1) Trial Name, Patient Focus FRESCO: ≥3L CRC; chemotherapy refractory FRESCO-2: mCRC Fruquintinib monotherapy CRC, TN & HR+/HER2- breast cancer Sites China U.S./Europe/ Japan/Australia Phase III III U.S. I/Ib Status/Plan Approved and launched in 2018 U.S., EU, Japan filings to complete in 2023; Results at ESMO 2022. CRC data at ASCO GI 2022. Close to completion NCT # NCT02314819 NCT04322539 NCT03251378 Notes: (1) The FDA granted fast track designation for the development of fruquintinib for the treatment of patients with mCRC in June 2020. CRC = colorectal cancer; ≥3L= third line or above; refractory = resistant to prior treatment; TN = triple-negative; HR+ = hormone receptor-positive; and HER2 = human epidermal growth factor receptor 2. FRESCO study; Phase III study of fruquintinib monotherapy in third-line CRC (NCT02314819) In 2014, we initiated the FRESCO study, which is a randomized, double-blind, placebo-controlled, multi-center, Phase III pivotal trial in China in patients with locally advanced or mCRC who had failed at least two prior systemic antineoplastic therapies, including fluoropyrimidine, Eloxatin and Camptosar. At the time, no drug was approved in third-line CRC in China with best supportive care being the general standard of care. This study followed a Phase II proof-of-concept trial in third-line CRC that met its primary endpoint of PFS in 2014. Enrollment was completed in May 2016, and 519 patients were screened. The intent-to-treat population of 416 patients was randomized at a 2:1 ratio to receive either: 5 mg of fruquintinib orally once daily, on a three-weeks-on/one-week-off cycle, plus best supportive care (278 patients) or placebo plus best supportive care (138 patients). Randomization was stratified for prior anti-VEGF therapy and K-RAS gene status. The trial concluded in January 2017. In June 2017, we presented the results of the FRESCO study in an oral presentation at the ASCO annual meeting. Results showed that FRESCO met all primary and secondary endpoints including significant improvements in OS and PFS with a manageable safety profile and lower off-target toxicities compared to other targeted therapies. The primary endpoint of median OS was 9.30 months (95% confidence interval: 8.18-10.45 months) in the fruquintinib group versus 6.57 months (95% confidence interval: 5.88-8.11 months) in the placebo group, with a hazard ratio of 0.65 (95% confidence interval: 0.51-0.83; two-sided p<0.001). The secondary endpoint of median PFS was 3.71 months (95% confidence interval: 3.65-4.63 months) in the fruquintinib group versus 1.84 months (95% confidence interval: 1.81-1.84 months) in the placebo group, with a hazard ratio of 0.26 (95% confidence interval: 0.21-0.34; two-sided p<0.001). Significant benefits were also seen in other secondary endpoints. The disease control rate in the fruquintinib group was 62% versus 12% for placebo (p<0.001), while the ORR based on confirmed responses was 5% versus 0% for placebo (p=0.012). 88 89 Quality-adjusted survival analysis Quality-adjusted survival analysis At the 2018 ASCO Annual Meeting, an analysis was presented that aimed to compare the quality-adjusted survival between the At the 2018 ASCO Annual Meeting, an analysis was presented that aimed to compare the quality-adjusted survival between the two arms of the FRESCO study using quality-adjusted time without symptoms or toxicity, or Q-TWiST, methodology and to investigate two arms of the FRESCO study using quality-adjusted time without symptoms or toxicity, or Q-TWiST, methodology and to investigate the Q-TWiST benefit of fruquintinib treatment among subgroups. Q-TWiST is a tool to evaluate relative clinical benefit-risk from a the Q-TWiST benefit of fruquintinib treatment among subgroups. Q-TWiST is a tool to evaluate relative clinical benefit-risk from a patient’s perspective and has been widely used in oncology treatment assessment. The survival time for each patient was divided into patient’s perspective and has been widely used in oncology treatment assessment. The survival time for each patient was divided into three portions: time with CTC grade 3 or above toxicity before progression, time without symptoms or CTC grade 3 or above toxicity, three portions: time with CTC grade 3 or above toxicity before progression, time without symptoms or CTC grade 3 or above toxicity, and time from progression or relapse until death or end of follow-up. and time from progression or relapse until death or end of follow-up. Patients treated with fruquintinib had longer Q-TWiST periods compared to patients treated with placebo. Q-TWiST benefits were Patients treated with fruquintinib had longer Q-TWiST periods compared to patients treated with placebo. Q-TWiST benefits were observed regardless of prior lines of chemotherapy and prior anti-VEGF or anti-EGFR targeted therapy. The relative improvement of observed regardless of prior lines of chemotherapy and prior anti-VEGF or anti-EGFR targeted therapy. The relative improvement of Q-TWiST with fruquintinib represents a clinically important quality-of-life benefit for mCRC patients. Q-TWiST with fruquintinib represents a clinically important quality-of-life benefit for mCRC patients. Supported by data from the successful FRESCO study, we submitted an NDA for fruquintinib in June 2017. Fruquintinib was Supported by data from the successful FRESCO study, we submitted an NDA for fruquintinib in June 2017. Fruquintinib was subsequently awarded priority review status by the NMPA in view of its clinical value in September 2017, and in September 2018, the subsequently awarded priority review status by the NMPA in view of its clinical value in September 2017, and in September 2018, the NMPA approved fruquintinib for the treatment of patients with advanced CRC and was launched in November 2018. For more NMPA approved fruquintinib for the treatment of patients with advanced CRC and was launched in November 2018. For more information regarding the Elunate product launch, see “—Overview of Elunate Commercial Launch.” information regarding the Elunate product launch, see “—Overview of Elunate Commercial Launch.” FRESCO-2 study: Phase III study of fruquintinib monotherapy in mCRC (NCT04322539) FRESCO-2 study: Phase III study of fruquintinib monotherapy in mCRC (NCT04322539) We initiated a global Phase III registration study, known as the FRESCO-2 study, in refractory metastatic CRC. The first patient We initiated a global Phase III registration study, known as the FRESCO-2 study, in refractory metastatic CRC. The first patient was dosed in September 2020 in the United States and the enrollment was completed in December 2021, where 691 patients from over was dosed in September 2020 in the United States and the enrollment was completed in December 2021, where 691 patients from over 150 sites in 14 countries were enrolled. In September 2022, we presented the results from FRESCO-2 study at the European Society for 150 sites in 14 countries were enrolled. In September 2022, we presented the results from FRESCO-2 study at the European Society for Medical Oncology Congress 2022. We plan to complete new drug application filings in the U.S., Europe and Japan in 2023. Medical Oncology Congress 2022. We plan to complete new drug application filings in the U.S., Europe and Japan in 2023. The FRESCO-2 study demonstrated that treatment with fruquintinib resulted in a statistically significant and clinically meaningful The FRESCO-2 study demonstrated that treatment with fruquintinib resulted in a statistically significant and clinically meaningful increase in the primary OS endpoint and key secondary PFS endpoint compared to treatment with placebo. The positive OS and PFS increase in the primary OS endpoint and key secondary PFS endpoint compared to treatment with placebo. The positive OS and PFS were consistent across all subgroups. Specifically, the median OS was 7.4 months for the 461 patients treated with fruquintinib compared were consistent across all subgroups. Specifically, the median OS was 7.4 months for the 461 patients treated with fruquintinib compared to 4.8 months for the 230 patients in the placebo group (hazard ratio 0.66; 95% confidence interval 0.55–0.80; p<0.001). Median PFS to 4.8 months for the 230 patients in the placebo group (hazard ratio 0.66; 95% confidence interval 0.55–0.80; p<0.001). Median PFS was 3.7 months for patients treated with fruquintinib compared to 1.8 months for patients in the placebo group (HR 0.32; 95% CI 0.27– was 3.7 months for patients treated with fruquintinib compared to 1.8 months for patients in the placebo group (HR 0.32; 95% CI 0.27– 0.39; p<0.001). The DCR was 55.5% in the fruquintinib group compared to 16.1% for patients in the placebo group. Median duration 0.39; p<0.001). The DCR was 55.5% in the fruquintinib group compared to 16.1% for patients in the placebo group. Median duration of follow-up was approximately 11 months for patients in both groups. of follow-up was approximately 11 months for patients in both groups. We have not performed a head-to-head clinical trial of fruquintinib versus Stivarga. While it is difficult to directly evaluate and compare clinical results across separate trials, data from the FRESCO study compare favorably to the data from the CONCUR study, a Phase III study of Stivarga monotherapy in CRC conducted in Asia, and the CORRECT study, a global Phase III study of Stivarga in CRC. In particular, in the Chinese patient subgroup of the CONCUR study, Stivarga had a disease control rate of 46% versus 7% in the placebo group. Median PFS was 2.0 months in the Stivarga group versus 1.7 months in the placebo group, and median OS was 8.4 months in the Stivarga group versus 6.2 months in the placebo group. In the CORRECT study, Stivarga had a disease control rate of 41% versus 15% in the placebo group. Median PFS was 1.9 months in the Stivarga group versus 1.7 months for the placebo group, and median OS was 6.4 months in the Stivarga group versus 5.0 months in the placebo group. In terms of safety, results showed that fruquintinib had a manageable safety profile with lower off-target toxicities compared to Stivarga, the other VEGFR TKI approved for third-line CRC. Of particular interest was that the CTC grade 3 or above hepatotoxicity was similar for the fruquintinib group as compared to the placebo group, which was in contrast to Stivarga which was markedly higher and often difficult to manage in the Chinese patient population in the CONCUR study. Adverse events led to dose interruptions in 69% of patients in the Chinese patient subgroup of the CONCUR study, compared to 35% in the FRESCO study. The most frequently reported fruquintinib-related CTC grade 3 or above TEAEs included hypertension (21%), hand-foot skin reaction (11%), proteinuria (3%) and diarrhea (3%), all possibly associated with VEGFR inhibition. No other CTC grade 3 or above TEAEs exceeded 2% in the fruquintinib population, including hepatic function adverse events such as elevations in bilirubin (1%), alanine aminotransferase (<1%) or aspartate aminotransferase (<1%). In terms of tolerability, dose interruptions or reductions occurred in only 35% and 24% of patients in the fruquintinib arm, respectively, and only 15% of patients discontinued treatment of fruquintinib due to adverse events versus 6% for placebo. The FRESCO study was published in the Journal of the American Medical Association in June 2018. Subgroup analysis In June 2018, a further subgroup analysis of data from the FRESCO Phase III study was presented at the ASCO annual meeting. This analysis explored possible effects of prior target therapy on the efficacy and safety of fruquintinib by analyzing the subgroups of patients with prior target therapy and those without prior target therapy. Results showed that the benefits of fruquintinib were generally consistent across all subgroups. Among a total of 278 fruquintinib- treated patients, 111 had received prior target therapy while 55 of the 138 placebo-treated patients had received prior target therapy. In the prior target therapy subgroup, fruquintinib significantly prolonged OS and PFS. Median OS was 7.69 months for patients treated with fruquintinib versus 5.98 months for placebo (hazard ratio = 0.63; p = 0.012). Median PFS was 3.65 months for patients treated with fruquintinib versus 1.84 months for placebo (hazard ratio = 0.24; p < 0.001). Among these 278 patients, the results showed that a subgroup of 84 patients who had received prior anti-VEGF treatment also benefited from fruquintinib. In this subgroup, the median OS was 7.20 months for fruquintinib versus 5.91 months for placebo (hazard ratio = 0.68; p = 0.066) and the median PFS was 3.48 months for fruquintinib versus 1.84 months for placebo (hazard ratio = 0.24; p < 0.001). In the subgroup of 250 patients without prior targeted therapies, the median OS was 10.35 months for 167 patients treated with fruquintinib versus 6.93 months for 83 patients treated with placebo (hazard ratio = 0.63; p = 0.003), and the median PFS for patients treated with fruquintinib was 3.81 months versus 1.84 months for placebo (hazard ratio = 0.28; p < 0.001). Additional data showed that there were no observed cumulative CTC grade 3 or above TEAEs in the subgroup of patients with prior target therapy. The CTC grade 3 or above TEAEs rates of fruquintinib were similar in the subgroups with prior target therapy (61.3%) and without prior target therapy (61.1%). This subgroup analysis is consistent with the previously reported results from the FRESCO study’s intent-to-treat population. The results of this analysis showed that fruquintinib had clinically meaningful benefits in third-line mCRC patients regardless of prior target therapy without observed cumulative toxicity. 90 91 91 Notes: Notes: [1] ESMO 2022, LBA25. Dasari NA, et al. LBA25 - FRESCO-2: A global phase III multiregional clinical trial (MRCT) [1] ESMO 2022, LBA25. Dasari NA, et al. LBA25 - FRESCO-2: A global phase III multiregional clinical trial (MRCT) evaluating the efficacy and safety of fruquintinib in patients with refractory metastatic colorectal cancer. 12 Sep 2022, Proffered evaluating the efficacy and safety of fruquintinib in patients with refractory metastatic colorectal cancer. 12 Sep 2022, Proffered Paper Paper session 2: GI, session 2: GI, lower digestive Session. Annals of Oncology lower digestive Session. Annals of Oncology (2022) 33 (2022) 33 (suppl_7): S808-S869. (suppl_7): S808-S869. 10.1016/annonc/annonc1089. 10.1016/annonc/annonc1089. We have not performed a head-to-head clinical trial of fruquintinib versus Stivarga. While it is difficult to directly evaluate and Quality-adjusted survival analysis Quality-adjusted survival analysis compare clinical results across separate trials, data from the FRESCO study compare favorably to the data from the CONCUR study, a Phase III study of Stivarga monotherapy in CRC conducted in Asia, and the CORRECT study, a global Phase III study of Stivarga in CRC. In particular, in the Chinese patient subgroup of the CONCUR study, Stivarga had a disease control rate of 46% versus 7% in the placebo group. Median PFS was 2.0 months in the Stivarga group versus 1.7 months in the placebo group, and median OS was 8.4 months in the Stivarga group versus 6.2 months in the placebo group. In the CORRECT study, Stivarga had a disease control rate of 41% versus 15% in the placebo group. Median PFS was 1.9 months in the Stivarga group versus 1.7 months for the placebo group, and median OS was 6.4 months in the Stivarga group versus 5.0 months in the placebo group. In terms of safety, results showed that fruquintinib had a manageable safety profile with lower off-target toxicities compared to Stivarga, the other VEGFR TKI approved for third-line CRC. Of particular interest was that the CTC grade 3 or above hepatotoxicity was similar for the fruquintinib group as compared to the placebo group, which was in contrast to Stivarga which was markedly higher and often difficult to manage in the Chinese patient population in the CONCUR study. Adverse events led to dose interruptions in 69% of patients in the Chinese patient subgroup of the CONCUR study, compared to 35% in the FRESCO study. The most frequently reported fruquintinib-related CTC grade 3 or above TEAEs included hypertension (21%), hand-foot skin reaction (11%), proteinuria (3%) and diarrhea (3%), all possibly associated with VEGFR inhibition. No other CTC grade 3 or above TEAEs exceeded 2% in the fruquintinib population, including hepatic function adverse events such as elevations in bilirubin (1%), alanine aminotransferase (<1%) or aspartate aminotransferase (<1%). In terms of tolerability, dose interruptions or reductions occurred in only 35% and 24% of patients in the fruquintinib arm, respectively, and only 15% of patients discontinued treatment of fruquintinib due to adverse events versus 6% for placebo. The FRESCO study was published in the Journal of the American Medical Association in June 2018. Subgroup analysis In June 2018, a further subgroup analysis of data from the FRESCO Phase III study was presented at the ASCO annual meeting. This analysis explored possible effects of prior target therapy on the efficacy and safety of fruquintinib by analyzing the subgroups of patients with prior target therapy and those without prior target therapy. Results showed that the benefits of fruquintinib were generally consistent across all subgroups. Among a total of 278 fruquintinib- treated patients, 111 had received prior target therapy while 55 of the 138 placebo-treated patients had received prior target therapy. In the prior target therapy subgroup, fruquintinib significantly prolonged OS and PFS. Median OS was 7.69 months for patients treated with fruquintinib versus 5.98 months for placebo (hazard ratio = 0.63; p = 0.012). Median PFS was 3.65 months for patients treated with fruquintinib versus 1.84 months for placebo (hazard ratio = 0.24; p < 0.001). Among these 278 patients, the results showed that a subgroup of 84 patients who had received prior anti-VEGF treatment also benefited from fruquintinib. In this subgroup, the median OS was 7.20 months for fruquintinib versus 5.91 months for placebo (hazard ratio = 0.68; p = 0.066) and the median PFS was 3.48 months for fruquintinib versus 1.84 months for placebo (hazard ratio = 0.24; p < 0.001). In the subgroup of 250 patients without prior targeted therapies, the median OS was 10.35 months for 167 patients treated with fruquintinib versus 6.93 months for 83 patients treated with placebo (hazard ratio = 0.63; p = 0.003), and the median PFS for patients treated with fruquintinib was 3.81 months versus 1.84 months for placebo (hazard ratio = 0.28; p < 0.001). Additional data showed that there were no observed cumulative CTC grade 3 or above TEAEs in the subgroup of patients with prior target therapy. The CTC grade 3 or above TEAEs rates of fruquintinib were similar in the subgroups with prior target therapy (61.3%) and without prior target therapy (61.1%). This subgroup analysis is consistent with the previously reported results from the FRESCO study’s intent-to-treat population. The results of this analysis showed that fruquintinib had clinically meaningful benefits in third-line mCRC patients regardless of prior target therapy without observed cumulative toxicity. At the 2018 ASCO Annual Meeting, an analysis was presented that aimed to compare the quality-adjusted survival between the At the 2018 ASCO Annual Meeting, an analysis was presented that aimed to compare the quality-adjusted survival between the two arms of the FRESCO study using quality-adjusted time without symptoms or toxicity, or Q-TWiST, methodology and to investigate two arms of the FRESCO study using quality-adjusted time without symptoms or toxicity, or Q-TWiST, methodology and to investigate the Q-TWiST benefit of fruquintinib treatment among subgroups. Q-TWiST is a tool to evaluate relative clinical benefit-risk from a the Q-TWiST benefit of fruquintinib treatment among subgroups. Q-TWiST is a tool to evaluate relative clinical benefit-risk from a patient’s perspective and has been widely used in oncology treatment assessment. The survival time for each patient was divided into patient’s perspective and has been widely used in oncology treatment assessment. The survival time for each patient was divided into three portions: time with CTC grade 3 or above toxicity before progression, time without symptoms or CTC grade 3 or above toxicity, three portions: time with CTC grade 3 or above toxicity before progression, time without symptoms or CTC grade 3 or above toxicity, and time from progression or relapse until death or end of follow-up. and time from progression or relapse until death or end of follow-up. Patients treated with fruquintinib had longer Q-TWiST periods compared to patients treated with placebo. Q-TWiST benefits were Patients treated with fruquintinib had longer Q-TWiST periods compared to patients treated with placebo. Q-TWiST benefits were observed regardless of prior lines of chemotherapy and prior anti-VEGF or anti-EGFR targeted therapy. The relative improvement of observed regardless of prior lines of chemotherapy and prior anti-VEGF or anti-EGFR targeted therapy. The relative improvement of Q-TWiST with fruquintinib represents a clinically important quality-of-life benefit for mCRC patients. Q-TWiST with fruquintinib represents a clinically important quality-of-life benefit for mCRC patients. Supported by data from the successful FRESCO study, we submitted an NDA for fruquintinib in June 2017. Fruquintinib was Supported by data from the successful FRESCO study, we submitted an NDA for fruquintinib in June 2017. Fruquintinib was subsequently awarded priority review status by the NMPA in view of its clinical value in September 2017, and in September 2018, the subsequently awarded priority review status by the NMPA in view of its clinical value in September 2017, and in September 2018, the NMPA approved fruquintinib for the treatment of patients with advanced CRC and was launched in November 2018. For more NMPA approved fruquintinib for the treatment of patients with advanced CRC and was launched in November 2018. For more information regarding the Elunate product launch, see “—Overview of Elunate Commercial Launch.” information regarding the Elunate product launch, see “—Overview of Elunate Commercial Launch.” FRESCO-2 study: Phase III study of fruquintinib monotherapy in mCRC (NCT04322539) FRESCO-2 study: Phase III study of fruquintinib monotherapy in mCRC (NCT04322539) We initiated a global Phase III registration study, known as the FRESCO-2 study, in refractory metastatic CRC. The first patient We initiated a global Phase III registration study, known as the FRESCO-2 study, in refractory metastatic CRC. The first patient was dosed in September 2020 in the United States and the enrollment was completed in December 2021, where 691 patients from over was dosed in September 2020 in the United States and the enrollment was completed in December 2021, where 691 patients from over 150 sites in 14 countries were enrolled. In September 2022, we presented the results from FRESCO-2 study at the European Society for 150 sites in 14 countries were enrolled. In September 2022, we presented the results from FRESCO-2 study at the European Society for Medical Oncology Congress 2022. We plan to complete new drug application filings in the U.S., Europe and Japan in 2023. Medical Oncology Congress 2022. We plan to complete new drug application filings in the U.S., Europe and Japan in 2023. The FRESCO-2 study demonstrated that treatment with fruquintinib resulted in a statistically significant and clinically meaningful The FRESCO-2 study demonstrated that treatment with fruquintinib resulted in a statistically significant and clinically meaningful increase in the primary OS endpoint and key secondary PFS endpoint compared to treatment with placebo. The positive OS and PFS increase in the primary OS endpoint and key secondary PFS endpoint compared to treatment with placebo. The positive OS and PFS were consistent across all subgroups. Specifically, the median OS was 7.4 months for the 461 patients treated with fruquintinib compared were consistent across all subgroups. Specifically, the median OS was 7.4 months for the 461 patients treated with fruquintinib compared to 4.8 months for the 230 patients in the placebo group (hazard ratio 0.66; 95% confidence interval 0.55–0.80; p<0.001). Median PFS to 4.8 months for the 230 patients in the placebo group (hazard ratio 0.66; 95% confidence interval 0.55–0.80; p<0.001). Median PFS was 3.7 months for patients treated with fruquintinib compared to 1.8 months for patients in the placebo group (HR 0.32; 95% CI 0.27– was 3.7 months for patients treated with fruquintinib compared to 1.8 months for patients in the placebo group (HR 0.32; 95% CI 0.27– 0.39; p<0.001). The DCR was 55.5% in the fruquintinib group compared to 16.1% for patients in the placebo group. Median duration 0.39; p<0.001). The DCR was 55.5% in the fruquintinib group compared to 16.1% for patients in the placebo group. Median duration of follow-up was approximately 11 months for patients in both groups. of follow-up was approximately 11 months for patients in both groups. FRESCO-2 met OS 1º Endpoint & PFS 2º Endpoint Notes: Notes: [1] ESMO 2022, LBA25. Dasari NA, et al. LBA25 - FRESCO-2: A global phase III multiregional clinical trial (MRCT) [1] ESMO 2022, LBA25. Dasari NA, et al. LBA25 - FRESCO-2: A global phase III multiregional clinical trial (MRCT) evaluating the efficacy and safety of fruquintinib in patients with refractory metastatic colorectal cancer. 12 Sep 2022, Proffered evaluating the efficacy and safety of fruquintinib in patients with refractory metastatic colorectal cancer. 12 Sep 2022, Proffered Paper (suppl_7): S808-S869. Paper (suppl_7): S808-S869. 10.1016/annonc/annonc1089. 10.1016/annonc/annonc1089. lower digestive Session. Annals of Oncology lower digestive Session. Annals of Oncology session 2: GI, session 2: GI, (2022) 33 (2022) 33 90 91 91 The safety profile of fruquintinib in FRESCO-2 was consistent with previously reported fruquintinib studies. Grade 3 or above adverse events occurred in 62.7% of patients who received fruquintinib, compared to 50.4% of patients who received placebo. Grade 3 or above adverse events that occurred in more than 5% of patients who received fruquintinib were hypertension (13.6% vs. 0.9% in the placebo group), asthenia (7.7% vs. 3.9% in the placebo group) and hand-foot syndrome (6.4% vs. 0% in the placebo group). Filing of a rolling submission of a NDA was initiated in December 2022, and expected to be completed in the first half of 2023. MAA filing to the EMA and NDA filing to the PMDA are expected to follow in 2023. Phase I/Ib study of fruquintinib monotherapy in metastatic colorectal and breast cancers (NCT03251378) Fruquintinib Combinations with Checkpoint Inhibitors The table below shows a summary of clinical trials for fruquintinib in combination with checkpoint inhibitors. Clinical Trials of Fruquintinib with Checkpoint Inhibitors Treatment Trial Name, Patient Focus Sites Phase Status/Plan NCT # Fruquintinib and Tyvyt (PD-1) Endometrial cancer China II registration-intent Ongoing since NCT03903705 We are conducting a multi-center, open-label, Phase Ib clinical study to evaluate the safety, tolerability and pharmacokinetics of fruquintinib in U.S. patients, which has established the U.S. RP2D to be 5 mg, the same as that in China. This dose was used in the FRESCO-2 study described above. Fruquintinib and Tyvyt (PD-1) Fruquintinib and Tyvyt (PD-1) RCC RCC China China III Ib/II Ongoing since NCT05522231 NCT03903705 Fruquintinib Monotherapy - Gastric Cancer Advanced gastric cancer is a major medical need, particularly in Asian populations, with limited treatment options for patients who have failed first-line standard chemotherapy with 5-fluorouracil and platinum doublets. The table below shows a summary of the clinical study for fruquintinib in gastric cancer patients. Fruquintinib and Tyvyt (PD-1) CRC China II NCT04179084 Clinical Trial of Fruquintinib in Gastric Cancer Fruquintinib and Tyvyt (PD-1) Gastrointestinal tumors China Ib/II NCT03903705 Treatment Fruquintinib + paclitaxel Trial Name, Patient Focus FRUTIGA: 2L gastric cancer Sites China Phase III Status/Plan Supplemental NDA to be filed in H1 2023 NCT # NCT03223376 Notes: 2L = second line. Fruquintinib and Tyvyt (PD-1) NSCLC China Ib/II Fully enrolled; NCT03903705 Fruquintinib and Tyvyt (PD-1) Cervical cancer China Ib/II FRUTIGA study: Phase III study of fruquintinib in combination with paclitaxel in gastric cancer (second-line) (NCT03223376) Fruquintinib and tislelizumab (PD-1) MSS-CRC U.S. Ib/II NCT03903705 NCT04577963 This randomized, double-blind, Phase III study in China to evaluate fruquintinib combined with paclitaxel compared with paclitaxel monotherapy, for second-line treatment of advanced gastric cancer, enrolled 703 patients in July 2022. Its dual-primary endpoints are PFS and OS. The trial met the PFS endpoint at a statistically and clinically meaningful level. The OS endpoint was not statistically significant per the pre-specified statistical plan, although there was an improvement in median OS. Fruquintinib also demonstrated a statistically significant improvement in secondary endpoints including ORR, DCR and DoR. The safety profile of fruquintinib in FRUTIGA was consistent with previously reported studies. Full detailed results are subject to ongoing analysis and are expected to be disclosed at an upcoming scientific meeting. We plan to file a supplemental NDA with the NMPA in 2023. 2021; Ib data presented at CSCO 2021 2022 Fully enrolled; 1L&2L data submission in 2023 Fully enrolled; Data at European Journal of Cancer 181 (2023) 26-37 Fully enrolled; data submission in 2023 data submission in 2023 if mature Fully enrolled; data submission in 2023 if mature Ongoing since 2021; Fully enrolled; Submitting data to conference in H2 2023 Fruquintinib and tislelizumab (PD-1) CRC Korea / China Ib/II Fully enrolled NCT04716634 Notes: CRC = colorectal cancer; NSCLC = non-small cell lung cancer. In November 2018, we entered into two collaboration agreements to evaluate the safety, tolerability and efficacy of fruquintinib in combination with checkpoint inhibitors. These include a global collaboration with Innovent to evaluate the combination of fruquintinib with Innovent’s Tyvyt, a PD-1 monoclonal antibody approved in China, and a collaboration in China with Genor to evaluate the fruquintinib combination with geptanolimab, a PD-1 monoclonal antibody being developed by Genor. In May 2020, we entered into a collaboration agreement with BeiGene to evaluate the safety, tolerability and efficacy of combining two of our drug candidates, including fruquintinib, with BeiGene’s anti-PD-1 antibody tislelizumab. 92 93 adverse events occurred in 62.7% of patients who received fruquintinib, compared to 50.4% of patients who received placebo. Grade 3 or above adverse events that occurred in more than 5% of patients who received fruquintinib were hypertension (13.6% vs. 0.9% in the placebo group), asthenia (7.7% vs. 3.9% in the placebo group) and hand-foot syndrome (6.4% vs. 0% in the placebo group). Filing of a rolling submission of a NDA was initiated in December 2022, and expected to be completed in the first half of 2023. MAA filing to the EMA and NDA filing to the PMDA are expected to follow in 2023. Phase I/Ib study of fruquintinib monotherapy in metastatic colorectal and breast cancers (NCT03251378) We are conducting a multi-center, open-label, Phase Ib clinical study to evaluate the safety, tolerability and pharmacokinetics of fruquintinib in U.S. patients, which has established the U.S. RP2D to be 5 mg, the same as that in China. This dose was used in the FRESCO-2 study described above. Fruquintinib Monotherapy - Gastric Cancer Advanced gastric cancer is a major medical need, particularly in Asian populations, with limited treatment options for patients who have failed first-line standard chemotherapy with 5-fluorouracil and platinum doublets. The table below shows a summary of the clinical study for fruquintinib in gastric cancer patients. The safety profile of fruquintinib in FRESCO-2 was consistent with previously reported fruquintinib studies. Grade 3 or above Fruquintinib Combinations with Checkpoint Inhibitors The table below shows a summary of clinical trials for fruquintinib in combination with checkpoint inhibitors. Clinical Trials of Fruquintinib with Checkpoint Inhibitors Treatment Fruquintinib and Tyvyt (PD-1) Trial Name, Patient Focus Sites Endometrial cancer China Phase Status/Plan II registration-intent Ongoing since NCT # NCT03903705 Fruquintinib and Tyvyt (PD-1) Fruquintinib and Tyvyt (PD-1) RCC RCC China China III Ib/II Fruquintinib and Tyvyt (PD-1) CRC China II Clinical Trial of Fruquintinib in Gastric Cancer Fruquintinib and Tyvyt (PD-1) Gastrointestinal tumors China Ib/II Treatment Trial Name, Patient Focus Fruquintinib + paclitaxel FRUTIGA: 2L gastric cancer Sites China Phase III Status/Plan NCT # Supplemental NDA to be NCT03223376 Fruquintinib and Tyvyt (PD-1) NSCLC China Ib/II filed in H1 2023 Fruquintinib and Tyvyt (PD-1) Cervical cancer China Ib/II Notes: 2L = second line. FRUTIGA study: Phase III study of fruquintinib in combination with paclitaxel in gastric cancer (second-line) (NCT03223376) Fruquintinib and tislelizumab (PD-1) MSS-CRC U.S. Ib/II This randomized, double-blind, Phase III study in China to evaluate fruquintinib combined with paclitaxel compared with paclitaxel monotherapy, for second-line treatment of advanced gastric cancer, enrolled 703 patients in July 2022. Its dual-primary endpoints are PFS and OS. The trial met the PFS endpoint at a statistically and clinically meaningful level. The OS endpoint was not statistically significant per the pre-specified statistical plan, although there was an improvement in median OS. Fruquintinib also demonstrated a statistically significant improvement in secondary endpoints including ORR, DCR and DoR. The safety profile of fruquintinib in FRUTIGA was consistent with previously reported studies. Full detailed results are subject to ongoing analysis and are expected to be Notes: CRC = colorectal cancer; NSCLC = non-small cell lung cancer. disclosed at an upcoming scientific meeting. We plan to file a supplemental NDA with the NMPA in 2023. Fruquintinib and tislelizumab (PD-1) CRC Korea / China Ib/II 2021; Ib data presented at CSCO 2021 Ongoing since 2022 Fully enrolled; 1L&2L data submission in 2023 Fully enrolled; Data at European Journal of Cancer 181 (2023) 26-37 Fully enrolled; data submission in 2023 Fully enrolled; data submission in 2023 if mature Fully enrolled; data submission in 2023 if mature Ongoing since 2021; Fully enrolled; Submitting data to conference in H2 2023 Fully enrolled NCT05522231 NCT03903705 NCT04179084 NCT03903705 NCT03903705 NCT03903705 NCT04577963 NCT04716634 In November 2018, we entered into two collaboration agreements to evaluate the safety, tolerability and efficacy of fruquintinib in combination with checkpoint inhibitors. These include a global collaboration with Innovent to evaluate the combination of fruquintinib with Innovent’s Tyvyt, a PD-1 monoclonal antibody approved in China, and a collaboration in China with Genor to evaluate the fruquintinib combination with geptanolimab, a PD-1 monoclonal antibody being developed by Genor. In May 2020, we entered into a collaboration agreement with BeiGene to evaluate the safety, tolerability and efficacy of combining two of our drug candidates, including fruquintinib, with BeiGene’s anti-PD-1 antibody tislelizumab. 92 93 Tyvyt combination for advanced endometrial cancer registration-intent cohort (NCT03903705) Overview of Elunate Commercial Launch Platinum-based systemic chemotherapy is the standard first-line treatment for advanced endometrial cancer. However, patients who progress following first-line chemotherapy have limited treatment options, and the prognosis remains poor. As disclosed at CSCO 2021, as of the data cutoff date of August 31, 2021, 35 patients were enrolled (NCT03903705), including 7 treatment-naïve and 28 pretreated patients. Of them, 29 were efficacy evaluable, 4 were treatment-naïve and 25 were pretreated. All 4 treatment-naïve patients experienced confirmed tumor response, for ORR of 100% (95% CI: 39.8-100.0), and median PFS was not reached. Among the 25 pretreated patients, the confirmed ORR was 32.0% (95% CI: 14.9-53.5), DCR was 92.0% (95% CI: 74.0-99.0) and the median PFS was 6.9 months (95% CI: 4.1-NR). Among the 19 proficient mismatch repair (pMMR) patients in the pretreated cohort, the confirmed ORR was 36.8% (95% CI: 16.3-61.6), DCR was 94.7% (95% CI: 74.0-99.9), median PFS was 6.9 months (95% CI: 4.1-NR), and the median OS was not reached. Among the 35 enrolled patients, treatment-related adverse events of grade 3 or above that occurred in more than 10% of patients were hypertension (4 patients, 11.4%) and proteinuria (4 patients, 11.4%). 5 (14.3%) patients reported treatment-related serious adverse events. Following encouraging data in the advanced endometrial cancer cohort, it has been expanded into a single-arm registrational Phase II study of over 130 patients. Tyvyt combination for advanced metastatic renal cell carcinoma (NCT05522231) In first-line clear-cell renal cell carcinoma (“ccRCC”), clinical benefits have been demonstrated for the combination of antiangiogenic therapy and immunotherapy. However, there is limited evidence on the benefits of this combination in the second-line setting. Phase II data disclosed at CSCO 2021 showed encouraging anti-tumor efficacy and durability in these patients. A Phase III trial of fruquintinib in combination with Tyvyt as second-line treatment for locally advanced or metastatic RCC was initiated in October 2022. The study is a randomized, open-label, active-controlled study to evaluate the efficacy and safety of fruquintinib in combination with Tyvyt versus axitinib or everolimus monotherapy for the second-line treatment of advanced RCC. The primary endpoint is PFS. Approximately 260 patients will be enrolled in the study. Tyvyt combination for CRC (NCT04179084) Encouraging preliminary data presented at ASCO 2021 for fruquintinib in combination with two PD-1 inhibitors, Tyvyt and geptanolimab, in advanced CRC showed a five-fold increase in ORR and a doubling of median PFS as compared to the FRESCO study for fruquintinib as a monotherapy. In the Tyvyt combination study (NCT04179084), at the final analysis with data cut-off date of December 30, 2021, 44 patients were enrolled into the CRC cohort (43 efficacy evaluable), 22 (21 efficacy evaluable) of whom received the RP2D. ORR was 21% for all patients and 24% for those who received the RP2D. DCR was 88% for all patients and 100% for those who received the RP2D. Median PFS was 5.6 months for all patients, and 6.9 months for those who received the RP2D. Median OS was 14.3 months for all patients and 14.8 months for those who received PRZD. In the geptanolimab combination study (NCT03977090), for the 15 patients in the CRC cohort ORR was 26.7% (including 1 patient with unconfirmed PR) and 33% in the group that received the RP2D. DCR for all evaluable patients was 80% and median PFS was 7.3 months (95% CI: 1.9-NR). Grade 3 treatment-related adverse events occurred in 47% of patients, and no incidences of grade 4 or 5 treatment-related adverse events were observed. Tislelizumab combinations for CRC (NCT04577963 & NCT04716634) A MSS-CRC cohort was added to an open-label, multi-center, non-randomized Phase Ib/II study in the U.S. to assess fruquintinib in combination with tislelizumab. The Phase II study in China and Korea for fruquintinib in combination with tislelizumab was initiated and is being led by BeiGene for the treatment of advanced or metastatic, unresectable CRC. Fruquintinib Exploratory Development In China, we support an investigator initiated trial program for fruquintinib, and there are about 30 of such trials ongoing in various solid tumor settings. Fruquintinib capsules, sold under the brand name Elunate, were approved for marketing in China by the NMPA in September 2018 and commercially launched in late November 2018. We also received marketing approval for Elunate in Macau in February 2022. Elunate is for the treatment of patients with mCRC that have been previously treated with fluoropyrimidine, oxaliplatin and irinotecan, including those who have previously received anti-VEGF therapy and/or anti-EGFR therapy (RAS wild type). Starting on January 1, 2020, Elunate was included on China’s NRDL at a 63% discount to its initial retail price for two years, paving the way to significantly broaden access for advanced CRC patients and rapidly build penetration in China over the coming years. The inclusion was renewed pursuant to which we agreed to a discount of 5% relative to the 2021 NRDL price, and Elunate will continue to be included in the NRDL starting January 2022 for another two years. During 2022, we introduced Elunate through approximately 7,200 local, regional and national educational events involving approximately 215,000 healthcare professionals. The revenues we generate from Elunate are comprised of royalty revenue, revenue from the sales of Elunate to Eli Lilly which we manufacture and sell at cost and, starting in October 2020, revenue from promotion and marketing services. In 2020, we generated $20.0 million in total revenue from Elunate, of which $4.9 million was royalty revenue, $11.3 million was revenue from sales of goods primarily to Eli Lilly and $3.8 million was revenue from promotion and marketing services to Eli Lilly. In 2021, we generated $53.5 million in total revenue from Elunate, of which $10.3 million was royalty revenue, $15.8 million was revenue from sales of goods primarily to Eli Lilly and $27.4 million was revenue from promotion and marketing services to Eli Lilly. In 2022, we generated $69.9 million in total revenue from Elunate, of which $13.9 million was royalty revenue, $14.7 million was revenue from sales of goods primarily to Eli Lilly and $41.3 million was revenue from promotion and marketing services to Eli Lilly. Collaboration Partnerships Eli Lilly In October 2013, we entered into a license and collaboration agreement with Eli Lilly in order to accelerate and broaden our fruquintinib development program in China. As a result, we were able to quickly expand the clinical development of fruquintinib into indications with unmet medical needs in China including CRC and gastric cancer, as discussed above. In December 2018, we amended our license and collaboration agreement with Eli Lilly. This amendment gives us, among other things, all planning, execution and decision making responsibilities for life cycle indication development of fruquintinib in China. Support from Eli Lilly has also helped us to establish our own manufacturing (formulation) facility in Suzhou, China, which now produces clinical and commercial supplies of fruquintinib. In July 2020, we reached an agreement with Eli Lilly to take over development and execution of all on-the-ground medical detailing, promotion and local and regional marketing activities for Elunate in China starting on October 1, 2020. Under the terms of the new agreement, we will share gross profits linked to sales target performance. Subject to meeting pre-agreed sales targets, Eli Lilly will pay us an estimated total of 70% to 80% of Elunate in-market sales in the form of royalties, manufacturing costs and For more information regarding our partnership with Eli Lilly, see “—Overview of Our Collaborations—Eli Lilly.” service payments. Takeda In January 2023, we entered into an agreement with a subsidiary of Takeda whereby it will receive an exclusive worldwide license to develop, manufacture and commercialize fruquintinib in all indications and territories outside of mainland China, Hong Kong and Macau, where it is marketed and will continue to be marketed by us in partnership with Eli Lilly. Subject to the terms of the agreement, we will be eligible to receive up to $1.13 billion, including $400 million upfront on closing of the agreement, and up to $730 million in additional potential payments relating to regulatory, development and commercial sales milestones, as well as royalties on net sales. The deal is subject to customary closing conditions, including completion of antitrust regulatory reviews. Following these clearances, Takeda will become solely responsible for the development and commercialization of fruquintinib in all the included territories. 94 95 Tyvyt combination for advanced endometrial cancer registration-intent cohort (NCT03903705) Overview of Elunate Commercial Launch Platinum-based systemic chemotherapy is the standard first-line treatment for advanced endometrial cancer. However, patients who progress following first-line chemotherapy have limited treatment options, and the prognosis remains poor. As disclosed at CSCO 2021, as of the data cutoff date of August 31, 2021, 35 patients were enrolled (NCT03903705), including 7 treatment-naïve and 28 pretreated patients. Of them, 29 were efficacy evaluable, 4 were treatment-naïve and 25 were pretreated. All 4 treatment-naïve patients experienced confirmed tumor response, for ORR of 100% (95% CI: 39.8-100.0), and median PFS was not reached. Among the 25 pretreated patients, the confirmed ORR was 32.0% (95% CI: 14.9-53.5), DCR was 92.0% (95% CI: 74.0-99.0) and the median PFS was 6.9 months (95% CI: 4.1-NR). Among the 19 proficient mismatch repair (pMMR) patients in the pretreated cohort, the confirmed ORR was 36.8% (95% CI: 16.3-61.6), DCR was 94.7% (95% CI: 74.0-99.9), median PFS was 6.9 months (95% CI: 4.1-NR), and the median OS was not reached. Among the 35 enrolled patients, treatment-related adverse events of grade 3 or above that occurred in more than 10% of patients were hypertension (4 patients, 11.4%) and proteinuria (4 patients, 11.4%). 5 (14.3%) patients reported treatment-related serious adverse events. Following encouraging data in the advanced endometrial cancer cohort, it has been expanded into a single-arm registrational Phase II study of over 130 patients. Tyvyt combination for advanced metastatic renal cell carcinoma (NCT05522231) In first-line clear-cell renal cell carcinoma (“ccRCC”), clinical benefits have been demonstrated for the combination of antiangiogenic therapy and immunotherapy. However, there is limited evidence on the benefits of this combination in the second-line setting. Phase II data disclosed at CSCO 2021 showed encouraging anti-tumor efficacy and durability in these patients. A Phase III trial of fruquintinib in combination with Tyvyt as second-line treatment for locally advanced or metastatic RCC was initiated in October 2022. The study is a randomized, open-label, active-controlled study to evaluate the efficacy and safety of fruquintinib in combination with Tyvyt versus axitinib or everolimus monotherapy for the second-line treatment of advanced RCC. The primary endpoint is PFS. Approximately 260 patients will be enrolled in the study. Tyvyt combination for CRC (NCT04179084) Encouraging preliminary data presented at ASCO 2021 for fruquintinib in combination with two PD-1 inhibitors, Tyvyt and geptanolimab, in advanced CRC showed a five-fold increase in ORR and a doubling of median PFS as compared to the FRESCO study for fruquintinib as a monotherapy. In the Tyvyt combination study (NCT04179084), at the final analysis with data cut-off date of December 30, 2021, 44 patients were enrolled into the CRC cohort (43 efficacy evaluable), 22 (21 efficacy evaluable) of whom received the RP2D. ORR was 21% for all patients and 24% for those who received the RP2D. DCR was 88% for all patients and 100% for those who received the RP2D. Median PFS was 5.6 months for all patients, and 6.9 months for those who received the RP2D. Median OS was 14.3 months for all patients and 14.8 months for those who received PRZD. In the geptanolimab combination study (NCT03977090), for the 15 patients in the CRC cohort ORR was 26.7% (including 1 patient with unconfirmed PR) and 33% in the group that received the RP2D. DCR for all evaluable patients was 80% and median PFS was 7.3 Fruquintinib capsules, sold under the brand name Elunate, were approved for marketing in China by the NMPA in September 2018 and commercially launched in late November 2018. We also received marketing approval for Elunate in Macau in February 2022. Elunate is for the treatment of patients with mCRC that have been previously treated with fluoropyrimidine, oxaliplatin and irinotecan, including those who have previously received anti-VEGF therapy and/or anti-EGFR therapy (RAS wild type). Starting on January 1, 2020, Elunate was included on China’s NRDL at a 63% discount to its initial retail price for two years, paving the way to significantly broaden access for advanced CRC patients and rapidly build penetration in China over the coming years. The inclusion was renewed pursuant to which we agreed to a discount of 5% relative to the 2021 NRDL price, and Elunate will continue to be included in the NRDL starting January 2022 for another two years. During 2022, we introduced Elunate through approximately 7,200 local, regional and national educational events involving approximately 215,000 healthcare professionals. The revenues we generate from Elunate are comprised of royalty revenue, revenue from the sales of Elunate to Eli Lilly which we manufacture and sell at cost and, starting in October 2020, revenue from promotion and marketing services. In 2020, we generated $20.0 million in total revenue from Elunate, of which $4.9 million was royalty revenue, $11.3 million was revenue from sales of goods primarily to Eli Lilly and $3.8 million was revenue from promotion and marketing services to Eli Lilly. In 2021, we generated $53.5 million in total revenue from Elunate, of which $10.3 million was royalty revenue, $15.8 million was revenue from sales of goods primarily to Eli Lilly and $27.4 million was revenue from promotion and marketing services to Eli Lilly. In 2022, we generated $69.9 million in total revenue from Elunate, of which $13.9 million was royalty revenue, $14.7 million was revenue from sales of goods primarily to Eli Lilly and $41.3 million was revenue from promotion and marketing services to Eli Lilly. Collaboration Partnerships Eli Lilly In October 2013, we entered into a license and collaboration agreement with Eli Lilly in order to accelerate and broaden our fruquintinib development program in China. As a result, we were able to quickly expand the clinical development of fruquintinib into indications with unmet medical needs in China including CRC and gastric cancer, as discussed above. In December 2018, we amended our license and collaboration agreement with Eli Lilly. This amendment gives us, among other things, all planning, execution and decision making responsibilities for life cycle indication development of fruquintinib in China. Support from Eli Lilly has also helped us to establish our own manufacturing (formulation) facility in Suzhou, China, which now produces clinical and commercial supplies of fruquintinib. In July 2020, we reached an agreement with Eli Lilly to take over development and execution of all on-the-ground medical detailing, promotion and local and regional marketing activities for Elunate in China starting on October 1, 2020. Under the terms of the new agreement, we will share gross profits linked to sales target performance. Subject to meeting pre-agreed sales targets, Eli Lilly will pay us an estimated total of 70% to 80% of Elunate in-market sales in the form of royalties, manufacturing costs and service payments. months (95% CI: 1.9-NR). Grade 3 treatment-related adverse events occurred in 47% of patients, and no incidences of grade 4 or 5 For more information regarding our partnership with Eli Lilly, see “—Overview of Our Collaborations—Eli Lilly.” treatment-related adverse events were observed. Tislelizumab combinations for CRC (NCT04577963 & NCT04716634) Takeda A MSS-CRC cohort was added to an open-label, multi-center, non-randomized Phase Ib/II study in the U.S. to assess fruquintinib in combination with tislelizumab. The Phase II study in China and Korea for fruquintinib in combination with tislelizumab was initiated and is being led by BeiGene for the treatment of advanced or metastatic, unresectable CRC. Fruquintinib Exploratory Development solid tumor settings. In China, we support an investigator initiated trial program for fruquintinib, and there are about 30 of such trials ongoing in various In January 2023, we entered into an agreement with a subsidiary of Takeda whereby it will receive an exclusive worldwide license to develop, manufacture and commercialize fruquintinib in all indications and territories outside of mainland China, Hong Kong and Macau, where it is marketed and will continue to be marketed by us in partnership with Eli Lilly. Subject to the terms of the agreement, we will be eligible to receive up to $1.13 billion, including $400 million upfront on closing of the agreement, and up to $730 million in additional potential payments relating to regulatory, development and commercial sales milestones, as well as royalties on net sales. The deal is subject to customary closing conditions, including completion of antitrust regulatory reviews. Following these clearances, Takeda will become solely responsible for the development and commercialization of fruquintinib in all the included territories. 94 95 3. Surufatinib (HMPL-012), VEGFR 1, 2 and 3, FGFR1 and CSF-1R Inhibitor Surufatinib is a novel, oral angio-immuno kinase inhibitor that selectively inhibits the tyrosine kinase activity associated with VEGFR and FGFR, both shown to be involved in tumor angiogenesis, and CSF-1R, which plays a key role in regulating tumor- associated macrophages, promoting the body’s immune response against tumor cells. Surufatinib has been studied in clinical trials with around 1,200 patients to date, both as a monotherapy and in combinations, and is approved in China. We currently retain all rights to surufatinib worldwide. Initial approvals for surufatinib in China are for the treatment of advanced NET patients. NETs present in the body’s organ system with fragmented epidemiology. About 58% of NETs originate in the gastrointestinal tract and pancreas, 27% in the lung or bronchus, and a further 15% in other organs or unknown origins. Surufatinib’s ability to inhibit angiogenesis, block the accumulation of tumor associated macrophages and promote infiltration of effector T cells into tumors could help improve the anti-tumor activity of PD-1 antibodies. Several combination studies with PD-1 antibodies have shown promising data. Mechanism of Action Both VEGFR and FGFR signaling pathways can mediate tumor angiogenesis. CSF-1R plays an important role in the functions of macrophages. Recently, the roles in increasing tumor immune evasion of VEGFR, FGFR in regulation of T cells, tumor-associated macrophages and myeloid-derived suppressor cells have been demonstrated. Therefore, blockade of tumor angiogenesis and tumor immune evasion by simultaneously targeting VEGFR 1, 2 and 3, FGFR1 and CSF-1R kinases may represent a promising approach for oncology therapy. NETs can be functional, releasing hormones and peptides that cause symptoms like diarrhea and flushing, or non-functional with no symptoms. Early-stage NETs, which are often functional, can be treated with somatostatin analogue subcutaneous injections, which are approved and reimbursed in China and alleviate symptoms and slow NET growth, but have limited tumor reduction efficacy. Advanced NETs grow more quickly. In China, Sutent is approved in pancreatic NET while Afinitor, an mTOR inhibitor, is approved in non-functional NETs in the pancreas, lung and gastrointestinal tract. These approvals, however, cover only about half of advanced neuroendocrine tumor patients. The table below shows a summary of clinical trials for surufatinib in neuroendocrine cancer patients. Clinical Trials of Surufatinib in NETs Treatment Surufatinib monotherapy Surufatinib monotherapy Surufatinib monotherapy(1) Surufatinib monotherapy NETs NETs Trial Name, Patient Focus Sites Phase Status/Plan SANET-ep: Non-pancreatic NET Approved; Launched in 2021 NCT # NCT02588170 SANET-p: Pancreatic NET Approved; Launched in 2021; Pooled NCT02589821 III III China China U.S. & Europe Japan Ib/II Bridging Completed analysis at ASCO 2022 Bridging Ongoing since 2021 NCT02549937 NCT05077384 Notes: (1) FDA granted surufatinib orphan drug designation for the treatment of pancreatic NETs in November 2019 and fast track designation for our pancreatic and non-pancreatic NET development programs in April 2020. Surufatinib Pre-clinical Evidence NET = neuroendocrine tumor. Surufatinib inhibited VEGFR 1, 2, and 3, FGFR1 and CSF-1R kinases with IC50 in a range of 1 nM to 24 nM. It also strongly blocked VEGF-induced VEGFR2 phosphorylation in HEK293 cells and CSF-1R phosphorylation in RAW264.7 cells with an IC50 of 2 nM and 79 nM, respectively. Surufatinib also reduced VEGF- or FGF-stimulated human umbilical vein endothelial cell proliferation with an IC50 < 50 nM. In animal studies, a single oral dose of surufatinib inhibited VEGF-stimulated VEGFR2 phosphorylation in lung tissues of nude mice in an exposure-dependent manner. Furthermore, elevation of FGF23 levels in plasma 24 hours post dosing suggested suppression of FGFR signaling. Surufatinib demonstrated potent tumor growth inhibition in multiple human xenograft models and decreased cluster of differentiation 31 expression remarkably, suggesting strong inhibition on angiogenesis through VEGFR and FGFR signaling. In a syngeneic murine colon cancer model, surufatinib demonstrated moderate tumor growth inhibition after single-agent treatment. Flow cytometry and immunohistochemistry analysis revealed an increase of certain T cells and a significant reduction in certain tumor- associated macrophages, including CSF-1R mutation positive tumor-associated macrophages in tumor tissue, indicating surufatinib has a strong effect on CSF-1R. Interestingly, a combination of surufatinib with a PD-L1 antibody resulted in enhanced anti-tumor effect. These results suggested that surufatinib has a strong effect in modulating angiogenesis and cancer immunity. Surufatinib Clinical Trials We currently have various clinical trials of surufatinib as a monotherapy and in combination with checkpoint inhibitors ongoing or expected to begin in the near term. Surufatinib as a Monotherapy - Neuroendocrine Tumors Neuroendocrine tumors begin in the specialized cells of the body’s neuroendocrine system. Cells have traits of both hormone- producing endocrine cells and nerve cells. Neuroendocrine tumors are found throughout the body’s organ system and have complex and fragmented epidemiology, about 58% of NETs originate in the gastrointestinal tract and pancreas, 27% in the lung or bronchus, and a further 15% in other organs or unknown origins. In China, there are an estimated approximately 34,000 new patients of advanced NETs per year. SANET-ep study: Phase III study of surufatinib monotherapy in non-pancreatic NETs (NCT02588170) In 2015, we initiated the SANET-ep study, which is a Phase III study in China in patients with grade 1 and 2 advanced non- pancreatic NETs. In this study, patients were randomized at a 2:1 ratio to receive either an oral dose of 300 mg of surufatinib or a placebo once daily on a 28-day treatment cycle. The primary endpoint was PFS, with secondary endpoints including ORR, disease control rate, time to response, duration of response, OS, safety and tolerability. A 198-patient interim analysis was conducted on SANET-ep in mid-2019, leading the independent data monitoring committee, or IDMC, to determine that it had met the pre-defined primary endpoint of PFS and should be stopped early. The positive results of this trial were highlighted in an oral presentation at the 2019 European Society for Medical Oncology Congress, and subsequently published in The Lancet Oncology in September 2020. Median PFS per investigator assessment was 9.2 months for patients treated with surufatinib, as compared to 3.8 months for patients in the placebo group (HR 0.334; 95% CI: 0.223, 0.499; p<0.0001). Efficacy was also supported by a blinded independent image review committee assessment. Surufatinib was well-tolerated in this study and the safety profile was consistent with observations in prior clinical studies. CTC grade 3 or above TEAEs in this study with greater than 5% incidence were hypertension (36%), proteinuria (19%) and anemia (7%). 96 97 3. Surufatinib (HMPL-012), VEGFR 1, 2 and 3, FGFR1 and CSF-1R Inhibitor Surufatinib is a novel, oral angio-immuno kinase inhibitor that selectively inhibits the tyrosine kinase activity associated with VEGFR and FGFR, both shown to be involved in tumor angiogenesis, and CSF-1R, which plays a key role in regulating tumor- associated macrophages, promoting the body’s immune response against tumor cells. Surufatinib has been studied in clinical trials with around 1,200 patients to date, both as a monotherapy and in combinations, and is approved in China. We currently retain all rights to surufatinib worldwide. NETs can be functional, releasing hormones and peptides that cause symptoms like diarrhea and flushing, or non-functional with no symptoms. Early-stage NETs, which are often functional, can be treated with somatostatin analogue subcutaneous injections, which are approved and reimbursed in China and alleviate symptoms and slow NET growth, but have limited tumor reduction efficacy. Advanced NETs grow more quickly. In China, Sutent is approved in pancreatic NET while Afinitor, an mTOR inhibitor, is approved in non-functional NETs in the pancreas, lung and gastrointestinal tract. These approvals, however, cover only about half of advanced neuroendocrine tumor patients. Initial approvals for surufatinib in China are for the treatment of advanced NET patients. NETs present in the body’s organ system The table below shows a summary of clinical trials for surufatinib in neuroendocrine cancer patients. with fragmented epidemiology. About 58% of NETs originate in the gastrointestinal tract and pancreas, 27% in the lung or bronchus, and a further 15% in other organs or unknown origins. Surufatinib’s ability to inhibit angiogenesis, block the accumulation of tumor associated macrophages and promote infiltration of effector T cells into tumors could help improve the anti-tumor activity of PD-1 antibodies. Several combination studies with PD-1 antibodies have shown promising data. Mechanism of Action oncology therapy. Surufatinib Pre-clinical Evidence Both VEGFR and FGFR signaling pathways can mediate tumor angiogenesis. CSF-1R plays an important role in the functions of macrophages. Recently, the roles in increasing tumor immune evasion of VEGFR, FGFR in regulation of T cells, tumor-associated macrophages and myeloid-derived suppressor cells have been demonstrated. Therefore, blockade of tumor angiogenesis and tumor immune evasion by simultaneously targeting VEGFR 1, 2 and 3, FGFR1 and CSF-1R kinases may represent a promising approach for Surufatinib inhibited VEGFR 1, 2, and 3, FGFR1 and CSF-1R kinases with IC50 in a range of 1 nM to 24 nM. It also strongly blocked VEGF-induced VEGFR2 phosphorylation in HEK293 cells and CSF-1R phosphorylation in RAW264.7 cells with an IC50 of 2 nM and 79 nM, respectively. Surufatinib also reduced VEGF- or FGF-stimulated human umbilical vein endothelial cell proliferation with an IC50 < 50 nM. In animal studies, a single oral dose of surufatinib inhibited VEGF-stimulated VEGFR2 phosphorylation in lung tissues of nude mice in an exposure-dependent manner. Furthermore, elevation of FGF23 levels in plasma 24 hours post dosing suggested suppression of FGFR signaling. Surufatinib demonstrated potent tumor growth inhibition in multiple human xenograft models and decreased cluster of differentiation 31 expression remarkably, suggesting strong inhibition on angiogenesis through VEGFR and FGFR signaling. In a syngeneic murine colon cancer model, surufatinib demonstrated moderate tumor growth inhibition after single-agent treatment. Flow cytometry and immunohistochemistry analysis revealed an increase of certain T cells and a significant reduction in certain tumor- associated macrophages, including CSF-1R mutation positive tumor-associated macrophages in tumor tissue, indicating surufatinib has a strong effect on CSF-1R. Interestingly, a combination of surufatinib with a PD-L1 antibody resulted in enhanced anti-tumor effect. These results suggested that surufatinib has a strong effect in modulating angiogenesis and cancer immunity. We currently have various clinical trials of surufatinib as a monotherapy and in combination with checkpoint inhibitors ongoing or Surufatinib Clinical Trials expected to begin in the near term. Surufatinib as a Monotherapy - Neuroendocrine Tumors Neuroendocrine tumors begin in the specialized cells of the body’s neuroendocrine system. Cells have traits of both hormone- producing endocrine cells and nerve cells. Neuroendocrine tumors are found throughout the body’s organ system and have complex and fragmented epidemiology, about 58% of NETs originate in the gastrointestinal tract and pancreas, 27% in the lung or bronchus, and a further 15% in other organs or unknown origins. In China, there are an estimated approximately 34,000 new patients of advanced NETs per year. Clinical Trials of Surufatinib in NETs Treatment Surufatinib monotherapy Surufatinib monotherapy Surufatinib monotherapy(1) Surufatinib monotherapy Trial Name, Patient Focus SANET-ep: Non-pancreatic NET SANET-p: Pancreatic NET NETs NETs Sites China China U.S. & Europe Japan Phase III III Ib/II Bridging Status/Plan Approved; Launched in 2021 Approved; Launched in 2021; Pooled analysis at ASCO 2022 Completed Bridging Ongoing since 2021 NCT # NCT02588170 NCT02589821 NCT02549937 NCT05077384 Notes: (1) FDA granted surufatinib orphan drug designation for the treatment of pancreatic NETs in November 2019 and fast track designation for our pancreatic and non-pancreatic NET development programs in April 2020. NET = neuroendocrine tumor. SANET-ep study: Phase III study of surufatinib monotherapy in non-pancreatic NETs (NCT02588170) In 2015, we initiated the SANET-ep study, which is a Phase III study in China in patients with grade 1 and 2 advanced non- pancreatic NETs. In this study, patients were randomized at a 2:1 ratio to receive either an oral dose of 300 mg of surufatinib or a placebo once daily on a 28-day treatment cycle. The primary endpoint was PFS, with secondary endpoints including ORR, disease control rate, time to response, duration of response, OS, safety and tolerability. A 198-patient interim analysis was conducted on SANET-ep in mid-2019, leading the independent data monitoring committee, or IDMC, to determine that it had met the pre-defined primary endpoint of PFS and should be stopped early. The positive results of this trial were highlighted in an oral presentation at the 2019 European Society for Medical Oncology Congress, and subsequently published in The Lancet Oncology in September 2020. Median PFS per investigator assessment was 9.2 months for patients treated with surufatinib, as compared to 3.8 months for patients in the placebo group (HR 0.334; 95% CI: 0.223, 0.499; p<0.0001). Efficacy was also supported by a blinded independent image review committee assessment. Surufatinib was well-tolerated in this study and the safety profile was consistent with observations in prior clinical studies. CTC grade 3 or above TEAEs in this study with greater than 5% incidence were hypertension (36%), proteinuria (19%) and anemia (7%). 96 97 ) % ( l a v i v r u s e e r f - n o i s s e r g o r P 100 90 80 70 60 50 40 30 20 10 0 0 SANET-ep Clearly Succeeded in Meeting Primary Endpoint of PFS SANET-ep Clearly Succeeded in Meeting Primary Endpoint of PFS SANET-p Clearly Succeeded in Meeting Primary Endpoint of PFS SANET-p Clearly Succeeded in Meeting Primary Endpoint of PFS Surufatinib Placebo HR 0.334 (95% CI 0.223–0.499); p<0·0001 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 Time (months) Number at risk (number censored) Surufatinib Placebo 129 (0) 69 (0) 100 (16) 43 (11) 83 (24) 25 (15) 63 (31) 16 (16) 46 (36) 10 (16) 37 (36) 6 (17) 25 (42) 6 (17) 13 (47) 4 (17) 13 (47) 4 (17) 8 (49) 1 (18) 7 (49) 0 (18) 7 (49) ·· 4 (50) ·· 3 (50) ·· 2 (51) ·· 2 (51) ·· 0 (52) ·· Notes: P-value is obtained from the stratified one-sided log-rank test; Hazard ratio is obtained from stratified Cox model; CI = Notes: P-value is obtained from the stratified one-sided log-rank test; Hazard ratio is obtained from stratified Cox model; CI = confidence interval; and HR = hazard ratio. confidence interval; and HR = hazard ratio. confidence interval; and HR = hazard ratio. confidence interval; and HR = hazard ratio. Notes: P-value is obtained from the stratified one-sided log-rank test; Hazard ratio is obtained from stratified Cox model; CI = Notes: P-value is obtained from the stratified one-sided log-rank test; Hazard ratio is obtained from stratified Cox model; CI = Source: Xu J, Shen L, Zhou Z, et al. Surufatinib in advanced extra-pancreatic neuroendocrine tumours (SANET-ep): a randomized, Source: Xu J, Shen L, Zhou Z, et al. Surufatinib in advanced extra-pancreatic neuroendocrine tumours (SANET-ep): a randomized, double-blind, placebo-controlled, phase 3 study. Lancet Oncol. 2020;21(11):1500-1512. doi:10.1016/S1470-2045(20)30496- double-blind, placebo-controlled, phase 3 study. Lancet Oncol. 2020;21(11):1500-1512. doi:10.1016/S1470-2045(20)30496- 4. 4. In late 2020, surufatinib was granted approval for drug registration by the NMPA for the treatment of non-pancreatic NET and In late 2020, surufatinib was granted approval for drug registration by the NMPA for the treatment of non-pancreatic NET and launched in mid-January 2021 within three weeks of approval. We believe the benefits of surufatinib as a monotherapy to patients with launched in mid-January 2021 within three weeks of approval. We believe the benefits of surufatinib as a monotherapy to patients with non-pancreatic NETs in China could be significant as compared to the minimal treatment alternatives currently available to them. non-pancreatic NETs in China could be significant as compared to the minimal treatment alternatives currently available to them. SANET-p study: Phase III study of surufatinib monotherapy in pancreatic NETs (NCT02589821) SANET-p study: Phase III study of surufatinib monotherapy in pancreatic NETs (NCT02589821) In 2016, we initiated the SANET-p study, which is a Phase III study in China in patients with low- or intermediate-grade, advanced In 2016, we initiated the SANET-p study, which is a Phase III study in China in patients with low- or intermediate-grade, advanced pancreatic NETs. In this study, patients are randomized at a 2:1 ratio to receive either an oral dose of 300 mg of surufatinib or a placebo pancreatic NETs. In this study, patients are randomized at a 2:1 ratio to receive either an oral dose of 300 mg of surufatinib or a placebo once daily on a 28-day treatment cycle. The primary endpoint is PFS, with secondary endpoints including ORR, disease control rate, once daily on a 28-day treatment cycle. The primary endpoint is PFS, with secondary endpoints including ORR, disease control rate, time to response, duration of response, OS, safety and tolerability. time to response, duration of response, OS, safety and tolerability. In early 2020, an interim analysis was conducted on SANET-p, leading the IDMC to recommend that the study stop early as the In early 2020, an interim analysis was conducted on SANET-p, leading the IDMC to recommend that the study stop early as the pre-defined primary endpoint of PFS had already been met. Investigator-assessed median PFS was 10.9 months for patients treated with pre-defined primary endpoint of PFS had already been met. Investigator-assessed median PFS was 10.9 months for patients treated with surufatinib, as compared to 3.7 months for patients in the placebo group (HR 0.491; 95% CI: 0.319-0.755; p = 0.0011). ORRs were surufatinib, as compared to 3.7 months for patients in the placebo group (HR 0.491; 95% CI: 0.319-0.755; p = 0.0011). ORRs were 19.2% for the efficacy evaluable patients in the surufatinib group versus 1.9% for the placebo group, with a DCR of 80.8% versus 19.2% for the efficacy evaluable patients in the surufatinib group versus 1.9% for the placebo group, with a DCR of 80.8% versus 66.0%, respectively. Most patients in the trial had Grade 2 disease with heavy tumor burden, including liver metastasis and multiple 66.0%, respectively. Most patients in the trial had Grade 2 disease with heavy tumor burden, including liver metastasis and multiple organ involvement. Efficacy was also supported by blinded independent image review committee assessment, with a median PFS of organ involvement. Efficacy was also supported by blinded independent image review committee assessment, with a median PFS of 13.9 months for surufatinib as compared to 4.6 months for placebo (HR 0.339; 95% CI 0.209-0.549; p<0.0001). The safety profile of 13.9 months for surufatinib as compared to 4.6 months for placebo (HR 0.339; 95% CI 0.209-0.549; p<0.0001). The safety profile of surufatinib was manageable and consistent with observations in prior studies. Treatment was well tolerated for most patients, with surufatinib was manageable and consistent with observations in prior studies. Treatment was well tolerated for most patients, with discontinuation rates as a result of TEAEs of 10.6% in the surufatinib group as compared to 6.8% in the placebo group. CTC grade 3 or discontinuation rates as a result of TEAEs of 10.6% in the surufatinib group as compared to 6.8% in the placebo group. CTC grade 3 or above TEAEs in this study with greater than 5% incidence were hypertension (38%), proteinuria (10%) and hypertriglyceridemia (7%). above TEAEs in this study with greater than 5% incidence were hypertension (38%), proteinuria (10%) and hypertriglyceridemia (7%). Source: Xu J, Shen L, Bai C, et al. Surufatinib in advanced pancreatic neuroendocrine tumours (SANET-p): a randomised, double- Source: Xu J, Shen L, Bai C, et al. Surufatinib in advanced pancreatic neuroendocrine tumours (SANET-p): a randomised, double- blind, placebo-controlled, phase 3 study. Lancet Oncol. 2020;21(11):1489-1499. doi:10.1016/S1470-2045(20)30493-9. blind, placebo-controlled, phase 3 study. Lancet Oncol. 2020;21(11):1489-1499. doi:10.1016/S1470-2045(20)30493-9. Surufatinib was granted approval for drug registration by the NMPA for the treatment of advanced pancreatic NET and launched Surufatinib was granted approval for drug registration by the NMPA for the treatment of advanced pancreatic NET and launched in June 2021. We believe the benefits of surufatinib as a monotherapy to patients with pancreatic NETs in China could be significant as in June 2021. We believe the benefits of surufatinib as a monotherapy to patients with pancreatic NETs in China could be significant as compared to the alternatives currently available to them. We believe that surufatinib is currently the only approved targeted therapy that compared to the alternatives currently available to them. We believe that surufatinib is currently the only approved targeted therapy that can address and treat all subtypes of NETs. can address and treat all subtypes of NETs. Global development of surufatinib in NET Global development of surufatinib in NET Surufatinib received FDA Fast Track Designations in April 2020 for the treatment of pNETs and epNETs. Orphan Drug Designation Surufatinib received FDA Fast Track Designations in April 2020 for the treatment of pNETs and epNETs. Orphan Drug Designation for pNETs was granted in November 2019. In a May 2020 pre-NDA meeting, we reached an agreement with the FDA that the two for pNETs was granted in November 2019. In a May 2020 pre-NDA meeting, we reached an agreement with the FDA that the two positive Phase III studies of surufatinib in patients with pNETs and epNETs in China, along with the bridging trial in the U.S. could positive Phase III studies of surufatinib in patients with pNETs and epNETs in China, along with the bridging trial in the U.S. could form the basis to support a U.S. NDA submission. The FDA accepted the filing of the NDA in June 2021. However, in April 2022, we form the basis to support a U.S. NDA submission. The FDA accepted the filing of the NDA in June 2021. However, in April 2022, we received a Complete Response Letter from the FDA regarding the NDA for surufatinib for the treatment of pNETs and epNETs. Based received a Complete Response Letter from the FDA regarding the NDA for surufatinib for the treatment of pNETs and epNETs. Based on interactions with the FDA and EMA, a new multi-regional clinical trial would be required to move forward with this program in the on interactions with the FDA and EMA, a new multi-regional clinical trial would be required to move forward with this program in the U.S. and Europe. We will continue to explore conducting a multi-regional clinical trial with a partner that would support approval in U.S. and Europe. We will continue to explore conducting a multi-regional clinical trial with a partner that would support approval in U.S. and Europe. In addition, we initiated a registration-enabling bridging study in NET patients in Japan in September 2021. U.S. and Europe. In addition, we initiated a registration-enabling bridging study in NET patients in Japan in September 2021. Phase Ib/II bridging study of surufatinib monotherapy in heavily pretreated progressive NETs (NCT02549937) Phase Ib/II bridging study of surufatinib monotherapy in heavily pretreated progressive NETs (NCT02549937) We conducted a multi-center, open-label, Phase Ib clinical study to evaluate the safety, tolerability and pharmacokinetics of We conducted a multi-center, open-label, Phase Ib clinical study to evaluate the safety, tolerability and pharmacokinetics of surufatinib in U.S. patients, which has established the U.S. recommended Phase II dose, or RP2D, to be 300 mg, the same as that in surufatinib in U.S. patients, which has established the U.S. recommended Phase II dose, or RP2D, to be 300 mg, the same as that in China. At the 2021 ASCO annual meeting, preliminary data presented from the two NET cohorts in the ongoing U.S. Phase Ib trial for China. At the 2021 ASCO annual meeting, preliminary data presented from the two NET cohorts in the ongoing U.S. Phase Ib trial for surufatinib demonstrated efficacy comparable to China data in heavily pretreated patients, including Afinitor and Sutent, with pancreatic surufatinib demonstrated efficacy comparable to China data in heavily pretreated patients, including Afinitor and Sutent, with pancreatic or non-pancreatic NETs. The safety profile was also consistent with the larger pool of surufatinib safety data. or non-pancreatic NETs. The safety profile was also consistent with the larger pool of surufatinib safety data. 98 98 99 99 SANET-ep Clearly Succeeded in Meeting Primary Endpoint of PFS SANET-ep Clearly Succeeded in Meeting Primary Endpoint of PFS SANET-p Clearly Succeeded in Meeting Primary Endpoint of PFS SANET-p Clearly Succeeded in Meeting Primary Endpoint of PFS Surufatinib Placebo HR for progression or death 0.49 (95% CI 0.32–0.76); p=0·0011 ) % ( l a v i v r u s e e r f - n o i s s e r g o r P 100 90 80 70 60 50 40 30 20 10 0 Number at risk (number censored) Surufatinib Placebo 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 Time (months) 113 (0) 79 (27) 61 (33) 50 (36) 43 (39) 33 (42) 25 (44) 20 (45) 19 (45) 13 (45) 8 (50) 59 (0) 33 (10) 20 (11) 12 (14) 10 (15) 9 (15) 5 (53) 4 (54) 2 (55) 5 (17) 4 (17) 4 (17) 4 (17) 4 (17) 3 (17) 6 (17) 6 (17) 6 (17) 8 (50) 1 (56) 1 (56) 1 (57) 2 (55) 3 (17) 3 (17) 2 (18) 0 (20) Notes: P-value is obtained from the stratified one-sided log-rank test; Hazard ratio is obtained from stratified Cox model; CI = Notes: P-value is obtained from the stratified one-sided log-rank test; Hazard ratio is obtained from stratified Cox model; CI = confidence interval; and HR = hazard ratio. confidence interval; and HR = hazard ratio. Source: Xu J, Shen L, Zhou Z, et al. Surufatinib in advanced extra-pancreatic neuroendocrine tumours (SANET-ep): a randomized, Source: Xu J, Shen L, Zhou Z, et al. Surufatinib in advanced extra-pancreatic neuroendocrine tumours (SANET-ep): a randomized, double-blind, placebo-controlled, phase 3 study. Lancet Oncol. 2020;21(11):1500-1512. doi:10.1016/S1470-2045(20)30496- double-blind, placebo-controlled, phase 3 study. Lancet Oncol. 2020;21(11):1500-1512. doi:10.1016/S1470-2045(20)30496- 4. 4. In late 2020, surufatinib was granted approval for drug registration by the NMPA for the treatment of non-pancreatic NET and In late 2020, surufatinib was granted approval for drug registration by the NMPA for the treatment of non-pancreatic NET and launched in mid-January 2021 within three weeks of approval. We believe the benefits of surufatinib as a monotherapy to patients with launched in mid-January 2021 within three weeks of approval. We believe the benefits of surufatinib as a monotherapy to patients with non-pancreatic NETs in China could be significant as compared to the minimal treatment alternatives currently available to them. non-pancreatic NETs in China could be significant as compared to the minimal treatment alternatives currently available to them. SANET-p study: Phase III study of surufatinib monotherapy in pancreatic NETs (NCT02589821) SANET-p study: Phase III study of surufatinib monotherapy in pancreatic NETs (NCT02589821) In 2016, we initiated the SANET-p study, which is a Phase III study in China in patients with low- or intermediate-grade, advanced In 2016, we initiated the SANET-p study, which is a Phase III study in China in patients with low- or intermediate-grade, advanced pancreatic NETs. In this study, patients are randomized at a 2:1 ratio to receive either an oral dose of 300 mg of surufatinib or a placebo pancreatic NETs. In this study, patients are randomized at a 2:1 ratio to receive either an oral dose of 300 mg of surufatinib or a placebo once daily on a 28-day treatment cycle. The primary endpoint is PFS, with secondary endpoints including ORR, disease control rate, once daily on a 28-day treatment cycle. The primary endpoint is PFS, with secondary endpoints including ORR, disease control rate, time to response, duration of response, OS, safety and tolerability. time to response, duration of response, OS, safety and tolerability. In early 2020, an interim analysis was conducted on SANET-p, leading the IDMC to recommend that the study stop early as the In early 2020, an interim analysis was conducted on SANET-p, leading the IDMC to recommend that the study stop early as the pre-defined primary endpoint of PFS had already been met. Investigator-assessed median PFS was 10.9 months for patients treated with pre-defined primary endpoint of PFS had already been met. Investigator-assessed median PFS was 10.9 months for patients treated with surufatinib, as compared to 3.7 months for patients in the placebo group (HR 0.491; 95% CI: 0.319-0.755; p = 0.0011). ORRs were surufatinib, as compared to 3.7 months for patients in the placebo group (HR 0.491; 95% CI: 0.319-0.755; p = 0.0011). ORRs were 19.2% for the efficacy evaluable patients in the surufatinib group versus 1.9% for the placebo group, with a DCR of 80.8% versus 19.2% for the efficacy evaluable patients in the surufatinib group versus 1.9% for the placebo group, with a DCR of 80.8% versus 66.0%, respectively. Most patients in the trial had Grade 2 disease with heavy tumor burden, including liver metastasis and multiple 66.0%, respectively. Most patients in the trial had Grade 2 disease with heavy tumor burden, including liver metastasis and multiple organ involvement. Efficacy was also supported by blinded independent image review committee assessment, with a median PFS of organ involvement. Efficacy was also supported by blinded independent image review committee assessment, with a median PFS of 13.9 months for surufatinib as compared to 4.6 months for placebo (HR 0.339; 95% CI 0.209-0.549; p<0.0001). The safety profile of 13.9 months for surufatinib as compared to 4.6 months for placebo (HR 0.339; 95% CI 0.209-0.549; p<0.0001). The safety profile of surufatinib was manageable and consistent with observations in prior studies. Treatment was well tolerated for most patients, with surufatinib was manageable and consistent with observations in prior studies. Treatment was well tolerated for most patients, with discontinuation rates as a result of TEAEs of 10.6% in the surufatinib group as compared to 6.8% in the placebo group. CTC grade 3 or discontinuation rates as a result of TEAEs of 10.6% in the surufatinib group as compared to 6.8% in the placebo group. CTC grade 3 or above TEAEs in this study with greater than 5% incidence were hypertension (38%), proteinuria (10%) and hypertriglyceridemia (7%). above TEAEs in this study with greater than 5% incidence were hypertension (38%), proteinuria (10%) and hypertriglyceridemia (7%). Notes: P-value is obtained from the stratified one-sided log-rank test; Hazard ratio is obtained from stratified Cox model; CI = Notes: P-value is obtained from the stratified one-sided log-rank test; Hazard ratio is obtained from stratified Cox model; CI = confidence interval; and HR = hazard ratio. confidence interval; and HR = hazard ratio. Source: Xu J, Shen L, Bai C, et al. Surufatinib in advanced pancreatic neuroendocrine tumours (SANET-p): a randomised, double- Source: Xu J, Shen L, Bai C, et al. Surufatinib in advanced pancreatic neuroendocrine tumours (SANET-p): a randomised, double- blind, placebo-controlled, phase 3 study. Lancet Oncol. 2020;21(11):1489-1499. doi:10.1016/S1470-2045(20)30493-9. blind, placebo-controlled, phase 3 study. Lancet Oncol. 2020;21(11):1489-1499. doi:10.1016/S1470-2045(20)30493-9. Surufatinib was granted approval for drug registration by the NMPA for the treatment of advanced pancreatic NET and launched Surufatinib was granted approval for drug registration by the NMPA for the treatment of advanced pancreatic NET and launched in June 2021. We believe the benefits of surufatinib as a monotherapy to patients with pancreatic NETs in China could be significant as in June 2021. We believe the benefits of surufatinib as a monotherapy to patients with pancreatic NETs in China could be significant as compared to the alternatives currently available to them. We believe that surufatinib is currently the only approved targeted therapy that compared to the alternatives currently available to them. We believe that surufatinib is currently the only approved targeted therapy that can address and treat all subtypes of NETs. can address and treat all subtypes of NETs. Global development of surufatinib in NET Global development of surufatinib in NET Surufatinib received FDA Fast Track Designations in April 2020 for the treatment of pNETs and epNETs. Orphan Drug Designation Surufatinib received FDA Fast Track Designations in April 2020 for the treatment of pNETs and epNETs. Orphan Drug Designation for pNETs was granted in November 2019. In a May 2020 pre-NDA meeting, we reached an agreement with the FDA that the two for pNETs was granted in November 2019. In a May 2020 pre-NDA meeting, we reached an agreement with the FDA that the two positive Phase III studies of surufatinib in patients with pNETs and epNETs in China, along with the bridging trial in the U.S. could positive Phase III studies of surufatinib in patients with pNETs and epNETs in China, along with the bridging trial in the U.S. could form the basis to support a U.S. NDA submission. The FDA accepted the filing of the NDA in June 2021. However, in April 2022, we form the basis to support a U.S. NDA submission. The FDA accepted the filing of the NDA in June 2021. However, in April 2022, we received a Complete Response Letter from the FDA regarding the NDA for surufatinib for the treatment of pNETs and epNETs. Based received a Complete Response Letter from the FDA regarding the NDA for surufatinib for the treatment of pNETs and epNETs. Based on interactions with the FDA and EMA, a new multi-regional clinical trial would be required to move forward with this program in the on interactions with the FDA and EMA, a new multi-regional clinical trial would be required to move forward with this program in the U.S. and Europe. We will continue to explore conducting a multi-regional clinical trial with a partner that would support approval in U.S. and Europe. We will continue to explore conducting a multi-regional clinical trial with a partner that would support approval in U.S. and Europe. In addition, we initiated a registration-enabling bridging study in NET patients in Japan in September 2021. U.S. and Europe. In addition, we initiated a registration-enabling bridging study in NET patients in Japan in September 2021. Phase Ib/II bridging study of surufatinib monotherapy in heavily pretreated progressive NETs (NCT02549937) Phase Ib/II bridging study of surufatinib monotherapy in heavily pretreated progressive NETs (NCT02549937) We conducted a multi-center, open-label, Phase Ib clinical study to evaluate the safety, tolerability and pharmacokinetics of We conducted a multi-center, open-label, Phase Ib clinical study to evaluate the safety, tolerability and pharmacokinetics of surufatinib in U.S. patients, which has established the U.S. recommended Phase II dose, or RP2D, to be 300 mg, the same as that in surufatinib in U.S. patients, which has established the U.S. recommended Phase II dose, or RP2D, to be 300 mg, the same as that in China. At the 2021 ASCO annual meeting, preliminary data presented from the two NET cohorts in the ongoing U.S. Phase Ib trial for China. At the 2021 ASCO annual meeting, preliminary data presented from the two NET cohorts in the ongoing U.S. Phase Ib trial for surufatinib demonstrated efficacy comparable to China data in heavily pretreated patients, including Afinitor and Sutent, with pancreatic surufatinib demonstrated efficacy comparable to China data in heavily pretreated patients, including Afinitor and Sutent, with pancreatic or non-pancreatic NETs. The safety profile was also consistent with the larger pool of surufatinib safety data. or non-pancreatic NETs. The safety profile was also consistent with the larger pool of surufatinib safety data. 98 98 99 99 US Phase Ib: Encouraging Preliminary Efficacy in Afinitor and Sutent Refractory/Intolerant NET US Phase Ib: Encouraging Preliminary Efficacy in Afinitor and Sutent Refractory/Intolerant NET The table below shows a summary of clinical trials for surufatinib in combination with checkpoint inhibitors. surufatinib everolimus sunitinib Other Tx 8 12 10 24 3 3 2 X 15 3 11 2 3 2 5 7 8 36 18 7 8 24 12 4 10 12 8 15 6 6 3 4 8 7 11 9 18 X X 2 2 1 3 2 6 6 X X X 6 14 2 3 1 36 12 24 32 12 3 22 5 12 36 -48 -36 -24 -12 0 24 22 12 12 6 24 PR uPR X X X (n=3) (n=1) Treatment ongoing (n=5) Rx stop – AE (n=1) Rx stop – PD (n=7) Rx stop – Other (n=3) PR uPR X 4 12 6 18 6 X 4 13 12 12 PR X PR 12 3 24 48 8 X 8 X 36 48 60 72 84 Months since treatment of everolimus (AFINITOR®) or sunitinib (SUTENT®) Notes: Data cut-off as of April 21, 2020. PR = partial response; AE = adverse event; PD = progressive disease; Rx = treatment; Tx = Notes: Data cut-off as of April 21, 2020. PR = partial response; AE = adverse event; PD = progressive disease; Rx = treatment; Tx = treatment; and n = number of patients. treatment; and n = number of patients. Source: Dasari, et al. Efficacy and safety of surufatinib in United States (US) patients (pts) with neuroendocrine tumors (NETs). Source: Dasari, et al. Efficacy and safety of surufatinib in United States (US) patients (pts) with neuroendocrine tumors (NETs). Journal of Clinical Oncology 2020 38:15_suppl, 4610-4610. Journal of Clinical Oncology 2020 38:15_suppl, 4610-4610. Bridging study of surufatinib monotherapy in heavily pretreated progressive NETs (NCT05077384) Bridging study of surufatinib monotherapy in heavily pretreated progressive NETs (NCT05077384) In September 2021, we initiated a Japan registration-enabling bridging study for surufatinib to support the registration of surufatinib In September 2021, we initiated a Japan registration-enabling bridging study for surufatinib to support the registration of surufatinib in the treatment of patients with advanced NETs. This Japan study is a two-stage, open label study of surufatinib where approximately in the treatment of patients with advanced NETs. This Japan study is a two-stage, open label study of surufatinib where approximately 34 patients are expected to be recruited. In part 1 of the study, the safety and tolerability of surufatinib 300mg once daily after 28 days 34 patients are expected to be recruited. In part 1 of the study, the safety and tolerability of surufatinib 300mg once daily after 28 days of treatment will be assessed in patients with relapsed/refractory non-hematological malignancies; pharmacokinetics and anti-tumor of treatment will be assessed in patients with relapsed/refractory non-hematological malignancies; pharmacokinetics and anti-tumor activity of surufatinib are secondary endpoints. In Part 2 of the study, efficacy will be assessed in patients with locally advanced or activity of surufatinib are secondary endpoints. In Part 2 of the study, efficacy will be assessed in patients with locally advanced or metastatic NETs; the primary outcome measure is ORR. The secondary outcome measures include DCR, PFS, DoR, safety, and metastatic NETs; the primary outcome measure is ORR. The secondary outcome measures include DCR, PFS, DoR, safety, and pharmacokinetics. pharmacokinetics. Based on dialogue with the Japanese PMDA, it was agreed that the Japanese NDA would include results from a 34-patient, Based on dialogue with the Japanese PMDA, it was agreed that the Japanese NDA would include results from a 34-patient, registration-enabling bridging study in Japan to complement the existing data package. The trial was initiated in September 2021 and registration-enabling bridging study in Japan to complement the existing data package. The trial was initiated in September 2021 and results are expected in the first half of 2023. We plan to engage with the PMDA when these results are available. results are expected in the first half of 2023. We plan to engage with the PMDA when these results are available. Surufatinib in Combination with Checkpoint Inhibitors Surufatinib in Combination with Checkpoint Inhibitors Surufatinib Exploratory Development Surufatinib’s ability to inhibit angiogenesis, block the accumulation of tumor associated macrophages and promote infiltration of Surufatinib’s ability to inhibit angiogenesis, block the accumulation of tumor associated macrophages and promote infiltration of effector T cells into tumors, could help improve the anti-tumor activity of PD-1 antibodies. effector T cells into tumors, could help improve the anti-tumor activity of PD-1 antibodies. In China, we support an investigator initiated trial, or IIT, program for surufatinib, with about 50 IITs in various solid tumor settings being conducted for both combination and single agent regimens. These trials explore and answer important medical questions in addition to our own company-sponsored clinical trials. 100 100 101 Clinical Trials of Surufatinib with Checkpoint Inhibitors Treatment Surufatinib and Tuoyi (PD-1) Surufatinib and Tuoyi (PD-1) SURTORI-01: 2L NEC Neuroendocrine neoplasms Surufatinib and Tuoyi (PD-1) Surufatinib and Tuoyi (PD-1) Surufatinib and Tuoyi (PD-1) Surufatinib and tislelizumab (PD-1) BTC Small cell lung cancer Solid tumors Solid tumors Clinical Trials with Junshi’s Tuoyi Trial Name, Patient Focus Sites Phase Status/Plan Fully enrolled; Data presented at ASCO 2021 NCT04169672 China China China China China III II II II II Ongoing since 2021 and ESMO IO 2021. Fully enrolled Ongoing since 2022 Fully enrolled U.S./ Europe Ib/II Since 2021. Enrollment stopped NCT # NCT05015621 NCT04169672 NCT05509699 NCT04169672 NCT04579757 In late 2018, we entered into a global collaboration with Junshi to evaluate the combination of surufatinib with Tuoyi. We completed a Phase I dose-finding study and presented the data at the AACR Conference in April 2020. The data showed that surufatinib plus Tuoyi were well tolerated with no unexpected safety signals observed. At the recommend Phase 2 dose, a DCR of 100% and ORR of 63.6% were reported for 11 efficacy evaluable patients, with 2 unconfirmed partial responses. Surufatinib plus Tuoyi showed encouraging antitumor activity in patients with advanced solid tumors. A Phase II China study combining surufatinib with Tuoyi enrolled patients in nine solid tumor indications, including NENs, BTC, gastric cancer, thyroid cancer, small cell lung cancer, soft tissue sarcoma, endometrial cancer, esophageal cancer and NSCLC. These have led to the initiation in September 2021 of the first Phase III trial combining surufatinib with a PD-1 antibody, the SURTORI-01 study in NEC and a Phase II study in SCLC in 2022. NEC (subset of NENs) cohort — At the 2021 CSCO annual meeting, we presented data, with a cutoff date of July 30, 2021 for all 21 enrolled NEC patients that were efficacy evaluable. Average duration of treatment was 4.9 months (range 1-19) and median OS was 10.3 months (95% CI: 9.1-not reached). The median PFS was 4.14 months (95% CI: 1.5-5.5) and median DoR was 4.1 months (95% CI: 3.0-not reached). The confirmed ORR was 23.8% (95% CI: 8.2-47.2) and DCR was 71.4% (95% CI: 47.8-88.7). All patients experienced treatment-related adverse events, including 9 (42.9%) who experienced grade 3 or above treatment-related adverse events. 1 (4.8%) patient reported treatment-related serious adverse events. Hyperglycemia (3 patients, 14.3%), hypertension (2 patients, 9.5%) and hypertriglyceridemia (2 patients, 9.5%) were the most commonly (more than one patient) reported grade 3 or above treatment- related adverse events. No treatment-related adverse events led to treatment discontinuation or treatment-related deaths. In September 2021, we initiated a Phase III study to evaluate the combination compared with FOLFIRI to treat patients with advanced NEC who have progression of disease or intolerable toxicity after previous first-line chemotherapy. It is a randomized, controlled, open-label, multi-center study where approximately 200 patients are expected to be enrolled. For the study group, all patients will receive study treatment in a 21-day cycle. The primary outcome measure is OS. We are the sponsor and responsible for the study’s execution. We and Junshi Biosciences are jointly funding the study. Clinical Trial with BeiGene’s Tislelizumab In May 2020, we entered into a global clinical collaboration agreement to evaluate the safety, tolerability and efficacy of combining surufatinib with BeiGene’s anti-PD-1 antibody, tislelizumab. We de-prioritized and stopped recruitment into an open-label, Phase Ib/II study of surufatinib in combination with tislelizumab in the United States and Europe. The study was to evaluate the safety, tolerability, pharmacokinetics and efficacy in patients with multiple advanced solid tumors. US Phase Ib: Encouraging Preliminary Efficacy in Afinitor and Sutent Refractory/Intolerant NET US Phase Ib: Encouraging Preliminary Efficacy in Afinitor and Sutent Refractory/Intolerant NET The table below shows a summary of clinical trials for surufatinib in combination with checkpoint inhibitors. Clinical Trials of Surufatinib with Checkpoint Inhibitors Treatment Surufatinib and Tuoyi (PD-1) Surufatinib and Tuoyi (PD-1) Trial Name, Patient Focus Sites SURTORI-01: 2L NEC Neuroendocrine neoplasms China China Surufatinib and Tuoyi (PD-1) Surufatinib and Tuoyi (PD-1) Surufatinib and Tuoyi (PD-1) Surufatinib and tislelizumab (PD-1) BTC Small cell lung cancer Solid tumors Solid tumors China China China U.S./ Europe Phase III II II II II Ib/II Status/Plan Ongoing since 2021 Fully enrolled; Data presented at ASCO 2021 and ESMO IO 2021. Fully enrolled Ongoing since 2022 Fully enrolled Since 2021. Enrollment stopped NCT # NCT05015621 NCT04169672 NCT04169672 NCT05509699 NCT04169672 NCT04579757 Clinical Trials with Junshi’s Tuoyi In late 2018, we entered into a global collaboration with Junshi to evaluate the combination of surufatinib with Tuoyi. We completed a Phase I dose-finding study and presented the data at the AACR Conference in April 2020. The data showed that surufatinib plus Tuoyi were well tolerated with no unexpected safety signals observed. At the recommend Phase 2 dose, a DCR of 100% and ORR of 63.6% were reported for 11 efficacy evaluable patients, with 2 unconfirmed partial responses. Surufatinib plus Tuoyi showed encouraging antitumor activity in patients with advanced solid tumors. A Phase II China study combining surufatinib with Tuoyi enrolled patients in nine solid tumor indications, including NENs, BTC, gastric cancer, thyroid cancer, small cell lung cancer, soft tissue sarcoma, endometrial cancer, esophageal cancer and NSCLC. These have led to the initiation in September 2021 of the first Phase III trial combining surufatinib with a PD-1 antibody, the SURTORI-01 study in NEC and a Phase II study in SCLC in 2022. NEC (subset of NENs) cohort — At the 2021 CSCO annual meeting, we presented data, with a cutoff date of July 30, 2021 for all 21 enrolled NEC patients that were efficacy evaluable. Average duration of treatment was 4.9 months (range 1-19) and median OS was 10.3 months (95% CI: 9.1-not reached). The median PFS was 4.14 months (95% CI: 1.5-5.5) and median DoR was 4.1 months (95% CI: 3.0-not reached). The confirmed ORR was 23.8% (95% CI: 8.2-47.2) and DCR was 71.4% (95% CI: 47.8-88.7). All patients experienced treatment-related adverse events, including 9 (42.9%) who experienced grade 3 or above treatment-related adverse events. 1 (4.8%) patient reported treatment-related serious adverse events. Hyperglycemia (3 patients, 14.3%), hypertension (2 patients, 9.5%) and hypertriglyceridemia (2 patients, 9.5%) were the most commonly (more than one patient) reported grade 3 or above treatment- related adverse events. No treatment-related adverse events led to treatment discontinuation or treatment-related deaths. In September 2021, we initiated a Phase III study to evaluate the combination compared with FOLFIRI to treat patients with advanced NEC who have progression of disease or intolerable toxicity after previous first-line chemotherapy. It is a randomized, controlled, open-label, multi-center study where approximately 200 patients are expected to be enrolled. For the study group, all patients will receive study treatment in a 21-day cycle. The primary outcome measure is OS. We are the sponsor and responsible for the study’s execution. We and Junshi Biosciences are jointly funding the study. Clinical Trial with BeiGene’s Tislelizumab In May 2020, we entered into a global clinical collaboration agreement to evaluate the safety, tolerability and efficacy of combining surufatinib with BeiGene’s anti-PD-1 antibody, tislelizumab. We de-prioritized and stopped recruitment into an open-label, Phase Ib/II study of surufatinib in combination with tislelizumab in the United States and Europe. The study was to evaluate the safety, tolerability, pharmacokinetics and efficacy in patients with multiple advanced solid tumors. Notes: Data cut-off as of April 21, 2020. PR = partial response; AE = adverse event; PD = progressive disease; Rx = treatment; Tx = Notes: Data cut-off as of April 21, 2020. PR = partial response; AE = adverse event; PD = progressive disease; Rx = treatment; Tx = treatment; and n = number of patients. treatment; and n = number of patients. Source: Dasari, et al. Efficacy and safety of surufatinib in United States (US) patients (pts) with neuroendocrine tumors (NETs). Source: Dasari, et al. Efficacy and safety of surufatinib in United States (US) patients (pts) with neuroendocrine tumors (NETs). Journal of Clinical Oncology 2020 38:15_suppl, 4610-4610. Journal of Clinical Oncology 2020 38:15_suppl, 4610-4610. Bridging study of surufatinib monotherapy in heavily pretreated progressive NETs (NCT05077384) Bridging study of surufatinib monotherapy in heavily pretreated progressive NETs (NCT05077384) In September 2021, we initiated a Japan registration-enabling bridging study for surufatinib to support the registration of surufatinib In September 2021, we initiated a Japan registration-enabling bridging study for surufatinib to support the registration of surufatinib in the treatment of patients with advanced NETs. This Japan study is a two-stage, open label study of surufatinib where approximately in the treatment of patients with advanced NETs. This Japan study is a two-stage, open label study of surufatinib where approximately 34 patients are expected to be recruited. In part 1 of the study, the safety and tolerability of surufatinib 300mg once daily after 28 days 34 patients are expected to be recruited. In part 1 of the study, the safety and tolerability of surufatinib 300mg once daily after 28 days of treatment will be assessed in patients with relapsed/refractory non-hematological malignancies; pharmacokinetics and anti-tumor of treatment will be assessed in patients with relapsed/refractory non-hematological malignancies; pharmacokinetics and anti-tumor activity of surufatinib are secondary endpoints. In Part 2 of the study, efficacy will be assessed in patients with locally advanced or activity of surufatinib are secondary endpoints. In Part 2 of the study, efficacy will be assessed in patients with locally advanced or metastatic NETs; the primary outcome measure is ORR. The secondary outcome measures include DCR, PFS, DoR, safety, and metastatic NETs; the primary outcome measure is ORR. The secondary outcome measures include DCR, PFS, DoR, safety, and pharmacokinetics. pharmacokinetics. Based on dialogue with the Japanese PMDA, it was agreed that the Japanese NDA would include results from a 34-patient, Based on dialogue with the Japanese PMDA, it was agreed that the Japanese NDA would include results from a 34-patient, registration-enabling bridging study in Japan to complement the existing data package. The trial was initiated in September 2021 and registration-enabling bridging study in Japan to complement the existing data package. The trial was initiated in September 2021 and results are expected in the first half of 2023. We plan to engage with the PMDA when these results are available. results are expected in the first half of 2023. We plan to engage with the PMDA when these results are available. Surufatinib in Combination with Checkpoint Inhibitors Surufatinib in Combination with Checkpoint Inhibitors Surufatinib Exploratory Development Surufatinib’s ability to inhibit angiogenesis, block the accumulation of tumor associated macrophages and promote infiltration of Surufatinib’s ability to inhibit angiogenesis, block the accumulation of tumor associated macrophages and promote infiltration of effector T cells into tumors, could help improve the anti-tumor activity of PD-1 antibodies. effector T cells into tumors, could help improve the anti-tumor activity of PD-1 antibodies. In China, we support an investigator initiated trial, or IIT, program for surufatinib, with about 50 IITs in various solid tumor settings being conducted for both combination and single agent regimens. These trials explore and answer important medical questions in addition to our own company-sponsored clinical trials. 100 100 101 Overview of Sulanda Commercial Launch Sovleplenib Research Background Surufatinib capsules, sold under the brand name Sulanda, were approved for marketing in China by the NMPA in December 2020 and June 2021 for the treatment of advanced non-pancreatic NETs and pancreatic NETs, respectively. In 2021, Sulanda was sold as a self-pay drug whereby patients paid for treatment out-of-pocket. We used means-test early access and patient access programs to help patients afford Sulanda. Following negotiations with the China National Healthcare Security Administration, Sulanda was included on China’s NRDL at a 52% discount on our main 50mg dosage form, relative to the 2021 self-pay price, for two years starting on January 1, 2022. The threshold of safety for a Syk inhibitor in chronic disease is extremely high, with no room for material toxicity. The failure of Tavalisse in a global Phase III registration study in rheumatoid arthritis provided important insights for us in the area of toxicity. While Tavalisse clearly showed patient benefit in rheumatoid arthritis, a critical proof-of-concept for Syk modulation, it also caused high levels of hypertension which is widely believed to be due to the high levels of off-target kinase insert domain receptor inhibition. In addition, Tavalisse has also been shown to strongly inhibit the Ret kinase, and in pre-clinical trials it was demonstrated that inhibition of the Ret kinase was associated with developmental and reproductive toxicities. During 2022, we introduced Sulanda through a campaign of approximately 4,900 local, regional and national educational events involving approximately 12,000 healthcare professionals. We have also confirmed a total of around 50 investigator-initiated studies in a broad range of exploratory solid tumor indications all of which are expected to gradually expand awareness of Sulanda in China. In 2022, approximately 12,000 new patients were treated with Sulanda, representing approximately 2.5 times the approximately 4,800 new patients in 2021. 4. Sovleplenib (HMPL-523), Syk Inhibitor The requirement for Syk kinase activity in inflammatory responses was first evaluated with Tavalisse, which was co-developed by AstraZeneca/Rigel Pharmaceuticals, Inc. In 2013, AstraZeneca announced results from pivotal Phase III clinical trials that Tavalisse statistically significantly improved ACR20 (a 20% improvement from baseline based on the study criteria) response rates of patients inadequately responding to conventional disease-modifying anti-rheumatic drugs and a single anti-TNFα (a key pro-inflammatory cytokine involved in rheumatoid arthritis pathogenesis) antagonist at 24 weeks, but failed to demonstrate statistical significance in comparison to placebo at 24 weeks. As a result, AstraZeneca decided not to proceed. Rigel Pharmaceuticals subsequently chose to develop Tavalisse for immune thrombocytopenia instead, for which it was approved by the FDA in 2018 and the EMA in 2020. Sovleplenib is a novel, selective, oral inhibitor targeting Syk, for the treatment of hematological malignancies and immune diseases. Syk is a component in Fc receptor and B-cell receptor signaling pathway. In 2021, we initiated a Phase III study in China for primary ITP, for which it has received Breakthrough Therapy Designation, and presented data on both primary ITP and hematological malignancies at ASH 2021. We currently retain all rights to sovleplenib worldwide. Tavalisse was also in trials for B-cell lymphoma and T-cell lymphoma. It demonstrated some clinical efficacy in diffused large B- cell lymphoma patients with an ORR of 22%. Entospletinib has features of high potency and good selectivity toward kinases. However, entospletinib shows some inhibition of the CYP3A4, CYP2D6, and CYP1A2 enzymes involved in the metabolism of certain drugs, and therefore their inhibition could increase the risk of drug-to-drug interaction when used in combined therapy. It is no longer in Mechanism of Action Syk is a key kinase upstream to PI3Kδ and BTK within the B-cell signaling pathway and therefore thought to be an important target development. Sovleplenib Pre-clinical Evidence for modulating B-cell signaling. Syk, a target for autoimmune diseases The central role of Syk in signaling processes is not only in cells of immune responses but also in cell types known to be involved in the expression of tissue pathology in autoimmune, inflammatory and allergic diseases. Therefore, interfering with Syk could represent a possible therapeutic approach for treating these disorders. Indeed, several studies have highlighted Syk as a key player in the pathogenesis of a multitude of diseases, including rheumatoid arthritis, systemic lupus erythematosus and multiple sclerosis. the 10% threshold recommended by FDA guidelines. Sovleplenib Clinical Trials Syk, a target for oncology The table below shows a summary of the clinical trials for sovleplenib. In hematological cancer, we believe Syk is a high potential target. In hematopoietic cells, Syk is recruited to the intracellular membrane by activated membrane receptors like B-cell receptors or another receptor called Fc and then binds to the intracellular domain of the receptors. Syk is activated after being phosphorylated by certain kinases and then further induces downstream intracellular signals including B-cell linker, PI3Kδ, BTK and Phospholipase C-y2 to regulate B-cell proliferation, growth, differentiation, homing, survival, maturation, and immune responses. Syk not only involves the regulation of lymphatic cells but also signal transduction of non-lymphatic cells such as mast cells, macrophages, and basophils, resulting in different immunological functions such as degranulation to release immune active substances, leading to immunological reaction and disease. Therefore, regulating B-cell signal pathways through Syk is expected to be effective for treating lymphoma. Current Clinical Trials of Sovleplenib Treatment Trial Name, Patient Focus Sites Status/Plan NCT # Sovleplenib monotherapy ESLIM-01≥2L+ Immune thrombocytopenia China Fully enrolled; Breakthrough Therapy NCT05029635 Phase III Sovleplenib monotherapy Indolent non-Hodgkin's lymphoma U.S./ Europe I/Ib Ongoing; preliminary data presented NCT03779113 Sovleplenib monotherapy Warm AIHA China II/III Ongoing since 2022; Phase III NCT05535933 Designation at ASH 2021 decision in 2023 pending Phase II results Syk is upstream of both BTK and PI3Kδ, and we believe it could deliver the same outcome as inhibitors of BTK and PI3Kδ, assuming no unintentional toxicities are derived from Syk inhibition. ESLIM-01 Phase III study of sovleplenib in patients with immune thrombocytopenia (NCT05029635) The safety profile of sovleplenib was evaluated in multiple in vitro and in vivo pre-clinical trials under good laboratory practice guidelines and found to be well tolerated following single dose oral administration. Toxic findings were seen in repeat dose animal safety evaluations in rats and dogs at higher doses and found to be reversible. These findings can be readily monitored in the clinical trials and fully recoverable upon drug withdrawal. The starting dose in humans was suggested to be 5 mg. This dose level is approximately 5% of the human equivalent dose extrapolated from the pre-clinical “no observed adverse event levels,” which is below In October 2021, we initiated a randomized, double-blinded, placebo-controlled Phase III trial in China of sovleplenib in approximately 180 adult patients with primary ITP who have received at least one prior line of standard therapy. ITP is an autoimmune disorder that can lead to increased risk of bleeding. The primary endpoint of the study is the durable response rate. In January 2022, the NMPA granted Breakthrough Therapy Designation for this indication. Enrollment was completed in December 2022. 102 103 Overview of Sulanda Commercial Launch Sovleplenib Research Background Surufatinib capsules, sold under the brand name Sulanda, were approved for marketing in China by the NMPA in December 2020 and June 2021 for the treatment of advanced non-pancreatic NETs and pancreatic NETs, respectively. In 2021, Sulanda was sold as a self-pay drug whereby patients paid for treatment out-of-pocket. We used means-test early access and patient access programs to help patients afford Sulanda. Following negotiations with the China National Healthcare Security Administration, Sulanda was included on China’s NRDL at a 52% discount on our main 50mg dosage form, relative to the 2021 self-pay price, for two years starting on January 1, 2022. The threshold of safety for a Syk inhibitor in chronic disease is extremely high, with no room for material toxicity. The failure of Tavalisse in a global Phase III registration study in rheumatoid arthritis provided important insights for us in the area of toxicity. While Tavalisse clearly showed patient benefit in rheumatoid arthritis, a critical proof-of-concept for Syk modulation, it also caused high levels of hypertension which is widely believed to be due to the high levels of off-target kinase insert domain receptor inhibition. In addition, Tavalisse has also been shown to strongly inhibit the Ret kinase, and in pre-clinical trials it was demonstrated that inhibition of the Ret kinase was associated with developmental and reproductive toxicities. During 2022, we introduced Sulanda through a campaign of approximately 4,900 local, regional and national educational events involving approximately 12,000 healthcare professionals. We have also confirmed a total of around 50 investigator-initiated studies in a broad range of exploratory solid tumor indications all of which are expected to gradually expand awareness of Sulanda in China. In 2022, approximately 12,000 new patients were treated with Sulanda, representing approximately 2.5 times the approximately 4,800 new patients in 2021. 4. Sovleplenib (HMPL-523), Syk Inhibitor Sovleplenib is a novel, selective, oral inhibitor targeting Syk, for the treatment of hematological malignancies and immune diseases. Syk is a component in Fc receptor and B-cell receptor signaling pathway. In 2021, we initiated a Phase III study in China for primary ITP, for which it has received Breakthrough Therapy Designation, and presented data on both primary ITP and hematological malignancies at ASH 2021. We currently retain all rights to sovleplenib worldwide. The requirement for Syk kinase activity in inflammatory responses was first evaluated with Tavalisse, which was co-developed by AstraZeneca/Rigel Pharmaceuticals, Inc. In 2013, AstraZeneca announced results from pivotal Phase III clinical trials that Tavalisse statistically significantly improved ACR20 (a 20% improvement from baseline based on the study criteria) response rates of patients inadequately responding to conventional disease-modifying anti-rheumatic drugs and a single anti-TNFα (a key pro-inflammatory cytokine involved in rheumatoid arthritis pathogenesis) antagonist at 24 weeks, but failed to demonstrate statistical significance in comparison to placebo at 24 weeks. As a result, AstraZeneca decided not to proceed. Rigel Pharmaceuticals subsequently chose to develop Tavalisse for immune thrombocytopenia instead, for which it was approved by the FDA in 2018 and the EMA in 2020. Tavalisse was also in trials for B-cell lymphoma and T-cell lymphoma. It demonstrated some clinical efficacy in diffused large B- cell lymphoma patients with an ORR of 22%. Entospletinib has features of high potency and good selectivity toward kinases. However, entospletinib shows some inhibition of the CYP3A4, CYP2D6, and CYP1A2 enzymes involved in the metabolism of certain drugs, and therefore their inhibition could increase the risk of drug-to-drug interaction when used in combined therapy. It is no longer in development. Syk is a key kinase upstream to PI3Kδ and BTK within the B-cell signaling pathway and therefore thought to be an important target Sovleplenib Pre-clinical Evidence The central role of Syk in signaling processes is not only in cells of immune responses but also in cell types known to be involved in the expression of tissue pathology in autoimmune, inflammatory and allergic diseases. Therefore, interfering with Syk could represent a possible therapeutic approach for treating these disorders. Indeed, several studies have highlighted Syk as a key player in the pathogenesis of a multitude of diseases, including rheumatoid arthritis, systemic lupus erythematosus and multiple sclerosis. The safety profile of sovleplenib was evaluated in multiple in vitro and in vivo pre-clinical trials under good laboratory practice guidelines and found to be well tolerated following single dose oral administration. Toxic findings were seen in repeat dose animal safety evaluations in rats and dogs at higher doses and found to be reversible. These findings can be readily monitored in the clinical trials and fully recoverable upon drug withdrawal. The starting dose in humans was suggested to be 5 mg. This dose level is approximately 5% of the human equivalent dose extrapolated from the pre-clinical “no observed adverse event levels,” which is below the 10% threshold recommended by FDA guidelines. Sovleplenib Clinical Trials Mechanism of Action for modulating B-cell signaling. Syk, a target for autoimmune diseases Syk, a target for oncology The table below shows a summary of the clinical trials for sovleplenib. In hematological cancer, we believe Syk is a high potential target. In hematopoietic cells, Syk is recruited to the intracellular membrane by activated membrane receptors like B-cell receptors or another receptor called Fc and then binds to the intracellular domain of the receptors. Syk is activated after being phosphorylated by certain kinases and then further induces downstream intracellular signals including B-cell linker, PI3Kδ, BTK and Phospholipase C-y2 to regulate B-cell proliferation, growth, differentiation, homing, survival, maturation, and immune responses. Syk not only involves the regulation of lymphatic cells but also signal transduction of non-lymphatic cells such as mast cells, macrophages, and basophils, resulting in different immunological functions such as degranulation to release immune active substances, leading to immunological reaction and disease. Therefore, regulating B-cell signal pathways through Syk is expected to be effective for treating lymphoma. Current Clinical Trials of Sovleplenib Treatment Sovleplenib monotherapy Trial Name, Patient Focus Sites ESLIM-01≥2L+ Immune thrombocytopenia China Phase III Sovleplenib monotherapy Indolent non-Hodgkin's lymphoma U.S./ Europe I/Ib Sovleplenib monotherapy Warm AIHA China II/III Status/Plan Fully enrolled; Breakthrough Therapy Designation Ongoing; preliminary data presented at ASH 2021 Ongoing since 2022; Phase III decision in 2023 pending Phase II results NCT # NCT05029635 NCT03779113 NCT05535933 Syk is upstream of both BTK and PI3Kδ, and we believe it could deliver the same outcome as inhibitors of BTK and PI3Kδ, assuming no unintentional toxicities are derived from Syk inhibition. ESLIM-01 Phase III study of sovleplenib in patients with immune thrombocytopenia (NCT05029635) In October 2021, we initiated a randomized, double-blinded, placebo-controlled Phase III trial in China of sovleplenib in approximately 180 adult patients with primary ITP who have received at least one prior line of standard therapy. ITP is an autoimmune disorder that can lead to increased risk of bleeding. The primary endpoint of the study is the durable response rate. In January 2022, the NMPA granted Breakthrough Therapy Designation for this indication. Enrollment was completed in December 2022. 102 103 ESLIM-01 is supported by the results of a randomized, double-blind and placebo-controlled Phase Ib study of HMPL-523 in adult patients with primary immune thrombocytopenia were presented at the 63rd American Society for Hematology’s (ASH) annual meeting. As of data cut-off date of September 30, 2021, a total of 34 patients were randomized to receive HMPL-523 and 11 patients to placebo. Among 16 patients who were randomized to receive the RP2D of 300mg once daily, 11 patients (68.8%) experienced response as defined by at least one incident of platelet count being ≥ 50×109/L in the initial 8-week double blinded phase of the study, compared to one out of 11 patients (9.1%) randomized to receive placebo. During the subsequent 16-week open-label phase of the study, one additional patient initially randomized to receive the RP2D experienced a response. Four patients randomized to placebo crossed over to receive treatment at RP2D after the initial 8-week double blinded phase of the study; all four of these patients experienced response. In total, 16 out of 20 patients (80%) experienced response during both phases of the study. Durable response, defined as platelet count being ≥ 50×109/L in at least 4 out of 6 last scheduled visits, were reported in 8 out of 20 patients (40%) who received RP2D in both phases of the study. Safety data were presented for all 41 patients who received treatment at all doses, regardless of whether they were initially randomized to receive active treatment or crossed over during the open-label extension phase of the study. The median duration of treatment was 142 days (range: 23-170). No patients discontinued treatment due to treatment-related adverse events, and no cases of treatment-related serious adverse events were reported. There were 30 patients (73%) who experienced treatment-related adverse events, including 3 (7.3%) who experienced grade 3 or above treatment-related adverse events, one of whom received the RP2D. No treatment- related adverse events of grade 3 or above occurred in more than one patient. Phase I/Ib study of sovleplenib in indolent non-Hodgkin’s lymphoma (NCT03779113) Based on extensive proof-of-concept clinical data in China and Australia, we have initiated a Phase I/Ib study in the United States and Europe. We presented preliminary results from this study at the ASH 2021 annual meeting, which support progressing sovleplenib into the ongoing dose expansion phase of the study to evaluate its safety and efficacy in multiple subtypes of B-cell and T-cell lymphoma at the RP2D of 700mg. Phase II/III Trial of sovleplenib for warm AIHA (NCT05535933) In September 2022, we initiated a Phase II/III trial of sovleplenib in adult patients with wAIHA in China. This is a randomized, double-blind, placebo-controlled Phase II/III study to evaluate the efficacy, safety, tolerability, and pharmacokinetics of sovleplenib in the treatment of warm AIHA. AIHA is the result of destruction of red blood cells due to the production of antibodies against red blood cells which bind to antigens on the red blood cell membrane in autoimmune disorders. If the results of the Phase II stage of the study indicate sufficiently satisfactory efficacy and safety, the Phase III stage will be initiated. The China IND was approved in July 2022. The first patient was enrolled in September 2022. The enrollment of Phase II part of the study is expected to be completed in 2023, and lead to a decision on whether to initiate Phase III. 5. Amdizalisib (HMPL-689), PI3Kδ Inhibitor Amdizalisib is a novel, highly selective oral inhibitor targeting the isoform PI3Kδ, a key component in the B-cell receptor signaling pathway. Amdizalisib’s pharmacokinetic properties have been found to be favorable with good oral absorption, moderate tissue distribution and low clearance in pre-clinical studies. We also expect that amdizalisib will have low risk of drug accumulation and drug- drug interactions, supporting feasibility of development in combination with other medicines. We currently retains all rights to amdizalisib worldwide. Mechanism of Action Targeting the B-cell signaling pathway is emerging as a potential means to treat both hematological cancer and immunological diseases. Inhibiting different kinases found along the B-cell signaling pathway has proven to have clinical efficacy in hematological cancers, with breakthrough therapies having been recently approved by the FDA. The high efficacy and successful approvals of Bruton’s tyrosine kinase, or BTK, inhibitors and PI3Kδ inhibitors are evidence that modulation of the B-cell signaling pathway is critical for the effective treatment of B-cell malignancies. Class I phosphatidylinositide-3-kinases, or PI3Kδ, are lipid kinases that, through a series of intermediate processes, control the activation of several important signaling proteins including the serine/threonine kinase AKT. patients remain on therapy. 104 105 There are multiple sub-families of PI3K kinases, and PI3Kδ is a lipid kinase that, through a series of intermediate processes, controls the activation of several important signaling proteins, including the serine/threonine kinase B, or AKT. In most cells, AKT is a key PI3Kδ affector that regulates cell proliferation, carbohydrate metabolism, cell motility and apoptosis and other cellular processes. Upon an antigen binding to B-cell receptors, PI3Kδ can be activated through the Lyn and Syk signaling cascade. Aberrant B-cell function has been observed in multiple immunological diseases and B-cell mediated malignancies. Therefore, PI3Kδ is considered to be a promising target for drugs that aim to prevent or treat hematologic cancer, autoimmunity and transplant organ rejection and other related inflammation diseases. Amdizalisib Pre-clinical Evidence Compared to other PI3Kδ inhibitors, amdizalisib shows higher potency and selectivity. Enzyme Selectivity (IC50, in nM) of amdizalisib Versus Competing PI3Kδ Inhibitors; This Shows amdizalisib is Approximately Five- fold More Potent than Zydelig on Whole Blood Level and, unlike Copiktra, does not Inhibit PI3K-γ. HMPL‑689 Zydelig Copiktra Aliqopa 0.8 (n = 3) 114 (142x) 3 87 (109x) >1,000 (>1,250x) 866 (433x) 143 (143x) 104 (52x) 2 (2x) 2 14 1 15 293 (147x) 8 (8x) 0.7 6.4 (9x) 0.5 (1x) n/a 3.7 (5x) Enzyme IC50 (nM) PI3Kδ PI3Kγ (fold vs. PI3Kδ) PI3Kα (fold vs. PI3Kδ) PI3Kδ human whole blood CD63+ PI3Kβ (fold vs. PI3Kδ) Source: Company. Amdizalisib Clinical Development The table below shows a summary of the clinical studies for amdizalisib. Clinical Trials of Amdizalisib Treatment Trial Name, Patient Focus Sites Phase Status/Plan Amdizalisib monotherapy Indolent non-Hodgkin's lymphoma PTCL China Ib NCT # NCT03128164 Amdizalisib monotherapy 3L Relapsed/refractory follicular China II registration- Fully enrolled; Breakthrough NCT04849351 Amdizalisib monotherapy 2L Relapsed/refractory marginal zone China II registration- Ongoing since April 2021 NCT04849351 lymphoma lymphoma intent intent Amdizalisib monotherapy Indolent non-Hodgkin's lymphoma U.S./ Europe I/Ib De-prioritized NCT03786926 Ongoing; Expansion data presented at ESMO 2021 Therapy Designation Phase Ib study of amdizalisib in patients with Indolent non-Hodgkin’s lymphoma in China (NCT03128164) Our Phase I/Ib study of amdizalisib in China has successfully established a Phase II dose and has now expanded into multiple sub- categories of indolent non-Hodgkin’s lymphoma. In ESMO 2021, we presented results from the Phase Ib study. In the efficacy evaluable population of 76 patients, the median time of follow-up was 5.6 months (95% CI: 5.5-8.3). Objective response rate was 53.9%, completed response rate was 11.8%, and clinical benefit rate was 76.3%. Median duration of response was not reached, and 6-months duration of response rate was 84.5% (95% CI: 62.9-94.1). Median time to response was 1.9 months (95% CI: 1.8-1.9). Amdizalisib showed promising single-agent clinical activity in patients with relapsed/refractory B-cell lymphoma, with high objective response rate and complete response rates noted particularly for follicular lymphoma patients. In the 22 follicular lymphoma patients with efficacy evaluable, the median time of follow-up was 8.3 months (95% CI: 2.0-11.0). Objective response rate was 81.8%, complete response rate was 36.4% and clinical benefit rate was 90.9%. Median time to response was 1.8 months (95% CI: 1.8-1.9), 1-year duration of response was 59.7%, and progression-free survival rate was 75.8%. 77% of the ESLIM-01 is supported by the results of a randomized, double-blind and placebo-controlled Phase Ib study of HMPL-523 in adult patients with primary immune thrombocytopenia were presented at the 63rd American Society for Hematology’s (ASH) annual meeting. As of data cut-off date of September 30, 2021, a total of 34 patients were randomized to receive HMPL-523 and 11 patients to placebo. Among 16 patients who were randomized to receive the RP2D of 300mg once daily, 11 patients (68.8%) experienced response as defined by at least one incident of platelet count being ≥ 50×109/L in the initial 8-week double blinded phase of the study, compared to one out of 11 patients (9.1%) randomized to receive placebo. During the subsequent 16-week open-label phase of the study, one additional patient initially randomized to receive the RP2D experienced a response. Four patients randomized to placebo crossed over to receive treatment at RP2D after the initial 8-week double blinded phase of the study; all four of these patients experienced response. In total, 16 out of 20 patients (80%) experienced response during both phases of the study. Durable response, defined as platelet count being ≥ 50×109/L in at least 4 out of 6 last scheduled visits, were reported in 8 out of 20 patients (40%) who received RP2D in both phases of the study. Safety data were presented for all 41 patients who received treatment at all doses, regardless of whether they were initially randomized to receive active treatment or crossed over during the open-label extension phase of the study. The median duration of treatment was 142 days (range: 23-170). No patients discontinued treatment due to treatment-related adverse events, and no cases of treatment-related serious adverse events were reported. There were 30 patients (73%) who experienced treatment-related adverse events, including 3 (7.3%) who experienced grade 3 or above treatment-related adverse events, one of whom received the RP2D. No treatment- related adverse events of grade 3 or above occurred in more than one patient. Phase I/Ib study of sovleplenib in indolent non-Hodgkin’s lymphoma (NCT03779113) Based on extensive proof-of-concept clinical data in China and Australia, we have initiated a Phase I/Ib study in the United States and Europe. We presented preliminary results from this study at the ASH 2021 annual meeting, which support progressing sovleplenib into the ongoing dose expansion phase of the study to evaluate its safety and efficacy in multiple subtypes of B-cell and T-cell lymphoma at the RP2D of 700mg. Phase II/III Trial of sovleplenib for warm AIHA (NCT05535933) In September 2022, we initiated a Phase II/III trial of sovleplenib in adult patients with wAIHA in China. This is a randomized, double-blind, placebo-controlled Phase II/III study to evaluate the efficacy, safety, tolerability, and pharmacokinetics of sovleplenib in the treatment of warm AIHA. AIHA is the result of destruction of red blood cells due to the production of antibodies against red blood cells which bind to antigens on the red blood cell membrane in autoimmune disorders. If the results of the Phase II stage of the study indicate sufficiently satisfactory efficacy and safety, the Phase III stage will be initiated. The China IND was approved in July 2022. The first patient was enrolled in September 2022. The enrollment of Phase II part of the study is expected to be completed in 2023, and lead to a decision on whether to initiate Phase III. 5. Amdizalisib (HMPL-689), PI3Kδ Inhibitor Amdizalisib is a novel, highly selective oral inhibitor targeting the isoform PI3Kδ, a key component in the B-cell receptor signaling pathway. Amdizalisib’s pharmacokinetic properties have been found to be favorable with good oral absorption, moderate tissue distribution and low clearance in pre-clinical studies. We also expect that amdizalisib will have low risk of drug accumulation and drug- drug interactions, supporting feasibility of development in combination with other medicines. We currently retains all rights to amdizalisib worldwide. Mechanism of Action Targeting the B-cell signaling pathway is emerging as a potential means to treat both hematological cancer and immunological diseases. Inhibiting different kinases found along the B-cell signaling pathway has proven to have clinical efficacy in hematological cancers, with breakthrough therapies having been recently approved by the FDA. The high efficacy and successful approvals of Bruton’s tyrosine kinase, or BTK, inhibitors and PI3Kδ inhibitors are evidence that modulation of the B-cell signaling pathway is critical for the effective treatment of B-cell malignancies. Class I phosphatidylinositide-3-kinases, or PI3Kδ, are lipid kinases that, through a series of intermediate processes, control the activation of several important signaling proteins including the serine/threonine kinase AKT. There are multiple sub-families of PI3K kinases, and PI3Kδ is a lipid kinase that, through a series of intermediate processes, controls the activation of several important signaling proteins, including the serine/threonine kinase B, or AKT. In most cells, AKT is a key PI3Kδ affector that regulates cell proliferation, carbohydrate metabolism, cell motility and apoptosis and other cellular processes. Upon an antigen binding to B-cell receptors, PI3Kδ can be activated through the Lyn and Syk signaling cascade. Aberrant B-cell function has been observed in multiple immunological diseases and B-cell mediated malignancies. Therefore, PI3Kδ is considered to be a promising target for drugs that aim to prevent or treat hematologic cancer, autoimmunity and transplant organ rejection and other related inflammation diseases. Amdizalisib Pre-clinical Evidence Compared to other PI3Kδ inhibitors, amdizalisib shows higher potency and selectivity. Enzyme Selectivity (IC50, in nM) of amdizalisib Versus Competing PI3Kδ Inhibitors; This Shows amdizalisib is Approximately Five- fold More Potent than Zydelig on Whole Blood Level and, unlike Copiktra, does not Inhibit PI3K-γ. Enzyme IC50 (nM) PI3Kδ PI3Kγ (fold vs. PI3Kδ) PI3Kα (fold vs. PI3Kδ) PI3Kδ human whole blood CD63+ PI3Kβ (fold vs. PI3Kδ) Source: Company. Amdizalisib Clinical Development HMPL‑689 Zydelig 0.8 (n = 3) 114 (142x) >1,000 (>1,250x) 3 87 (109x) Copiktra 1 2 104 (52x) 2 (2x) 866 (433x) 143 (143x) 14 293 (147x) 8 (8x) 15 The table below shows a summary of the clinical studies for amdizalisib. Clinical Trials of Amdizalisib Treatment Amdizalisib monotherapy Trial Name, Patient Focus Indolent non-Hodgkin's lymphoma PTCL China Ib Sites Phase Status/Plan Amdizalisib monotherapy 3L Relapsed/refractory follicular China lymphoma Amdizalisib monotherapy 2L Relapsed/refractory marginal zone China Amdizalisib monotherapy lymphoma Indolent non-Hodgkin's lymphoma U.S./ Europe II registration- intent II registration- intent I/Ib Ongoing; Expansion data presented at ESMO 2021 Fully enrolled; Breakthrough Therapy Designation Ongoing since April 2021 De-prioritized Aliqopa 0.7 6.4 (9x) 0.5 (1x) n/a 3.7 (5x) NCT # NCT03128164 NCT04849351 NCT04849351 NCT03786926 Phase Ib study of amdizalisib in patients with Indolent non-Hodgkin’s lymphoma in China (NCT03128164) Our Phase I/Ib study of amdizalisib in China has successfully established a Phase II dose and has now expanded into multiple sub- categories of indolent non-Hodgkin’s lymphoma. In ESMO 2021, we presented results from the Phase Ib study. In the efficacy evaluable population of 76 patients, the median time of follow-up was 5.6 months (95% CI: 5.5-8.3). Objective response rate was 53.9%, completed response rate was 11.8%, and clinical benefit rate was 76.3%. Median duration of response was not reached, and 6-months duration of response rate was 84.5% (95% CI: 62.9-94.1). Median time to response was 1.9 months (95% CI: 1.8-1.9). Amdizalisib showed promising single-agent clinical activity in patients with relapsed/refractory B-cell lymphoma, with high objective response rate and complete response rates noted particularly for follicular lymphoma patients. In the 22 follicular lymphoma patients with efficacy evaluable, the median time of follow-up was 8.3 months (95% CI: 2.0-11.0). Objective response rate was 81.8%, complete response rate was 36.4% and clinical benefit rate was 90.9%. Median time to response was 1.8 months (95% CI: 1.8-1.9), 1-year duration of response was 59.7%, and progression-free survival rate was 75.8%. 77% of the patients remain on therapy. 104 105 FL n=22 ORR: 81.8% CR rate: 36.4% CBR: 90.9% 100 75 50 25 0 -25 -50 -75 -100 ) % ( n o i s e L t e g r a T n i e n i l e s a B m o r f n o i t c u d e R t s e B PD PD SD SD PR PR CR Phase Ib Study of Amdizalisib in Chinese Patients with Relapsed/Refractory Lymphoma: Phase Ib Study of Amdizalisib in Chinese Patients with Relapsed/Refractory Lymphoma: Best response of target lesion (N=76) Best response of target lesion (N=76) Phase I/Ib study of amdizalisib in patients with Indolent non-Hodgkin’s lymphoma in the United States and Europe (NCT03786926) MZL n=14 CLL/SLL n=3 MCL n=8 DLBCL n=89 PD* PD* PD* PD* PD* PD* PD* PD CR PR PD SD In August 2019, we initiated an international Phase I/Ib study of amdizalisib in patients with relapsed or refractory lymphoma. The international clinical study, with multiple sites in the United States and Europe, is a multi-center, open-label, two-stage study, including dose escalation and expansion, investigating the effects of amdizalisib administered orally to patients with relapsed or refractory lymphoma. The primary outcome measures are safety and tolerability. Secondary outcomes include pharmacokinetic measurements ORR: 50.0% CBR: 100% ORR: 100% ORR: 75% CBR: 87.5% PD PD PD PD PD SD SD ORR: 24.1% CBR: 48.3% and preliminary efficacy such as ORR. 6. Tazemetostat, EZH2 Inhibitor SD SD SD SD SD PR PR PR PD PD PR PR PR PR 1 0 0 0 1 1 2 2 1 0 0 0 1 1 2 0 0 1 0 0 0 0 6 - 0 4 - 0 4 - 0 7 - 0 7 - 0 7 - 0 1 - 0 1 - 0 5 - 0 4 - 0 3 - 0 2 - 0 4 - 0 2 - 2 1 - 0 4 - 0 3 - 0 2 - 0 2 - 0 4 - 0 4 - 0 4 - 0 0 0 0 0 0 1 0 0 0 0 2 0 0 2 0 2 2 2 1 0 1 0 1 2 2 0 0 1 1 1 1 2 1 0 0 1 1 1 2 0 2 0 0 0 1 1 0 0 2 1 0 2 0 2 3 - 0 8 - 0 7 - 0 4 - 0 3 - 0 9 - 0 8 - 0 4 - 0 4 - 0 4 - 0 1 - 0 3 - 0 4 - 0 3 - 0 4 - 0 1 - 0 3 - 0 1 - 0 5 - 0 4 - 2 6 - 0 3 - 0 6 - 2 1 - 0 3 - 0 2 - 0 9 - 2 2 - 0 6 - 0 6 - 2 9 - 0 4 - 0 9 - 0 8 - 0 8 - 0 2 - 0 2 - 2 9 - 0 1 - 0 3 - 0 4 - 0 2 - 0 4 - 0 4 - 0 9 - 2 7 - 2 4 - 0 2 - 0 1 - 0 2 - 0 3 - 0 1 - 0 2 - 0 3 - 0 0 3 3 0 0 0 0 0 0 4 1 2 0 0 1 3 3 0 2 3 2 3 6 4 9 1 3 2 3 5 1 3 1 2 1 7 2 6 6 1 1 2 9 0 4 0 0 3 4 0 0 4 4 2 0 2 3 0 0 2 3 5 2 4 1 9 1 6 4 7 7 3 4 0 0 6 8 4 0 0 9 2 4 8 0 8 3 0 1 0 2 0 0 0 0 0 0 0 0 0 0 0 0 1 4 0 1 4 4 0 0 4 1 0 0 3 1 1 0 7 1 0 1 4 2 6 2 5 2 1 6 3 5 9 3 3 3 1 2 2 0 2 1 1 4 9 6 5 3 1 3 2 PR PR CR PR CR PR PR PR CR PR PR CR CR CR CR SD SD SD SD SD SD SD PR PR PD SD PR PR PR PR PR PR PR PR CR PR PR PR PR PR Notes: Data cut-off as of June 15, 2021. Target lesion SPD (sum of the product of perpendicular diameters) increased more over 100%. Notes: Data cut-off as of June 15, 2021. Target lesion SPD (sum of the product of perpendicular diameters) increased more over 100%. Efficacy evaluable population: received at least one tumor assessment. FL = follicular lymphoma; MZL = marginal zone Efficacy evaluable population: received at least one tumor assessment. FL = follicular lymphoma; MZL = marginal zone lymphoma; CLL/SLL = chronic lymphocytic leukemia / small lymphocytic lymphoma; MCL = mantle cell lymphoma; DLBCL lymphoma; CLL/SLL = chronic lymphocytic leukemia / small lymphocytic lymphoma; MCL = mantle cell lymphoma; DLBCL = diffuse large B cell lymphoma; n = number of patients; CR = complete response; PR = partial response; PD = progressive = diffuse large B cell lymphoma; n = number of patients; CR = complete response; PR = partial response; PD = progressive disease; SD = stable disease; ORR = objective response rate; CBR = clinical benefit rate (CR + PR + SD) disease; SD = stable disease; ORR = objective response rate; CBR = clinical benefit rate (CR + PR + SD) Source: CaoJN, et al. “A phase Ib study result of HMPL-689, a PI3Kδ inhibitor, in Chinese patients with relapsed/refractory Source: CaoJN, et al. “A phase Ib study result of HMPL-689, a PI3Kδ inhibitor, in Chinese patients with relapsed/refractory lymphoma.” Presented at the 2021 European Society for Medical Oncology (ESMO) Virtual Congress on September 20, 2021. lymphoma.” Presented at the 2021 European Society for Medical Oncology (ESMO) Virtual Congress on September 20, 2021. Presentation #833O Presentation #833O Amdizalisib was well tolerated and demonstrated a manageable safety profile. The most frequent treatment-emergent adverse event Amdizalisib was well tolerated and demonstrated a manageable safety profile. The most frequent treatment-emergent adverse event was neutrophil count decreased (28.9%), and most frequent, non-hematologic, Grade 3 or above treatment-emergent adverse events was neutrophil count decreased (28.9%), and most frequent, non-hematologic, Grade 3 or above treatment-emergent adverse events were pneumonia (13.3%) and rash (5.6%). All liver enzyme elevation was mild to moderate (Grade 1-2). Grade 3 diarrhea was low were pneumonia (13.3%) and rash (5.6%). All liver enzyme elevation was mild to moderate (Grade 1-2). Grade 3 diarrhea was low (2.2%) and there were no colitis cases as of the data cut-off. Treatment discontinuation rate due to adverse events was 5.6%. (2.2%) and there were no colitis cases as of the data cut-off. Treatment discontinuation rate due to adverse events was 5.6%. Phase II registration-intent study of amdizalisib in patients with relapsed/refractory follicular lymphoma and relapsed/refractory Phase II registration-intent study of amdizalisib in patients with relapsed/refractory follicular lymphoma and relapsed/refractory marginal zone lymphoma in China (NCT04849351) marginal zone lymphoma in China (NCT04849351) Based on the highly promising preliminary results from the above Phase Ib expansion study, in April 2021, we commenced a Based on the highly promising preliminary results from the above Phase Ib expansion study, in April 2021, we commenced a registration-intent Phase II trial of amdizalisib in China in patients with relapsed or refractory follicular lymphoma and marginal zone registration-intent Phase II trial of amdizalisib in China in patients with relapsed or refractory follicular lymphoma and marginal zone lymphoma, two subtypes of non-Hodgkin’s lymphoma. The clinical trial is a multi-center, single-arm, open-label clinical study to lymphoma, two subtypes of non-Hodgkin’s lymphoma. The clinical trial is a multi-center, single-arm, open-label clinical study to evaluate the efficacy and safety of amdizalisib once a day oral monotherapy in approximately 100 patients with relapsed/refractory evaluate the efficacy and safety of amdizalisib once a day oral monotherapy in approximately 100 patients with relapsed/refractory follicular lymphoma and approximately 80 patients with relapsed/refractory marginal zone lymphoma. Relapsed/refractory is defined follicular lymphoma and approximately 80 patients with relapsed/refractory marginal zone lymphoma. Relapsed/refractory is defined when a patient has not achieved response (complete response or partial response) after the latest line of systemic treatment, or has when a patient has not achieved response (complete response or partial response) after the latest line of systemic treatment, or has progressive disease or relapse after achieving response. The primary endpoint is ORR, with secondary endpoints including CR rate, progressive disease or relapse after achieving response. The primary endpoint is ORR, with secondary endpoints including CR rate, PFS, TTR and duration of response. The trial is being conducted in over 35 sites in China, has fully enrolled the follicular lymphoma PFS, TTR and duration of response. The trial is being conducted in over 35 sites in China, has fully enrolled the follicular lymphoma cohort and is expected to complete enrollment for the marginal zone lymphoma cohort around mid-year. cohort and is expected to complete enrollment for the marginal zone lymphoma cohort around mid-year. 106 106 107 Tazemetostat is an inhibitor of EZH2 developed by Ipsen that is approved by the U.S. FDA for the treatment of certain epithelioid sarcoma and follicular lymphoma patients. It received accelerated approval from the FDA based on ORR and DoR in January and June 2020 for epithelioid sarcoma and follicular lymphoma, respectively. In August 2021, we entered into a strategic collaboration with Epizyme, a subsidiary of Ipsen, to research, develop, manufacture and commercialize tazemetostat in Greater China, including the mainland, Hong Kong, Macau and Taiwan. We are developing and plan to seek approval for tazemetostat in various hematological and solid tumors, in Greater China. We are participating in Ipsen’s SYMPHONY-1 (EZH-302) study, leading it in Greater China. We will generally be responsible for funding all clinical trials of tazemetostat in Greater China, including the portion of global trials conducted there. We are responsible for the research, manufacturing and commercialization of tazemetostat in Greater China. In May 2022, tazemetostat was approved by the Health Commission and Medical Products Administration of Hainan Province of China to be used in the Hainan Boao Lecheng International Medical Tourism Pilot Zone, under the Clinically Urgently Needed Imported Drugs scheme, for the treatment of certain patients with epithelioid sarcoma and follicular lymphoma consistent with the label as EZH2 is one member of a class of histone methyltransferases (“HMTs”). It catalyzes the methylation of histone H3 at lysine 27 (H3K27) which controls expression of various genes and in turn plays a role in the normal physiology of many cell types. Dysregulation of EZH2 has been seen in a wide range of cancers and is associated with poor clinical prognosis and outcomes. Tazemetostat inhibits EZH2 which allows transcription of genes involved in functions such as cell cycle control and terminal differentiation and thus inhibits approved by the FDA. Mechanism of Action cancer cell proliferation. Tazemetostat Clinical Trials The table below shows a summary of our clinical trials for tazemetostat. Clinical Trials of Tazemetostat Treatment Tazemetostat monotherapy Trial Name, Patient Focus Sites Metastatic or locally advanced Hainan Status/Plan NCT # Approved; Launched in 2022 N/A epithelioid sarcoma; Relapsed/refractory 3L+ follicular lymphoma lymphoma Relapsed/refractory 3L+ follicular lymphoma Phase N/A – Hainan Pilot Zone registration- intent (bridging) 2022; China portion of global Phase III trial started H2 2022 Tazemetostat +lenalidomide + rituximab (R2) SYMPHONY-1: 2L follicular Global Ib/III Ongoing: PhIb data at ASH NCT04224493 Tazemetostat monotherapy China II Ongoing since July 2022 NCT05467943 Tazemetostat + amdizalisib Relapsed/refractory lymphoma China II Ongoing since February 2023 NCT05713110 Phase Ib Study of Amdizalisib in Chinese Patients with Relapsed/Refractory Lymphoma: Phase Ib Study of Amdizalisib in Chinese Patients with Relapsed/Refractory Lymphoma: Phase I/Ib study of amdizalisib in patients with Indolent non-Hodgkin’s lymphoma in the United States and Europe (NCT03786926) Best response of target lesion (N=76) Best response of target lesion (N=76) Notes: Data cut-off as of June 15, 2021. Target lesion SPD (sum of the product of perpendicular diameters) increased more over 100%. Notes: Data cut-off as of June 15, 2021. Target lesion SPD (sum of the product of perpendicular diameters) increased more over 100%. Efficacy evaluable population: received at least one tumor assessment. FL = follicular lymphoma; MZL = marginal zone Efficacy evaluable population: received at least one tumor assessment. FL = follicular lymphoma; MZL = marginal zone lymphoma; CLL/SLL = chronic lymphocytic leukemia / small lymphocytic lymphoma; MCL = mantle cell lymphoma; DLBCL lymphoma; CLL/SLL = chronic lymphocytic leukemia / small lymphocytic lymphoma; MCL = mantle cell lymphoma; DLBCL = diffuse large B cell lymphoma; n = number of patients; CR = complete response; PR = partial response; PD = progressive = diffuse large B cell lymphoma; n = number of patients; CR = complete response; PR = partial response; PD = progressive disease; SD = stable disease; ORR = objective response rate; CBR = clinical benefit rate (CR + PR + SD) disease; SD = stable disease; ORR = objective response rate; CBR = clinical benefit rate (CR + PR + SD) In August 2019, we initiated an international Phase I/Ib study of amdizalisib in patients with relapsed or refractory lymphoma. The international clinical study, with multiple sites in the United States and Europe, is a multi-center, open-label, two-stage study, including dose escalation and expansion, investigating the effects of amdizalisib administered orally to patients with relapsed or refractory lymphoma. The primary outcome measures are safety and tolerability. Secondary outcomes include pharmacokinetic measurements and preliminary efficacy such as ORR. 6. Tazemetostat, EZH2 Inhibitor Tazemetostat is an inhibitor of EZH2 developed by Ipsen that is approved by the U.S. FDA for the treatment of certain epithelioid sarcoma and follicular lymphoma patients. It received accelerated approval from the FDA based on ORR and DoR in January and June 2020 for epithelioid sarcoma and follicular lymphoma, respectively. In August 2021, we entered into a strategic collaboration with Epizyme, a subsidiary of Ipsen, to research, develop, manufacture and commercialize tazemetostat in Greater China, including the mainland, Hong Kong, Macau and Taiwan. We are developing and plan to seek approval for tazemetostat in various hematological and solid tumors, in Greater China. We are participating in Ipsen’s SYMPHONY-1 (EZH-302) study, leading it in Greater China. We will generally be responsible for funding all clinical trials of tazemetostat in Greater China, including the portion of global trials conducted there. We are responsible for the research, manufacturing and commercialization of tazemetostat in Greater China. In May 2022, tazemetostat was approved by the Health Commission and Medical Products Administration of Hainan Province of China to be used in the Hainan Boao Lecheng International Medical Tourism Pilot Zone, under the Clinically Urgently Needed Imported Drugs scheme, for the treatment of certain patients with epithelioid sarcoma and follicular lymphoma consistent with the label as approved by the FDA. Source: CaoJN, et al. “A phase Ib study result of HMPL-689, a PI3Kδ inhibitor, in Chinese patients with relapsed/refractory Source: CaoJN, et al. “A phase Ib study result of HMPL-689, a PI3Kδ inhibitor, in Chinese patients with relapsed/refractory lymphoma.” Presented at the 2021 European Society for Medical Oncology (ESMO) Virtual Congress on September 20, 2021. lymphoma.” Presented at the 2021 European Society for Medical Oncology (ESMO) Virtual Congress on September 20, 2021. Mechanism of Action Presentation #833O Presentation #833O Amdizalisib was well tolerated and demonstrated a manageable safety profile. The most frequent treatment-emergent adverse event Amdizalisib was well tolerated and demonstrated a manageable safety profile. The most frequent treatment-emergent adverse event was neutrophil count decreased (28.9%), and most frequent, non-hematologic, Grade 3 or above treatment-emergent adverse events was neutrophil count decreased (28.9%), and most frequent, non-hematologic, Grade 3 or above treatment-emergent adverse events were pneumonia (13.3%) and rash (5.6%). All liver enzyme elevation was mild to moderate (Grade 1-2). Grade 3 diarrhea was low were pneumonia (13.3%) and rash (5.6%). All liver enzyme elevation was mild to moderate (Grade 1-2). Grade 3 diarrhea was low (2.2%) and there were no colitis cases as of the data cut-off. Treatment discontinuation rate due to adverse events was 5.6%. (2.2%) and there were no colitis cases as of the data cut-off. Treatment discontinuation rate due to adverse events was 5.6%. EZH2 is one member of a class of histone methyltransferases (“HMTs”). It catalyzes the methylation of histone H3 at lysine 27 (H3K27) which controls expression of various genes and in turn plays a role in the normal physiology of many cell types. Dysregulation of EZH2 has been seen in a wide range of cancers and is associated with poor clinical prognosis and outcomes. Tazemetostat inhibits EZH2 which allows transcription of genes involved in functions such as cell cycle control and terminal differentiation and thus inhibits cancer cell proliferation. Phase II registration-intent study of amdizalisib in patients with relapsed/refractory follicular lymphoma and relapsed/refractory Phase II registration-intent study of amdizalisib in patients with relapsed/refractory follicular lymphoma and relapsed/refractory Tazemetostat Clinical Trials marginal zone lymphoma in China (NCT04849351) marginal zone lymphoma in China (NCT04849351) Based on the highly promising preliminary results from the above Phase Ib expansion study, in April 2021, we commenced a Based on the highly promising preliminary results from the above Phase Ib expansion study, in April 2021, we commenced a registration-intent Phase II trial of amdizalisib in China in patients with relapsed or refractory follicular lymphoma and marginal zone registration-intent Phase II trial of amdizalisib in China in patients with relapsed or refractory follicular lymphoma and marginal zone lymphoma, two subtypes of non-Hodgkin’s lymphoma. The clinical trial is a multi-center, single-arm, open-label clinical study to lymphoma, two subtypes of non-Hodgkin’s lymphoma. The clinical trial is a multi-center, single-arm, open-label clinical study to evaluate the efficacy and safety of amdizalisib once a day oral monotherapy in approximately 100 patients with relapsed/refractory evaluate the efficacy and safety of amdizalisib once a day oral monotherapy in approximately 100 patients with relapsed/refractory follicular lymphoma and approximately 80 patients with relapsed/refractory marginal zone lymphoma. Relapsed/refractory is defined follicular lymphoma and approximately 80 patients with relapsed/refractory marginal zone lymphoma. Relapsed/refractory is defined when a patient has not achieved response (complete response or partial response) after the latest line of systemic treatment, or has when a patient has not achieved response (complete response or partial response) after the latest line of systemic treatment, or has progressive disease or relapse after achieving response. The primary endpoint is ORR, with secondary endpoints including CR rate, progressive disease or relapse after achieving response. The primary endpoint is ORR, with secondary endpoints including CR rate, PFS, TTR and duration of response. The trial is being conducted in over 35 sites in China, has fully enrolled the follicular lymphoma PFS, TTR and duration of response. The trial is being conducted in over 35 sites in China, has fully enrolled the follicular lymphoma cohort and is expected to complete enrollment for the marginal zone lymphoma cohort around mid-year. cohort and is expected to complete enrollment for the marginal zone lymphoma cohort around mid-year. The table below shows a summary of our clinical trials for tazemetostat. Treatment Tazemetostat monotherapy Tazemetostat +lenalidomide + rituximab (R2) Clinical Trials of Tazemetostat Trial Name, Patient Focus Metastatic or locally advanced epithelioid sarcoma; Relapsed/refractory 3L+ follicular lymphoma SYMPHONY-1: 2L follicular lymphoma Sites Hainan Phase N/A – Hainan Pilot Zone Global Ib/III Tazemetostat monotherapy Relapsed/refractory 3L+ follicular lymphoma China Tazemetostat + amdizalisib Relapsed/refractory lymphoma China II registration- intent (bridging) II Status/Plan Approved; Launched in 2022 NCT # N/A Ongoing: PhIb data at ASH 2022; China portion of global Phase III trial started H2 2022 Ongoing since July 2022 NCT04224493 NCT05467943 Ongoing since February 2023 NCT05713110 106 106 107 SYMPHONY-1 Phase Ib/III Trial of tazemetostat for follicular lymphoma (NCT04224493) Common FGFR Alterations in Certain Tumor Types SYMPHONY-1 is a global, multicenter, randomized, double-blind, active-controlled, 3-stage, biomarker-enriched, Phase Ib/III study of tazemetostat in combination with R² (lenalidomide and rituximab) in patients with relapsed or refractory follicular lymphoma after at least one prior line of therapy. Ipsen conducted the Phase Ib portion of the study in 2021, which determined the recommended Phase III dose and also demonstrated potential efficacy in second-line follicular lymphoma. The safety profile of the combination was consistent with the previously reported safety information in the U.S. prescribing information for both tazemetostat and R², respectively. An interim analysis of the Phase Ib portion of the study, based on 44 follicular lymphoma patients as of June 14, 2022, was presented at ASH 2022. The safety profile of the tazemetostat and R² combination was consistent with the prescribing information for both tazemetostat and R², respectively. Additionally, there was no clear dose response for treatment-emergent adverse events (TEAEs) or dose modifications. Of 41 evaluable patients, ORR was 97.6% with 51.2% complete response rate. Median PFS and DoR were not yet reached with a median follow-up of 11.2 months. In the Phase III portion of the trial, approximately 500 patients are randomly assigned to receive the recommended Phase III dose of tazemetostat of tazemetostat + R² or placebo + R². The study will also include a maintenance arm with tazemetostat or placebo following the first year of treatment with tazemetostat + R² or placebo + R². The first patient was enrolled in May 2022 and the first China patient was enrolled in September 2022. Phase II bridging study in relapsed/refractory follicular lymphoma (NCT05467943) In July 2022, we initiated a multicenter, open-label, Phase II study to evaluate the efficacy, safety and pharmacokinetics of tazemetostat for the treatment of patients with relapsed/refractory follicular lymphoma intended to support conditional registration in China. The primary objective is to evaluate the efficacy of tazemetostat in patients with EZH2 mutation (Cohort 1). The secondary objectives are to evaluate the efficacy of tazemetostat in patients with EZH2 wild-type (Cohort 2) and to evaluate the safety and the pharmacokinetics of tazemetostat. Enrollment of cohort 2 is complete and cohort 1 is ongoing and is expected to be completed in 2023. Phase II combination study in relapsed/refractory follicular lymphoma (NCT05713110) This is a multicenter, open-label, Phase II study to evaluate the safety, tolerability and preliminary anti-tumor efficacy of tazemetostat in combination with amdizalisib in patients with R/R lymphoma. The first patient was dosed in February 2023. enrollment. 7. HMPL-453, FGFR Inhibitor HMPL-453 Pre-clinical Evidence HMPL-453 is a novel, selective, oral inhibitor targeting FGFR 1/2/3. Aberrant FGFR signaling is associated with tumor growth, promotion of angiogenesis, as well as resistance to anti-tumor therapies. Approximately 10-15% of IHCC patients have tumors harboring FGFR2 fusion. We currently retain all rights to HMPL-453 worldwide. Mechanism of Action FGFR belongs to a subfamily of receptor tyrosine kinases. Four different FGFRs (FGFR1-4) and at least 18 ligand FGFs constitute the FGF/FGFR signaling system. Activation of the FGFR pathway through the phosphorylation of various downstream molecules ultimately leads to increased cell proliferation, migration and survival. FGF/FGFR signaling regulates a wide range of basic biological processes, including tissue development, angiogenesis, and tissue regeneration. Given the inherent complexity and critical roles in physiological processes, dysfunction in the FGF/FGFR signaling leads to a number of developmental disorders and is consistently found to be a driving force in cancer. Deregulation of the FGFR can take many forms, including receptor amplification, activating mutations, gene fusions, and receptor isoform switching, and the molecular alterations are found at relatively low frequencies in most tumors. The incidence of FGFR aberrance in various cancer types is listed in the table below. FGFR1 FGFR2 FGFR3 Gene amplification Gene translocation Lung squamous (7-15%) Lung squamous (n/a) H&N squamous (10-17%) Glioblastoma (n/a) Esophageal squamous (9%) Myeloproliferative syndrome (n/a) Gene mutation Gastric (4%) Pilocytic astrocytoma (5-8%) Intra-hepatic biliary tract cancer (14%) Endometrial (12-14%) Lung squamous (5%) Bladder (60-80% NMIBC; 15-20% MIBC) Salivary adenoid cystic (n/a) Lung squamous (3%) Cervical (5%) Breast (10-15%) Gastric (5-10%) Breast (5-10%) Bladder (3%) Breast (1%) Breast (n/a) Breast (n/a) Bladder (3-6%) Glioblastoma (3-7%) Myeloma (15-20%) Notes: H&N = head and neck; NMIBC = non-muscle invasive bladder cancer; MIBC = muscle invasive bladder cancer; and n/a = data not available. Source: M. Touat et al., “Targeting FGFR Signaling in Cancer,” Clinical Cancer Research (2015); 21(12); 2684-94. HMPL-453 Research Background We noted a growing body of evidence has demonstrated the oncogenic potential of FGFR aberrations in driving tumor growth, promoting angiogenesis, and conferring resistance mechanisms to oncology therapies. Targeting the FGF/FGFR signaling pathway has therefore attracted attention from biopharmaceutical companies and has become an important exploratory target for new anti-tumor target therapies. The main FGFR on-target toxicities observed to date in these compounds are all mild and manageable, including hyperphosphatemia, nail and mucosal disorder, and reversible retinal pigmented epithelial detachment. However, there are still many challenges in the development of FGFR-directed therapies. Uncertainties include the screening and stratifying of patients who are most likely to benefit from FGFR targeted therapy. Intra-tumor heterogeneity observed in FGFR amplified cancer may compromise the anti- tumor activity. In addition, the low frequency of specific FGFR molecular aberrance in each cancer type may hinder clinical trial HMPL-453 is a highly selective and potent, small molecule that targets FGFR 1/2/3 with an IC50 in the low nanomolar range. Its good selectivity was revealed in the screening against 292 kinases. HMPL-453 exhibited strong anti-tumor activity that correlated with target inhibition in tumor models with abnormal FGFR activation. HMPL-453 has good pharmacokinetic properties characterized by rapid absorption following oral dosing, good bioavailability, moderate tissue distribution and moderate clearance in all pre-clinical animal species. HMPL-453 was found to have little inhibitory effect on major cytochrome P450 enzymes, indicating low likelihood of drug-to-drug interaction issues. HMPL-453 Clinical Development The table below shows a summary of our clinical trials for HMPL-453. Treatment HMPL-453 monotherapy Trial Name, Patient Focus Sites 2L Cholangiocarcinoma (IHCC China Phase II with FGFR fusion) Clinical Trials of HMPL-453 HMPL-453 + chemotherapies HMPL-453 + Tuoyi (PD-1) Multiple Multiple China China I/II I/II Ongoing since 2022 Ongoing since 2022 NCT05173142 NCT05173142 Status/Plan Ongoing since 2020; Data submission planned in 2023; Preparing registration enabling study NCT # NCT04353375 108 109 SYMPHONY-1 Phase Ib/III Trial of tazemetostat for follicular lymphoma (NCT04224493) Common FGFR Alterations in Certain Tumor Types FGFR1 FGFR2 FGFR3 Gene mutation Gastric (4%) Pilocytic astrocytoma (5-8%) Breast (n/a) Intra-hepatic biliary tract cancer (14%) Endometrial (12-14%) Lung squamous (5%) Breast (n/a) Bladder (60-80% NMIBC; 15-20% MIBC) Bladder (3-6%) Cervical (5%) Gene amplification Gene translocation Lung squamous (n/a) Glioblastoma (n/a) Lung squamous (7-15%) H&N squamous (10-17%) Esophageal squamous (9%) Myeloproliferative syndrome (n/a) Breast (10-15%) Gastric (5-10%) Breast (5-10%) Bladder (3%) Salivary adenoid cystic (n/a) Lung squamous (3%) Glioblastoma (3-7%) Breast (1%) Myeloma (15-20%) SYMPHONY-1 is a global, multicenter, randomized, double-blind, active-controlled, 3-stage, biomarker-enriched, Phase Ib/III study of tazemetostat in combination with R² (lenalidomide and rituximab) in patients with relapsed or refractory follicular lymphoma after at least one prior line of therapy. Ipsen conducted the Phase Ib portion of the study in 2021, which determined the recommended Phase III dose and also demonstrated potential efficacy in second-line follicular lymphoma. The safety profile of the combination was consistent with the previously reported safety information in the U.S. prescribing information for both tazemetostat and R², respectively. An interim analysis of the Phase Ib portion of the study, based on 44 follicular lymphoma patients as of June 14, 2022, was presented at ASH 2022. The safety profile of the tazemetostat and R² combination was consistent with the prescribing information for both tazemetostat and R², respectively. Additionally, there was no clear dose response for treatment-emergent adverse events (TEAEs) or dose modifications. Of 41 evaluable patients, ORR was 97.6% with 51.2% complete response rate. Median PFS and DoR were not yet reached with a median follow-up of 11.2 months. In the Phase III portion of the trial, approximately 500 patients are randomly assigned to receive the recommended Phase III dose of tazemetostat of tazemetostat + R² or placebo + R². The study will also include a maintenance arm with tazemetostat or placebo following the first year of treatment with tazemetostat + R² or placebo + R². The first patient was enrolled in May 2022 and the first China patient was enrolled in September 2022. Phase II bridging study in relapsed/refractory follicular lymphoma (NCT05467943) In July 2022, we initiated a multicenter, open-label, Phase II study to evaluate the efficacy, safety and pharmacokinetics of tazemetostat for the treatment of patients with relapsed/refractory follicular lymphoma intended to support conditional registration in China. The primary objective is to evaluate the efficacy of tazemetostat in patients with EZH2 mutation (Cohort 1). The secondary objectives are to evaluate the efficacy of tazemetostat in patients with EZH2 wild-type (Cohort 2) and to evaluate the safety and the pharmacokinetics of tazemetostat. Enrollment of cohort 2 is complete and cohort 1 is ongoing and is expected to be completed in 2023. Phase II combination study in relapsed/refractory follicular lymphoma (NCT05713110) This is a multicenter, open-label, Phase II study to evaluate the safety, tolerability and preliminary anti-tumor efficacy of tazemetostat in combination with amdizalisib in patients with R/R lymphoma. The first patient was dosed in February 2023. HMPL-453 is a novel, selective, oral inhibitor targeting FGFR 1/2/3. Aberrant FGFR signaling is associated with tumor growth, promotion of angiogenesis, as well as resistance to anti-tumor therapies. Approximately 10-15% of IHCC patients have tumors harboring FGFR2 fusion. We currently retain all rights to HMPL-453 worldwide. 7. HMPL-453, FGFR Inhibitor Mechanism of Action FGFR belongs to a subfamily of receptor tyrosine kinases. Four different FGFRs (FGFR1-4) and at least 18 ligand FGFs constitute the FGF/FGFR signaling system. Activation of the FGFR pathway through the phosphorylation of various downstream molecules ultimately leads to increased cell proliferation, migration and survival. FGF/FGFR signaling regulates a wide range of basic biological processes, including tissue development, angiogenesis, and tissue regeneration. Given the inherent complexity and critical roles in physiological processes, dysfunction in the FGF/FGFR signaling leads to a number of developmental disorders and is consistently found to be a driving force in cancer. Deregulation of the FGFR can take many forms, including receptor amplification, activating mutations, gene fusions, and receptor isoform switching, and the molecular alterations are found at relatively low frequencies in most tumors. The incidence of FGFR aberrance in various cancer types is listed in the table below. Notes: H&N = head and neck; NMIBC = non-muscle invasive bladder cancer; MIBC = muscle invasive bladder cancer; and n/a = data not available. Source: M. Touat et al., “Targeting FGFR Signaling in Cancer,” Clinical Cancer Research (2015); 21(12); 2684-94. HMPL-453 Research Background We noted a growing body of evidence has demonstrated the oncogenic potential of FGFR aberrations in driving tumor growth, promoting angiogenesis, and conferring resistance mechanisms to oncology therapies. Targeting the FGF/FGFR signaling pathway has therefore attracted attention from biopharmaceutical companies and has become an important exploratory target for new anti-tumor target therapies. The main FGFR on-target toxicities observed to date in these compounds are all mild and manageable, including hyperphosphatemia, nail and mucosal disorder, and reversible retinal pigmented epithelial detachment. However, there are still many challenges in the development of FGFR-directed therapies. Uncertainties include the screening and stratifying of patients who are most likely to benefit from FGFR targeted therapy. Intra-tumor heterogeneity observed in FGFR amplified cancer may compromise the anti- tumor activity. In addition, the low frequency of specific FGFR molecular aberrance in each cancer type may hinder clinical trial enrollment. HMPL-453 Pre-clinical Evidence HMPL-453 is a highly selective and potent, small molecule that targets FGFR 1/2/3 with an IC50 in the low nanomolar range. Its good selectivity was revealed in the screening against 292 kinases. HMPL-453 exhibited strong anti-tumor activity that correlated with target inhibition in tumor models with abnormal FGFR activation. HMPL-453 has good pharmacokinetic properties characterized by rapid absorption following oral dosing, good bioavailability, moderate tissue distribution and moderate clearance in all pre-clinical animal species. HMPL-453 was found to have little inhibitory effect on major cytochrome P450 enzymes, indicating low likelihood of drug-to-drug interaction issues. HMPL-453 Clinical Development The table below shows a summary of our clinical trials for HMPL-453. Clinical Trials of HMPL-453 Treatment HMPL-453 monotherapy Trial Name, Patient Focus 2L Cholangiocarcinoma (IHCC with FGFR fusion) Sites China Phase II HMPL-453 + chemotherapies HMPL-453 + Tuoyi (PD-1) Multiple Multiple China China I/II I/II Status/Plan Ongoing since 2020; Data submission planned in 2023; Preparing registration enabling study Ongoing since 2022 Ongoing since 2022 NCT # NCT04353375 NCT05173142 NCT05173142 108 109 Phase II HMPL-453 monotherapy in advanced IHCC (NCT04353375) 9. HMPL-760, BTK Inhibitor In September 2020, we initiated a Phase II, single-arm, multi-center, open-label study, evaluating the efficacy, safety and pharmacokinetics of HMPL-453 in patients with advanced IHCC with FGFR2 fusion that had failed at least one line of systemic therapy. IHCC is a cancer that develops within the bile ducts, the second most common primary hepatic malignancy after hepatocellular carcinoma. Approximately 10-15% of IHCC patients have tumors that harbor FGFR2 fusion. After consultation with the CDE, a monotherapy registration final design has been agreed, and preparations are under way. Phase Ib/II HMPL-453 in combination with chemotherapies or toripalimab in advanced solid tumors (NCT05173142) In January 2022, we initiated a Phase Ib/II, multi-center, two-stage, open-label clinical trial of HMPL-453 in combination with chemotherapy or the anti-PD-1 therapy, toripalimab, to evaluate the safety, tolerability, pharmacokinetics and preliminary efficacy profile of HMPL-453 combination therapy in patients with specific advanced or metastatic solid tumors. The first stage of the study is a dose escalation phase to determine the dose limiting toxicity (DLT) and recommended Phase II dose of HMPL-453 in combination with chemotherapy (gemcitabine and cisplatin) or toripalimab. The second stage of the study is a dose expansion phase in solid tumor patients with either gastric cancer, intrahepatic cholangiocarcinoma, or urothelial carcinoma, harboring specific FGFR gene alterations. Each solid tumor cohort will be treated with a specific combination of HMPL-453 and a chemotherapy or anti-PD-1 therapy to further evaluate the preliminary efficacy, safety and tolerability at the recommended Phase II dose. 8. HMPL-306, IDH1 and 2 Inhibitor HMPL-760 worldwide. Mechanism of Action BTK inhibitors. HMPL-760 Clinical Trials HMPL-306 is a novel dual-inhibitor of IDH1 and IDH2 enzymes. IDH1 and IDH2 mutations have been implicated as drivers of certain hematological malignancies, gliomas and solid tumors, particularly among acute myeloid leukemia patients. We currently retain all rights to HMPL-306 worldwide. 10. HMPL-295, ERK Inhibitor Mechanism of Action IDHs are critical metabolic enzymes that help to break down nutrients and generate energy for cells. When mutated, IDH creates a molecule that alters the cell’s genetic programming and prevents cells from maturing, 2-hydroxyglutarate (“2-HG”). Reduction in 2-HG levels can be used as a marker of target engagement by an IDH inhibitor. IDH1 or IDH2 mutations are common genetic alterations in various types of blood and solid tumors, including acute myeloid leukemia, with approximately 20% of patients having mutant IDH genes, myelodysplastic syndrome intrahepatic cholangiocarcinoma. Mutant IDH isoform switching, either from cytoplasmic mutant IDH1 to mitochondrial mutant IDH2, or vice versa, is a mechanism of acquired resistance to IDH inhibition in acute myeloid leukemia and cholangiocarcinoma. (MDS), myeloproliferative neoplasms low-grade glioma and (MPNs), Cytoplasmic mutant IDH1 and mitochondrial mutant IDH2 have been known to switch to the other form when targeted by an inhibitor of IDH1 mutant alone or IDH2 mutant alone. By targeting both IDH1 and IDH2 mutations, HMPL-306 could potentially provide therapeutic benefits in cancer patients harboring either IDH mutation and may address acquired resistance to IDH inhibition through isoform switching. HMPL-306 Clinical Trials The table below shows a summary of our clinical trials for HMPL-306. Clinical Trials of HMPL-306 Treatment HMPL-306 monotherapy HMPL-306 monotherapy HMPL-306 monotherapy Trial Name, Patient Focus Hematological malignancies Sites Phase China I Ongoing since 2020; RP2D determined NCT04272957 Status/Plan NCT # Solid tumors including but not limited to gliomas, chondrosarcomas or cholangiocarcinomas Hematological malignancies U.S. U.S I I Ongoing since 2021; nominate RP2D in NCT04762602 2023 Ongoing since 2021; nominate RP2D in NCT04764474 2023 in patients with advanced malignant solid tumors. 11. HMPL-653, CSF-1R Inhibitor 110 111 HMPL-760 is an investigational, non-covalent, third-generation BTK inhibitor. It is a highly potent, selective, and reversible inhibitor with long target engagement against BTK, including wild-type and C481S-mutated BTK. We currently retain all rights to BTK is a key component of the B-cell receptor signaling pathway and is an important regulator of cell proliferation and cell survival in various lymphomas. The abnormal activation of B-cell receptor signaling is closely related to the development of B-cell type hematological cancers, which represent approximately 85% of all NHL cases. BTK is considered a validated target for drugs that aim to treat certain hematological cancers, however C481S mutation of BTK is a known resistance mechanism for first and second generation The table below shows a summary of our clinical trials of HMPL-760. Clinical Trials of HMPL-760 Treatment Trial Name, Patient Focus Sites Phase Status/Plan HMPL-760 monotherapy HMPL-760 monotherapy CLL, SLL, other B-NHL CLL, SLL, other NHL China U.S. I I Ongoing since January 2022 De-prioritized NCT # NCT05190068 NCT05176691 HMPL-295, a novel ERK inhibitor, is our tenth in-house discovered small molecule oncology drug candidate. ERK is a downstream component of the RAS-RAF-MEK-ERK signaling cascade (MAPK pathway). This is our first of multiple candidates in discovery addressing the MAPK pathway. We currently retain all rights to HMPL-295 worldwide. Mechanism of Action RAS-MAPK pathway is dysregulated in human diseases, particularly cancer, in which mutations or nongenetic events hyperactivate the pathway in up to 50% of cancers. Activating mutations in RAS genes occur in more than 30% of cancers. RAS and RAF mutations predict worse clinical prognosis in a wide variety of tumor types, mediate resistance to targeted therapies, and decrease the response to the approved standards of care, namely, targeted therapy and immunotherapy. On the MAPK pathway, KRAS inhibitors are under clinical evaluation, and acquired resistance develops for RAF/MEK targeted therapies. ERK inhibition has the potential to overcome or avoid the intrinsic or acquired resistance from the inhibition of RAS, RAF and MEK upstream mechanisms. HMPL-295 Clinical Trials The table below shows a summary of our clinical trial for HMPL-295. Clinical Trial of HMPL-295 Treatment Trial Name, Patient Focus HMPL-295 monotherapy Solid tumors Sites China Phase I Status/Plan Ongoing since 2021 NCT # NCT04908046 We initiated our Phase I development in China in July 2021. This is a multi-center and open-label study to evaluate the safety, tolerability, pharmacokinetics and preliminary efficacy profile of HMPL-295, and to determine the maximum tolerated dose and RP2D HMPL-653 is an investigational novel, highly selective, and potent CSF-1R inhibitor designed to target CSF-1R driven tumors as a monotherapy or in combination with other drugs. We currently retain all rights to HMPL-653 worldwide. Phase II HMPL-453 monotherapy in advanced IHCC (NCT04353375) 9. HMPL-760, BTK Inhibitor In September 2020, we initiated a Phase II, single-arm, multi-center, open-label study, evaluating the efficacy, safety and pharmacokinetics of HMPL-453 in patients with advanced IHCC with FGFR2 fusion that had failed at least one line of systemic therapy. IHCC is a cancer that develops within the bile ducts, the second most common primary hepatic malignancy after hepatocellular HMPL-760 is an investigational, non-covalent, third-generation BTK inhibitor. It is a highly potent, selective, and reversible inhibitor with long target engagement against BTK, including wild-type and C481S-mutated BTK. We currently retain all rights to HMPL-760 worldwide. carcinoma. Approximately 10-15% of IHCC patients have tumors that harbor FGFR2 fusion. After consultation with the CDE, a monotherapy registration final design has been agreed, and preparations are under way. Phase Ib/II HMPL-453 in combination with chemotherapies or toripalimab in advanced solid tumors (NCT05173142) In January 2022, we initiated a Phase Ib/II, multi-center, two-stage, open-label clinical trial of HMPL-453 in combination with chemotherapy or the anti-PD-1 therapy, toripalimab, to evaluate the safety, tolerability, pharmacokinetics and preliminary efficacy profile of HMPL-453 combination therapy in patients with specific advanced or metastatic solid tumors. The first stage of the study is a dose escalation phase to determine the dose limiting toxicity (DLT) and recommended Phase II dose of HMPL-453 in combination with chemotherapy (gemcitabine and cisplatin) or toripalimab. The second stage of the study is a dose expansion phase in solid tumor patients with either gastric cancer, intrahepatic cholangiocarcinoma, or urothelial carcinoma, harboring specific FGFR gene alterations. Each solid tumor cohort will be treated with a specific combination of HMPL-453 and a chemotherapy or anti-PD-1 therapy to further evaluate the preliminary efficacy, safety and tolerability at the recommended Phase II dose. Mechanism of Action BTK is a key component of the B-cell receptor signaling pathway and is an important regulator of cell proliferation and cell survival in various lymphomas. The abnormal activation of B-cell receptor signaling is closely related to the development of B-cell type hematological cancers, which represent approximately 85% of all NHL cases. BTK is considered a validated target for drugs that aim to treat certain hematological cancers, however C481S mutation of BTK is a known resistance mechanism for first and second generation BTK inhibitors. HMPL-760 Clinical Trials The table below shows a summary of our clinical trials of HMPL-760. Clinical Trials of HMPL-760 Treatment HMPL-760 monotherapy HMPL-760 monotherapy Trial Name, Patient Focus CLL, SLL, other B-NHL CLL, SLL, other NHL Sites China U.S. Phase I I Status/Plan Ongoing since January 2022 De-prioritized NCT # NCT05190068 NCT05176691 HMPL-306 is a novel dual-inhibitor of IDH1 and IDH2 enzymes. IDH1 and IDH2 mutations have been implicated as drivers of certain hematological malignancies, gliomas and solid tumors, particularly among acute myeloid leukemia patients. We currently retain 10. HMPL-295, ERK Inhibitor IDHs are critical metabolic enzymes that help to break down nutrients and generate energy for cells. When mutated, IDH creates a molecule that alters the cell’s genetic programming and prevents cells from maturing, 2-hydroxyglutarate (“2-HG”). Reduction in 2-HG Mechanism of Action levels can be used as a marker of target engagement by an IDH inhibitor. IDH1 or IDH2 mutations are common genetic alterations in various types of blood and solid tumors, including acute myeloid leukemia, with approximately 20% of patients having mutant IDH genes, myelodysplastic syndrome (MDS), myeloproliferative neoplasms (MPNs), low-grade glioma and intrahepatic cholangiocarcinoma. Mutant IDH isoform switching, either from cytoplasmic mutant IDH1 to mitochondrial mutant IDH2, or vice versa, is a mechanism of acquired resistance to IDH inhibition in acute myeloid leukemia and cholangiocarcinoma. Cytoplasmic mutant IDH1 and mitochondrial mutant IDH2 have been known to switch to the other form when targeted by an inhibitor of IDH1 mutant alone or IDH2 mutant alone. By targeting both IDH1 and IDH2 mutations, HMPL-306 could potentially RAS-MAPK pathway is dysregulated in human diseases, particularly cancer, in which mutations or nongenetic events hyperactivate the pathway in up to 50% of cancers. Activating mutations in RAS genes occur in more than 30% of cancers. RAS and RAF mutations predict worse clinical prognosis in a wide variety of tumor types, mediate resistance to targeted therapies, and decrease the response to the approved standards of care, namely, targeted therapy and immunotherapy. On the MAPK pathway, KRAS inhibitors are under clinical evaluation, and acquired resistance develops for RAF/MEK targeted therapies. ERK inhibition has the potential to overcome or avoid the intrinsic or acquired resistance from the inhibition of RAS, RAF and MEK upstream mechanisms. provide therapeutic benefits in cancer patients harboring either IDH mutation and may address acquired resistance to IDH inhibition HMPL-295 Clinical Trials HMPL-295, a novel ERK inhibitor, is our tenth in-house discovered small molecule oncology drug candidate. ERK is a downstream component of the RAS-RAF-MEK-ERK signaling cascade (MAPK pathway). This is our first of multiple candidates in discovery addressing the MAPK pathway. We currently retain all rights to HMPL-295 worldwide. 8. HMPL-306, IDH1 and 2 Inhibitor all rights to HMPL-306 worldwide. Mechanism of Action through isoform switching. HMPL-306 Clinical Trials Treatment HMPL-306 monotherapy HMPL-306 monotherapy HMPL-306 monotherapy The table below shows a summary of our clinical trials for HMPL-306. Clinical Trials of HMPL-306 Trial Name, Patient Focus Sites Phase Status/Plan NCT # Hematological malignancies China Ongoing since 2020; RP2D determined NCT04272957 I I I 2023 2023 The table below shows a summary of our clinical trial for HMPL-295. Clinical Trial of HMPL-295 Treatment HMPL-295 monotherapy Trial Name, Patient Focus Solid tumors Sites China Phase I Status/Plan Ongoing since 2021 NCT # NCT04908046 We initiated our Phase I development in China in July 2021. This is a multi-center and open-label study to evaluate the safety, tolerability, pharmacokinetics and preliminary efficacy profile of HMPL-295, and to determine the maximum tolerated dose and RP2D in patients with advanced malignant solid tumors. Solid tumors including but not limited to gliomas, U.S. Ongoing since 2021; nominate RP2D in NCT04762602 chondrosarcomas or cholangiocarcinomas Hematological malignancies U.S Ongoing since 2021; nominate RP2D in NCT04764474 11. HMPL-653, CSF-1R Inhibitor HMPL-653 is an investigational novel, highly selective, and potent CSF-1R inhibitor designed to target CSF-1R driven tumors as a monotherapy or in combination with other drugs. We currently retain all rights to HMPL-653 worldwide. 110 111 Mechanism of Action HMPL-A83 Clinical Trials CSF-1R is usually expressed on the surface of macrophages and can promote growth and differentiation of macrophages. Studies have shown that blocking the CSF-1R signaling pathway could effectively modulate the tumor microenvironment, relieve tumor immunosuppression, and synergize with other anti-cancer therapies such as immune checkpoint inhibitors to achieve tumor inhibition. It has been demonstrated in several clinical studies that CSF-1R inhibitors could treat tenosynovial giant cell tumors and treat a variety of malignancies combined with immuno-oncology or other therapeutic agents. Currently no CSF-1R inhibitor has been approved in China. HMPL-653 Clinical Trials The table below shows a summary of our clinical trial of HMPL-653. Clinical Trial of HMPL-653 Treatment HMPL-653 monotherapy Trial Name, Patient Focus Solid tumors & China Sites Phase I tenosynovial giant cell tumors Status/Plan NCT # Ongoing since 2022, ~110 NCT05190068 patients expected to be enrolled We initiated our Phase I development in China in January 2022, and the study is a multi-center, open-label and single-armed study to evaluate the safety, tolerability, pharmacokinetics and preliminary efficacy of HMPL-653 in patients with advanced or metastatic solid tumors and tenosynovial giant cell tumors. We expect to enroll around 110 patients in this study. were submitted in 2022. 12. HMPL-A83, IgG4-type humanized anti-CD47 monoclonal antibody HMPL-A83 is an investigational IgG4-type humanized anti-CD47 monoclonal antibody that exhibits high affinity for CD47. HMPL-A83 blocks CD47 binding to Signal regulatory protein (SIRP) α and disrupts the “do not eat me” signal that cancer cells use to shield themselves from the immune system. We currently retain all rights to HMPL-A83 worldwide. Mechanism of Action and Preclinical Eridemia CD47 is a cell surface transmembrane protein that is ubiquitously expressed on virtually all human cells. The overexpression of CD47 is reported in a variety of tumors and is believed to be associated with immune escape from macrophage-mediated phagocytosis. HMPL-A83 is an investigational IgG4-type humanized anti-CD47 monoclonal antibody that exhibits high affinity for CD47. HMPL- A83 blocks CD47 binding to Signal regulatory protein (SIRP) α and disrupts the “do not eat me” signal that cancer cells use to shield themselves from the immune system. In preclinical studies, HMPL-A83 demonstrated weak affinity for red blood cells and no induction of hemagglutination, implying low risk of anemia. HMPL-A83 also demonstrated a high affinity for CD47 antigen on tumor cells and strong phagocytosis induction of multiple tumor cells. HMPL-A83 has also demonstrated strong anti-tumor activity in multiple animal models. The table below shows a summary of our clinical trial of HMPL-A83. Clinical Trial of HMPL-A83 Treatment Trial Name, Patient Focus Sites Phase Status/Plan NCT # HMPL-A83 monotherapy Advanced malignant neoplasms China I Ongoing since July 2022 NCT05429008 We initiated our Phase I development in China in July 2022, and the study is a multicenter, open-label study to evaluate the safety, tolerability, pharmacokinetics and preliminary efficacy of HMPL-A83 in patients with advanced malignant neoplasms. The primary endpoints are DLT, safety, tolerability, RP2D and MTD. The secondary endpoints include pharmacokinetics, pharmacodynamics, immunogenicity and preliminary efficacy profile. We expect to enroll around 100 patients in this study. 13. IMG-007 and IMG-004, Immunology Collaboration with Inmagene In January 2021, we entered into a strategic partnership with Inmagene, a clinical development stage company with a focus on immunological diseases, to further develop four novel preclinical drug candidates we discovered for the potential treatment of multiple immunological diseases. Under the terms of the agreement, we granted Inmagene exclusive options to such drug candidates solely for the treatment of immunological diseases. Funded by Inmagene, we work together to move the drug candidates towards IND. If successful, Inmagene will then advance the drug candidates through global clinical development. INDs for the first two compounds Treatment IMG-007 (OX40 Name, Line, Patient Focus Sites Phase Status/Plan NCT # Healthy volunteers; adults with moderate to Global I Ongoing since 2022 NCT05353972 monoclonal antibody) severe atopic dermatitis IMG-004 (BTK inhibitor) Healthy volunteers Global I Ongoing since 2022 NCT05349097 IMG-007 in atopic dermatitis – This is a novel antagonistic monoclonal antibody targeting the OX40 receptor. OX40 is a costimulatory receptor member of the tumor necrosis factor receptor (TNFR) superfamily expressed predominantly on activated T cells. The Phase I study in healthy volunteers was initiated in July 2022 in Australia. IMG-004 in immunological diseases – This is a non-covalent, reversible small molecule inhibitor targeting BTK. Designed specifically for inflammatory and autoimmune diseases that usually require long-term treatment, IMG-004 is potent, highly selective and brain permeable. The Phase I study in healthy volunteers in the United States was initiated in August 2022. Our Research and Development Approach Our core research and development philosophy is to take a holistic approach to the treatment of cancer and immunological diseases, through multiple modalities and mechanisms, including targeted therapies, immunotherapies and other pathways. A primary objective of our research efforts has been to develop next generation drug candidates with: unique selectivity to limit target-based toxicity; high potency to optimize the dose selection with the objective to lower the required dose and thereby limit compound-based chemical structures deliberately engineered to improve drug exposure in the targeted tissue; and ability to be combined with other therapeutic agents, including targeted therapies, immunotherapies and chemotherapies. toxicity; • • • • 112 113 Mechanism of Action HMPL-A83 Clinical Trials CSF-1R is usually expressed on the surface of macrophages and can promote growth and differentiation of macrophages. Studies The table below shows a summary of our clinical trial of HMPL-A83. have shown that blocking the CSF-1R signaling pathway could effectively modulate the tumor microenvironment, relieve tumor immunosuppression, and synergize with other anti-cancer therapies such as immune checkpoint inhibitors to achieve tumor inhibition. It has been demonstrated in several clinical studies that CSF-1R inhibitors could treat tenosynovial giant cell tumors and treat a variety of malignancies combined with immuno-oncology or other therapeutic agents. Currently no CSF-1R inhibitor has been approved in China. HMPL-653 Clinical Trials The table below shows a summary of our clinical trial of HMPL-653. Clinical Trial of HMPL-653 Treatment HMPL-653 monotherapy tenosynovial giant cell tumors Trial Name, Patient Focus Sites Solid tumors & China Phase I Status/Plan NCT # Ongoing since 2022, ~110 NCT05190068 patients expected to be enrolled We initiated our Phase I development in China in January 2022, and the study is a multi-center, open-label and single-armed study to evaluate the safety, tolerability, pharmacokinetics and preliminary efficacy of HMPL-653 in patients with advanced or metastatic solid tumors and tenosynovial giant cell tumors. We expect to enroll around 110 patients in this study. 12. HMPL-A83, IgG4-type humanized anti-CD47 monoclonal antibody HMPL-A83 is an investigational IgG4-type humanized anti-CD47 monoclonal antibody that exhibits high affinity for CD47. HMPL-A83 blocks CD47 binding to Signal regulatory protein (SIRP) α and disrupts the “do not eat me” signal that cancer cells use to shield themselves from the immune system. We currently retain all rights to HMPL-A83 worldwide. Mechanism of Action and Preclinical Eridemia CD47 is a cell surface transmembrane protein that is ubiquitously expressed on virtually all human cells. The overexpression of CD47 is reported in a variety of tumors and is believed to be associated with immune escape from macrophage-mediated phagocytosis. HMPL-A83 is an investigational IgG4-type humanized anti-CD47 monoclonal antibody that exhibits high affinity for CD47. HMPL- A83 blocks CD47 binding to Signal regulatory protein (SIRP) α and disrupts the “do not eat me” signal that cancer cells use to shield themselves from the immune system. In preclinical studies, HMPL-A83 demonstrated weak affinity for red blood cells and no induction of hemagglutination, implying low risk of anemia. HMPL-A83 also demonstrated a high affinity for CD47 antigen on tumor cells and strong phagocytosis induction of multiple tumor cells. HMPL-A83 has also demonstrated strong anti-tumor activity in multiple animal models. Clinical Trial of HMPL-A83 Treatment HMPL-A83 monotherapy Trial Name, Patient Focus Sites Phase Status/Plan NCT # Advanced malignant neoplasms China I Ongoing since July 2022 NCT05429008 We initiated our Phase I development in China in July 2022, and the study is a multicenter, open-label study to evaluate the safety, tolerability, pharmacokinetics and preliminary efficacy of HMPL-A83 in patients with advanced malignant neoplasms. The primary endpoints are DLT, safety, tolerability, RP2D and MTD. The secondary endpoints include pharmacokinetics, pharmacodynamics, immunogenicity and preliminary efficacy profile. We expect to enroll around 100 patients in this study. 13. IMG-007 and IMG-004, Immunology Collaboration with Inmagene In January 2021, we entered into a strategic partnership with Inmagene, a clinical development stage company with a focus on immunological diseases, to further develop four novel preclinical drug candidates we discovered for the potential treatment of multiple immunological diseases. Under the terms of the agreement, we granted Inmagene exclusive options to such drug candidates solely for the treatment of immunological diseases. Funded by Inmagene, we work together to move the drug candidates towards IND. If successful, Inmagene will then advance the drug candidates through global clinical development. INDs for the first two compounds were submitted in 2022. Treatment IMG-007 (OX40 monoclonal antibody) Name, Line, Patient Focus Sites Phase Status/Plan NCT # Healthy volunteers; adults with moderate to severe atopic dermatitis Global I Ongoing since 2022 NCT05353972 IMG-004 (BTK inhibitor) Healthy volunteers Global I Ongoing since 2022 NCT05349097 IMG-007 in atopic dermatitis – This is a novel antagonistic monoclonal antibody targeting the OX40 receptor. OX40 is a costimulatory receptor member of the tumor necrosis factor receptor (TNFR) superfamily expressed predominantly on activated T cells. The Phase I study in healthy volunteers was initiated in July 2022 in Australia. IMG-004 in immunological diseases – This is a non-covalent, reversible small molecule inhibitor targeting BTK. Designed specifically for inflammatory and autoimmune diseases that usually require long-term treatment, IMG-004 is potent, highly selective and brain permeable. The Phase I study in healthy volunteers in the United States was initiated in August 2022. Our Research and Development Approach Our core research and development philosophy is to take a holistic approach to the treatment of cancer and immunological diseases, through multiple modalities and mechanisms, including targeted therapies, immunotherapies and other pathways. A primary objective of our research efforts has been to develop next generation drug candidates with: • • • • unique selectivity to limit target-based toxicity; high potency to optimize the dose selection with the objective to lower the required dose and thereby limit compound-based toxicity; chemical structures deliberately engineered to improve drug exposure in the targeted tissue; and ability to be combined with other therapeutic agents, including targeted therapies, immunotherapies and chemotherapies. 112 113 We have built a drug discovery engine, with which we strive to create differentiated novel oncology and immunology treatments with global potential. These include furthering both small molecule and biologic therapies which address aberrant genetic drivers and cancer cell metabolism; modulate tumor immune microenvironment; and target immune cell checkpoints. We design drug candidates with profiles that enable them to be used in innovative combinations with other therapies, such as chemotherapy, immunotherapy and other targeted therapy in order to attack disease simultaneously through multiple modalities and pathways. We believe that this approach can significantly improve treatment outcomes for patients. We believe our ability to successfully develop innovative drug candidates through our Oncology/Immunology operations will be the primary factor affecting our long-term competitiveness, as well as our future growth and development. Creating high quality global first-in-class or best-in-class drug candidates requires investment of resources over a prolonged period of time, and a core part of our strategy is to continue making sustained investments in this area. As a result of this commitment, our pipeline of drug candidates has been steadily advancing and expanding, with over a dozen drug candidates put into clinical development. See “– Our Clinical Pipeline” for more details. Beyond these clinical candidates, we continue to conduct research into discovering new types of drug candidates, including among others, small molecules addressing cancer-related apoptosis, cell signaling, epigenetics and protein translation; biologic drug candidates including bispecific antibodies; and novel technologies including antibody-drug conjugates and heterobifunctional small molecules. Our Collaborations Collaborations and joint ventures with corporate partners have provided us with significant funding and access to our partners’ scientific, development, regulatory and commercial capabilities. Our current oncology collaborations focus on savolitinib (collaboration with AstraZeneca) and fruquintinib (collaboration with Eli Lilly). When we entered into these collaborations, we had already conducted the discovery research and early clinical development of each drug candidate and, following our agreements, continued to conduct the clinical development and manage the engagement with regulatory authorities in China up to and including filing the NDAs with the NMPA. Our collaboration partners fund a significant portion of our research and development costs for drug candidates developed in collaboration with them. In addition, we may receive upfront payments upon our entry into these collaboration arrangements and upon the achievement of certain development milestones for the relevant drug candidate. We have received upfront payments, equity contributions and milestone payments totaling approximately $198.5 million mainly from our collaborations with AstraZeneca and Eli Lilly as of December 31, 2022. In return, our collaboration partners are entitled to a significant proportion of any future revenue from our drug candidates developed in collaboration with them, as well as a degree of influence over the clinical development process for such drug candidates. In addition, we have entered into other clinical collaborations for combination studies of fruquintinib and surufatinib with drug candidates belonging to BeiGene, Innovent and/or Junshi. We also have an immunology collaboration with Inmagene with respect to four novel pre-clinical drug candidates discovered by us and an in-licensing collaboration with Epizyme with respect to tazemetostat. AstraZeneca In 2008, our in-house teams started research on MET inhibitors, subsequently discovering our drug candidate, savolitinib, and conducting its pre-clinical development in-house. In 2011, we submitted applications for clinical development and initiated Phase I clinical trials. In December 2011, we entered into an agreement with AstraZeneca under which we granted to AstraZeneca co-exclusive, worldwide rights to develop, and exclusive worldwide rights to manufacture and commercialize savolitinib for all diagnostic, prophylactic and therapeutic uses. In August 2016, December 2020 and November 2021, we and AstraZeneca amended the terms of the agreement. We refer to this agreement, including the amendments thereto, as the AstraZeneca Agreement. AstraZeneca paid $20.0 million upon execution of the AstraZeneca Agreement and agreed to pay royalties and additional amounts upon the achievement of development and sales milestones. Under the original terms of the AstraZeneca Agreement, we and AstraZeneca agreed to share the development costs for savolitinib in China, with AstraZeneca being responsible for the development costs for savolitinib in the rest of the world. With respect to certain clinical trials, we subsequently agreed with AstraZeneca on sharing development costs. As of December 31, 2022, we had received $64.9 million in milestone payments in addition to approximately $71.6 million in reimbursements for certain development costs. We may potentially receive future clinical development and first sales milestones payments for clinical development and initial sales of savolitinib, plus significant further milestone payments based on sales. Subject to approval of savolitinib in treating PRCC, under the amended AstraZeneca Agreement, AstraZeneca is obligated to pay us increased tiered royalties from 14% to 18% annually on all sales made of any product outside of China, which represents a five percentage point increase over the original terms, subject to a potential downward adjustment on such point increase based on the amount of any contribution by AstraZeneca to the Phase III development in patients with such indication. After total aggregate additional royalties have reached five times our contribution to the Phase III development in patients with such indication, this royalty will step down over a two-year period, to an ongoing royalty rate of 10.5% to 14.5%. AstraZeneca is also obligated to pay us a fixed royalty of 30% on all sales made of any product in China. Development and collaboration under this agreement are overseen by a joint steering committee that is comprised of three of our senior representatives as well as three senior representatives from AstraZeneca. AstraZeneca is responsible for the development of savolitinib and all regulatory matters related to this agreement in all countries and territories other than China, and we are responsible for the development of savolitinib and all regulatory matters related to this agreement in China. Since entering the AstraZeneca Agreement, we have continued to lead the development of savolitinib in China. Subject to earlier termination, the AstraZeneca Agreement will continue in full force and effect on a country-by-country basis as long as any collaboration product is being developed or commercialized. The AstraZeneca Agreement is terminable by either party upon a breach that is uncured, upon the occurrence of bankruptcy or insolvency of either party, or by mutual agreement of the parties. The AstraZeneca Agreement may also be terminated by AstraZeneca for convenience with 180 days’ prior written notice. Termination for cause by us or AstraZeneca or for convenience by AstraZeneca will have the effect of, among other things, terminating the applicable licenses granted by us. Termination for convenience by AstraZeneca will have the effect of obligating AstraZeneca to grant to us all of its rights to regulatory approvals and other rights necessary to commercialize savolitinib. Termination by AstraZeneca for convenience will not have the effect of terminating any license granted by AstraZeneca to us. Eli Lilly In 2007, our in-house research into VEGFR inhibitors led to the discovery of our drug candidate, fruquintinib. We conducted pre- clinical development in-house and initiated a Phase I clinical trial in 2010. In October 2013, we entered into an agreement with Eli Lilly whereby we granted Eli Lilly an exclusive license to develop, manufacture and commercialize fruquintinib for all uses in China and Hong Kong. In December 2018, following the commercial launch of fruquintinib in China, we and Eli Lilly amended the terms of the agreement and further amended the terms of the agreement in July 2020. We refer to this agreement, including the amendments thereto, as the Eli Lilly Agreement. Subsequent to the entering of the Eli Lilly Agreement, we continued to lead the development of fruquintinib, including all clinical trial development. Eli Lilly reimbursed us for a majority of the development costs and provided input over the course of the development of fruquintinib. Development, collaboration and manufacture of the products under this agreement are overseen by a joint steering committee comprised of equal numbers of representatives from each party. Eli Lilly paid a $6.5 million upfront fee following the execution of the Eli Lilly Agreement in 2013, and agreed to pay royalties and additional amounts upon the achievement of development and regulatory approval milestones. As of December 31, 2022, Eli Lilly had paid us $37.2 million in milestone payments in addition to approximately $65.7 million in reimbursements for certain development costs. 114 115 We have built a drug discovery engine, with which we strive to create differentiated novel oncology and immunology treatments with global potential. These include furthering both small molecule and biologic therapies which address aberrant genetic drivers and cancer cell metabolism; modulate tumor immune microenvironment; and target immune cell checkpoints. We design drug candidates with profiles that enable them to be used in innovative combinations with other therapies, such as chemotherapy, immunotherapy and other targeted therapy in order to attack disease simultaneously through multiple modalities and pathways. We believe that this approach can significantly improve treatment outcomes for patients. We believe our ability to successfully develop innovative drug candidates through our Oncology/Immunology operations will be the primary factor affecting our long-term competitiveness, as well as our future growth and development. Creating high quality global first-in-class or best-in-class drug candidates requires investment of resources over a prolonged period of time, and a core part of our strategy is to continue making sustained investments in this area. As a result of this commitment, our pipeline of drug candidates has been steadily advancing and expanding, with over a dozen drug candidates put into clinical development. See “– Our Clinical Pipeline” for more details. Beyond these clinical candidates, we continue to conduct research into discovering new types of drug candidates, including among others, small molecules addressing cancer-related apoptosis, cell signaling, epigenetics and protein translation; biologic drug candidates including bispecific antibodies; and novel technologies including antibody-drug conjugates and heterobifunctional small molecules. Our Collaborations Collaborations and joint ventures with corporate partners have provided us with significant funding and access to our partners’ scientific, development, regulatory and commercial capabilities. Our current oncology collaborations focus on savolitinib (collaboration with AstraZeneca) and fruquintinib (collaboration with Eli Lilly). When we entered into these collaborations, we had already conducted the discovery research and early clinical development of each drug candidate and, following our agreements, continued to conduct the clinical development and manage the engagement with regulatory authorities in China up to and including filing the NDAs with the NMPA. Our collaboration partners fund a significant portion of our research and development costs for drug candidates developed in collaboration with them. In addition, we may receive upfront payments upon our entry into these collaboration arrangements and upon the achievement of certain development milestones for the relevant drug candidate. We have received upfront payments, equity contributions and milestone payments totaling approximately $198.5 million mainly from our collaborations with AstraZeneca and Eli Lilly as of December 31, 2022. In return, our collaboration partners are entitled to a significant proportion of any future revenue from our drug candidates developed in collaboration with them, as well as a degree of influence over the clinical development process for such drug candidates. In addition, we have entered into other clinical collaborations for combination studies of fruquintinib and surufatinib with drug candidates belonging to BeiGene, Innovent and/or Junshi. We also have an immunology collaboration with Inmagene with respect to four novel pre-clinical drug candidates discovered by us and an in-licensing collaboration with Epizyme with respect to tazemetostat. AstraZeneca In 2008, our in-house teams started research on MET inhibitors, subsequently discovering our drug candidate, savolitinib, and conducting its pre-clinical development in-house. In 2011, we submitted applications for clinical development and initiated Phase I clinical trials. In December 2011, we entered into an agreement with AstraZeneca under which we granted to AstraZeneca co-exclusive, worldwide rights to develop, and exclusive worldwide rights to manufacture and commercialize savolitinib for all diagnostic, prophylactic and therapeutic uses. In August 2016, December 2020 and November 2021, we and AstraZeneca amended the terms of the agreement. We refer to this agreement, including the amendments thereto, as the AstraZeneca Agreement. AstraZeneca paid $20.0 million upon execution of the AstraZeneca Agreement and agreed to pay royalties and additional amounts upon the achievement of development and sales milestones. Under the original terms of the AstraZeneca Agreement, we and AstraZeneca agreed to share the development costs for savolitinib in China, with AstraZeneca being responsible for the development costs for savolitinib in the rest of the world. With respect to certain clinical trials, we subsequently agreed with AstraZeneca on sharing development costs. As of December 31, 2022, we had received $64.9 million in milestone payments in addition to approximately $71.6 million in reimbursements for certain development costs. We may potentially receive future clinical development and first sales milestones payments for clinical development and initial sales of savolitinib, plus significant further milestone payments based on sales. Subject to approval of savolitinib in treating PRCC, under the amended AstraZeneca Agreement, AstraZeneca is obligated to pay us increased tiered royalties from 14% to 18% annually on all sales made of any product outside of China, which represents a five percentage point increase over the original terms, subject to a potential downward adjustment on such point increase based on the amount of any contribution by AstraZeneca to the Phase III development in patients with such indication. After total aggregate additional royalties have reached five times our contribution to the Phase III development in patients with such indication, this royalty will step down over a two-year period, to an ongoing royalty rate of 10.5% to 14.5%. AstraZeneca is also obligated to pay us a fixed royalty of 30% on all sales made of any product in China. Development and collaboration under this agreement are overseen by a joint steering committee that is comprised of three of our senior representatives as well as three senior representatives from AstraZeneca. AstraZeneca is responsible for the development of savolitinib and all regulatory matters related to this agreement in all countries and territories other than China, and we are responsible for the development of savolitinib and all regulatory matters related to this agreement in China. Since entering the AstraZeneca Agreement, we have continued to lead the development of savolitinib in China. Subject to earlier termination, the AstraZeneca Agreement will continue in full force and effect on a country-by-country basis as long as any collaboration product is being developed or commercialized. The AstraZeneca Agreement is terminable by either party upon a breach that is uncured, upon the occurrence of bankruptcy or insolvency of either party, or by mutual agreement of the parties. The AstraZeneca Agreement may also be terminated by AstraZeneca for convenience with 180 days’ prior written notice. Termination for cause by us or AstraZeneca or for convenience by AstraZeneca will have the effect of, among other things, terminating the applicable licenses granted by us. Termination for convenience by AstraZeneca will have the effect of obligating AstraZeneca to grant to us all of its rights to regulatory approvals and other rights necessary to commercialize savolitinib. Termination by AstraZeneca for convenience will not have the effect of terminating any license granted by AstraZeneca to us. Eli Lilly In 2007, our in-house research into VEGFR inhibitors led to the discovery of our drug candidate, fruquintinib. We conducted pre- clinical development in-house and initiated a Phase I clinical trial in 2010. In October 2013, we entered into an agreement with Eli Lilly whereby we granted Eli Lilly an exclusive license to develop, manufacture and commercialize fruquintinib for all uses in China and Hong Kong. In December 2018, following the commercial launch of fruquintinib in China, we and Eli Lilly amended the terms of the agreement and further amended the terms of the agreement in July 2020. We refer to this agreement, including the amendments thereto, as the Eli Lilly Agreement. Subsequent to the entering of the Eli Lilly Agreement, we continued to lead the development of fruquintinib, including all clinical trial development. Eli Lilly reimbursed us for a majority of the development costs and provided input over the course of the development of fruquintinib. Development, collaboration and manufacture of the products under this agreement are overseen by a joint steering committee comprised of equal numbers of representatives from each party. Eli Lilly paid a $6.5 million upfront fee following the execution of the Eli Lilly Agreement in 2013, and agreed to pay royalties and additional amounts upon the achievement of development and regulatory approval milestones. As of December 31, 2022, Eli Lilly had paid us $37.2 million in milestone payments in addition to approximately $65.7 million in reimbursements for certain development costs. 114 115 We could potentially receive future milestone payments for the achievement of development and regulatory approval milestones in China. Additionally, Eli Lilly is obligated to pay us tiered royalties from 15% to 20% annually on sales made of fruquintinib in China and Hong Kong, the rate to be determined based upon the dollar amount of sales made for all products in that year. Under the terms of our 2018 amendment, upon the first commercial launch of fruquintinib in China in a new life cycle indication, these tiered royalties increased to 15% to 29%. Under the terms of our 2020 amendment, we and Eli Lilly share gross profits linked to sales target performance. Subject to meeting pre-agreed sales targets, Eli Lilly will pay us an estimated total of 70% to 80% of Elunate in-market sales in the form of royalties, manufacturing costs and service payments. Under the terms of our 2018 amendment, we are entitled to determine and conduct future life cycle indication development of fruquintinib in China beyond the three initial indications specified in the original Eli Lilly Agreement. After the 2018 amendment, we assumed responsibility for all development activities and costs for fruquintinib in China in new life cycle indications, and we have the liberty to collaborate with third-parties to explore combination therapies of fruquintinib with various immunotherapy agents. Under the terms of our 2020 amendment, we took over development and execution of all on-the-ground medical detailing, promotion and local and regional marketing activities for Elunate in China. Takeda We are responsible in consultation with Eli Lilly for the supply of, and have the right to supply, all clinical and commercial supplies for fruquintinib pursuant to an agreed strategy for manufacturing. For the term of the Eli Lilly Agreement, such supplies will be provided by us at a transfer price that accounts for our cost of goods sold. The Eli Lilly Agreement is terminable by either party for breach that is uncured. The Eli Lilly Agreement is also terminable by Eli Lilly for convenience with 120 days’ prior written notice or if there is a major unexpected safety issue with respect to a product. Termination by either us or Eli Lilly for any reason will have the effect of, among other things, terminating the applicable licenses granted by us, and will obligate Eli Lilly to transfer to us all regulatory materials necessary for us to continue development efforts for fruquintinib. Macau. Other Collaborations To date, we have paid Epizyme a $25.0 million upfront payment and an aggregate of $5.0 million milestone payments. We may be required to pay an additional aggregate amount of up to $105 million in development and regulatory milestone payments and up to an additional $175 million in sales milestone payments. Epizyme is also eligible to receive, across up to eight potential indications, certain tiered royalties (from mid-teen to low-twenties-percentage) based on annual net sales of tazemetostat in the licensed territory. We have the right to manufacture the licensed product for development and commercialization in the licensed territory and are generally responsible for funding all clinical trials of tazemetostat, including the portion of global trials conducted in the licensed territory. The agreement with Epizyme will remain in effect until, on a licensed product-by-licensed product basis, the expiration of the royalty term for each licensed product in the licensed territory. We have the right to terminate the agreement for convenience at any time, subject to a certain notice period. Either party has the right to terminate the agreement if the other party or its affiliates challenge its patents. In addition, either party may terminate the agreement with written notice for the other party’s material breach, subject to a certain cure period, or for the other party’s bankruptcy or insolvency. On January 23, 2023, we entered into a license agreement with a subsidiary of Takeda to further the global development, commercialization and manufacture of fruquintinib outside of mainland China, Hong Kong and Macau, where it is marketed by us in partnership with Eli Lilly. We may receive up to $1.13 billion including $400 million upfront on closing as well as potential regulatory, development and commercial sales milestone payments, plus royalties on net sales. This deal is subject to customary closing conditions, including the completion of antitrust regulatory reviews. Following these clearances, Takeda will become solely responsible for the development and commercialization of fruquintinib in all included territories worldwide excluding mainland China, Hong Kong and BeiGene In May 2020, we entered into a clinical collaboration agreement with BeiGene to evaluate the safety, tolerability and efficacy of combining surufatinib and fruquintinib with BeiGene’s anti-PD-1 antibody tislelizumab, for the treatment of various solid tumor cancers, in the United States, Europe, China and Australia. Under the terms of the agreement, we and BeiGene each plan to explore development of the combination of surufatinib with tislelizumab or fruquintinib with tislelizumab in different indications and regions. We have agreed to provide mutual drug supply and other support. Inmagene In January 2021, we and Inmagene entered into a strategic partnership to further develop four novel pre-clinical drug candidates (HMPL-A28, HMPL-727, HMPL-662 and HMPL-958) discovered by us for the potential treatment of multiple immunological diseases. We will work together to move the drug candidates towards IND submission. If successful, Inmagene will then move the drug candidates through global clinical development. Under the terms of the agreement, we have granted Inmagene exclusive options to four drug candidates solely for the treatment of immunological diseases. If Inmagene exercises an option, it will have the right to further develop, manufacture and commercialize that specific drug candidate worldwide, while we retain first right to co-commercialization in China. For each of the drug candidates, we will be entitled to development milestones of up to $95 million and up to $135 million in commercial milestones, as well as up to double- digit royalties upon commercialization. Epizyme (A Subsidiary of Ipsen Pharma SAS) In October and November 2018, we entered into multiple collaborations to evaluate combinations of fruquintinib and surufatinib. These include a global collaboration with Innovent to evaluate the combination of fruquintinib with Tyvyt and a global collaboration with Junshi to evaluate the combination of surufatinib with Tuoyi. In September 2019, we expanded our global collaboration agreement with Innovent to evaluate the safety and efficacy of Tyvyt in combination with surufatinib. Other Ventures Other Ventures is our large-scale, profitable drug marketing and distribution platform covering about 290 cities and towns in China with over 2,900 manufacturing and commercial personnel as of December 31, 2022. Built over the past 20 years, it has been focused on the sale of prescription drugs products and consumer health products conducted through the following entities: Shanghai Hutchison Pharmaceuticals Shanghai Hutchison Pharmaceuticals, our non-consolidated joint venture, primarily engages in the manufacture and sale of prescription drug products originally contributed by our joint venture partner, as well as third-party prescription drugs with a focus on cardiovascular medicine. Shanghai Hutchison Pharmaceuticals’ proprietary products are sold under the “Shang Yao” brand, literally meaning “Shanghai pharmaceuticals,” a trademark that has been used for over 50 years in the pharmaceutical retail market, primarily in Shanghai and Eastern China. The trademark is owned by the joint venture and in January 2023, the Shanghai government recognized and awarded the brand as a Shanghai heritage brand. In early 2019, Shanghai Hutchison Pharmaceuticals was awarded the 2018 State Scientific and Technological Progress Award – Second Prize, which was presented by President Xi Jinping, Premier Li Keqiang and other state leaders of the PRC at the National Science and Technology Awards Ceremony. This award was one of only two such awards given that year to studies in the botanical drug industry. In August 2021, we entered into a licensing agreement with Epizyme Inc. (a subsidiary of Ipsen Pharma SAS) pursuant to which we obtained a co-exclusive license to develop, an exclusive license to commercialize and a co-exclusive license to manufacture tazemetostat in China, Hong Kong, Taiwan and Macau for all therapeutic and palliative uses in epithelioid sarcoma, follicular lymphoma (second line and third line), diffuse large b-cell lymphoma and any other indications that are approved according to the terms of the licensing agreement. Its key product is She Xiang Bao Xin pills, a vasodilator for the long-term treatment of coronary artery and heart disease and for rapid control and prevention of acute angina pectoris, a form of chest pain. There are over one million deaths due to coronary artery disease per year in China. She Xiang Bao Xin pill is the third largest botanical prescription drug in this indication in China, with market share in 2022 of 21.0% (2021 of 19.6%) nationally and 47.9% (2021: 43.6%) in Shanghai. She Xiang Bao Xin pills’ sales represented 92.2% of all Shanghai Hutchison Pharmaceuticals sales in 2022. 116 117 We could potentially receive future milestone payments for the achievement of development and regulatory approval milestones in China. Additionally, Eli Lilly is obligated to pay us tiered royalties from 15% to 20% annually on sales made of fruquintinib in China and Hong Kong, the rate to be determined based upon the dollar amount of sales made for all products in that year. Under the terms of our 2018 amendment, upon the first commercial launch of fruquintinib in China in a new life cycle indication, these tiered royalties increased to 15% to 29%. Under the terms of our 2020 amendment, we and Eli Lilly share gross profits linked to sales target performance. Subject to meeting pre-agreed sales targets, Eli Lilly will pay us an estimated total of 70% to 80% of Elunate in-market sales in the form of royalties, manufacturing costs and service payments. Under the terms of our 2018 amendment, we are entitled to determine and conduct future life cycle indication development of fruquintinib in China beyond the three initial indications specified in the original Eli Lilly Agreement. After the 2018 amendment, we assumed responsibility for all development activities and costs for fruquintinib in China in new life cycle indications, and we have the liberty to collaborate with third-parties to explore combination therapies of fruquintinib with various immunotherapy agents. Under the terms of our 2020 amendment, we took over development and execution of all on-the-ground medical detailing, promotion and local and regional marketing activities for Elunate in China. We are responsible in consultation with Eli Lilly for the supply of, and have the right to supply, all clinical and commercial supplies for fruquintinib pursuant to an agreed strategy for manufacturing. For the term of the Eli Lilly Agreement, such supplies will be provided by us at a transfer price that accounts for our cost of goods sold. The Eli Lilly Agreement is terminable by either party for breach that is uncured. The Eli Lilly Agreement is also terminable by Eli Lilly for convenience with 120 days’ prior written notice or if there is a major unexpected safety issue with respect to a product. Termination by either us or Eli Lilly for any reason will have the effect of, among other things, terminating the applicable licenses granted by us, and will obligate Eli Lilly to transfer to us all regulatory materials necessary for us to continue development efforts for fruquintinib. BeiGene In May 2020, we entered into a clinical collaboration agreement with BeiGene to evaluate the safety, tolerability and efficacy of combining surufatinib and fruquintinib with BeiGene’s anti-PD-1 antibody tislelizumab, for the treatment of various solid tumor cancers, in the United States, Europe, China and Australia. Under the terms of the agreement, we and BeiGene each plan to explore development of the combination of surufatinib with tislelizumab or fruquintinib with tislelizumab in different indications and regions. We have agreed to provide mutual drug supply and other support. Inmagene In January 2021, we and Inmagene entered into a strategic partnership to further develop four novel pre-clinical drug candidates (HMPL-A28, HMPL-727, HMPL-662 and HMPL-958) discovered by us for the potential treatment of multiple immunological diseases. We will work together to move the drug candidates towards IND submission. If successful, Inmagene will then move the drug candidates through global clinical development. Under the terms of the agreement, we have granted Inmagene exclusive options to four drug candidates solely for the treatment of immunological diseases. If Inmagene exercises an option, it will have the right to further develop, manufacture and commercialize that specific drug candidate worldwide, while we retain first right to co-commercialization in China. For each of the drug candidates, we will be entitled to development milestones of up to $95 million and up to $135 million in commercial milestones, as well as up to double- digit royalties upon commercialization. Epizyme (A Subsidiary of Ipsen Pharma SAS) To date, we have paid Epizyme a $25.0 million upfront payment and an aggregate of $5.0 million milestone payments. We may be required to pay an additional aggregate amount of up to $105 million in development and regulatory milestone payments and up to an additional $175 million in sales milestone payments. Epizyme is also eligible to receive, across up to eight potential indications, certain tiered royalties (from mid-teen to low-twenties-percentage) based on annual net sales of tazemetostat in the licensed territory. We have the right to manufacture the licensed product for development and commercialization in the licensed territory and are generally responsible for funding all clinical trials of tazemetostat, including the portion of global trials conducted in the licensed territory. The agreement with Epizyme will remain in effect until, on a licensed product-by-licensed product basis, the expiration of the royalty term for each licensed product in the licensed territory. We have the right to terminate the agreement for convenience at any time, subject to a certain notice period. Either party has the right to terminate the agreement if the other party or its affiliates challenge its patents. In addition, either party may terminate the agreement with written notice for the other party’s material breach, subject to a certain cure period, or for the other party’s bankruptcy or insolvency. Takeda On January 23, 2023, we entered into a license agreement with a subsidiary of Takeda to further the global development, commercialization and manufacture of fruquintinib outside of mainland China, Hong Kong and Macau, where it is marketed by us in partnership with Eli Lilly. We may receive up to $1.13 billion including $400 million upfront on closing as well as potential regulatory, development and commercial sales milestone payments, plus royalties on net sales. This deal is subject to customary closing conditions, including the completion of antitrust regulatory reviews. Following these clearances, Takeda will become solely responsible for the development and commercialization of fruquintinib in all included territories worldwide excluding mainland China, Hong Kong and Macau. Other Collaborations In October and November 2018, we entered into multiple collaborations to evaluate combinations of fruquintinib and surufatinib. These include a global collaboration with Innovent to evaluate the combination of fruquintinib with Tyvyt and a global collaboration with Junshi to evaluate the combination of surufatinib with Tuoyi. In September 2019, we expanded our global collaboration agreement with Innovent to evaluate the safety and efficacy of Tyvyt in combination with surufatinib. Other Ventures Other Ventures is our large-scale, profitable drug marketing and distribution platform covering about 290 cities and towns in China with over 2,900 manufacturing and commercial personnel as of December 31, 2022. Built over the past 20 years, it has been focused on the sale of prescription drugs products and consumer health products conducted through the following entities: Shanghai Hutchison Pharmaceuticals Shanghai Hutchison Pharmaceuticals, our non-consolidated joint venture, primarily engages in the manufacture and sale of prescription drug products originally contributed by our joint venture partner, as well as third-party prescription drugs with a focus on cardiovascular medicine. Shanghai Hutchison Pharmaceuticals’ proprietary products are sold under the “Shang Yao” brand, literally meaning “Shanghai pharmaceuticals,” a trademark that has been used for over 50 years in the pharmaceutical retail market, primarily in Shanghai and Eastern China. The trademark is owned by the joint venture and in January 2023, the Shanghai government recognized and awarded the brand as a Shanghai heritage brand. In early 2019, Shanghai Hutchison Pharmaceuticals was awarded the 2018 State Scientific and Technological Progress Award – Second Prize, which was presented by President Xi Jinping, Premier Li Keqiang and other state leaders of the PRC at the National Science and Technology Awards Ceremony. This award was one of only two such awards given that year to studies in the botanical drug industry. In August 2021, we entered into a licensing agreement with Epizyme Inc. (a subsidiary of Ipsen Pharma SAS) pursuant to which we obtained a co-exclusive license to develop, an exclusive license to commercialize and a co-exclusive license to manufacture tazemetostat in China, Hong Kong, Taiwan and Macau for all therapeutic and palliative uses in epithelioid sarcoma, follicular lymphoma (second line and third line), diffuse large b-cell lymphoma and any other indications that are approved according to the terms of the licensing agreement. Its key product is She Xiang Bao Xin pills, a vasodilator for the long-term treatment of coronary artery and heart disease and for rapid control and prevention of acute angina pectoris, a form of chest pain. There are over one million deaths due to coronary artery disease per year in China. She Xiang Bao Xin pill is the third largest botanical prescription drug in this indication in China, with market share in 2022 of 21.0% (2021 of 19.6%) nationally and 47.9% (2021: 43.6%) in Shanghai. She Xiang Bao Xin pills’ sales represented 92.2% of all Shanghai Hutchison Pharmaceuticals sales in 2022. 116 117 Hutchison Hain Organic Hutchison Hain Organic is a consolidated joint venture with Hain Celestial, a Nasdaq-listed, natural and organic food and personal care products company. Hutchison Hain Organic distributes a broad range of over 500 imported organic and natural products. Pursuant to its joint venture agreement, Hutchison Hain Organic has rights to manufacture, market and distribute Hain Celestial’s products within nine Asian territories. We believe the key strategic product for Hutchison Hain Organic is Earth’s Best organic baby products, a leading brand in the United States. Hutchison Hain Organic’s other products are distributed to hypermarkets, specialty stores and other retail outlets in Hong Kong, China and across seven other territories in Asia mainly through third-party local distributors, including retail chains owned by affiliates of CK Hutchison. Hutchison Healthcare Hutchison Healthcare is our wholly owned subsidiary and is primarily engaged in the manufacture and sale of health supplements. Hutchison Healthcare’s major product is Zhi Ling Tong DHA capsules, a health supplement made from algae DHA oil for the promotion of brain and retinal development in babies and young children, which is distributed through Hutchison Sinopharm up till the end of September and from October 1, 2022 onwards, through our non-consolidated joint venture, Shanghai Hutchison Pharmaceuticals. The majority of Hutchison Healthcare’s products are contract manufactured at a dedicated and certified manufacturing facility operated by a third party. HUTCHMED Science Nutrition products in Asia. HUTCHMED Science Nutrition is our wholly owned subsidiary that is primarily engaged in the distribution of third-party consumer She Xiang Bao Xin pills were first approved in 1983 and subsequently enjoyed 33 proprietary commercial protections under the prevailing regulatory system in China. In 2005, Shanghai Hutchison Pharmaceuticals was able to attain “Confidential State Secret Technology” status protection, as certified by China’s Ministry of Science and Technology and State Secrecy Bureau, which extended proprietary protection in China until late 2016. The Science and Technology Commission of Shanghai Municipality has subsequently extended such protection. Shanghai Hutchison Pharmaceuticals holds an invention patent in China covering its formulation, which extends proprietary protection through 2029. She Xiang Bao Xin pill is one of less than two dozen proprietary prescription drugs represented on China’s National Essential Medicines List, which means that all Chinese state-owned health care institutions are required to carry it. She Xiang Bao Xin pill is fully reimbursed in all of China. Shanghai Hutchison Pharmaceuticals manufactures its products at its 78,000 square meter production facility located in Feng Pu district outside the center of Shanghai. Shanghai Hutchison Pharmaceuticals holds 74 drug product manufacturing licenses, of which 17 are included in the National Essential Medicines List, and three are in active production. The factory is operated by over 550 manufacturing staff. As of December 31, 2022, Shanghai Hutchison Pharmaceuticals had a commercial team of about 2,300 medical sales representatives allowing for the promotion and scientific detailing of our products not just in hospitals in provincial capitals and medium-sized cities, but also in the majority of county-level hospitals in China. Shanghai Hutchison Pharmaceuticals, through its GSP-certified subsidiary, sells its products and its third-party licensed prescription drugs directly to distributors who on-sell such products to hospitals and clinics, pharmacies and other retail outlets in their respective areas, as well as to other local distributors. As of December 31, 2022, Shanghai Hutchison Pharmaceuticals engaged a group of approximately 530 primary distributors to cover China. These primary distributors in turn used over 2,300 secondary distributors to work directly with hospitals, on a local level, to manage logistics. Shanghai Hutchison Pharmaceuticals’ own prescription drugs sales representatives promote its products to doctors and purchasing managers in hospitals, clinics and pharmacies as part of its marketing efforts. Hutchison Sinopharm Hutchison Sinopharm is our consolidated joint venture with Sinopharm. Based in Shanghai, Hutchison Sinopharm focuses on providing logistics services to, and distributing and marketing prescription drugs in China. As of December 31, 2022, Hutchison Sinopharm had a dedicated team of over 40 commercial staff that focus on marketing over 900 third-party prescription drug and other products directly to about 730 public and private hospitals in the Shanghai region and through a network of approximately 55 distributors to cover all other provinces in China. Starting in 2015, Hutchison Sinopharm had been the exclusive marketing agent for Seroquel tablets in China. In June 2018, AstraZeneca sold and licensed its rights to Seroquel to Luye Pharma Group, Ltd., including its rights in China. The terms of our agreement with AstraZeneca were assigned to Luye Pharma Hong Kong Ltd., or Luye Pharma HK. In May 2019, we received a notice from Luye Pharma HK purporting to terminate our agreement. We believe that Luye Pharma HK had no basis for termination and commenced confidential legal proceedings to seek damages. In December 2021, the Hong Kong International Arbitration Centre made a final award in favor of Hutchison Sinopharm against Luye Pharma Hong Kong in the amount of RMB253.2 million plus costs we incurred in the legal proceedings and interest. An application was made by Luye on December 14, 2021 to set aside the final award which was heard by the High Court in Hong Kong on June 28, 2022 and dismissed by the judge on July 26, 2022. Luye have further applied and obtained leave to appeal the setting aside application to the Court of Appeal in Hong Kong and a hearing in the Court of Appeal has been set for June 6, 2023. We did not have any revenue from the distribution of Seroquel for the years ended December 31, 2020, 2021 and 2022. In 2019, we began building an in-house oncology commercial sales and marketing team at Hutchison Sinopharm to support the launch of certain of our innovative oncology drugs. By December 31, 2022, this team had grown to over 870 commercial sales and marketing staff in mainland China and Hong Kong. In 2021, a substantial portion of Hutchison Sinopharm’s sales were made directly to hospitals and clinics, with the remaining sales being made through distributors. As of December 31, 2022, Hutchison Sinopharm had over 860 customers of which approximately 13% were distributors, and the revenue generated from these distributors accounted for approximately 25% of the revenue of Hutchison Sinopharm for the year ended December 31, 2022. 118 119 She Xiang Bao Xin pills were first approved in 1983 and subsequently enjoyed 33 proprietary commercial protections under the Hutchison Hain Organic prevailing regulatory system in China. In 2005, Shanghai Hutchison Pharmaceuticals was able to attain “Confidential State Secret Technology” status protection, as certified by China’s Ministry of Science and Technology and State Secrecy Bureau, which extended proprietary protection in China until late 2016. The Science and Technology Commission of Shanghai Municipality has subsequently extended such protection. Shanghai Hutchison Pharmaceuticals holds an invention patent in China covering its formulation, which extends proprietary protection through 2029. She Xiang Bao Xin pill is one of less than two dozen proprietary prescription drugs represented on China’s National Essential Medicines List, which means that all Chinese state-owned health care institutions are required to carry it. She Xiang Bao Xin pill is fully reimbursed in all of China. Hutchison Hain Organic is a consolidated joint venture with Hain Celestial, a Nasdaq-listed, natural and organic food and personal care products company. Hutchison Hain Organic distributes a broad range of over 500 imported organic and natural products. Pursuant to its joint venture agreement, Hutchison Hain Organic has rights to manufacture, market and distribute Hain Celestial’s products within nine Asian territories. We believe the key strategic product for Hutchison Hain Organic is Earth’s Best organic baby products, a leading brand in the United States. Hutchison Hain Organic’s other products are distributed to hypermarkets, specialty stores and other retail outlets in Hong Kong, China and across seven other territories in Asia mainly through third-party local distributors, including retail chains owned by affiliates of CK Hutchison. Shanghai Hutchison Pharmaceuticals manufactures its products at its 78,000 square meter production facility located in Feng Pu district outside the center of Shanghai. Shanghai Hutchison Pharmaceuticals holds 74 drug product manufacturing licenses, of which 17 are included in the National Essential Medicines List, and three are in active production. The factory is operated by over 550 Hutchison Healthcare Hutchison Healthcare is our wholly owned subsidiary and is primarily engaged in the manufacture and sale of health supplements. Hutchison Healthcare’s major product is Zhi Ling Tong DHA capsules, a health supplement made from algae DHA oil for the promotion of brain and retinal development in babies and young children, which is distributed through Hutchison Sinopharm up till the end of September and from October 1, 2022 onwards, through our non-consolidated joint venture, Shanghai Hutchison Pharmaceuticals. The majority of Hutchison Healthcare’s products are contract manufactured at a dedicated and certified manufacturing facility operated by a third party. HUTCHMED Science Nutrition HUTCHMED Science Nutrition is our wholly owned subsidiary that is primarily engaged in the distribution of third-party consumer products in Asia. manufacturing staff. Hutchison Sinopharm As of December 31, 2022, Shanghai Hutchison Pharmaceuticals had a commercial team of about 2,300 medical sales representatives allowing for the promotion and scientific detailing of our products not just in hospitals in provincial capitals and medium-sized cities, but also in the majority of county-level hospitals in China. Shanghai Hutchison Pharmaceuticals, through its GSP-certified subsidiary, sells its products and its third-party licensed prescription drugs directly to distributors who on-sell such products to hospitals and clinics, pharmacies and other retail outlets in their respective areas, as well as to other local distributors. As of December 31, 2022, Shanghai Hutchison Pharmaceuticals engaged a group of approximately 530 primary distributors to cover China. These primary distributors in turn used over 2,300 secondary distributors to work directly with hospitals, on a local level, to manage logistics. Shanghai Hutchison Pharmaceuticals’ own prescription drugs sales representatives promote its products to doctors and purchasing managers in hospitals, clinics and pharmacies as part of its marketing efforts. Hutchison Sinopharm is our consolidated joint venture with Sinopharm. Based in Shanghai, Hutchison Sinopharm focuses on providing logistics services to, and distributing and marketing prescription drugs in China. As of December 31, 2022, Hutchison Sinopharm had a dedicated team of over 40 commercial staff that focus on marketing over 900 third-party prescription drug and other products directly to about 730 public and private hospitals in the Shanghai region and through a network of approximately 55 distributors to cover all other provinces in China. Starting in 2015, Hutchison Sinopharm had been the exclusive marketing agent for Seroquel tablets in China. In June 2018, AstraZeneca sold and licensed its rights to Seroquel to Luye Pharma Group, Ltd., including its rights in China. The terms of our agreement with AstraZeneca were assigned to Luye Pharma Hong Kong Ltd., or Luye Pharma HK. In May 2019, we received a notice from Luye Pharma HK purporting to terminate our agreement. We believe that Luye Pharma HK had no basis for termination and commenced confidential legal proceedings to seek damages. In December 2021, the Hong Kong International Arbitration Centre made a final award in favor of Hutchison Sinopharm against Luye Pharma Hong Kong in the amount of RMB253.2 million plus costs we incurred in the legal proceedings and interest. An application was made by Luye on December 14, 2021 to set aside the final award which was heard by the High Court in Hong Kong on June 28, 2022 and dismissed by the judge on July 26, 2022. Luye have further applied and obtained leave to appeal the setting aside application to the Court of Appeal in Hong Kong and a hearing in the Court of Appeal has been set for June 6, 2023. We did not have any revenue from the distribution of Seroquel for the years ended December 31, 2020, 2021 and 2022. In 2019, we began building an in-house oncology commercial sales and marketing team at Hutchison Sinopharm to support the launch of certain of our innovative oncology drugs. By December 31, 2022, this team had grown to over 870 commercial sales and marketing staff in mainland China and Hong Kong. In 2021, a substantial portion of Hutchison Sinopharm’s sales were made directly to hospitals and clinics, with the remaining sales being made through distributors. As of December 31, 2022, Hutchison Sinopharm had over 860 customers of which approximately 13% were distributors, and the revenue generated from these distributors accounted for approximately 25% of the revenue of Hutchison Sinopharm for the year ended December 31, 2022. 118 119 Competition Fruquintinib Oncology/Immunology Competition The biotechnology and pharmaceutical industries are highly competitive. While we believe that our highly selective drug candidates, experienced development team and chemistry-focused scientific approach provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies. Any drug candidates that we successfully develop and commercialize will compete with existing drugs and/or new drugs that may become available in the future. Approved VEGF inhibitors on the market for the treatment of CRC include Avastin (anti-VEGF monoclonal antibody), Cyramza (anti-VEGFR2 monoclonal antibody), Stivarga (VEGFR/TIE2 inhibitor) and Zaltrap (ziv-aflibercept) (VEGF inhibitor). Cyramza (ramucirumab) was approved for the treatment of second-line gastric cancer in China in 2022. TAS-102 (trifluridine/tipiracil hydrochloride) was approved for mCRC in China in 2019. Avastin is approved for NSCLC and nintedanib is approved for the treatment of lung disease associated with fibrosis (under the name Ofev) as well asadeno-NSCLC in Europe (under the name Vargatef). Other VEGFR inhibitors being developed for the treatment of NSCLC include Cabometyx, Lenvima (lenvatinib), lucitanib and Caprelsa. VEGFR inhibitors being developed for the treatment of gastric cancer include dovitinib, telatinib and Stivarga. In China, Aitan (apatinib) has been approved for the treatment of third-line gastric cancer and Focus-V (anlotinib) has been approved for the treatment of third- We compete in the segments of the pharmaceutical, biotechnology and other related markets that address inhibition of key biological pathways in cancer and immunological diseases. There are other companies working to develop kinase inhibitors and monoclonal antibodies as targeted therapies for cancer and immunological diseases. These companies include divisions of large pharmaceutical companies and biotechnology companies of various sizes. line NSCLC. Surufatinib Many of our competitors, either alone or with their strategic partners, have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery and development of drug candidates, obtaining regulatory approvals of products and the commercialization of those products. Accordingly, our competitors may be more successful than we may be in obtaining approval for drugs and achieving widespread market acceptance. Our competitors’ drugs may be more effective, or more effectively marketed and sold, than any drug we may commercialize and may render our drug candidates obsolete or non- competitive before we can recover the expenses of developing and commercializing any of our drug candidates. We anticipate that we will face intense and increasing competition as new drugs enter the market and advanced technologies become available. Sutent (VEGFR inhibitor) and Afinitor (mTOR inhibitor) have been approved for the treatment of pancreatic NETs. Somatuline Depot (Lanreotide) is a growth hormone release inhibitor that has been approved for the treatment of gastroenteropancreatic NETs. Sandostatin (octreotide) is a growth hormone and insulin-like growth factor-1 inhibitor that has also been approved for NETs. Lutathera (Lu-dotatate), a somatostatin receptor targeting radiotherapy, has been approved by the FDA for the treatment of somatostatin receptor positive gastroenteropancreatic NETs. Furthermore, small molecules, monoclonal antibodies and radiotherapies are being developed for the treatment of NETs. Compounds undergoing development for NETs include Inlyta (axitinib, tyrosine kinase inhibitor), and Vargatef (nintedanib, a tyrosine kinase inhibitor). Cometriq (an additional brand name for cabozantinib) has been marketed for thyroid cancer and is being studied for NETs. In addition, Avastin is an anti-VEGF monoclonal antibody being studied for NETs. Below is a summary of existing therapies and therapies currently under development that may become available in the future which Sovleplenib and Amdizalisib may compete with each of our clinical-stage drug candidates. Savolitinib Savolitinib is the only selective MET inhibitor currently approved in China, while two selective MET inhibitors are on the market in the US and Japan: Tepmetko (tepotinib) and Tabrecta (capmatinib) are approved for MET exon 14 skipping NSCLC with additional programs underway focused on lung cancer. Tepmetko (tepotinib)’s NDA for MET exon 14 skipping NSCLC is currently being reviewed by NMPA. Market Authorization Applications for Tabrecta and Tepmetko were approved in 2022 by the European Medicines Agency (EMA) for use in the treatment of MET exon 14 skipping NSCLC. Other selective MET inhibitors in development include telisotuzumab vedotin (in Phase II for advanced solid tumors, including NSCLC), elzovantinib (TPX-0022, in Phase I/II development for advanced solid tumors), REGN-5093 and REGN5093-M114 (in Phase I for NSCLC), glumetinib (NDA for MET exon 14 skipping NSCLC is currently being reviewed by NMPA) and bozitinib (NDA for MET exon 14 skipping NSCLC is currently being reviewed by NMPA). Sym-015 is a bi-specific antibody that binds to non-overlapping epitopes on the extracellular domain of the Met receptor tyrosine kinase (in Phase IIa development). Approved compounds that inhibit MET as well as other kinases include Xalkori (crizotinib) (ALK, ROS1 and MET inhibitor marketed for NSCLC) and Cabometyx (cabozantinib) (VEGFR/MET/Ret inhibitor approved for RCC and liver cancer as well as in development for genitourinary cancers). Amivantamab (JNJ-61186372) (EGFR/MET bi-specific antibody) is approved for NSCLC harboring EGFR exon 20 insertion mutation and in late-stage development for EGFRm+ NSCLC. MCLA-129 (NCT03132155) is a EGFR/MET bispecific currently in early stage development. Tazemetostat There has been extensive research on oral small-molecule Syk inhibitors due to the major unmet medical need in inflammation and oncology. However, many Syk inhibitors have failed in the development stage due to their off-target toxicity as a result of lower kinase selectivity and possibly poor pharmacokinetic properties. The only small molecule drug candidate targeting Syk specifically has been approved to date is Tavalisse for the treatment of chronic immune thrombocytopenia. Lanraplenib (GS-9876) is a Syk inhibitor that has been studied for autoimmune diseases, but not currently in active development for autoimmune diseases. Syk inhibitors currently in clinical studies for hematological cancers include lanraplenib and cerdulatinib (lymphoma). Currently there are three PI3K inhibitors approved and on the market outside of China. Aliqopa (copanlisib, pan-PI3K inhibitor) was approved for relapsed follicular lymphoma as a monotherapy and is being studied in combination with rituximab as well as rituximab and chemotherapy in NHL. Zydelig (idelalisib) is approved for the treatment of chronic lymphocytic leukemia, globally. Copiktra (duvelisib, PI3K-δ/γ dual inhibitor) is approved for CLL/SLL. In China, during 2022, Copiktra and linperlisib (YY-20394) were approved for 3L+ follicular lymphoma. In January 2022, Incyte announced that it is withdrawing its NDA for parsaclisib due to the investment required to complete a post marketing confirmatory study within the timeframe required by the FDA. Parsaclisib’s NDA for third-line follicular lymphoma is currently being reviewed by NMPA. In addition, several drug candidates that inhibit PI3Kδ are in clinical development for hematological cancers, including zandelisib (ME-401 discontinued outside of Japan) and ACP 319. The most common treatments for follicular lymphoma are chemotherapies, usually combined with the monoclonal antibody Rituxan, or Gazyva, which is an antibody that acts against the same target as Rituxan, CD20. While Rituxan and a number of other widely used anti-cancer agents are labeled broadly for follicular lymphoma, no therapies are approved specifically for the treatment of tumors associated with EZH2 activating mutations. There are a number of companies currently evaluating investigational agents in the relapsed and refractory follicular lymphoma patient setting. In the relapsed and refractory follicular lymphoma patient setting, both current and near-term competition exists. Current competition includes CD20 combinations along with multiple PI3K inhibitors. Near term competition includes companies currently evaluating investigational agents with varying mechanisms of action. 120 121 Competition Fruquintinib Oncology/Immunology Competition The biotechnology and pharmaceutical industries are highly competitive. While we believe that our highly selective drug candidates, experienced development team and chemistry-focused scientific approach provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies. Any drug candidates that we successfully develop and commercialize will compete with existing drugs and/or new drugs that may become available in the future. We compete in the segments of the pharmaceutical, biotechnology and other related markets that address inhibition of key biological pathways in cancer and immunological diseases. There are other companies working to develop kinase inhibitors and monoclonal antibodies as targeted therapies for cancer and immunological diseases. These companies include divisions of large pharmaceutical companies and biotechnology companies of various sizes. Many of our competitors, either alone or with their strategic partners, have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery and development of drug candidates, obtaining regulatory approvals of products and the commercialization of those products. Accordingly, our competitors may be more successful than we may be in obtaining approval for drugs and achieving widespread market acceptance. Our competitors’ drugs may be more effective, or more effectively marketed and sold, than any drug we may commercialize and may render our drug candidates obsolete or non- competitive before we can recover the expenses of developing and commercializing any of our drug candidates. We anticipate that we will face intense and increasing competition as new drugs enter the market and advanced technologies become available. Approved VEGF inhibitors on the market for the treatment of CRC include Avastin (anti-VEGF monoclonal antibody), Cyramza (anti-VEGFR2 monoclonal antibody), Stivarga (VEGFR/TIE2 inhibitor) and Zaltrap (ziv-aflibercept) (VEGF inhibitor). Cyramza (ramucirumab) was approved for the treatment of second-line gastric cancer in China in 2022. TAS-102 (trifluridine/tipiracil hydrochloride) was approved for mCRC in China in 2019. Avastin is approved for NSCLC and nintedanib is approved for the treatment of lung disease associated with fibrosis (under the name Ofev) as well asadeno-NSCLC in Europe (under the name Vargatef). Other VEGFR inhibitors being developed for the treatment of NSCLC include Cabometyx, Lenvima (lenvatinib), lucitanib and Caprelsa. VEGFR inhibitors being developed for the treatment of gastric cancer include dovitinib, telatinib and Stivarga. In China, Aitan (apatinib) has been approved for the treatment of third-line gastric cancer and Focus-V (anlotinib) has been approved for the treatment of third- line NSCLC. Surufatinib Sutent (VEGFR inhibitor) and Afinitor (mTOR inhibitor) have been approved for the treatment of pancreatic NETs. Somatuline Depot (Lanreotide) is a growth hormone release inhibitor that has been approved for the treatment of gastroenteropancreatic NETs. Sandostatin (octreotide) is a growth hormone and insulin-like growth factor-1 inhibitor that has also been approved for NETs. Lutathera (Lu-dotatate), a somatostatin receptor targeting radiotherapy, has been approved by the FDA for the treatment of somatostatin receptor positive gastroenteropancreatic NETs. Furthermore, small molecules, monoclonal antibodies and radiotherapies are being developed for the treatment of NETs. Compounds undergoing development for NETs include Inlyta (axitinib, tyrosine kinase inhibitor), and Vargatef (nintedanib, a tyrosine kinase inhibitor). Cometriq (an additional brand name for cabozantinib) has been marketed for thyroid cancer and is being studied for NETs. In addition, Avastin is an anti-VEGF monoclonal antibody being studied for NETs. Below is a summary of existing therapies and therapies currently under development that may become available in the future which Sovleplenib and Amdizalisib may compete with each of our clinical-stage drug candidates. Savolitinib Savolitinib is the only selective MET inhibitor currently approved in China, while two selective MET inhibitors are on the market in the US and Japan: Tepmetko (tepotinib) and Tabrecta (capmatinib) are approved for MET exon 14 skipping NSCLC with additional programs underway focused on lung cancer. Tepmetko (tepotinib)’s NDA for MET exon 14 skipping NSCLC is currently being reviewed by NMPA. Market Authorization Applications for Tabrecta and Tepmetko were approved in 2022 by the European Medicines Agency (EMA) for use in the treatment of MET exon 14 skipping NSCLC. Other selective MET inhibitors in development include telisotuzumab vedotin (in Phase II for advanced solid tumors, including NSCLC), elzovantinib (TPX-0022, in Phase I/II development for advanced solid tumors), REGN-5093 and REGN5093-M114 (in Phase I for NSCLC), glumetinib (NDA for MET exon 14 skipping NSCLC is currently being reviewed by NMPA) and bozitinib (NDA for MET exon 14 skipping NSCLC is currently being reviewed by NMPA). Sym-015 is a bi-specific antibody that binds to non-overlapping epitopes on the extracellular domain of the Met receptor tyrosine kinase (in Phase IIa development). Approved compounds that inhibit MET as well as other kinases include Xalkori (crizotinib) (ALK, ROS1 and MET inhibitor marketed for NSCLC) and Cabometyx (cabozantinib) (VEGFR/MET/Ret inhibitor approved for RCC and liver cancer as well as in development for genitourinary cancers). Amivantamab (JNJ-61186372) (EGFR/MET bi-specific antibody) is approved for NSCLC harboring EGFR exon 20 insertion mutation and in late-stage development for EGFRm+ NSCLC. MCLA-129 (NCT03132155) is a EGFR/MET bispecific currently in early stage development. There has been extensive research on oral small-molecule Syk inhibitors due to the major unmet medical need in inflammation and oncology. However, many Syk inhibitors have failed in the development stage due to their off-target toxicity as a result of lower kinase selectivity and possibly poor pharmacokinetic properties. The only small molecule drug candidate targeting Syk specifically has been approved to date is Tavalisse for the treatment of chronic immune thrombocytopenia. Lanraplenib (GS-9876) is a Syk inhibitor that has been studied for autoimmune diseases, but not currently in active development for autoimmune diseases. Syk inhibitors currently in clinical studies for hematological cancers include lanraplenib and cerdulatinib (lymphoma). Currently there are three PI3K inhibitors approved and on the market outside of China. Aliqopa (copanlisib, pan-PI3K inhibitor) was approved for relapsed follicular lymphoma as a monotherapy and is being studied in combination with rituximab as well as rituximab and chemotherapy in NHL. Zydelig (idelalisib) is approved for the treatment of chronic lymphocytic leukemia, globally. Copiktra (duvelisib, PI3K-δ/γ dual inhibitor) is approved for CLL/SLL. In China, during 2022, Copiktra and linperlisib (YY-20394) were approved for 3L+ follicular lymphoma. In January 2022, Incyte announced that it is withdrawing its NDA for parsaclisib due to the investment required to complete a post marketing confirmatory study within the timeframe required by the FDA. Parsaclisib’s NDA for third-line follicular lymphoma is currently being reviewed by NMPA. In addition, several drug candidates that inhibit PI3Kδ are in clinical development for hematological cancers, including zandelisib (ME-401 discontinued outside of Japan) and ACP 319. Tazemetostat The most common treatments for follicular lymphoma are chemotherapies, usually combined with the monoclonal antibody Rituxan, or Gazyva, which is an antibody that acts against the same target as Rituxan, CD20. While Rituxan and a number of other widely used anti-cancer agents are labeled broadly for follicular lymphoma, no therapies are approved specifically for the treatment of tumors associated with EZH2 activating mutations. There are a number of companies currently evaluating investigational agents in the relapsed and refractory follicular lymphoma patient setting. In the relapsed and refractory follicular lymphoma patient setting, both current and near-term competition exists. Current competition includes CD20 combinations along with multiple PI3K inhibitors. Near term competition includes companies currently evaluating investigational agents with varying mechanisms of action. 120 121 The barrier to entry for the PRC pharmaceutical industry primarily relates to regulatory requirements in connection with the production of pharmaceutical products and new product launches. The identities of the key competitors with respect to our prescription drugs business vary by product, and, in certain cases, different competitors that have greater financial resources than us may elect to focus these resources on developing, importing or in-licensing and marketing products in the PRC that are substitutes for our products and may have broader sales and marketing infrastructure with which to do so. We believe that we compete primarily on the basis of brand recognition, pricing, sales network, promotion activities, product efficacy, safety and reliability. We believe our Other Ventures’ continued success will depend on our business’s capability to: maintain profitability of its products, obtain and maintain regulatory approvals, develop drug candidates with market potential, maintain an efficient operational model, apply technologies to production lines, attract and retain talented personnel, maintain high quality standards, and effectively market and promote the products sold by our prescription drugs business. Our Other Ventures operations which focus on consumer health products competes in a highly fragmented market in Asia, particularly in our primary market in China. We believe that this business competes primarily on the basis of brand recognition, pricing, sales network, promotion activities, product safety and reliability. We believe our continued success will depend on our business’s capability to: successfully market and distribute in-licensed products such as Earth’s Best infant formula, maintain an efficient operational model, attract and retain talented personnel, maintain high quality standards, and effectively market and promote the products sold by our business. Patents and Other Intellectual Property Our commercial success depends in part on our ability to obtain and maintain proprietary or intellectual property protection for our Oncology/Immunology drugs and drug candidates, our Other Ventures’ products and other know-how. Our policy is to seek to protect our proprietary and intellectual property position by, among other methods, filing patent applications in various jurisdictions related to our proprietary technology, inventions and improvements that are important to the development and implementation of our business. We also rely on trade secrets, know-how and continuing technological innovation to develop and maintain our proprietary and Other than tazemetostat, there are no therapies which have been approved specifically for the treatment of epithelioid sarcoma. Epithelioid sarcoma, an INI1-negative tumor, is typically treated with surgical resection when it presents as localized disease. When epithelioid sarcoma recurs or metastasizes, it may be treated with systemic chemotherapy or investigational agents because, other than tazemetostat, there are no approved systemic therapies specifically indicated for this disease. To the best of our knowledge there are no competitive products in development specifically for epithelioid sarcoma. However, we are aware of several clinical trials run by competitors that recruit patients with soft tissue sarcoma, which is inclusive of epithelioid sarcoma. HMPL-453 To date, Balversa, Pemazyre and Truseltiq are the only approved therapies that specifically target the FGFR signaling pathway. Late-stage studies are underway for futibatinib and derazantinib. Additionally, a FGFR specific monoclonal antibody, bemarituzumab, is in Phase III development for gastric cancer and gastroesophageal junction (GEJ) adenocarcinoma. Several small molecule FGFR TKI are in clinical trials for solid tumors, including LOXO-435, AZD4547, rogaratinib, fisogatinib (BLU-554), famitinib, Debio 1347, E7090, ICP-192, ICP-105, ASP5878, FGF401, RLY-4008 and HH185. HMPL-306 Tilbsovo (ivosidenib) and Rezlidnia (olutasidenib) are approved therapies that specifically inhibits IDH1 while Idhifa (enasidenib) is an approved therapy that specifically inhibits IDH2. To date, there are no approved therapies that inhibit both IDH1 and IDH2, which could be advantageous in deferring resistance to therapy. A pan-IDH inhibitor, vorasidenib, is currently in late stage development for glioma. An IDH 1/2 inhibitor, LY3410738, is in Phase 1 development for both hematological malignancies and solid tumors. Other IDH1 inhibitors in development include BAY1436032 and DS-1001b. HMPL-760 Approved first and second generation BTK inhibitors include Imbruvica, Calquence, Tirabrutinib, Brukinsa and orelabrutinib. A third generation BTK inhibitor pirtobruntinib was approved for 3L+ in mantle cell lymphoma in January 2023. Nemtabrutinib, orelabrutinib, TG-1701 and JNJ-64264681 are in development for cancer. A number of other BTK inhibitors, such as evobrutinib, remibrutinib, tolebrutinib, rilzabrutinib, SAR444727 and fenebrutinib, are in development for immunological diseases. intellectual property position. Patents HMPL-295 To date, no ERK inhibitor drug has been approved. A number of ERK inhibitors, including BVD-523, LY3214996 and LLT462, among others are being developed in clinical settings as a single agent and/or in combination with various therapeutical agents. HMPL-653 Turalio is the only FDA approved CSF-1R inhibitor drug and currently there is no CSF-1R inhibitors approved in China. CSF-1R inhibitors in development globally include axatilimab, BLZ945, vimseltinib, AMB-05X, NMS-03592088, ARRY-382, JNJ-40346527, emactuzumab, AMG820 and IMC-CS4. HMPL-A83 To date, no CD47 antibody drug has been approved. A number of antibodies, including magrolimab, evorpacept, lemzoparlimab, HX009, PF-07901801, AO-176, DSP107, and IBI188, among others are being developed in clinical settings as a single agent and/or in combination with various therapeutical agents. We and our joint ventures file patent applications directed to our Oncology/Immunology drugs and drug candidates and our Other Ventures’ products in an effort to establish intellectual property positions with regard to new small molecule compounds and/or extracts of natural herbs, their compositions as well as their medical uses in the treatment of diseases. In relation to our Oncology/Immunology operations, we also file patent applications directed to crystalline forms, formulations, processes, key intermediates, and secondary uses as clinical trials for our drug candidates evolve. We file such patent applications in major market jurisdictions, including but not limited to the United States, Europe, Japan and China. Our Oncology/Immunology Patents As of December 31, 2022, we had 232 issued patents, including 18 Chinese patents, 22 U.S. patents and 12 European patents, 295 patent applications pending in the above major market jurisdictions, and 7 pending PCT patent applications relating to the drugs and drug candidates of our Oncology/Immunology operations. The intellectual property portfolios for our most advanced drug candidates are summarized below. With respect to most of the pending patent applications covering our drug candidates, prosecution has yet to commence. Prosecution is a lengthy process, during which the scope of the claims initially submitted for examination by the relevant patent office is often significantly narrowed by the time when they issue, if they issue at all. We expect this to be the case for our pending patent applications referred to below. Other Ventures Competition Savolitinib—The intellectual property portfolio for savolitinib contains two patent families. Our Other Ventures operations which focus on prescription drugs compete in the pharmaceutical industry in China, which is highly competitive and is characterized by a number of established, large pharmaceutical companies, as well as some smaller emerging pharmaceutical companies. This business faces competition from other pharmaceutical companies in China engaged in the development, production, marketing or sales of prescription drugs, in particular cardiovascular drugs. The first patent family for savolitinib is directed to novel small molecule compounds as well as methods of treating cancers with such compounds. As of December 31, 2022, we owned 58 patents in this family, including patents in China, the United States, Europe and Japan, each expiring in 2030, and we also had 9 patent applications pending in various other jurisdictions. 122 123 Other than tazemetostat, there are no therapies which have been approved specifically for the treatment of epithelioid sarcoma. Epithelioid sarcoma, an INI1-negative tumor, is typically treated with surgical resection when it presents as localized disease. When epithelioid sarcoma recurs or metastasizes, it may be treated with systemic chemotherapy or investigational agents because, other than tazemetostat, there are no approved systemic therapies specifically indicated for this disease. To the best of our knowledge there are no competitive products in development specifically for epithelioid sarcoma. However, we are aware of several clinical trials run by competitors that recruit patients with soft tissue sarcoma, which is inclusive of epithelioid sarcoma. To date, Balversa, Pemazyre and Truseltiq are the only approved therapies that specifically target the FGFR signaling pathway. Late-stage studies are underway for futibatinib and derazantinib. Additionally, a FGFR specific monoclonal antibody, bemarituzumab, is in Phase III development for gastric cancer and gastroesophageal junction (GEJ) adenocarcinoma. Several small molecule FGFR TKI are in clinical trials for solid tumors, including LOXO-435, AZD4547, rogaratinib, fisogatinib (BLU-554), famitinib, Debio 1347, E7090, ICP-192, ICP-105, ASP5878, FGF401, RLY-4008 and HH185. Tilbsovo (ivosidenib) and Rezlidnia (olutasidenib) are approved therapies that specifically inhibits IDH1 while Idhifa (enasidenib) is an approved therapy that specifically inhibits IDH2. To date, there are no approved therapies that inhibit both IDH1 and IDH2, which could be advantageous in deferring resistance to therapy. A pan-IDH inhibitor, vorasidenib, is currently in late stage development for glioma. An IDH 1/2 inhibitor, LY3410738, is in Phase 1 development for both hematological malignancies and solid tumors. Other IDH1 inhibitors in development include BAY1436032 and DS-1001b. Approved first and second generation BTK inhibitors include Imbruvica, Calquence, Tirabrutinib, Brukinsa and orelabrutinib. A third generation BTK inhibitor pirtobruntinib was approved for 3L+ in mantle cell lymphoma in January 2023. Nemtabrutinib, orelabrutinib, TG-1701 and JNJ-64264681 are in development for cancer. A number of other BTK inhibitors, such as evobrutinib, remibrutinib, tolebrutinib, rilzabrutinib, SAR444727 and fenebrutinib, are in development for immunological diseases. To date, no ERK inhibitor drug has been approved. A number of ERK inhibitors, including BVD-523, LY3214996 and LLT462, among others are being developed in clinical settings as a single agent and/or in combination with various therapeutical agents. HMPL-453 HMPL-306 HMPL-760 HMPL-295 HMPL-653 HMPL-A83 The barrier to entry for the PRC pharmaceutical industry primarily relates to regulatory requirements in connection with the production of pharmaceutical products and new product launches. The identities of the key competitors with respect to our prescription drugs business vary by product, and, in certain cases, different competitors that have greater financial resources than us may elect to focus these resources on developing, importing or in-licensing and marketing products in the PRC that are substitutes for our products and may have broader sales and marketing infrastructure with which to do so. We believe that we compete primarily on the basis of brand recognition, pricing, sales network, promotion activities, product efficacy, safety and reliability. We believe our Other Ventures’ continued success will depend on our business’s capability to: maintain profitability of its products, obtain and maintain regulatory approvals, develop drug candidates with market potential, maintain an efficient operational model, apply technologies to production lines, attract and retain talented personnel, maintain high quality standards, and effectively market and promote the products sold by our prescription drugs business. Our Other Ventures operations which focus on consumer health products competes in a highly fragmented market in Asia, particularly in our primary market in China. We believe that this business competes primarily on the basis of brand recognition, pricing, sales network, promotion activities, product safety and reliability. We believe our continued success will depend on our business’s capability to: successfully market and distribute in-licensed products such as Earth’s Best infant formula, maintain an efficient operational model, attract and retain talented personnel, maintain high quality standards, and effectively market and promote the products sold by our business. Patents and Other Intellectual Property Our commercial success depends in part on our ability to obtain and maintain proprietary or intellectual property protection for our Oncology/Immunology drugs and drug candidates, our Other Ventures’ products and other know-how. Our policy is to seek to protect our proprietary and intellectual property position by, among other methods, filing patent applications in various jurisdictions related to our proprietary technology, inventions and improvements that are important to the development and implementation of our business. We also rely on trade secrets, know-how and continuing technological innovation to develop and maintain our proprietary and intellectual property position. Patents We and our joint ventures file patent applications directed to our Oncology/Immunology drugs and drug candidates and our Other Ventures’ products in an effort to establish intellectual property positions with regard to new small molecule compounds and/or extracts of natural herbs, their compositions as well as their medical uses in the treatment of diseases. In relation to our Oncology/Immunology operations, we also file patent applications directed to crystalline forms, formulations, processes, key intermediates, and secondary uses as clinical trials for our drug candidates evolve. We file such patent applications in major market jurisdictions, including but not limited to the United States, Europe, Japan and China. Turalio is the only FDA approved CSF-1R inhibitor drug and currently there is no CSF-1R inhibitors approved in China. CSF-1R inhibitors in development globally include axatilimab, BLZ945, vimseltinib, AMB-05X, NMS-03592088, ARRY-382, JNJ-40346527, Our Oncology/Immunology Patents emactuzumab, AMG820 and IMC-CS4. combination with various therapeutical agents. Other Ventures Competition To date, no CD47 antibody drug has been approved. A number of antibodies, including magrolimab, evorpacept, lemzoparlimab, HX009, PF-07901801, AO-176, DSP107, and IBI188, among others are being developed in clinical settings as a single agent and/or in Our Other Ventures operations which focus on prescription drugs compete in the pharmaceutical industry in China, which is highly competitive and is characterized by a number of established, large pharmaceutical companies, as well as some smaller emerging pharmaceutical companies. This business faces competition from other pharmaceutical companies in China engaged in the development, production, marketing or sales of prescription drugs, in particular cardiovascular drugs. As of December 31, 2022, we had 232 issued patents, including 18 Chinese patents, 22 U.S. patents and 12 European patents, 295 patent applications pending in the above major market jurisdictions, and 7 pending PCT patent applications relating to the drugs and drug candidates of our Oncology/Immunology operations. The intellectual property portfolios for our most advanced drug candidates are summarized below. With respect to most of the pending patent applications covering our drug candidates, prosecution has yet to commence. Prosecution is a lengthy process, during which the scope of the claims initially submitted for examination by the relevant patent office is often significantly narrowed by the time when they issue, if they issue at all. We expect this to be the case for our pending patent applications referred to below. Savolitinib—The intellectual property portfolio for savolitinib contains two patent families. The first patent family for savolitinib is directed to novel small molecule compounds as well as methods of treating cancers with such compounds. As of December 31, 2022, we owned 58 patents in this family, including patents in China, the United States, Europe and Japan, each expiring in 2030, and we also had 9 patent applications pending in various other jurisdictions. 122 123 The second patent family is directed to the method for the preparation of savolitinib. As of December 31, 2022, we owned one patent in this family in South Africa, which will expire in 2039. As of December 31, 2022, we also had 16 patent applications pending in this family in various jurisdictions, including China, the United States, Europe, and Japan, each of which, if issued, would have an expiration date in 2039. This patent family is co-owned by us and AstraZeneca. The third patent family is directed to the method of preparing one of the critical intermediates used in the manufacturing process of fruquintinib. With respect to this patent family, we had one patent in China expiring in 2034. The fourth patent family is directed to the pharmaceutical composition of fruquintinib. As of December 31, 2022, we had 7 patent applications pending in this patent family in various jurisdictions, including China, the United States, Europe and Japan, each of which, Our collaboration partner AstraZeneca is responsible for maintaining and enforcing the intellectual property portfolio for savolitinib. if issued, would have an expiration date in 2039. The fifth patent family is directed to the pharmaceutical combinations of geptanolimab and fruquintinib. With respect to this family, we had one patent application pending in China, which, if issued, would have an expiration date in 2041. This patent family is co-owned by us and Genor Biopharma Co. Ltd. Sovleplenib—The intellectual property portfolio for sovleplenib contains two patent families. The first patent family is directed to novel small molecule compounds as well as methods of treating cancers, inflammatory diseases, allergic diseases, cell-proliferative diseases, and immunological diseases with such compounds. As of December 31, 2022, we owned 25 patents in this family in various jurisdictions, including the United States, China, Europe and Japan, each of which will expire in The second patent family is directed to the salts of sovleplenib as well as crystalline forms thereof. As of December 31, 2022, we owned four patents in this family in various jurisdictions, including the United States and Japan, each of which will expire in 2038. As of December 31, 2022, we had 21 patent applications pending in this patent family in various jurisdictions, including China, the United States and Europe, each of which, if issued, would have an expiration date in 2038. Amdizalisib—The intellectual property portfolio for amdizalisib contains three patent families. The first patent family is directed to novel small molecule compounds as well as uses of such compounds. As of December 31, 2022, we owned 25 patents in this family in various jurisdictions, including the United States, Europe, China and Japan, each of which The second patent family is directed to crystalline forms of amdizalisib. As of December 31, 2022, we had 23 patent applications pending in this family in various jurisdictions, including China, the United States, Europe and Japan, each of which, if issued, would The third patent family is directed to the method of preparing one of the critical intermediates used in the manufacturing process of amdizalisib. With respect to this patent family, we had one patent in China expiring in 2038. Tazemetostat—The intellectual property portfolio for Tazemetostat is licensed from Epizyme, Inc. We entered into a licensing agreement with Epizyme pursuant to which we obtained a co-exclusive license to develop, an exclusive license to commercialize and a co-exclusive license to manufacture tazemetostat in China, Hong Kong, Taiwan and Macau for all therapeutic and palliative uses in epithelioid sarcoma, follicular lymphoma (second line and third line), diffuse large B-cell lymphoma Surufatinib—The intellectual property portfolio for surufatinib contains nine patent families. The first patent family for surufatinib is directed to novel small molecule compounds as well as methods of treating tumor angiogenesis-related disorders with such compounds. As of December 31, 2022, in this patent family we owned one Chinese patent expiring in 2027 and 12 patents in various other jurisdictions, including the United States expiring in 2031, and Europe and Japan, each expiring in 2028. As of December 31, 2022, we also had one patent application pending in Brazil. The second patent family is directed to the compound and crystalline forms of surufatinib as well as methods of treating tumor angiogenesis-related disorders with such compound and forms. As of December 31, 2022, in this patent family we owned two patents in China expiring in 2029 and 2030, respectively, and we owned 15 patents in other jurisdictions, including the United States expiring in 2031 and Europe expiring in 2030. As of December 31, 2022, we also had one patent application pending in Brazil. 2032. The third patent family is directed to the formulation of a micronized active pharmaceutical ingredient used in surufatinib as well as methods of treating tumor angiogenesis-related disorders with such formulation. As of December 31, 2022, we owned 14 patents in this family in various jurisdictions, including China, Europe and Japan, each of which will expire in 2036. We also had 5 patent applications pending in various other jurisdictions, each of which, if issued, would have an expiration date in 2036. The fourth patent family is directed to clinical indications of surufatinib. With respect to this patent family, we had one patent application pending in Japan, which, if issued, would have an expiration date in 2036. The fifth patent family is directed to impurities of surufatinib and their preparation methods. With respect to this family, we had will expire in 2035. As of December 31, 2022, we also had two patent applications pending in this family in Argentina and Brazil. one patent application pending in China, which, if issued, would have an expiration date in 2040. The sixth patent family is directed to the pharmaceutical combinations of toripalimab and surufatinib. With respect to this family, we had one Chinese and one Taiwan applications pending, each of which, if issued, would have an expiration date in 2041. This patent family is co-owned by us and Shanghai Junshi Biosciences Co., Ltd. have an expiration date in 2039. The seventh patent family is directed to methods of using surufatinib in treating advanced pancreatic and extra-pancreatic neuroendocrine tumors. With respect to this family, we had one patent application pending in the United States, which, if issued, would have an expiration date in 2041. The eighth patent family is directed to the therapeutic combinations of surufatinib and chemotherapeutic agents. With respect to this family, we had one patent application pending in China, which, if issued, would have an expiration date in 2041. The ninth patent family is directed to solid dispersion of surufatinib. With respect to this family, we had one patent application and any other indications that are approved according to the terms of the licensing agreement. For more details, please see “—Our pending in China, which, if issued, would have an expiration date in 2041. Collaborations—Epizyme.” Fruquintinib—The intellectual property portfolio for fruquintinib contains five patent families. HMPL-306—The intellectual property portfolio for HMPL-306 contains one patent family. The first patent family for fruquintinib is directed to novel small molecule compounds as well as methods of treating tumor angiogenesis-related disorders with such compounds. As of December 31, 2022, we owned three U.S. patents, one Chinese patent and one Taiwanese patent in this family, each of which will expire in 2028. We also owned 16 patents in other jurisdictions including Europe and Japan, each of which will expire in 2029. The patent family is directed to novel small molecule compounds as well as methods of treating cancers with the compounds. As of December 31, 2022, we owned one patent in this family in the United States, which will expire in 2038. As of December 31, 2022, we also had 24 patent applications pending in this patent family in various jurisdictions, including China, the United States, Europe and Japan, each of which, if issued, would have an expiration date in 2038. The second patent family is directed to crystalline forms of fruquintinib as well as methods of treating tumor angiogenesis-related disorders with such forms. As of December 31, 2022, we owned 22 patents in this family in various jurisdictions, including the United States, China, Europe and Japan, each of which will expire in 2035, and we had 5 patent applications pending in various other jurisdictions. HMPL-760—The intellectual property portfolio for HMPL-760 contains one patent family. 124 125 The second patent family is directed to the method for the preparation of savolitinib. As of December 31, 2022, we owned one The third patent family is directed to the method of preparing one of the critical intermediates used in the manufacturing process of patent in this family in South Africa, which will expire in 2039. As of December 31, 2022, we also had 16 patent applications pending fruquintinib. With respect to this patent family, we had one patent in China expiring in 2034. in this family in various jurisdictions, including China, the United States, Europe, and Japan, each of which, if issued, would have an expiration date in 2039. This patent family is co-owned by us and AstraZeneca. Our collaboration partner AstraZeneca is responsible for maintaining and enforcing the intellectual property portfolio for savolitinib. Surufatinib—The intellectual property portfolio for surufatinib contains nine patent families. The first patent family for surufatinib is directed to novel small molecule compounds as well as methods of treating tumor angiogenesis-related disorders with such compounds. As of December 31, 2022, in this patent family we owned one Chinese patent expiring in 2027 and 12 patents in various other jurisdictions, including the United States expiring in 2031, and Europe and Japan, each expiring in 2028. As of December 31, 2022, we also had one patent application pending in Brazil. The second patent family is directed to the compound and crystalline forms of surufatinib as well as methods of treating tumor angiogenesis-related disorders with such compound and forms. As of December 31, 2022, in this patent family we owned two patents in China expiring in 2029 and 2030, respectively, and we owned 15 patents in other jurisdictions, including the United States expiring in 2031 and Europe expiring in 2030. As of December 31, 2022, we also had one patent application pending in Brazil. The third patent family is directed to the formulation of a micronized active pharmaceutical ingredient used in surufatinib as well as methods of treating tumor angiogenesis-related disorders with such formulation. As of December 31, 2022, we owned 14 patents in this family in various jurisdictions, including China, Europe and Japan, each of which will expire in 2036. We also had 5 patent applications pending in various other jurisdictions, each of which, if issued, would have an expiration date in 2036. The fourth patent family is directed to clinical indications of surufatinib. With respect to this patent family, we had one patent application pending in Japan, which, if issued, would have an expiration date in 2036. The fifth patent family is directed to impurities of surufatinib and their preparation methods. With respect to this family, we had one patent application pending in China, which, if issued, would have an expiration date in 2040. The sixth patent family is directed to the pharmaceutical combinations of toripalimab and surufatinib. With respect to this family, we had one Chinese and one Taiwan applications pending, each of which, if issued, would have an expiration date in 2041. This patent family is co-owned by us and Shanghai Junshi Biosciences Co., Ltd. The fourth patent family is directed to the pharmaceutical composition of fruquintinib. As of December 31, 2022, we had 7 patent applications pending in this patent family in various jurisdictions, including China, the United States, Europe and Japan, each of which, if issued, would have an expiration date in 2039. The fifth patent family is directed to the pharmaceutical combinations of geptanolimab and fruquintinib. With respect to this family, we had one patent application pending in China, which, if issued, would have an expiration date in 2041. This patent family is co-owned by us and Genor Biopharma Co. Ltd. Sovleplenib—The intellectual property portfolio for sovleplenib contains two patent families. The first patent family is directed to novel small molecule compounds as well as methods of treating cancers, inflammatory diseases, allergic diseases, cell-proliferative diseases, and immunological diseases with such compounds. As of December 31, 2022, we owned 25 patents in this family in various jurisdictions, including the United States, China, Europe and Japan, each of which will expire in 2032. The second patent family is directed to the salts of sovleplenib as well as crystalline forms thereof. As of December 31, 2022, we owned four patents in this family in various jurisdictions, including the United States and Japan, each of which will expire in 2038. As of December 31, 2022, we had 21 patent applications pending in this patent family in various jurisdictions, including China, the United States and Europe, each of which, if issued, would have an expiration date in 2038. Amdizalisib—The intellectual property portfolio for amdizalisib contains three patent families. The first patent family is directed to novel small molecule compounds as well as uses of such compounds. As of December 31, 2022, we owned 25 patents in this family in various jurisdictions, including the United States, Europe, China and Japan, each of which will expire in 2035. As of December 31, 2022, we also had two patent applications pending in this family in Argentina and Brazil. The second patent family is directed to crystalline forms of amdizalisib. As of December 31, 2022, we had 23 patent applications pending in this family in various jurisdictions, including China, the United States, Europe and Japan, each of which, if issued, would have an expiration date in 2039. The third patent family is directed to the method of preparing one of the critical intermediates used in the manufacturing process of The seventh patent family is directed to methods of using surufatinib in treating advanced pancreatic and extra-pancreatic amdizalisib. With respect to this patent family, we had one patent in China expiring in 2038. neuroendocrine tumors. With respect to this family, we had one patent application pending in the United States, which, if issued, would have an expiration date in 2041. Tazemetostat—The intellectual property portfolio for Tazemetostat is licensed from Epizyme, Inc. The eighth patent family is directed to the therapeutic combinations of surufatinib and chemotherapeutic agents. With respect to this family, we had one patent application pending in China, which, if issued, would have an expiration date in 2041. The ninth patent family is directed to solid dispersion of surufatinib. With respect to this family, we had one patent application pending in China, which, if issued, would have an expiration date in 2041. We entered into a licensing agreement with Epizyme pursuant to which we obtained a co-exclusive license to develop, an exclusive license to commercialize and a co-exclusive license to manufacture tazemetostat in China, Hong Kong, Taiwan and Macau for all therapeutic and palliative uses in epithelioid sarcoma, follicular lymphoma (second line and third line), diffuse large B-cell lymphoma and any other indications that are approved according to the terms of the licensing agreement. For more details, please see “—Our Collaborations—Epizyme.” Fruquintinib—The intellectual property portfolio for fruquintinib contains five patent families. HMPL-306—The intellectual property portfolio for HMPL-306 contains one patent family. The first patent family for fruquintinib is directed to novel small molecule compounds as well as methods of treating tumor angiogenesis-related disorders with such compounds. As of December 31, 2022, we owned three U.S. patents, one Chinese patent and one Taiwanese patent in this family, each of which will expire in 2028. We also owned 16 patents in other jurisdictions including Europe and Japan, each of which will expire in 2029. The patent family is directed to novel small molecule compounds as well as methods of treating cancers with the compounds. As of December 31, 2022, we owned one patent in this family in the United States, which will expire in 2038. As of December 31, 2022, we also had 24 patent applications pending in this patent family in various jurisdictions, including China, the United States, Europe and Japan, each of which, if issued, would have an expiration date in 2038. The second patent family is directed to crystalline forms of fruquintinib as well as methods of treating tumor angiogenesis-related HMPL-760—The intellectual property portfolio for HMPL-760 contains one patent family. disorders with such forms. As of December 31, 2022, we owned 22 patents in this family in various jurisdictions, including the United States, China, Europe and Japan, each of which will expire in 2035, and we had 5 patent applications pending in various other jurisdictions. 124 125 The term of a patent depends upon the laws of the country in which it is issued. In most jurisdictions, a patent term is 20 years from the earliest filing date of a non-provisional patent application. In the United States, a patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the USPTO in examining and granting a patent, or may be shortened if a patent is terminally disclaimed over an earlier filed patent. The term of a patent that covers a drug or biological product may also be eligible for patent term extension when FDA approval is granted, provided statutory and regulatory requirements are met. In the future, if and when our drug candidates receive approval by the FDA or other regulatory authorities, we expect to apply for patent term extensions on issued patents covering those drugs, depending upon the length of the clinical trials for each drug and other factors. There can be no assurance that any of our pending patent applications will be issued or that we will benefit from any patent term extension. As with other pharmaceutical companies, our or our joint ventures’ ability to maintain and solidify our proprietary and intellectual property position for our drugs and drug candidates or our or their products and technologies will depend on our or our joint ventures’ success in obtaining effective patent claims and enforcing those claims if granted. However, our or our joint ventures’ pending patent applications and any patent applications that we or they may in the future file or license from third parties may not result in the issuance of patents. We also cannot predict the breadth of claims that may be allowed or enforced in our or our joint ventures’ patents. Any issued patents that we may receive in the future may be challenged, invalidated or circumvented. For example, we cannot be certain of the priority of filing covered by pending third-party patent applications. If third parties prepare and file patent applications in the United States, China or other markets that also claim technology or therapeutics to which we or our joint ventures have rights, we or our joint ventures may have to participate in interference proceedings, which could result in substantial costs to us, even if the eventual outcome is favorable to us, which is highly unpredictable. In addition, because of the extensive time required for clinical development and regulatory review of a drug candidate we may develop, it is possible that, before any of our drug candidates can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby limiting protection such patent would afford the respective product and any competitive advantage such patent may provide. The patent family is directed to novel small molecule compounds as well as methods of treating cancers, inflammatory diseases or auto-immune diseases with such compounds. As of December 31, 2022, we owned one patent in this family in the United States, which will expire in 2041. As of December 31, 2022, we also had 23 patent applications pending in this patent family in various jurisdictions, including China, the United States, Europe and Japan, each of which, if issued, would have an expiration date in 2041. Patent Term HMPL-453—The intellectual property portfolio for HMPL-453 contains two patent families. The first patent family is directed to novel small molecule compounds as well as methods of treating cancers with the compounds. As of December 31, 2022, we owned 24 patents in this family in various jurisdictions, including China, Europe, Japan and the United States, each of which will expire in 2034. As of December 31, 2022, we had one patent application pending in Argentina. The second patent family is directed to the salts of HMPL-453. As of December 31, 2022, we had 20 patent applications pending in this patent family in various jurisdictions, including China, the United States, Europe and Japan, each of which, if issued, would have an expiration date in 2040. HMPL-295—The intellectual property portfolio for HMPL-295 contains one patent family. The patent family is directed to novel small molecule compounds as well as methods of treating cancers or auto-immune diseases with such compounds. As of December 31, 2022, in this patent family we had 24 patent applications pending in various jurisdictions, including China, the United States, Europe and Japan, each of which, if issued, would have an expiration date in 2040. HMPL-653—The intellectual property portfolio for HMPL-653 contains one patent family. The patent family is directed to novel small molecule compounds as well as methods of treating cancers, inflammatory diseases or auto-immune diseases with such compounds. As of December 31, 2022, in this patent family we had 22 patent applications pending in various jurisdictions, including China, the United States, Europe and Japan, each of which, if issued, would have an expiration date in 2041. Trade Secrets HMPL-A83—The intellectual property portfolio for HMPL-A83 contains two patent families. The first patent family is directed to novel anti-CD47 antibodies as well as methods of treating cancers with such antibodies. As of December 31, 2022, in this patent family we had 22 patent applications pending in various jurisdictions, including China, the United States, Europe and Japan, each of which, if issued, would have an expiration date in 2041. The second patent family is subject to confidential review by the patent authorities. As of December 31, 2022, in this patent family we had PCT, Argentina and Taiwan applications pending, each of which, if issued, would have an expiration date in 2042. In addition to patents, we and our joint ventures rely upon unpatented trade secrets and know-how and continuing technological innovation to develop and maintain our or their competitive position. We and our joint ventures seek to protect our proprietary information, in part, by executing confidentiality agreements with our collaborators and scientific advisors, and non-competition, non- solicitation, confidentiality, and invention assignment agreements with our employees and consultants. We and our joint ventures have also executed agreements requiring assignment of inventions with selected scientific advisors and collaborators. The confidentiality agreements we and our joint ventures enter into are designed to protect our or our joint ventures’ proprietary information and the agreements or clauses requiring assignment of inventions to us or our joint ventures, as applicable, are designed to grant us or our joint ventures, as applicable, ownership of technologies that are developed through our or their relationship with the respective counterpart. We cannot guarantee, however, that these agreements will afford us or our joint ventures adequate protection of our or their intellectual Other Ventures Patents As of December 31, 2022, our joint venture Shanghai Hutchison Pharmaceuticals had (i) 75 issued patents in China, (ii) one patent granted in the U.S. and one granted patent in Canada under the Patent Cooperation Treaty, and (iii) 38 pending Chinese patent applications and seven patent applications under the Patent Cooperation Treaty, among them, two of which were filed in China, including patents for its key prescription products described below. She Xiang Bao Xin Pills. As of December 31, 2022, Shanghai Hutchison Pharmaceuticals held an invention patent in China directed to the formulation of the She Xiang Bao Xin pill. Under PRC law, invention patents are granted for new technical innovations with respect to products or processes. Invention patents in China have a maximum term of 20 years. This patent will expire in 2029. The “Confidential State Secret Technology” status protection on the She Xiang Bao Xin pill technology held by Shanghai Hutchison Pharmaceuticals, as certified by China’s Ministry of Science and Technology and State Secrecy Bureau, is currently active. Danning Tablets. As of December 31, 2022, Shanghai Hutchison Pharmaceuticals also held an invention patent in China directed to the formulation of the Danning tablet. This patent will expire in 2027. property and proprietary information rights. Trademarks and Domain Names We conduct our business using trademarks with various forms of the “Hutchison”, “Chi-Med”, “Hutchison China MediTech”, “HUTCHMED”, “Elunate”, “Sulanda”, “Orpathys” and “Tazverik” brands, the logos used by HUTCHMED Limited, as well as domain names incorporating some or all of these trademarks. In April 2006, we entered into a brand license agreement (as amended and restated on June 15, 2021) with Hutchison Whampoa Enterprises Limited, an indirect wholly-owned subsidiary of CK Hutchison, pursuant to which we have been granted a non-exclusive, non-transferrable, royalty-free right to use the “Hutchison”, “Hutchison China MediTech”, “Chi-Med”, “HUTCHMED” trademarks, domain names and other intellectual property rights owned by the CK Hutchison group in connection with the operation of our business worldwide. See “Connected Transactions” for further details. The Elunate and Orpathys trademarks are licensed to us in China by our collaboration partners Eli Lilly and AstraZeneca, respectively. The trademarks for the HUTCHMED Limited logo and “Sulanda” are owned by us. The Tazverik trademark is licensed to us in China, Hong Kong, Taiwan and Macau by our collaboration partner Epizyme. In addition, our joint ventures seek trademark protection for their products. As of December 31, 2022, our joint venture Shanghai Hutchison Pharmaceuticals owned a total of 21 trademarks in China and one trademark in Canada related to products sold by it. For example, the name “Shang Yao” is a registered trademark of Shanghai Hutchison Pharmaceuticals in China for certain uses including pharmaceutical preparations. 126 127 The patent family is directed to novel small molecule compounds as well as methods of treating cancers, inflammatory diseases or Patent Term auto-immune diseases with such compounds. As of December 31, 2022, we owned one patent in this family in the United States, which will expire in 2041. As of December 31, 2022, we also had 23 patent applications pending in this patent family in various jurisdictions, including China, the United States, Europe and Japan, each of which, if issued, would have an expiration date in 2041. HMPL-453—The intellectual property portfolio for HMPL-453 contains two patent families. The first patent family is directed to novel small molecule compounds as well as methods of treating cancers with the compounds. As of December 31, 2022, we owned 24 patents in this family in various jurisdictions, including China, Europe, Japan and the United States, each of which will expire in 2034. As of December 31, 2022, we had one patent application pending in Argentina. The second patent family is directed to the salts of HMPL-453. As of December 31, 2022, we had 20 patent applications pending in this patent family in various jurisdictions, including China, the United States, Europe and Japan, each of which, if issued, would have an expiration date in 2040. HMPL-295—The intellectual property portfolio for HMPL-295 contains one patent family. The patent family is directed to novel small molecule compounds as well as methods of treating cancers or auto-immune diseases with such compounds. As of December 31, 2022, in this patent family we had 24 patent applications pending in various jurisdictions, including China, the United States, Europe and Japan, each of which, if issued, would have an expiration date in 2040. HMPL-653—The intellectual property portfolio for HMPL-653 contains one patent family. The patent family is directed to novel small molecule compounds as well as methods of treating cancers, inflammatory diseases or auto-immune diseases with such compounds. As of December 31, 2022, in this patent family we had 22 patent applications pending in various jurisdictions, including China, the United States, Europe and Japan, each of which, if issued, would have an expiration date in 2041. HMPL-A83—The intellectual property portfolio for HMPL-A83 contains two patent families. The first patent family is directed to novel anti-CD47 antibodies as well as methods of treating cancers with such antibodies. As of December 31, 2022, in this patent family we had 22 patent applications pending in various jurisdictions, including China, the United States, Europe and Japan, each of which, if issued, would have an expiration date in 2041. The second patent family is subject to confidential review by the patent authorities. As of December 31, 2022, in this patent family we had PCT, Argentina and Taiwan applications pending, each of which, if issued, would have an expiration date in 2042. Other Ventures Patents As of December 31, 2022, our joint venture Shanghai Hutchison Pharmaceuticals had (i) 75 issued patents in China, (ii) one patent granted in the U.S. and one granted patent in Canada under the Patent Cooperation Treaty, and (iii) 38 pending Chinese patent applications and seven patent applications under the Patent Cooperation Treaty, among them, two of which were filed in China, including patents for its key prescription products described below. She Xiang Bao Xin Pills. As of December 31, 2022, Shanghai Hutchison Pharmaceuticals held an invention patent in China directed to the formulation of the She Xiang Bao Xin pill. Under PRC law, invention patents are granted for new technical innovations with respect to products or processes. Invention patents in China have a maximum term of 20 years. This patent will expire in 2029. The “Confidential State Secret Technology” status protection on the She Xiang Bao Xin pill technology held by Shanghai Hutchison Pharmaceuticals, as certified by China’s Ministry of Science and Technology and State Secrecy Bureau, is currently active. Danning Tablets. As of December 31, 2022, Shanghai Hutchison Pharmaceuticals also held an invention patent in China directed to the formulation of the Danning tablet. This patent will expire in 2027. The term of a patent depends upon the laws of the country in which it is issued. In most jurisdictions, a patent term is 20 years from the earliest filing date of a non-provisional patent application. In the United States, a patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the USPTO in examining and granting a patent, or may be shortened if a patent is terminally disclaimed over an earlier filed patent. The term of a patent that covers a drug or biological product may also be eligible for patent term extension when FDA approval is granted, provided statutory and regulatory requirements are met. In the future, if and when our drug candidates receive approval by the FDA or other regulatory authorities, we expect to apply for patent term extensions on issued patents covering those drugs, depending upon the length of the clinical trials for each drug and other factors. There can be no assurance that any of our pending patent applications will be issued or that we will benefit from any patent term extension. As with other pharmaceutical companies, our or our joint ventures’ ability to maintain and solidify our proprietary and intellectual property position for our drugs and drug candidates or our or their products and technologies will depend on our or our joint ventures’ success in obtaining effective patent claims and enforcing those claims if granted. However, our or our joint ventures’ pending patent applications and any patent applications that we or they may in the future file or license from third parties may not result in the issuance of patents. We also cannot predict the breadth of claims that may be allowed or enforced in our or our joint ventures’ patents. Any issued patents that we may receive in the future may be challenged, invalidated or circumvented. For example, we cannot be certain of the priority of filing covered by pending third-party patent applications. If third parties prepare and file patent applications in the United States, China or other markets that also claim technology or therapeutics to which we or our joint ventures have rights, we or our joint ventures may have to participate in interference proceedings, which could result in substantial costs to us, even if the eventual outcome is favorable to us, which is highly unpredictable. In addition, because of the extensive time required for clinical development and regulatory review of a drug candidate we may develop, it is possible that, before any of our drug candidates can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby limiting protection such patent would afford the respective product and any competitive advantage such patent may provide. Trade Secrets In addition to patents, we and our joint ventures rely upon unpatented trade secrets and know-how and continuing technological innovation to develop and maintain our or their competitive position. We and our joint ventures seek to protect our proprietary information, in part, by executing confidentiality agreements with our collaborators and scientific advisors, and non-competition, non- solicitation, confidentiality, and invention assignment agreements with our employees and consultants. We and our joint ventures have also executed agreements requiring assignment of inventions with selected scientific advisors and collaborators. The confidentiality agreements we and our joint ventures enter into are designed to protect our or our joint ventures’ proprietary information and the agreements or clauses requiring assignment of inventions to us or our joint ventures, as applicable, are designed to grant us or our joint ventures, as applicable, ownership of technologies that are developed through our or their relationship with the respective counterpart. We cannot guarantee, however, that these agreements will afford us or our joint ventures adequate protection of our or their intellectual property and proprietary information rights. Trademarks and Domain Names We conduct our business using trademarks with various forms of the “Hutchison”, “Chi-Med”, “Hutchison China MediTech”, “HUTCHMED”, “Elunate”, “Sulanda”, “Orpathys” and “Tazverik” brands, the logos used by HUTCHMED Limited, as well as domain names incorporating some or all of these trademarks. In April 2006, we entered into a brand license agreement (as amended and restated on June 15, 2021) with Hutchison Whampoa Enterprises Limited, an indirect wholly-owned subsidiary of CK Hutchison, pursuant to which we have been granted a non-exclusive, non-transferrable, royalty-free right to use the “Hutchison”, “Hutchison China MediTech”, “Chi-Med”, “HUTCHMED” trademarks, domain names and other intellectual property rights owned by the CK Hutchison group in connection with the operation of our business worldwide. See “Connected Transactions” for further details. The Elunate and Orpathys trademarks are licensed to us in China by our collaboration partners Eli Lilly and AstraZeneca, respectively. The trademarks for the HUTCHMED Limited logo and “Sulanda” are owned by us. The Tazverik trademark is licensed to us in China, Hong Kong, Taiwan and Macau by our collaboration partner Epizyme. In addition, our joint ventures seek trademark protection for their products. As of December 31, 2022, our joint venture Shanghai Hutchison Pharmaceuticals owned a total of 21 trademarks in China and one trademark in Canada related to products sold by it. For example, the name “Shang Yao” is a registered trademark of Shanghai Hutchison Pharmaceuticals in China for certain uses including pharmaceutical preparations. 126 127 Raw Materials and Supplies Raw materials and supplies are ordered based on our or our joint ventures’ respective sales plans and reasonable order forecasts and are generally available from our or our joint ventures’ own cultivation operations and various third-party suppliers in quantities adequate to meet our needs. We typically order raw materials on short-term contract or purchase order basis and do not enter into long-term dedicated capacity or minimum supply arrangements. For our Oncology/Immunology operations, the active pharmaceutical ingredient used in our drug candidates are supplied to us from third-party vendors. Our ability to successfully develop our drug candidates, and to ultimately supply our commercial drugs in quantities sufficient to meet the market demand, depends in part on our ability to obtain the active pharmaceutical ingredients for these drugs in accordance with regulatory requirements and in sufficient quantities for commercialization and clinical testing. We generally aim to identify and qualify one or more manufacturers to provide such active pharmaceutical ingredients prior to submission of an NDA to the FDA and/or NMPA. We contract with a single supplier to manufacture and supply us with the active pharmaceutical ingredient for fruquintinib for commercial purposes and are in the process of engaging a second supplier. We have already validated the second supplier’s cGMP production processes and the application for this second supplier has been approved by the NMPA. We also contract with a single supplier to manufacture and supply us with the active pharmaceutical ingredient for surufatinib for commercial purposes. We contracted with a single supplier to provide active pharmaceutical ingredient and finished product for savolitinib. We manage the risk of price fluctuations and supply disruptions of active pharmaceutical ingredients by purchasing them in bulk quantities as these ingredients have a relatively long shelf life. Other than the foregoing, we do not currently have arrangements in place for a contingent or second-source supply of the active pharmaceutical ingredients for fruquintinib, surufatinib or savolitinib in the event any of our current suppliers of such active pharmaceutical ingredients or finished product cease their operations for any reason, which may lead to an interruption in our production and operations. However, to date, while we have experienced price fluctuations associated with our raw materials, we have not experienced any material disruptions in the supply of the active pharmaceutical ingredients or the other raw materials we and our joint venture partners use. See Item 3.D. “Risk Factors—Certain of our joint venture parties principal products involve the cultivation or sourcing of key raw materials including botanical products, and any quality control or supply failure or price fluctuations could adversely affect our ability to manufacture our products and/or could materially and adversely affect our operating results.” Quality Control and Assurance Hutchison Sinopharm holds a pharmaceutical trading license issued by its local regulatory authority expiring on July 30, 2024. Hutchison Sinopharm also holds a good supply practice, or GSP, certificate issued by its local regulatory authority which expires on We have our own independent quality control system and devote significant attention to quality control for the designing, manufacturing and testing of our products. We have established a strict quality control system in accordance with the NMPA regulations. Our laboratories fully comply with the Chinese manufacturing guidelines and are staffed with highly educated and skilled technicians to ensure quality of all batches of product release. We monitor in real time our operations throughout the entire production process, from inspection of raw and auxiliary materials, manufacture, delivery of finished products, clinical testing at hospitals, to ethical sales tactics. Our quality assurance team is also responsible for ensuring that we are in compliance with all applicable regulations, standards and internal policies. Our senior management team is actively involved in setting quality policies and managing internal and external quality performance of our company and our joint venture Shanghai Hutchison Pharmaceuticals. Customers and Suppliers For the years ended December 31, 2020, 2021 and 2022, we generated revenue of $102.3 million, $188.9 million and $185.0 million from our five largest customers, respectively. For the years ended December 31, 2020, 2021 and 2022, revenue from our five largest customers represented approximately 45%, 53% and 43% of our total revenue, respectively, and revenue from our largest customer in those periods represented approximately 16%, 16% and 16% of our revenue in the same periods, respectively. Save for Sinopharm, our five largest customers were independent third parties and none of our directors or their close associates or, to the knowledge of our directors, any shareholders who owned more than 5% of our issued ordinary shares had any interest in any of our five largest customers as of the date of the filing of this annual report. In 2020, 2021 and 2022, Sinopharm, which jointly owns Hutchison Sinopharm with us, was one of our five largest customers. Sales to Sinopharm and/or its associates contributed 16%, 12% and 16% of our revenue in 2020, 2021 and 2022, respectively. Purchases from Sinopharm and/or its associates contributed less than 1% of our total purchases in 2020, 2021 and 2022, respectively. 128 129 For the years ended December 31, 2020, 2021 and 2022, the total purchases from our five largest suppliers were $58.0 million, $100.6 million and $90.9 million, respectively. For the years ended December 31, 2020, 2021 and 2022, our purchases from our five largest suppliers represented less than 20% of our total purchases. All of our five largest suppliers were independent third parties and none of our directors or their close associates or, to the knowledge of our directors, any shareholder who owned more than 5% of our issued ordinary shares had any interest in any of our five largest suppliers as of the date of the filing of this annual report. Although we or our collaboration partners design the clinical trials for our drug candidates, CROs conduct most of the clinical trials. Our agreements with CROs are usually structured as master service agreements which set out the services to be performed, payment schedule, term and confirmation that all intellectual rights arising out of or made in performance of the services are owned by us. We and our collaboration partners work with major global and Chinese CROs. Contract Research Organizations Certificates and Permits The following sets forth the material certificates and/or permits that we have obtained for our operations in China. We have received all material certificates and permits that are, or may be, required for our operations in China. No material certificate, permission or approval for our operations has been denied by relevant authorities in China. Given the uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement practice by relevant government authorities, we may be required to obtain additional licenses, permits, filings or approvals for our products and business operations in China in the future, and may not be able to maintain or renew our current licenses, permits, filings or approvals. In addition, rules and regulations in China can change quickly with little advance notice. Uncertainties due to evolving laws and regulations could impede the ability of an issuer with significant operations in China, such as us, to obtain or maintain certificates, permits or licenses required to conduct business in China. In the absence of required certificates, permits or licenses, governmental authorities could impose material sanctions or penalties on us. HUTCHMED (Suzhou) Limited holds a pharmaceutical manufacturing permit issued by its local regulatory authority expiring on September 13, 2025. It also complies with applicable GMP standards. July 30, 2024. December 31, 2025. Shanghai Hutchison Pharmaceuticals holds a pharmaceutical manufacturing permit from its local regulatory authorities expiring on Shanghai Shangyao Hutchison Whampoa GSP Company Limited, a subsidiary of Shanghai Hutchison Pharmaceuticals, holds a pharmaceutical trading license from its local regulatory authority expiring on November 17, 2024. It also holds a GSP certificate issued by its local regulatory authority expiring on November 17, 2024. Regulations This section sets forth a summary of the most significant rules and regulations affecting our business activities in China and the United States. Government Regulation of Pharmaceutical Product Development and Approval PRC Regulation of Pharmaceutical Product Development and Approval Since China’s entry to the World Trade Organization in 2001, the PRC government has made significant efforts to standardize regulations, develop its pharmaceutical regulatory system and strengthen intellectual property protection. Raw Materials and Supplies Raw materials and supplies are ordered based on our or our joint ventures’ respective sales plans and reasonable order forecasts and are generally available from our or our joint ventures’ own cultivation operations and various third-party suppliers in quantities adequate to meet our needs. We typically order raw materials on short-term contract or purchase order basis and do not enter into long-term dedicated capacity or minimum supply arrangements. For our Oncology/Immunology operations, the active pharmaceutical ingredient used in our drug candidates are supplied to us from third-party vendors. Our ability to successfully develop our drug candidates, and to ultimately supply our commercial drugs in quantities sufficient to meet the market demand, depends in part on our ability to obtain the active pharmaceutical ingredients for these drugs in accordance with regulatory requirements and in sufficient quantities for commercialization and clinical testing. We generally aim to identify and qualify one or more manufacturers to provide such active pharmaceutical ingredients prior to submission of an NDA to the FDA and/or NMPA. We contract with a single supplier to manufacture and supply us with the active pharmaceutical ingredient for fruquintinib for commercial purposes and are in the process of engaging a second supplier. We have already validated the second supplier’s cGMP production processes and the application for this second supplier has been approved by the NMPA. We also contract with a single supplier to manufacture and supply us with the active pharmaceutical ingredient for surufatinib for commercial purposes. We contracted with a single supplier to provide active pharmaceutical ingredient and finished product for savolitinib. We manage the risk of price fluctuations and supply disruptions of active pharmaceutical ingredients by purchasing them in bulk quantities as these ingredients have a relatively long shelf life. Other than the foregoing, we do not currently have arrangements in place for a contingent or second-source supply of the active pharmaceutical ingredients for fruquintinib, surufatinib or savolitinib in the event any of our current suppliers of such active pharmaceutical ingredients or finished product cease their operations for any reason, which may lead to an interruption in our production and operations. However, to date, while we have experienced price fluctuations associated with our raw materials, we have not experienced any material disruptions in the supply of the active pharmaceutical ingredients or the other raw materials we and our joint venture partners use. See Item 3.D. “Risk Factors—Certain of our joint venture parties principal products involve the cultivation or sourcing of key raw materials including botanical products, and any quality control or supply failure or price fluctuations could adversely affect our ability to manufacture our products and/or could materially and adversely affect our operating results.” Quality Control and Assurance We have our own independent quality control system and devote significant attention to quality control for the designing, manufacturing and testing of our products. We have established a strict quality control system in accordance with the NMPA regulations. Our laboratories fully comply with the Chinese manufacturing guidelines and are staffed with highly educated and skilled technicians to ensure quality of all batches of product release. We monitor in real time our operations throughout the entire production process, from inspection of raw and auxiliary materials, manufacture, delivery of finished products, clinical testing at hospitals, to ethical sales tactics. Our quality assurance team is also responsible for ensuring that we are in compliance with all applicable regulations, standards and internal policies. Our senior management team is actively involved in setting quality policies and managing internal and external quality performance of our company and our joint venture Shanghai Hutchison Pharmaceuticals. Customers and Suppliers For the years ended December 31, 2020, 2021 and 2022, we generated revenue of $102.3 million, $188.9 million and $185.0 million from our five largest customers, respectively. For the years ended December 31, 2020, 2021 and 2022, revenue from our five largest customers represented approximately 45%, 53% and 43% of our total revenue, respectively, and revenue from our largest customer in those periods represented approximately 16%, 16% and 16% of our revenue in the same periods, respectively. Save for Sinopharm, our five largest customers were independent third parties and none of our directors or their close associates or, to the knowledge of our directors, any shareholders who owned more than 5% of our issued ordinary shares had any interest in any of our five largest customers as of the date of the filing of this annual report. In 2020, 2021 and 2022, Sinopharm, which jointly owns Hutchison Sinopharm with us, was one of our five largest customers. Sales to Sinopharm and/or its associates contributed 16%, 12% and 16% of our revenue in 2020, 2021 and 2022, respectively. Purchases from Sinopharm and/or its associates contributed less than 1% of our total purchases in 2020, 2021 and 2022, respectively. For the years ended December 31, 2020, 2021 and 2022, the total purchases from our five largest suppliers were $58.0 million, $100.6 million and $90.9 million, respectively. For the years ended December 31, 2020, 2021 and 2022, our purchases from our five largest suppliers represented less than 20% of our total purchases. All of our five largest suppliers were independent third parties and none of our directors or their close associates or, to the knowledge of our directors, any shareholder who owned more than 5% of our issued ordinary shares had any interest in any of our five largest suppliers as of the date of the filing of this annual report. Contract Research Organizations Although we or our collaboration partners design the clinical trials for our drug candidates, CROs conduct most of the clinical trials. Our agreements with CROs are usually structured as master service agreements which set out the services to be performed, payment schedule, term and confirmation that all intellectual rights arising out of or made in performance of the services are owned by us. We and our collaboration partners work with major global and Chinese CROs. Certificates and Permits The following sets forth the material certificates and/or permits that we have obtained for our operations in China. We have received all material certificates and permits that are, or may be, required for our operations in China. No material certificate, permission or approval for our operations has been denied by relevant authorities in China. Given the uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement practice by relevant government authorities, we may be required to obtain additional licenses, permits, filings or approvals for our products and business operations in China in the future, and may not be able to maintain or renew our current licenses, permits, filings or approvals. In addition, rules and regulations in China can change quickly with little advance notice. Uncertainties due to evolving laws and regulations could impede the ability of an issuer with significant operations in China, such as us, to obtain or maintain certificates, permits or licenses required to conduct business in China. In the absence of required certificates, permits or licenses, governmental authorities could impose material sanctions or penalties on us. HUTCHMED (Suzhou) Limited holds a pharmaceutical manufacturing permit issued by its local regulatory authority expiring on September 13, 2025. It also complies with applicable GMP standards. Hutchison Sinopharm holds a pharmaceutical trading license issued by its local regulatory authority expiring on July 30, 2024. Hutchison Sinopharm also holds a good supply practice, or GSP, certificate issued by its local regulatory authority which expires on July 30, 2024. Shanghai Hutchison Pharmaceuticals holds a pharmaceutical manufacturing permit from its local regulatory authorities expiring on December 31, 2025. Shanghai Shangyao Hutchison Whampoa GSP Company Limited, a subsidiary of Shanghai Hutchison Pharmaceuticals, holds a pharmaceutical trading license from its local regulatory authority expiring on November 17, 2024. It also holds a GSP certificate issued by its local regulatory authority expiring on November 17, 2024. Regulations This section sets forth a summary of the most significant rules and regulations affecting our business activities in China and the United States. Government Regulation of Pharmaceutical Product Development and Approval PRC Regulation of Pharmaceutical Product Development and Approval Since China’s entry to the World Trade Organization in 2001, the PRC government has made significant efforts to standardize regulations, develop its pharmaceutical regulatory system and strengthen intellectual property protection. 128 129 Regulatory Authorities Highlights of the 2022 PRC Health Care Reforms include the following: In the PRC, the NMPA is the authority that monitors and supervises the administration of pharmaceutical products and medical appliances and equipment as well as cosmetics. The NMPA’s predecessor, the State Drug Administration, or the SDA, was established on August 19, 1998 as an organization under the State Council to assume the responsibilities previously handled by the Ministry of Health of the PRC, or the MOH, the State Pharmaceutical Administration Bureau of the PRC and the State Administration of Traditional Chinese Medicine of the PRC. The SDA was replaced by the State Food and Drug Administration, or the SFDA, in March 2003 and was later reorganized into the China Food and Drug Administration, or the CFDA, in March 2013. On March 17, 2018, the First Session of the Thirteenth National People’s Congress approved the State Council Institutional Reform Proposal, according to which the duties of the CFDA were consolidated into the State Administration for Market Regulation, or the SAMR, and the NMPA was established under the management and supervision of the SAMR. The primary responsibilities of the NMPA include: • monitoring and supervising the administration of pharmaceutical products, medical appliances and equipment as well as cosmetics in the PRC; • • • formulating administrative rules and policies concerning the supervision and administration of cosmetics and the pharmaceutical industry; evaluating, registering and approving of new drugs, generic drugs, imported drugs and traditional Chinese medicine; open recruitment. undertaking the standard, registration, quality and post marketing risk management of pharmaceutical products, medical appliances and equipment as well as cosmetics; and examining, evaluating and supervising the safety of pharmaceutical products, medical appliances and equipment as well as that of cosmetics. The MOH is an authority at the ministerial level under the State Council and is primarily responsible for national public health. Following the establishment of the SFDA in 2003, the MOH was put in charge of the overall administration of national health in the PRC excluding the pharmaceutical industry. In March 2008, the State Council placed the SFDA under the management and supervision of the MOH. The MOH performs a variety of tasks in relation to the health industry such as establishing social medical institutes and producing professional codes of ethics for public medical personnel. The MOH is also responsible for overseas affairs, such as dealings with overseas companies and governments. In 2013, the MOH and the National Population and Family Planning Commission were integrated into the National Health and Family Planning Commission of the PRC, or the NHFPC. On March 17, 2018, the First Session of the Thirteenth National People’s Congress approved the State Council Institutional Reform Proposal, according to which the responsibilities of NHFPC and certain other governmental authorities are consolidated into the NHC, and the NHFPC shall no longer be maintained. The responsibilities of the NHC include organizing the formulation of national drug policies, the national essential medicine system and the National Essential Medicines List and drafting the administrative rules for the procurement, distribution and use of national essential medicines. Healthcare System Reform The PRC government has promulgated several healthcare reform policies and regulations to reform the healthcare system. On March 17, 2009, the Central Committee of the PRC Communist Party and the State Council jointly issued the Guidelines on Strengthening the Reform of Healthcare System. On March 18, 2009, the State Council issued the Implementation Plan for the Recent Priorities of the Healthcare System Reform (2009-2011). On July 22, 2009, the General Office of the State Council issued the Five Main Tasks of Healthcare System Reform in 2009. More recently, on May 5, 2022, the General Office of the State Council issued the Key Tasks for Deepening the Reform of the Medical and Health System in 2022 (the “2022 PRC Health Care Reforms”). • The overall objectives of the 2022 PRC Health Care Reforms are to comprehensively promote construction of a healthy China, deeply promote the experience of Sanming’s medical reforms (which refers to certain medical reforms undertaken in Sanming, Fujian Province since 2012), promote the expansion and balanced distribution of high-quality medical resources, continue to promote the transition from centering on disease treatment to centering on people’s health, and continue to promote solutions to lack of and cost of access to medical care. • According to the Sanming People’s Government website, the medical reforms that were undertaken in Sanming included but were not limited to (1) reforms to the personnel and salary system of public hospitals, whereby Sanming implemented target annual salaries for medical staff (being 3 times the average local salary), (2) introduction of competitive bidding processes in order to reduce the costs of medicines, and (3) integration of medical insurance management institutions to reduce coordination costs across departments. The 2022 PRC Health Care Reforms calls for promotion of Sanming’s medical reform experience, including but not limited to (1) expansion of the scope of centralized procurement, whereby state and local governments in each province should strive to have a total of more than 350 common drugs purchased; (2) reform of medical service prices, whereby all provinces shall issue documents related to the establishment of a dynamic adjustment mechanism for medical service prices before the end of June 2022, and (3) reform of the personnel and salary system of public hospitals, whereby localities should be guided to make good use of staffing resources in light of their actual circumstances, and may explore the recruitment of the best external qualified professional and technical personnel via strict and standardized procedures such as • The 2022 PRC Health Care Reforms also promote high-quality development in medicine and healthcare, including but not limited to (1) comprehensive and steady reform of public hospitals, whereby pilot provinces shall take the lead in exploring and reviewing reform paths of public hospitals at all levels; (2) giving a greater role to government investment incentives; (3) advancement of the national medical insurance program, such as promoting the improvement of the direct settlement of expenses of inter-provincial and remote medical treatments, and unifying the scope of drugs covered by national medical insurance across the country; (4) strengthening drug supply security, for example, by accelerating the granting of market authorization to innovative drugs of clinical value; and (5) promotion of pilot projects for the revitalization of traditional Chinese medicine. The 2022 PRC Health Care Reforms also call for (i) 35,000 general practitioners and 100,000 resident doctors (including postgraduates with a master degree) to be trained through various approaches within the year, (ii) for the enrollment of professional postgraduate students to be inclined towards areas facing skills shortages, such as general practice, pediatrics, and psychiatry, and (iii) the promotion of telemecine services, which shall cover 95% of the country’s districts and counties. Drug Administration Laws and Regulations The PRC Drug Administration Law as promulgated by the Standing Committee of the National People’s Congress in 1984 and the Implementing Measures of the PRC Drug Administration Law as promulgated by the MOH in 1989 have laid down the legal framework for the establishment of pharmaceutical manufacturing enterprises, pharmaceutical trading enterprises and for the administration of pharmaceutical products including the development and manufacturing of new drugs and medicinal preparations by medical institutions. The PRC Drug Administration Law also regulates the packaging, trademarks and the advertisements of pharmaceutical products in the PRC. Certain revisions to the PRC Drug Administration Law took effect on December 1, 2001. They were formulated to strengthen the supervision and administration of pharmaceutical products, and to ensure the quality and the safety of pharmaceutical products for human use. The revised PRC Drug Administration Law applies to entities and individuals engaged in the development, production, trade, application, supervision and administration of pharmaceutical products. It regulates and prescribes a framework for the administration of pharmaceutical manufacturers, pharmaceutical trading companies, and medicinal preparations of medical institutions and the development, research, manufacturing, distribution, packaging, pricing and advertisements of pharmaceutical products. The PRC Drug Administration Law was later amended on December 28, 2013 and April 24, 2015 by the Standing Committee of the National People’s Congress. It provides the basic legal framework for the administration of the production and sale of pharmaceutical products in China and covers the manufacturing, distributing, packaging, pricing and advertising of pharmaceutical products. 130 131 Regulatory Authorities Highlights of the 2022 PRC Health Care Reforms include the following: In the PRC, the NMPA is the authority that monitors and supervises the administration of pharmaceutical products and medical appliances and equipment as well as cosmetics. The NMPA’s predecessor, the State Drug Administration, or the SDA, was established on August 19, 1998 as an organization under the State Council to assume the responsibilities previously handled by the Ministry of Health of the PRC, or the MOH, the State Pharmaceutical Administration Bureau of the PRC and the State Administration of Traditional Chinese Medicine of the PRC. The SDA was replaced by the State Food and Drug Administration, or the SFDA, in March 2003 and was later reorganized into the China Food and Drug Administration, or the CFDA, in March 2013. On March 17, 2018, the First Session of the Thirteenth National People’s Congress approved the State Council Institutional Reform Proposal, according to which the duties of the CFDA were consolidated into the State Administration for Market Regulation, or the SAMR, and the NMPA was established under the management and supervision of the SAMR. The primary responsibilities of the NMPA include: • monitoring and supervising the administration of pharmaceutical products, medical appliances and equipment as well as cosmetics in the PRC; • formulating administrative rules and policies concerning the supervision and administration of cosmetics and the pharmaceutical industry; evaluating, registering and approving of new drugs, generic drugs, imported drugs and traditional Chinese medicine; • • of cosmetics. undertaking the standard, registration, quality and post marketing risk management of pharmaceutical products, medical appliances and equipment as well as cosmetics; and examining, evaluating and supervising the safety of pharmaceutical products, medical appliances and equipment as well as that The MOH is an authority at the ministerial level under the State Council and is primarily responsible for national public health. Following the establishment of the SFDA in 2003, the MOH was put in charge of the overall administration of national health in the PRC excluding the pharmaceutical industry. In March 2008, the State Council placed the SFDA under the management and supervision of the MOH. The MOH performs a variety of tasks in relation to the health industry such as establishing social medical institutes and producing professional codes of ethics for public medical personnel. The MOH is also responsible for overseas affairs, such as dealings with overseas companies and governments. In 2013, the MOH and the National Population and Family Planning Commission were integrated into the National Health and Family Planning Commission of the PRC, or the NHFPC. On March 17, 2018, the First Session of the Thirteenth National People’s Congress approved the State Council Institutional Reform Proposal, according to which the responsibilities of NHFPC and certain other governmental authorities are consolidated into the NHC, and the NHFPC shall no longer be maintained. The responsibilities of the NHC include organizing the formulation of national drug policies, the national essential medicine system and the National Essential Medicines List and drafting the administrative rules for the procurement, distribution and use of national essential medicines. Healthcare System Reform The PRC government has promulgated several healthcare reform policies and regulations to reform the healthcare system. On March 17, 2009, the Central Committee of the PRC Communist Party and the State Council jointly issued the Guidelines on Strengthening the Reform of Healthcare System. On March 18, 2009, the State Council issued the Implementation Plan for the Recent Priorities of the Healthcare System Reform (2009-2011). On July 22, 2009, the General Office of the State Council issued the Five Main Tasks of Healthcare System Reform in 2009. More recently, on May 5, 2022, the General Office of the State Council issued the Key Tasks for Deepening the Reform of the Medical and Health System in 2022 (the “2022 PRC Health Care Reforms”). • The overall objectives of the 2022 PRC Health Care Reforms are to comprehensively promote construction of a healthy China, deeply promote the experience of Sanming’s medical reforms (which refers to certain medical reforms undertaken in Sanming, Fujian Province since 2012), promote the expansion and balanced distribution of high-quality medical resources, continue to promote the transition from centering on disease treatment to centering on people’s health, and continue to promote solutions to lack of and cost of access to medical care. • According to the Sanming People’s Government website, the medical reforms that were undertaken in Sanming included but were not limited to (1) reforms to the personnel and salary system of public hospitals, whereby Sanming implemented target annual salaries for medical staff (being 3 times the average local salary), (2) introduction of competitive bidding processes in order to reduce the costs of medicines, and (3) integration of medical insurance management institutions to reduce coordination costs across departments. The 2022 PRC Health Care Reforms calls for promotion of Sanming’s medical reform experience, including but not limited to (1) expansion of the scope of centralized procurement, whereby state and local governments in each province should strive to have a total of more than 350 common drugs purchased; (2) reform of medical service prices, whereby all provinces shall issue documents related to the establishment of a dynamic adjustment mechanism for medical service prices before the end of June 2022, and (3) reform of the personnel and salary system of public hospitals, whereby localities should be guided to make good use of staffing resources in light of their actual circumstances, and may explore the recruitment of the best external qualified professional and technical personnel via strict and standardized procedures such as open recruitment. • The 2022 PRC Health Care Reforms also promote high-quality development in medicine and healthcare, including but not limited to (1) comprehensive and steady reform of public hospitals, whereby pilot provinces shall take the lead in exploring and reviewing reform paths of public hospitals at all levels; (2) giving a greater role to government investment incentives; (3) advancement of the national medical insurance program, such as promoting the improvement of the direct settlement of expenses of inter-provincial and remote medical treatments, and unifying the scope of drugs covered by national medical insurance across the country; (4) strengthening drug supply security, for example, by accelerating the granting of market authorization to innovative drugs of clinical value; and (5) promotion of pilot projects for the revitalization of traditional Chinese medicine. The 2022 PRC Health Care Reforms also call for (i) 35,000 general practitioners and 100,000 resident doctors (including postgraduates with a master degree) to be trained through various approaches within the year, (ii) for the enrollment of professional postgraduate students to be inclined towards areas facing skills shortages, such as general practice, pediatrics, and psychiatry, and (iii) the promotion of telemecine services, which shall cover 95% of the country’s districts and counties. Drug Administration Laws and Regulations The PRC Drug Administration Law as promulgated by the Standing Committee of the National People’s Congress in 1984 and the Implementing Measures of the PRC Drug Administration Law as promulgated by the MOH in 1989 have laid down the legal framework for the establishment of pharmaceutical manufacturing enterprises, pharmaceutical trading enterprises and for the administration of pharmaceutical products including the development and manufacturing of new drugs and medicinal preparations by medical institutions. The PRC Drug Administration Law also regulates the packaging, trademarks and the advertisements of pharmaceutical products in the PRC. Certain revisions to the PRC Drug Administration Law took effect on December 1, 2001. They were formulated to strengthen the supervision and administration of pharmaceutical products, and to ensure the quality and the safety of pharmaceutical products for human use. The revised PRC Drug Administration Law applies to entities and individuals engaged in the development, production, trade, application, supervision and administration of pharmaceutical products. It regulates and prescribes a framework for the administration of pharmaceutical manufacturers, pharmaceutical trading companies, and medicinal preparations of medical institutions and the development, research, manufacturing, distribution, packaging, pricing and advertisements of pharmaceutical products. The PRC Drug Administration Law was later amended on December 28, 2013 and April 24, 2015 by the Standing Committee of the National People’s Congress. It provides the basic legal framework for the administration of the production and sale of pharmaceutical products in China and covers the manufacturing, distributing, packaging, pricing and advertising of pharmaceutical products. 130 131 On August 26, 2019, the Standing Committee of the National People’s Congress promulgated the amended PRC Drug Administration Law, which took effect on December 1, 2019. The amendment brought a series of changes to the drug supervision and administration system, including but not limited to the clarification of the MAH system, pursuant to which the MAH shall assume responsibilities for non-clinical studies, clinical trials, manufacturing and marketing, post-marketing studies, monitoring, reporting and handling of adverse reactions of the drug. The amendment also stipulated that the PRC supports the innovation of drugs with clinical value and specific or special effects on human diseases, encourages the development of drugs with new therapeutic mechanisms and promotes the technological advancement of such drugs. According to the PRC Drug Administration Law, no pharmaceutical products may be produced without a pharmaceutical production license. A manufacturer of pharmaceutical products must obtain a pharmaceutical production license from one of NMPA’s provincial level branches in order to commence production of pharmaceuticals. Prior to granting such license, the relevant government authority will inspect the manufacturer’s production facilities, and decide whether the sanitary conditions, quality assurance system, management structure and equipment within the facilities have met the required standards. The PRC Drug Administration Implementation Regulations promulgated by the State Council took effect on September 15, 2002 and were later amended on February 6, 2016 and March 2, 2019 to provide detailed implementation regulations for the revised PRC Drug Administration Law. With respect to the latest revision of the PRC Drug Administration Law, promulgated on August 26, 2019 and effective on December 1, 2019, there are no corresponding revised PRC Drug Administration Implementation Regulations. Examination and Approval of New Medicines On January 22, 2020, the SAMR promulgated the Administrative Measures on the Registration of Pharmaceutical Products, or the Registration Measures, which became effective on July 1, 2020. According to the Registration Measures, an applicant who has obtained a drug registration certificate shall be a drug MAH. The approval process for medicines seeking marketing authorization mainly consists of the following steps: • • upon the completion of pharmaceutical, pharmacological and toxicological research and related activities, an application for clinical trial will be submitted to the Center for Drug Evaluation of the NMPA, or the Center for Drug Evaluation, for review. The Center for Drug Evaluation will organize pharmacists, medical personnel and other professionals to review the application for clinical trial. A decision on approval or non-approval of the application for clinical trial of drugs will be made within 60 working days from acceptance of the application, and the applicant shall be notified of the examination and approval result through the website of the Center for Drug Evaluation. If the applicant is not notified within the stipulated period, the application shall be deemed approved. The applicant who is approved to conduct clinical trial shall act as the sponsor for the clinical trial; if the application for clinical trial is approved, the sponsor shall, prior to conducting subsequent phases of the clinical trial, formulate a corresponding program for the clinical trial, carry out the clinical trial after the review and approval by the Ethics Committee, and submit the corresponding program for clinical trial and supporting materials on the website of the Center for Drug Evaluation. The applicant may proceed with the relevant clinical research (which is generally conducted in three phases for a new medicine under the Registration Measures) at institutions with appropriate qualification: • Phase I refers to the preliminary clinical trial for clinical pharmacology and body safety. It is conducted to observe the human body tolerance for new medicine and pharmacokinetics, so as to provide a basis for determining the prescription plan. • Phase I or II refers to the stage of preliminary evaluation of clinical effectiveness. The purpose is to preliminarily evaluate the clinical effectiveness and safety of the medicine used on patients with targeted indication, as well as to provide a basis for determining the Phase III clinical trial research plan and the volume under the prescription plan. • Phase III is a clinical trial stage to verify the clinical effectiveness. The purpose is to test and determine the clinical effectiveness and safety of the medicine used on patients with targeted indication, to evaluate the benefits and risks thereof and, eventually, to provide sufficient basis for review of the medicine registration application. • Phase IV refers to the stage of surveillance and research after the new medicines is launched. The purpose is to observe the clinical effectiveness and adverse effects of the medicine over a much larger patient population and longer time period than in Phase I to III clinical trials, and evaluate the benefits and risks when it is administered to general or special patient population in larger prescription volume; • the sponsor shall submit a safety update report during the research and development period on the website of the NMPA on a regular basis. The safety update report during the research and development period shall be submitted once a year, and within two months of every full year after the clinical drug trial is approved. The NMPA may require the sponsor to adjust the reporting period if deemed necessary; • after (i) completing relevant pharmaceutical, pharmacological and toxicological research, clinical drug trials, and other research supporting the marketing registration of a medicine, (ii) determining medicine quality standards, (iii) completing the verification of commercial scale manufacturing process, and (iv) making preparations for drug registration inspections, the applicant shall file the application for drug marketing authorization with the Center for Drug Evaluation; • • the Center for Drug Evaluation will organize pharmaceutical, medical and other professionals to review accepted drug marketing authorization applications in accordance with relevant requirements; upon acceptance of an application for drug registration, the Center for Drug Evaluation will conduct a preliminary examination within 40 working days from acceptance of the application; if there is a need to conduct an examination of manufacturing premises for drug registration, the Center for Drug Evaluation will notify the Centre for Food and Drug Inspection of the NMPA to organize an examination, provide the relevant materials required, and simultaneously notify the applicant as well as the provincial drug administrative authorities where the applicant or the manufacturing enterprise is located. The Centre for Food and Drug Inspection of the NMPA shall in principle complete the examination 40 working days before expiry of the review period, and give feedback to the Center for Drug Evaluation on the status and findings etc. of the examinations; and • if the application is approved through the comprehensive review process, the drug shall be approved for marketing and a drug registration certificate shall be issued. The drug registration certificate will state the approval number for the drug, the holder of the certificate, and information of the manufacturing enterprise. A drug registration certificate for non-prescription drugs will also state the non-prescription drug category. Any applicant who is not satisfied with the Center for Drug Evaluation’s decision to deny an application during the application of the drug registration period can appeal within 15 working days after it is notified by the Center for Drug Evaluation of such decision. Upon termination for examination and approval of the application for drug registration, if the applicant is dissatisfied with the administrative licensing decision, the applicant may apply for administrative review or file an administrative lawsuit. In accordance with the Provisions on the Administration of Special Examination and Approval of Registration of New Drugs promulgated by the SFDA, issued and effective on January 7, 2009, an NDA that meets certain requirements as specified below will be handled with priority in the review and approval process, so-called “green-channel” approval. In addition, the applicant is entitled to provide additional materials during the review period besides those requested by the SFDA, and will have access to enhanced communication channels with the SFDA. As of the date of this annual report, the SFDA has been succeeded by the SAMR and NMPA. 132 133 On August 26, 2019, the Standing Committee of the National People’s Congress promulgated the amended PRC Drug Administration Law, which took effect on December 1, 2019. The amendment brought a series of changes to the drug supervision and administration system, including but not limited to the clarification of the MAH system, pursuant to which the MAH shall assume responsibilities for non-clinical studies, clinical trials, manufacturing and marketing, post-marketing studies, monitoring, reporting and handling of adverse reactions of the drug. The amendment also stipulated that the PRC supports the innovation of drugs with clinical value and specific or special effects on human diseases, encourages the development of drugs with new therapeutic mechanisms and promotes the technological advancement of such drugs. According to the PRC Drug Administration Law, no pharmaceutical products may be produced without a pharmaceutical production license. A manufacturer of pharmaceutical products must obtain a pharmaceutical production license from one of NMPA’s provincial level branches in order to commence production of pharmaceuticals. Prior to granting such license, the relevant government authority will inspect the manufacturer’s production facilities, and decide whether the sanitary conditions, quality assurance system, management structure and equipment within the facilities have met the required standards. The PRC Drug Administration Implementation Regulations promulgated by the State Council took effect on September 15, 2002 and were later amended on February 6, 2016 and March 2, 2019 to provide detailed implementation regulations for the revised PRC Drug Administration Law. With respect to the latest revision of the PRC Drug Administration Law, promulgated on August 26, 2019 and effective on December 1, 2019, there are no corresponding revised PRC Drug Administration Implementation Regulations. Examination and Approval of New Medicines On January 22, 2020, the SAMR promulgated the Administrative Measures on the Registration of Pharmaceutical Products, or the Registration Measures, which became effective on July 1, 2020. According to the Registration Measures, an applicant who has obtained a drug registration certificate shall be a drug MAH. The approval process for medicines seeking marketing authorization mainly consists of the following steps: • upon the completion of pharmaceutical, pharmacological and toxicological research and related activities, an application for clinical trial will be submitted to the Center for Drug Evaluation of the NMPA, or the Center for Drug Evaluation, for review. The Center for Drug Evaluation will organize pharmacists, medical personnel and other professionals to review the application for clinical trial. A decision on approval or non-approval of the application for clinical trial of drugs will be made within 60 working days from acceptance of the application, and the applicant shall be notified of the examination and approval result through the website of the Center for Drug Evaluation. If the applicant is not notified within the stipulated period, the application shall be deemed approved. The applicant who is approved to conduct clinical trial shall act as the sponsor for the clinical trial; • if the application for clinical trial is approved, the sponsor shall, prior to conducting subsequent phases of the clinical trial, formulate a corresponding program for the clinical trial, carry out the clinical trial after the review and approval by the Ethics Committee, and submit the corresponding program for clinical trial and supporting materials on the website of the Center for Drug Evaluation. The applicant may proceed with the relevant clinical research (which is generally conducted in three phases for a new medicine under the Registration Measures) at institutions with appropriate qualification: • Phase I refers to the preliminary clinical trial for clinical pharmacology and body safety. It is conducted to observe the human body tolerance for new medicine and pharmacokinetics, so as to provide a basis for determining the prescription plan. • Phase I or II refers to the stage of preliminary evaluation of clinical effectiveness. The purpose is to preliminarily evaluate the clinical effectiveness and safety of the medicine used on patients with targeted indication, as well as to provide a basis for determining the Phase III clinical trial research plan and the volume under the prescription plan. • Phase III is a clinical trial stage to verify the clinical effectiveness. The purpose is to test and determine the clinical effectiveness and safety of the medicine used on patients with targeted indication, to evaluate the benefits and risks thereof and, eventually, to provide sufficient basis for review of the medicine registration application. • Phase IV refers to the stage of surveillance and research after the new medicines is launched. The purpose is to observe the clinical effectiveness and adverse effects of the medicine over a much larger patient population and longer time period than in Phase I to III clinical trials, and evaluate the benefits and risks when it is administered to general or special patient population in larger prescription volume; • • • • • the sponsor shall submit a safety update report during the research and development period on the website of the NMPA on a regular basis. The safety update report during the research and development period shall be submitted once a year, and within two months of every full year after the clinical drug trial is approved. The NMPA may require the sponsor to adjust the reporting period if deemed necessary; after (i) completing relevant pharmaceutical, pharmacological and toxicological research, clinical drug trials, and other research supporting the marketing registration of a medicine, (ii) determining medicine quality standards, (iii) completing the verification of commercial scale manufacturing process, and (iv) making preparations for drug registration inspections, the applicant shall file the application for drug marketing authorization with the Center for Drug Evaluation; the Center for Drug Evaluation will organize pharmaceutical, medical and other professionals to review accepted drug marketing authorization applications in accordance with relevant requirements; upon acceptance of an application for drug registration, the Center for Drug Evaluation will conduct a preliminary examination within 40 working days from acceptance of the application; if there is a need to conduct an examination of manufacturing premises for drug registration, the Center for Drug Evaluation will notify the Centre for Food and Drug Inspection of the NMPA to organize an examination, provide the relevant materials required, and simultaneously notify the applicant as well as the provincial drug administrative authorities where the applicant or the manufacturing enterprise is located. The Centre for Food and Drug Inspection of the NMPA shall in principle complete the examination 40 working days before expiry of the review period, and give feedback to the Center for Drug Evaluation on the status and findings etc. of the examinations; and if the application is approved through the comprehensive review process, the drug shall be approved for marketing and a drug registration certificate shall be issued. The drug registration certificate will state the approval number for the drug, the holder of the certificate, and information of the manufacturing enterprise. A drug registration certificate for non-prescription drugs will also state the non-prescription drug category. Any applicant who is not satisfied with the Center for Drug Evaluation’s decision to deny an application during the application of the drug registration period can appeal within 15 working days after it is notified by the Center for Drug Evaluation of such decision. Upon termination for examination and approval of the application for drug registration, if the applicant is dissatisfied with the administrative licensing decision, the applicant may apply for administrative review or file an administrative lawsuit. In accordance with the Provisions on the Administration of Special Examination and Approval of Registration of New Drugs promulgated by the SFDA, issued and effective on January 7, 2009, an NDA that meets certain requirements as specified below will be handled with priority in the review and approval process, so-called “green-channel” approval. In addition, the applicant is entitled to provide additional materials during the review period besides those requested by the SFDA, and will have access to enhanced communication channels with the SFDA. As of the date of this annual report, the SFDA has been succeeded by the SAMR and NMPA. 132 133 Application for, and examination and approval of, drug technology transfer Applications for drug technology transfer should be submitted to the provincial drug administration. If the transferor and the transferee are located in different provinces, the provincial drug administration where the transferor is located should provide examination opinions. The provincial drug administration where the transferee is located is responsible for examining application materials for technology transfer and organizing inspections on the production facilities of the transferee. Medical examination institutes are responsible for testing three batches of drug samples. The Center for Drug Evaluation should further review the application materials, provide technical evaluation opinions and form a comprehensive evaluation opinion based on the site inspection reports and the testing results of the samples. The SFDA (which, as of the date of this annual report, has been succeeded by the SAMR and NMPA) should determine whether to approve the application according to the comprehensive evaluation opinion of the Center for Drug Evaluation. An approval letter of supplementary application and a drug approval number will be issued to qualified applications. An approval letter of clinical trials will be issued when necessary. For rejected applications, a notification letter of the examination opinions will be issued with the reasons for rejection. Permits and Licenses for Manufacturing and Registration of Drugs Production Licenses To manufacture pharmaceutical products in the PRC, a pharmaceutical manufacturing enterprise must first obtain a Pharmaceutical Manufacturing Permit issued by the relevant pharmaceutical administrative authorities at the provincial level where the enterprise is located. Among other things, such a permit must set forth the permit number, the name, legal representative and registered address of the enterprise, the site and scope of production, issuing institution, date of issuance and effective period. Each Pharmaceutical Manufacturing Permit issued to a pharmaceutical manufacturing enterprise is effective for a period of five years. The enterprise is required to apply for renewal of such permit within six months prior to its expiry and will be subject to reassessment by the issuing authorities in accordance with then prevailing legal and regulatory requirements for the purposes of such renewal. Business Licenses In addition to a Pharmaceutical Manufacturing permit, the manufacturing enterprise must also obtain a business license from the administrative bureau of industry and commerce at the local level. The name, legal representative and registered address of the enterprise specified in the business license must be identical to that set forth in the Pharmaceutical Manufacturing Permit. Applicants for the registration of the following new drugs are entitled to request priority treatment in review and approval: (i) active ingredients and their preparations extracted from plants, animals and minerals, and newly discovered medical materials and their preparations that have not been sold in the China market, (ii) chemical drugs and their preparations and biological products that have not been approved for sale at its origin country or abroad, (iii) new drugs with obvious clinical treatment advantages for such diseases as AIDS, therioma, and rare diseases, and (iv) new drugs for diseases that have not been treated effectively. Under category (i) or (ii) above, the applicant for drug registration may apply for special examination and approval when applying for the clinical trial of new drugs; under category (iii) or (iv) above, the applicant may only apply for special examination and approval when applying for manufacturing. In addition, on July 7, 2020, the NMPA released the Priority Review and Approval Procedures for Drug Marketing Authorizations (for Trial Implementation), which further clarified that a fast track process for drug registration will be available to the following drugs with distinctive clinical value: (i) (a) drugs in urgent clinical demand and in shortage and (b) innovative drugs and modified new drugs for prevention and treatment of serious infectious diseases, rare diseases and other diseases; (ii) new varieties, dosage forms and specifications of children’s drugs that conform to children’s physiological characteristics; (iii) (a) vaccines that are in urgent need for disease prevention and control and (b) innovative vaccines; (iv) drugs that have been included in the procedures for Breakthrough Therapy Designation; (v) drugs that are subject to conditional approval; and (vi) other drugs which the NMPA deems applicable. It also specified that fast track status would be given to clinical trial applications for drugs with patent expiry within three years and manufacturing authorization applications for drugs with patent expiry within one year. Concurrent applications for new drug clinical trials which are already approved in the United States or E.U. are also eligible for fast track NMPA approval. Drug Technology Transfer Regulations On August 19, 2009, the SFDA promulgated the Administrative Regulations for Technology Transfer Registration of Drugs to standardize the registration process of drug technology transfer, which includes application for, and evaluation, examination, approval and monitoring of, drug technology transfer. Drug technology transfer refers to the transfer of drug production technology by the owner to a drug manufacturer and the application for drug registration by the transferee according to the provisions in the new regulations. Drug technology transfer includes new drug technology transfer and drug production technology transfer. Conditions for the application for new drug technology transfer Applications for new drug technology transfer may be submitted prior to the expiration date of the monitoring period of the new drugs with respect to: • • drugs with new drug certificates only; or drugs with new drug certificates and drug approval numbers. Registration of Pharmaceutical Products For drugs with new drug certificates only and not yet in the monitoring period, or drug substances with new drug certificates, applications for new drug technology transfer should be submitted prior to the respective expiration date of the monitoring periods for each drug registration category set forth in the new regulations and after the issue date of the new drug certificates. All pharmaceutical products that are produced in the PRC must bear a registration number issued by the NMPA, with the exception of Chinese herbs and Chinese herbal medicines in soluble form. The medicine manufacturing enterprises must obtain the medicine registration number before manufacturing any medicine. Conditions for the application of drug production technology transfer Applications for drug production technology transfer may be submitted if: • the transferor holds new drug certificates or both new drug certificates and drug approval numbers, and the monitoring period has expired or there is no monitoring period; • with respect to drugs without new drug certificates, both the transferor and the transferee are legally qualified drug manufacturing enterprises, one of which holds over 50% of the equity interests in the other, or both of which are majority- owned subsidiaries of the same drug manufacturing enterprise; • with respect to imported drugs with imported drug licenses, the original applicants for the imported drug registration may transfer these drugs to local drug manufacturing enterprises. 134 135 Applicants for the registration of the following new drugs are entitled to request priority treatment in review and approval: (i) active Application for, and examination and approval of, drug technology transfer ingredients and their preparations extracted from plants, animals and minerals, and newly discovered medical materials and their preparations that have not been sold in the China market, (ii) chemical drugs and their preparations and biological products that have not been approved for sale at its origin country or abroad, (iii) new drugs with obvious clinical treatment advantages for such diseases as AIDS, therioma, and rare diseases, and (iv) new drugs for diseases that have not been treated effectively. Under category (i) or (ii) above, the applicant for drug registration may apply for special examination and approval when applying for the clinical trial of new drugs; under category (iii) or (iv) above, the applicant may only apply for special examination and approval when applying for manufacturing. In addition, on July 7, 2020, the NMPA released the Priority Review and Approval Procedures for Drug Marketing Authorizations (for Trial Implementation), which further clarified that a fast track process for drug registration will be available to the following drugs with distinctive clinical value: (i) (a) drugs in urgent clinical demand and in shortage and (b) innovative drugs and modified new drugs for prevention and treatment of serious infectious diseases, rare diseases and other diseases; (ii) new varieties, dosage forms and specifications of children’s drugs that conform to children’s physiological characteristics; (iii) (a) vaccines that are in urgent need for disease prevention and control and (b) innovative vaccines; (iv) drugs that have been included in the procedures for Breakthrough Therapy Designation; (v) drugs that are subject to conditional approval; and (vi) other drugs which the NMPA deems applicable. It also specified that fast track status would be given to clinical trial applications for drugs with patent expiry within three years and manufacturing authorization applications for drugs with patent expiry within one year. Concurrent applications for new drug clinical trials which are already approved in the United States or E.U. are also eligible for fast track NMPA approval. Drug Technology Transfer Regulations On August 19, 2009, the SFDA promulgated the Administrative Regulations for Technology Transfer Registration of Drugs to standardize the registration process of drug technology transfer, which includes application for, and evaluation, examination, approval and monitoring of, drug technology transfer. Drug technology transfer refers to the transfer of drug production technology by the owner to a drug manufacturer and the application for drug registration by the transferee according to the provisions in the new regulations. Drug technology transfer includes new drug technology transfer and drug production technology transfer. Applications for drug technology transfer should be submitted to the provincial drug administration. If the transferor and the transferee are located in different provinces, the provincial drug administration where the transferor is located should provide examination opinions. The provincial drug administration where the transferee is located is responsible for examining application materials for technology transfer and organizing inspections on the production facilities of the transferee. Medical examination institutes are responsible for testing three batches of drug samples. The Center for Drug Evaluation should further review the application materials, provide technical evaluation opinions and form a comprehensive evaluation opinion based on the site inspection reports and the testing results of the samples. The SFDA (which, as of the date of this annual report, has been succeeded by the SAMR and NMPA) should determine whether to approve the application according to the comprehensive evaluation opinion of the Center for Drug Evaluation. An approval letter of supplementary application and a drug approval number will be issued to qualified applications. An approval letter of clinical trials will be issued when necessary. For rejected applications, a notification letter of the examination opinions will be issued with the reasons for rejection. Permits and Licenses for Manufacturing and Registration of Drugs Production Licenses To manufacture pharmaceutical products in the PRC, a pharmaceutical manufacturing enterprise must first obtain a Pharmaceutical Manufacturing Permit issued by the relevant pharmaceutical administrative authorities at the provincial level where the enterprise is located. Among other things, such a permit must set forth the permit number, the name, legal representative and registered address of the enterprise, the site and scope of production, issuing institution, date of issuance and effective period. Each Pharmaceutical Manufacturing Permit issued to a pharmaceutical manufacturing enterprise is effective for a period of five years. The enterprise is required to apply for renewal of such permit within six months prior to its expiry and will be subject to reassessment by the issuing authorities in accordance with then prevailing legal and regulatory requirements for the purposes of such renewal. Conditions for the application for new drug technology transfer Applications for new drug technology transfer may be submitted prior to the expiration date of the monitoring period of the new Business Licenses In addition to a Pharmaceutical Manufacturing permit, the manufacturing enterprise must also obtain a business license from the administrative bureau of industry and commerce at the local level. The name, legal representative and registered address of the enterprise specified in the business license must be identical to that set forth in the Pharmaceutical Manufacturing Permit. drugs with new drug certificates and drug approval numbers. Registration of Pharmaceutical Products For drugs with new drug certificates only and not yet in the monitoring period, or drug substances with new drug certificates, applications for new drug technology transfer should be submitted prior to the respective expiration date of the monitoring periods for each drug registration category set forth in the new regulations and after the issue date of the new drug certificates. All pharmaceutical products that are produced in the PRC must bear a registration number issued by the NMPA, with the exception of Chinese herbs and Chinese herbal medicines in soluble form. The medicine manufacturing enterprises must obtain the medicine registration number before manufacturing any medicine. drugs with respect to: • • drugs with new drug certificates only; or Conditions for the application of drug production technology transfer Applications for drug production technology transfer may be submitted if: • the transferor holds new drug certificates or both new drug certificates and drug approval numbers, and the monitoring period has expired or there is no monitoring period; • with respect to drugs without new drug certificates, both the transferor and the transferee are legally qualified drug manufacturing enterprises, one of which holds over 50% of the equity interests in the other, or both of which are majority- owned subsidiaries of the same drug manufacturing enterprise; • with respect to imported drugs with imported drug licenses, the original applicants for the imported drug registration may transfer these drugs to local drug manufacturing enterprises. 134 135 Good Manufacturing Practices Administrative Protection for New Drugs The Guidelines on Good Manufacturing Practices, as amended in 1998 and 2010, or the Guidelines, took effect on August 1, 1999 and set the basic standards for the manufacture of pharmaceuticals. These Guidelines cover issues such as the production facilities, the qualification of the personnel at the management level, production plant and facilities, documentation, material packaging and labeling, inspection, production management, sales and return of products and customers’ complaints. On October 23, 2003, the SFDA issued the Notice on the Overall Implementation and Supervision of Accreditation of Good Manufacturing Practice Certificates for Pharmaceuticals, which required all pharmaceutical manufacturers to apply for the GMP certificates by June 30, 2004. Those enterprises that failed to obtain the GMP certificates by December 31, 2004 would have their Pharmaceutical Manufacturing Permit revoked by the drug administrative authorities at the provincial level. On October 24, 2007, the SFDA issued Evaluation Standard on Good Manufacturing Practices which became effective on January 1, 2008. On December 1, 2019, per the Announcement of the NMPA on Issues Concerning the Implementation of the PRC Drug Administration Law, GMP certificates were abolished, though manufacturers remain to be obligated to operate in accordance with the applicable requirements of the Guidelines. The Notice of the NMPA on Promulgation of the Administrative Measures for Drug Inspection (for Trial Implementation), or Trial Drug Inspection Measures, was released and effective on May 24, 2021, which regulates the inspection, investigation, evidence collection and disposal and other actions carried out by medical products administrative authorities with respect to the manufacturing, distribution and use of drugs. The Trial Drug Inspection Measures stipulate that where an application for a pharmaceutical manufacturing permit is filed for the first time, on- site inspection shall be carried out in accordance with the applicable requirements of the Guidelines. Where an application for re-issuance of a pharmaceutical manufacturing permit is filed, a compliance inspection may be carried out if necessary based on the principles of risk management, taking into consideration the enterprise’s compliance with the laws and regulations on drug administration, the Guidelines, and the running of quality control systems. Marketing Authorization Holder System In May 2016, the State Council announced the piloting of the MAH system in ten provinces in China, where the market authorization/drug license holders are no longer required to be the actual manufacturers. The MAH system will allow for more flexibilities in contract manufacturing arrangements. Under the authorization of the Standing Committee of the National People’s Congress, the State Council issued the Pilot Plan for the Drug MAH Mechanism on May 26, 2016, providing a detailed pilot plan for the MAH system in ten provinces in China. Under the MAH system, domestic drug research and development institutions and individuals in the pilot regions are eligible to be holders of drug registrations without having to become drug manufacturers. The MAHs may engage contract manufacturers for manufacturing, provided that the contract manufacturers are licensed and are also located within the pilot regions. Drugs that qualify for the MAH system include: (1) new drugs (including biological products for curative uses of Class I, Class VII and biosimilars under the Administration of Drug Registration) approved after the implementation of the MAH system; (2) generic drugs approved as Category 3 or 4 drugs under the Reform Plan for Registration Category of Chemical Medicine issued by the NMPA on March 4, 2016; (3) previously approved generics that have passed equivalence assessments against their original drugs; and (4) previously approved drugs whose licenses were held by drug manufacturers originally located within the pilot regions but have moved out of the pilot regions due to corporate mergers or other reasons. On August 15, 2017, the CFDA issued the Circular on the Matters Relating to Promotion of the Pilot Program for the Drug MAH System, clarifying that the MAH shall be responsible for managing the whole manufacturing and marketing chain and the whole life cycle of drugs and shall assume full legal liabilities for the non-clinical drug study, clinical trials, manufacturing, marketing and distribution and adverse drug reaction monitoring. The MAH is permitted to entrust several drug manufacturers under the drug quality management system established by the MAH. The MAH shall submit a report of drug manufacturing, marketing, prescription, techniques, pharmacovigilance, quality control measures and certain other matters to the CFDA (which, as of the date of this annual report, has been succeeded by the SAMR and NMPA) within 20 working days after the end of each year. On December 1, 2019, the latest amendment of Drug Administration Law came into effect, marking the success of the pilot work, and the MAH system has become a national system. Pursuant to the latest amendment, the legal representative and the key person-in- charge of a drug MAH shall be fully responsible for the quality of drugs. The Administrative Measures Governing the Production Quality of Pharmaceutical Products, or the Administrative Measures for Production, provides detailed guidelines on practices governing the production of pharmaceutical products. A manufacturer’s factory must meet certain criteria in the Administrative Measures for Production, which include: institution and staff qualifications, production premises and facilities, equipment, hygiene conditions, production management, quality controls, product operation, maintenance of sales records and manner of handling customer complaints and adverse reaction reports. Distribution of Pharmaceutical Products According to the PRC Drug Administration Law and its implementing regulations and the Measures for the Supervision and Administration of Circulation of Pharmaceuticals, a manufacturer of pharmaceutical products in the PRC can only engage in the trading of the pharmaceutical products that the manufacturer has produced itself. In addition, such manufacturer can only sell its products to: • wholesalers and distributors holding Pharmaceutical Distribution Permits; • other holders of Pharmaceutical Manufacturing Permits; or • medical practitioners holding Medical Practice Permits. A pharmaceutical manufacturer in the PRC is prohibited from selling its products to end-users, or individuals or entities other than holders of Pharmaceutical Distribution Permits, the Pharmaceutical Manufacturing Permits or the Medical Practice Permits. The granting of a Pharmaceutical Distribution Permit to wholesalers shall be subject to approval of the provincial level drug regulatory authorities, while the granting of a retailer permit shall be subject to the approval of the drug regulatory authorities above the county level. Unless otherwise expressly approved, no pharmaceutical wholesaler may engage in the retail of pharmaceutical products, nor may pharmaceutical retailers engage in wholesaling. A pharmaceutical distributor shall satisfy the following requirements: personnel with pharmaceutical expertise as qualified according to law; • • • • Rules. business site, facilities, warehousing and sanitary environment compatible to the pharmaceutical products being distributed; quality management system and personnel compatible to the pharmaceutical products being distributed; and rules and regulations to ensure the quality of the pharmaceutical products being distributed. Operations of pharmaceutical distributors shall be conducted in accordance with the Pharmaceutical Operation Quality Management Pharmaceutical distributors must keep true and complete records of any pharmaceutical products purchased, distributed or sold with the generic name of such products, specification, approval code, term, manufacturer, purchasing or selling party, price and date of purchase or sale. A pharmaceutical distributor must keep such record at least until one year after the expiry date of such products and in any case, such record must be kept for no less than three years. Penalties may be imposed for any violation of record-keeping. Pharmaceutical distributors can only distribute pharmaceutical products obtained from those with a Pharmaceutical Manufacturing Permit and a Pharmaceutical Distribution Permit. 136 137 Good Manufacturing Practices Administrative Protection for New Drugs The Guidelines on Good Manufacturing Practices, as amended in 1998 and 2010, or the Guidelines, took effect on August 1, 1999 and set the basic standards for the manufacture of pharmaceuticals. These Guidelines cover issues such as the production facilities, the qualification of the personnel at the management level, production plant and facilities, documentation, material packaging and labeling, inspection, production management, sales and return of products and customers’ complaints. On October 23, 2003, the SFDA issued the Notice on the Overall Implementation and Supervision of Accreditation of Good Manufacturing Practice Certificates for Pharmaceuticals, which required all pharmaceutical manufacturers to apply for the GMP certificates by June 30, 2004. Those enterprises that failed to obtain the GMP certificates by December 31, 2004 would have their Pharmaceutical Manufacturing Permit revoked by the drug administrative authorities at the provincial level. On October 24, 2007, the SFDA issued Evaluation Standard on Good Manufacturing Practices which became effective on January 1, 2008. On December 1, 2019, per the Announcement of the NMPA on Issues Concerning the Implementation of the PRC Drug Administration Law, GMP certificates were abolished, though manufacturers remain to be obligated to operate in accordance with the applicable requirements of the Guidelines. The Notice of the NMPA on Promulgation of the Administrative Measures for Drug Inspection (for Trial Implementation), or Trial Drug Inspection Measures, was released and effective on May 24, 2021, which regulates the inspection, investigation, evidence collection and disposal and other actions carried out by medical products administrative authorities with respect to the manufacturing, distribution and use of drugs. The Trial Drug Inspection Measures stipulate that where an application for a pharmaceutical manufacturing permit is filed for the first time, on- site inspection shall be carried out in accordance with the applicable requirements of the Guidelines. Where an application for re-issuance of a pharmaceutical manufacturing permit is filed, a compliance inspection may be carried out if necessary based on the principles of risk management, taking into consideration the enterprise’s compliance with the laws and regulations on drug administration, the Guidelines, and the running of quality control systems. Marketing Authorization Holder System In May 2016, the State Council announced the piloting of the MAH system in ten provinces in China, where the market authorization/drug license holders are no longer required to be the actual manufacturers. The MAH system will allow for more flexibilities in contract manufacturing arrangements. Under the authorization of the Standing Committee of the National People’s Congress, the State Council issued the Pilot Plan for the Drug MAH Mechanism on May 26, 2016, providing a detailed pilot plan for the MAH system in ten provinces in China. Under the MAH system, domestic drug research and development institutions and individuals in the pilot regions are eligible to be holders of drug registrations without having to become drug manufacturers. The MAHs may engage contract manufacturers for manufacturing, provided that the contract manufacturers are licensed and are also located within the pilot regions. Drugs that qualify for the MAH system include: (1) new drugs (including biological products for curative uses of Class I, Class VII and biosimilars under the Administration of Drug Registration) approved after the implementation of the MAH system; (2) generic drugs approved as Category 3 or 4 drugs under the Reform Plan for Registration Category of Chemical Medicine issued by the NMPA on March 4, 2016; (3) previously approved generics that have passed equivalence assessments against their original drugs; and (4) previously approved drugs whose licenses were held by drug manufacturers originally located within the pilot regions but have moved out of the pilot regions due to corporate mergers or other reasons. On August 15, 2017, the CFDA issued the Circular on the Matters Relating to Promotion of the Pilot Program for the Drug MAH System, clarifying that the MAH shall be responsible for managing the whole manufacturing and marketing chain and the whole life cycle of drugs and shall assume full legal liabilities for the non-clinical drug study, clinical trials, manufacturing, marketing and distribution and adverse drug reaction monitoring. The MAH is permitted to entrust several drug manufacturers under the drug quality management system established by the MAH. The MAH shall submit a report of drug manufacturing, marketing, prescription, techniques, pharmacovigilance, quality control measures and certain other matters to the CFDA (which, as of the date of this annual report, has been succeeded by the SAMR and NMPA) within 20 working days after the end of each year. On December 1, 2019, the latest amendment of Drug Administration Law came into effect, marking the success of the pilot work, and the MAH system has become a national system. Pursuant to the latest amendment, the legal representative and the key person-in- charge of a drug MAH shall be fully responsible for the quality of drugs. The Administrative Measures Governing the Production Quality of Pharmaceutical Products, or the Administrative Measures for Production, provides detailed guidelines on practices governing the production of pharmaceutical products. A manufacturer’s factory must meet certain criteria in the Administrative Measures for Production, which include: institution and staff qualifications, production premises and facilities, equipment, hygiene conditions, production management, quality controls, product operation, maintenance of sales records and manner of handling customer complaints and adverse reaction reports. Distribution of Pharmaceutical Products According to the PRC Drug Administration Law and its implementing regulations and the Measures for the Supervision and Administration of Circulation of Pharmaceuticals, a manufacturer of pharmaceutical products in the PRC can only engage in the trading of the pharmaceutical products that the manufacturer has produced itself. In addition, such manufacturer can only sell its products to: • wholesalers and distributors holding Pharmaceutical Distribution Permits; • other holders of Pharmaceutical Manufacturing Permits; or • medical practitioners holding Medical Practice Permits. A pharmaceutical manufacturer in the PRC is prohibited from selling its products to end-users, or individuals or entities other than holders of Pharmaceutical Distribution Permits, the Pharmaceutical Manufacturing Permits or the Medical Practice Permits. The granting of a Pharmaceutical Distribution Permit to wholesalers shall be subject to approval of the provincial level drug regulatory authorities, while the granting of a retailer permit shall be subject to the approval of the drug regulatory authorities above the county level. Unless otherwise expressly approved, no pharmaceutical wholesaler may engage in the retail of pharmaceutical products, nor may pharmaceutical retailers engage in wholesaling. A pharmaceutical distributor shall satisfy the following requirements: • • • • personnel with pharmaceutical expertise as qualified according to law; business site, facilities, warehousing and sanitary environment compatible to the pharmaceutical products being distributed; quality management system and personnel compatible to the pharmaceutical products being distributed; and rules and regulations to ensure the quality of the pharmaceutical products being distributed. Operations of pharmaceutical distributors shall be conducted in accordance with the Pharmaceutical Operation Quality Management Rules. Pharmaceutical distributors must keep true and complete records of any pharmaceutical products purchased, distributed or sold with the generic name of such products, specification, approval code, term, manufacturer, purchasing or selling party, price and date of purchase or sale. A pharmaceutical distributor must keep such record at least until one year after the expiry date of such products and in any case, such record must be kept for no less than three years. Penalties may be imposed for any violation of record-keeping. Pharmaceutical distributors can only distribute pharmaceutical products obtained from those with a Pharmaceutical Manufacturing Permit and a Pharmaceutical Distribution Permit. 136 137 On December 26, 2016, the Medical Reform Office of the State Council, the National Health and Family Planning Commission, the CFDA and other five government authorities promulgated the “Two-Invoice System” Opinions, which became effective on the same date. On April 25, 2017, the General Office of the State Council further promulgated the Notice on Issuing the Key Working Tasks for Deepening the Reform of Medicine and Health System in 2017. According to these rules, a two-invoice system is encouraged to be gradually adopted for drug procurement. The two-invoice system generally requires a drug manufacturer to issue only one invoice to its distributor followed by the distributor issuing a second invoice directly to the end customer hospital. Only one distributor is permitted to distribute drug products between the manufacturer and the hospital. The system also encourages manufacturers to sell drug products directly to hospitals. Public medical institutions are required to adopt the two-invoice system, and its full implementation nationwide is targeted for 2018. As of the date of the filing of this annual report, the relevant local rules with respect to the “Two-Invoice System” have been promulgated in some provinces and municipal cities in the PRC, and the reform is still in progress. Private medical institutions are encouraged but not yet required to adopt the two-invoice system. Pharmaceutical manufacturers and distributors who fail to implement the two-invoice system may be disqualified from attending future bidding events or providing distribution for hospitals and blacklisted for drug procurement practices. These rules aim to consolidate drug distribution and reduce drug prices. The impact on our company is that Shanghai Hutchison Pharmaceuticals was required to restructure its distribution and logistics network and Hutchison Sinopharm began to shift its prior Seroquel distribution model to a fee-for-service model. For more details, please refer to Item 4.B. “Business Overview—Other Ventures.” Foreign Investment and “State Secret” Technology Drugs The interpretation of certain PRC laws and regulations governing foreign investment and “state secret” technology is uncertain. Under the Special Administrative Measures (Negative List) for Foreign Investment Access, or the Negative List, published by the MOFCOM and the China National Development and Reform Commission or the NDRC. Under the Catalogue, “manufacturing of modern Chinese medicines with confidential proprietary formula” has been deemed prohibited for any foreign investment. The technology and know-how of the She Xiang Bao Xin pill is classified as “state secret” technology by China’s Ministry of Science and Technology, or the MOST, and the National Administration for the Protection of State Secrets, or NAPSS. There are currently no PRC laws or regulations or official interpretations, and therefore there can be no assurance, as to whether the use of “state secret” technology constitutes the “manufacturing of Chinese medicines with confidential proprietary formula” under the Negative List. However, under the Rules on Confidentiality of Science and Technology promulgated by the State Science and Technology Commission (the predecessor of the MOST and the NAPSS) on January 6, 1995, cooperation with foreign parties or establishing joint ventures with foreign parties in respect of state secret technology is expressly allowed, provided that such cooperation has been duly approved by the relevant science and technology authorities. The establishment of Shanghai Hutchison Pharmaceuticals as a sino-foreign joint venture, including the re-registration of licenses for She Xiang Bao Xin pills in its name, was approved by the local counterpart of the MOFCOM and the Shanghai Drug Administration in 2001. Subsequently, the “Confidential State Secret Technology” status protection for She Xiang Bao Xin pills was also granted in 2005 to Shanghai Hutchison Pharmaceuticals as a sino- foreign joint venture by the MOST and NAPSS. Consequently, we believe Shanghai Hutchison Pharmaceuticals is in compliance with all applicable PRC laws and regulations governing foreign investment and “state secret” technology. Moreover, we believe that our other joint ventures and wholly-foreign owned enterprises in the PRC are also in compliance with all applicable PRC laws and regulations governing foreign investment. U.S. Regulation of Pharmaceutical Product Development and Approval In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and the Public Health Service Act, or PHSA, and their implementing regulations. The process of obtaining approvals and the subsequent compliance with appropriate federal, state and local rules and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. regulatory requirements at any time during the product development process, approval process or after approval may subject an applicant and/or sponsor to a variety of administrative or judicial sanctions, including refusal by FDA to approve pending applications, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters and other types of enforcement correspondence, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement of profits, or civil or criminal investigations and penalties brought by FDA and the U.S. Department of Justice, or DOJ, or other governmental entities. Drugs are also subject to other federal, state and local statutes and regulations. • • • • • • • • • • Our drug candidates must be approved by the FDA through the NDA process before they may be legally marketed in the United States. The process required by the FDA before a drug may be marketed in the United States generally involves the following: • completion of extensive pre-clinical studies, sometimes referred to as pre-clinical laboratory tests, pre-clinical animal studies and formulation studies all performed in compliance with applicable regulations, including the FDA’s good laboratory practice submission to the FDA of an IND application which must become effective before human clinical trials may begin and must regulations; be updated annually; IRB approval before each clinical trial may be initiated; indication; preparation and submission to the FDA of an NDA; performance of adequate and well-controlled human clinical trials in accordance with study protocols, the applicable GCPs and other clinical trial-related regulations, to establish the safety and efficacy of the proposed drug product for its proposed a determination by the FDA within 60 days of its receipt of an NDA whether the NDA is acceptable for filing; if the FDA determines that the NDA is not sufficiently complete to permit substantive review, it may request additional information and decline to accept the application for filing until the information is provided; in-depth review of the NDA by FDA, which may include review by a scientific advisory committee; satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the active pharmaceutical ingredient and finished drug product are produced to assess compliance with the FDA’s cGMP; potential FDA audit of the pre-clinical and/or clinical trial sites that generated the data in support of the NDA; payment of user fees and FDA review and approval of the NDA prior to any commercial marketing or sale of the drug in the compliance with any post-approval requirements, such as REMS and post-approval studies required by FDA. United States; and Pre-clinical Studies The data required to support an NDA is generated in two distinct development stages: pre-clinical and clinical. For new chemical entities, or NCEs, the pre-clinical development stage generally involves synthesizing the active component, developing the formulation and determining the manufacturing process, evaluating purity and stability, as well as carrying out non-human toxicology, pharmacology and drug metabolism studies in the laboratory, which support subsequent clinical testing. The conduct of the pre-clinical tests must comply with federal regulations, including good laboratory practices. The sponsor must submit the results of the pre-clinical tests, together with manufacturing information, analytical data, any available clinical data or literature and a proposed clinical protocol, to the FDA as part of the IND. An IND is a request for authorization from the FDA to administer an investigational drug product to humans. The central focus of an IND submission is on the general investigational plan and the protocol(s) for human trials. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA raises concerns or questions regarding the proposed clinical trials and places the IND on clinical hold within that 30-day time period. In such a case, the IND sponsor must resolve with the FDA any outstanding concerns or questions before the clinical trial can begin. Some long-term pre-clinical testing, such as animal tests of reproductive adverse events and carcinogenicity, may continue after the IND is submitted. The FDA may also impose clinical holds on a drug candidate at any time before or during clinical trials due to safety concerns or non-compliance. Accordingly, submission of an IND does not guarantee the FDA will allow clinical trials to begin, or that, once begun, issues will not arise that could cause the trial to be suspended or terminated. 138 139 On December 26, 2016, the Medical Reform Office of the State Council, the National Health and Family Planning Commission, Our drug candidates must be approved by the FDA through the NDA process before they may be legally marketed in the United the CFDA and other five government authorities promulgated the “Two-Invoice System” Opinions, which became effective on the same States. The process required by the FDA before a drug may be marketed in the United States generally involves the following: date. On April 25, 2017, the General Office of the State Council further promulgated the Notice on Issuing the Key Working Tasks for Deepening the Reform of Medicine and Health System in 2017. According to these rules, a two-invoice system is encouraged to be gradually adopted for drug procurement. The two-invoice system generally requires a drug manufacturer to issue only one invoice to its distributor followed by the distributor issuing a second invoice directly to the end customer hospital. Only one distributor is permitted to distribute drug products between the manufacturer and the hospital. The system also encourages manufacturers to sell drug products directly to hospitals. Public medical institutions are required to adopt the two-invoice system, and its full implementation nationwide is targeted for 2018. As of the date of the filing of this annual report, the relevant local rules with respect to the “Two-Invoice System” have been promulgated in some provinces and municipal cities in the PRC, and the reform is still in progress. Private medical institutions are encouraged but not yet required to adopt the two-invoice system. Pharmaceutical manufacturers and distributors who fail to implement the two-invoice system may be disqualified from attending future bidding events or providing distribution for hospitals and blacklisted for drug procurement practices. These rules aim to consolidate drug distribution and reduce drug prices. The impact on our company is that Shanghai Hutchison Pharmaceuticals was required to restructure its distribution and logistics network and Hutchison Sinopharm began to shift its prior Seroquel distribution model to a fee-for-service model. For more details, please refer to Item 4.B. “Business Overview—Other Ventures.” Foreign Investment and “State Secret” Technology Drugs The interpretation of certain PRC laws and regulations governing foreign investment and “state secret” technology is uncertain. Under the Special Administrative Measures (Negative List) for Foreign Investment Access, or the Negative List, published by the MOFCOM and the China National Development and Reform Commission or the NDRC. Under the Catalogue, “manufacturing of modern Chinese medicines with confidential proprietary formula” has been deemed prohibited for any foreign investment. The technology and know-how of the She Xiang Bao Xin pill is classified as “state secret” technology by China’s Ministry of Science and Technology, or the MOST, and the National Administration for the Protection of State Secrets, or NAPSS. There are currently no PRC laws or regulations or official interpretations, and therefore there can be no assurance, as to whether the use of “state secret” technology constitutes the “manufacturing of Chinese medicines with confidential proprietary formula” under the Negative List. However, under the Rules on Confidentiality of Science and Technology promulgated by the State Science and Technology Commission (the predecessor of the MOST and the NAPSS) on January 6, 1995, cooperation with foreign parties or establishing joint ventures with foreign parties in respect of state secret technology is expressly allowed, provided that such cooperation has been duly approved by the relevant science and technology authorities. The establishment of Shanghai Hutchison Pharmaceuticals as a sino-foreign joint venture, including the re-registration of licenses for She Xiang Bao Xin pills in its name, was approved by the local counterpart of the MOFCOM and the Shanghai Drug Administration in 2001. Subsequently, the “Confidential State Secret Technology” status protection for She Xiang Bao Xin pills was also granted in 2005 to Shanghai Hutchison Pharmaceuticals as a sino- foreign joint venture by the MOST and NAPSS. Consequently, we believe Shanghai Hutchison Pharmaceuticals is in compliance with all applicable PRC laws and regulations governing foreign investment and “state secret” technology. Moreover, we believe that our other joint ventures and wholly-foreign owned enterprises in the PRC are also in compliance with all applicable PRC laws and regulations governing foreign investment. U.S. Regulation of Pharmaceutical Product Development and Approval In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and the Public Health Service Act, or PHSA, and their implementing regulations. The process of obtaining approvals and the subsequent compliance with appropriate federal, state and local rules and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. regulatory requirements at any time during the product development process, approval process or after approval may subject an applicant and/or sponsor to a variety of administrative or judicial sanctions, including refusal by FDA to approve pending applications, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters and other types of enforcement correspondence, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement of profits, or civil or criminal investigations and penalties brought by FDA and the U.S. Department of Justice, or DOJ, or other governmental entities. Drugs are also subject to other federal, state and local statutes and regulations. • • • • • • • • • • • completion of extensive pre-clinical studies, sometimes referred to as pre-clinical laboratory tests, pre-clinical animal studies and formulation studies all performed in compliance with applicable regulations, including the FDA’s good laboratory practice regulations; submission to the FDA of an IND application which must become effective before human clinical trials may begin and must be updated annually; IRB approval before each clinical trial may be initiated; performance of adequate and well-controlled human clinical trials in accordance with study protocols, the applicable GCPs and other clinical trial-related regulations, to establish the safety and efficacy of the proposed drug product for its proposed indication; preparation and submission to the FDA of an NDA; a determination by the FDA within 60 days of its receipt of an NDA whether the NDA is acceptable for filing; if the FDA determines that the NDA is not sufficiently complete to permit substantive review, it may request additional information and decline to accept the application for filing until the information is provided; in-depth review of the NDA by FDA, which may include review by a scientific advisory committee; satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the active pharmaceutical ingredient and finished drug product are produced to assess compliance with the FDA’s cGMP; potential FDA audit of the pre-clinical and/or clinical trial sites that generated the data in support of the NDA; payment of user fees and FDA review and approval of the NDA prior to any commercial marketing or sale of the drug in the United States; and compliance with any post-approval requirements, such as REMS and post-approval studies required by FDA. Pre-clinical Studies The data required to support an NDA is generated in two distinct development stages: pre-clinical and clinical. For new chemical entities, or NCEs, the pre-clinical development stage generally involves synthesizing the active component, developing the formulation and determining the manufacturing process, evaluating purity and stability, as well as carrying out non-human toxicology, pharmacology and drug metabolism studies in the laboratory, which support subsequent clinical testing. The conduct of the pre-clinical tests must comply with federal regulations, including good laboratory practices. The sponsor must submit the results of the pre-clinical tests, together with manufacturing information, analytical data, any available clinical data or literature and a proposed clinical protocol, to the FDA as part of the IND. An IND is a request for authorization from the FDA to administer an investigational drug product to humans. The central focus of an IND submission is on the general investigational plan and the protocol(s) for human trials. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA raises concerns or questions regarding the proposed clinical trials and places the IND on clinical hold within that 30-day time period. In such a case, the IND sponsor must resolve with the FDA any outstanding concerns or questions before the clinical trial can begin. Some long-term pre-clinical testing, such as animal tests of reproductive adverse events and carcinogenicity, may continue after the IND is submitted. The FDA may also impose clinical holds on a drug candidate at any time before or during clinical trials due to safety concerns or non-compliance. Accordingly, submission of an IND does not guarantee the FDA will allow clinical trials to begin, or that, once begun, issues will not arise that could cause the trial to be suspended or terminated. 138 139 Clinical Studies The clinical stage of development involves the administration of the drug product to human subjects or patients under the supervision of qualified investigators, generally physicians not employed by or under the trial sponsor’s control, in accordance with GCPs, which include the requirement that, in general, all research subjects provide their informed consent in writing for their participation in any clinical trial. Clinical trials are conducted under written study protocols detailing, among other things, the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria, and the parameters to be used to monitor subject safety and assess efficacy. Each protocol, and any subsequent amendments to the protocol, must be submitted to the FDA as part of the IND. Further, each clinical trial must be reviewed and approved by each institution at which the clinical trial will be conducted. An IRB is charged with protecting the welfare and rights of trial participants and considers such items as whether the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB also reviews and approves the informed consent form that must be provided to each clinical trial subject or his or her legal representative and must monitor the clinical trial until completed. There are also requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries. For example, information about certain clinical trials must be submitted within specific timeframes to the National Institutes of Health for public dissemination on their ClinicalTrials.gov website. Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA, and more frequently if serious adverse events occur. Written IND safety reports must be submitted to the FDA and the investigators for serious and unexpected adverse events or any finding from tests in laboratory animals that suggests a significant risk to human subjects. The FDA, the IRB, or the clinical trial sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. The FDA will typically inspect one or more clinical sites to assure compliance with GCPs and the integrity of the clinical data submitted. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This group provides authorization for whether or not a trial may move forward at designated check points based on access to certain data from the trial. Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the drug as well as finalize a process for manufacturing the drug in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the drug candidate and, among other things, cGMPs impose extensive procedural, substantive and recordkeeping requirements to ensure and preserve the long-term stability and quality of the final drug product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the drug candidate does not undergo Clinical trials are generally conducted in three sequential phases that may overlap or be combined, known as Phase I, Phase II and unacceptable deterioration over its shelf life. Phase III clinical trials. NDA Submission and FDA Review Process • Phase I: In a standard Phase I clinical trial, the drug is initially introduced into a small number of subjects who are initially exposed to a range of doses of the drug candidate. The primary purpose of these clinical trials is to assess the metabolism, pharmacologic action, appropriate dosing, side effect tolerability and safety of the drug. • Phase Ib: Although Phase I clinical trials are not intended to treat disease or illness, a Phase Ib trial is conducted in patient populations who have been diagnosed with the disease for which the study drug is intended. The patient population typically demonstrates a biomarker, surrogate, or other clinical outcome that can be assessed to show “proof-of-concept.” In a Phase Ib study, proof-of-concept typically confirms a hypothesis that the current prediction of a biomarker, surrogate or other outcome benefit is compatible with the mechanism of action of the study drug. • Phase I/II: A Phase I and Phase II trial for the same treatment is combined into a single study protocol. The drug is administered first to determine a maximum tolerable dose, and then additional patients are treated in the Phase II portion of the study to further assess safety and/or efficacy. • Phase II: The drug is administered to a limited patient population to determine dose tolerance and optimal dosage required to produce the desired benefits. At the same time, safety and further pharmacokinetic and pharmacodynamic information is collected, as well as identification of possible adverse effects and safety risks and preliminary evaluation of efficacy. of data or full or partial waivers. • Phase III: The drug is administered to an expanded number of patients, generally at multiple sites that are geographically dispersed, in well-controlled clinical trials to generate enough data to demonstrate the efficacy of the drug for its intended use, its safety profile, and to establish the overall benefit/risk profile of the drug and provide an adequate basis for drug approval and labeling of the drug product. Phase III clinical trials may include comparisons with placebo and/or other comparator treatments. The duration of treatment is often extended to mimic the actual use of a drug during marketing. Generally, two adequate and well-controlled Phase III clinical trials are required by the FDA for approval of an NDA. A pivotal study is a clinical study that adequately meets regulatory agency requirements for the evaluation of a drug candidate’s efficacy and safety such that it can be used to justify the approval of the drug. Generally, pivotal studies are also Phase III studies but may be Phase II studies if the trial design provides a well-controlled and reliable assessment of clinical benefit, particularly in situations where there is an unmet medical need. Phase IV clinical trials are conducted after initial regulatory approval, and they are used to collect additional information from the treatment of patients in the intended therapeutic indication or to meet other regulatory requirements. In certain instances, FDA may mandate the performance of Phase IV clinical trials. 140 141 Following trial completion, trial results and data are analyzed to assess safety and efficacy. The results of pre-clinical studies and clinical trials are then submitted to the FDA as part of an NDA, along with proposed labeling for the drug, information about the manufacturing process and facilities that will be used to ensure drug quality, results of analytical testing conducted on the chemistry of the drug, and other relevant information. The NDA is a request for approval to market the drug and must contain adequate evidence of safety and efficacy, which is demonstrated by extensive pre-clinical and clinical testing. The application includes both negative or ambiguous results of pre-clinical and clinical trials as well as positive findings. Data may come from company-sponsored clinical trials intended to test the safety and efficacy of a use of a drug, or from a number of alternative sources, including studies initiated by investigators. To support regulatory approval, the data submitted must be sufficient in quality and quantity to establish the safety and efficacy of the investigational drug product to the satisfaction of the FDA. Under federal law, the submission of most NDAs is subject to the payment of an application user fees; a waiver of such fees may be obtained under certain limited circumstances. FDA approval of an NDA must be obtained before a drug may be offered for sale in the United States. In addition, under the Pediatric Research Equity Act of 2003, or PREA, an NDA or supplement to an NDA must contain data to assess the safety and efficacy of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the drug is safe and effective. The FDA may grant deferrals for submission Under the Prescription Drug User Fee Act, or PDUFA, as amended, each NDA must be accompanied by an application user fee. The FDA adjusts the PDUFA user fees on an annual basis. According to the FDA’s fee schedule, effective through September 30, 2021, the user fee for an application requiring clinical data, such as an NDA, is $2,875,842. PDUFA also imposes a program fee for prescription human drugs $336,432. Fee waivers or reductions are available in certain circumstances, including a waiver of the application fee for the first application filed by a small business. Additionally, no user fees are assessed on NDAs for products designated as orphan drugs, unless the product also includes a non-orphan indication. The FDA reviews all NDAs submitted before it accepts them for filing and may request additional information rather than accepting an NDA for filing. The FDA conducts a preliminary review of an NDA within 60 days of receipt and informs the sponsor by the 74th day after FDA’s receipt of the submission to determine whether the application is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in-depth review of the NDA. Under the goals and policies agreed to by the FDA under PDUFA, the FDA has 10 months from the filing date in which to complete its initial review of a standard NDA and respond to the applicant, and six months from the filing date for a “priority review” NDA. The FDA does not always meet its PDUFA goal dates for standard and priority review NDAs, and the review process is often significantly extended by FDA requests for additional information or clarification. Clinical Studies The clinical stage of development involves the administration of the drug product to human subjects or patients under the supervision of qualified investigators, generally physicians not employed by or under the trial sponsor’s control, in accordance with GCPs, which include the requirement that, in general, all research subjects provide their informed consent in writing for their participation in any clinical trial. Clinical trials are conducted under written study protocols detailing, among other things, the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria, and the parameters to be used to monitor subject safety and assess efficacy. Each protocol, and any subsequent amendments to the protocol, must be submitted to the FDA as part of the IND. Further, each clinical trial must be reviewed and approved by each institution at which the clinical trial will be conducted. An IRB is charged with protecting the welfare and rights of trial participants and considers such items as whether the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB also reviews and approves the informed consent form that must be provided to each clinical trial subject or his or her legal representative and must monitor the clinical trial until completed. There are also requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries. For example, information about certain clinical trials must be submitted within specific timeframes to the National Institutes of Health for public dissemination on their ClinicalTrials.gov website. Clinical trials are generally conducted in three sequential phases that may overlap or be combined, known as Phase I, Phase II and Phase III clinical trials. • Phase I: In a standard Phase I clinical trial, the drug is initially introduced into a small number of subjects who are initially exposed to a range of doses of the drug candidate. The primary purpose of these clinical trials is to assess the metabolism, pharmacologic action, appropriate dosing, side effect tolerability and safety of the drug. • Phase Ib: Although Phase I clinical trials are not intended to treat disease or illness, a Phase Ib trial is conducted in patient populations who have been diagnosed with the disease for which the study drug is intended. The patient population typically demonstrates a biomarker, surrogate, or other clinical outcome that can be assessed to show “proof-of-concept.” In a Phase Ib study, proof-of-concept typically confirms a hypothesis that the current prediction of a biomarker, surrogate or other outcome benefit is compatible with the mechanism of action of the study drug. • Phase I/II: A Phase I and Phase II trial for the same treatment is combined into a single study protocol. The drug is administered first to determine a maximum tolerable dose, and then additional patients are treated in the Phase II portion of the study to further assess safety and/or efficacy. • Phase II: The drug is administered to a limited patient population to determine dose tolerance and optimal dosage required to produce the desired benefits. At the same time, safety and further pharmacokinetic and pharmacodynamic information is collected, as well as identification of possible adverse effects and safety risks and preliminary evaluation of efficacy. • Phase III: The drug is administered to an expanded number of patients, generally at multiple sites that are geographically dispersed, in well-controlled clinical trials to generate enough data to demonstrate the efficacy of the drug for its intended use, its safety profile, and to establish the overall benefit/risk profile of the drug and provide an adequate basis for drug approval and labeling of the drug product. Phase III clinical trials may include comparisons with placebo and/or other comparator treatments. The duration of treatment is often extended to mimic the actual use of a drug during marketing. Generally, two adequate and well-controlled Phase III clinical trials are required by the FDA for approval of an NDA. A pivotal study is a clinical study that adequately meets regulatory agency requirements for the evaluation of a drug candidate’s efficacy and safety such that it can be used to justify the approval of the drug. Generally, pivotal studies are also Phase III studies but may be Phase II studies if the trial design provides a well-controlled and reliable assessment of clinical benefit, particularly in situations where there is an unmet medical need. Phase IV clinical trials are conducted after initial regulatory approval, and they are used to collect additional information from the treatment of patients in the intended therapeutic indication or to meet other regulatory requirements. In certain instances, FDA may mandate the performance of Phase IV clinical trials. Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA, and more frequently if serious adverse events occur. Written IND safety reports must be submitted to the FDA and the investigators for serious and unexpected adverse events or any finding from tests in laboratory animals that suggests a significant risk to human subjects. The FDA, the IRB, or the clinical trial sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. The FDA will typically inspect one or more clinical sites to assure compliance with GCPs and the integrity of the clinical data submitted. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This group provides authorization for whether or not a trial may move forward at designated check points based on access to certain data from the trial. Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the drug as well as finalize a process for manufacturing the drug in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the drug candidate and, among other things, cGMPs impose extensive procedural, substantive and recordkeeping requirements to ensure and preserve the long-term stability and quality of the final drug product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its shelf life. NDA Submission and FDA Review Process Following trial completion, trial results and data are analyzed to assess safety and efficacy. The results of pre-clinical studies and clinical trials are then submitted to the FDA as part of an NDA, along with proposed labeling for the drug, information about the manufacturing process and facilities that will be used to ensure drug quality, results of analytical testing conducted on the chemistry of the drug, and other relevant information. The NDA is a request for approval to market the drug and must contain adequate evidence of safety and efficacy, which is demonstrated by extensive pre-clinical and clinical testing. The application includes both negative or ambiguous results of pre-clinical and clinical trials as well as positive findings. Data may come from company-sponsored clinical trials intended to test the safety and efficacy of a use of a drug, or from a number of alternative sources, including studies initiated by investigators. To support regulatory approval, the data submitted must be sufficient in quality and quantity to establish the safety and efficacy of the investigational drug product to the satisfaction of the FDA. Under federal law, the submission of most NDAs is subject to the payment of an application user fees; a waiver of such fees may be obtained under certain limited circumstances. FDA approval of an NDA must be obtained before a drug may be offered for sale in the United States. In addition, under the Pediatric Research Equity Act of 2003, or PREA, an NDA or supplement to an NDA must contain data to assess the safety and efficacy of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the drug is safe and effective. The FDA may grant deferrals for submission of data or full or partial waivers. Under the Prescription Drug User Fee Act, or PDUFA, as amended, each NDA must be accompanied by an application user fee. The FDA adjusts the PDUFA user fees on an annual basis. According to the FDA’s fee schedule, effective through September 30, 2021, the user fee for an application requiring clinical data, such as an NDA, is $2,875,842. PDUFA also imposes a program fee for prescription human drugs $336,432. Fee waivers or reductions are available in certain circumstances, including a waiver of the application fee for the first application filed by a small business. Additionally, no user fees are assessed on NDAs for products designated as orphan drugs, unless the product also includes a non-orphan indication. The FDA reviews all NDAs submitted before it accepts them for filing and may request additional information rather than accepting an NDA for filing. The FDA conducts a preliminary review of an NDA within 60 days of receipt and informs the sponsor by the 74th day after FDA’s receipt of the submission to determine whether the application is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in-depth review of the NDA. Under the goals and policies agreed to by the FDA under PDUFA, the FDA has 10 months from the filing date in which to complete its initial review of a standard NDA and respond to the applicant, and six months from the filing date for a “priority review” NDA. The FDA does not always meet its PDUFA goal dates for standard and priority review NDAs, and the review process is often significantly extended by FDA requests for additional information or clarification. 140 141 After the NDA submission is accepted for filing, the FDA reviews the NDA to determine, among other things, whether the proposed drug is safe and effective for its intended use, and whether the drug is being manufactured in accordance with cGMP to assure and preserve the drug’s identity, strength, quality and purity. The FDA may refer applications for drugs or drug candidates that present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. The FDA may re-analyze the clinical trial data, which can result in extensive discussions between the FDA and us during the review process. Before approving an NDA, the FDA will conduct a pre-approval inspection of the manufacturing facilities for the new drug to determine whether they comply with cGMPs. The FDA will not approve the drug unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the drug within required specifications. In addition, before approving an NDA, the FDA may also audit data from clinical trials to ensure compliance with GCP requirements. After the FDA evaluates the application, manufacturing process and manufacturing facilities where the drug product and/or its active pharmaceutical ingredient will be produced, it may issue an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete and the application is not ready for approval. A Complete Response Letter usually describes all of the specific deficiencies in the NDA identified by the FDA. The Complete Response Letter may require additional clinical data and/or an additional pivotal clinical trial(s), and/or other significant, expensive and time-consuming requirements related to clinical trials, pre-clinical studies or manufacturing. If a Complete Response Letter is issued, the applicant may either resubmit the NDA, addressing all of the deficiencies identified in the letter, or withdraw the application. Even if such data and information is submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than we interpret the same data. If a drug receives regulatory approval, the approval may be limited to specific diseases and dosages or the indications for use may otherwise be limited. Further, the FDA may require that certain contraindications, warnings or precautions be included in the drug labeling or may condition the approval of the NDA on other changes to the proposed labeling, development of adequate controls and specifications, or a commitment to conduct post-market testing or clinical trials and surveillance to monitor the effects of approved drugs. For example, the FDA may require Phase IV testing which involves clinical trials designed to further assess a drug’s safety and effectiveness and may require testing and surveillance programs to monitor the safety of approved drugs that have been commercialized. The FDA may also place other conditions on approvals including the requirement for a REMS to ensure that the benefits of a drug or biological product outweigh its risks. If the FDA concludes a REMS is needed, the sponsor of the NDA must submit a proposed REMS. The FDA will not approve the NDA without an approved REMS, if required. A REMS could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of drugs. Drug approvals may be withdrawn for non-compliance with regulatory standards or if problems occur following initial marketing. Section 505(b)(2) NDAs NDAs for most new drug products are based on two full clinical studies which must contain substantial evidence of the safety and efficacy of the proposed new product. These applications are submitted under Section 505(b)(1) of the FDCA. The FDA is, however, authorized to approve an alternative type of NDA under Section 505(b)(2) of the FDCA, which authorizes FDA to approve an NDA based on safety and effectiveness data that were not developed by the applicant. Section 505(b)(2) allows the applicant to rely, in part, on the FDA’s previous findings of safety and efficacy for a similar product, or published literature. Specifically, Section 505(b)(2) applies to NDAs for a drug for which the investigations relied upon to show that the drug is safe and effective for the intended use “were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted.” Section 505(b)(2) authorizes NDAs filed under Section 505(b)(2) may provide an alternate and potentially more expeditious pathway to FDA approval for new or improved formulations or new uses of previously approved products. If the 505(b)(2) applicant can establish that reliance on the FDA’s previous approval is scientifically appropriate, the applicant may eliminate the need to conduct certain pre-clinical or clinical studies of the new product. The FDA may also require companies to perform additional studies or measurements to support the change from the approved product. The FDA may then approve the new drug candidate for all or some of the label indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant. Abbreviated New Drug Applications for Generic Drugs In 1984, with passage of the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch- Waxman Act, Congress authorized the FDA to approve generic drugs that are the same as drugs previously approved by the FDA under the NDA provisions of the statute. To obtain approval of a generic drug, an applicant must submit an abbreviated new drug application, or ANDA, to the agency. In support of such applications, a generic manufacturer may rely on the pre-clinical and clinical testing previously conducted for a drug product previously approved under an NDA, known as the reference listed drug, or RLD. Specifically, in order for an ANDA to be approved, the FDA must find that the generic version is identical to the RLD with respect to the active ingredients, the route of administration, the dosage form, and the strength of the drug. At the same time, the FDA must also determine that the generic drug is “bioequivalent” to the innovator drug. Under the statute, a generic drug is bioequivalent to a RLD if “the rate and extent of absorption of the drug do not show a significant difference from the rate and extent of absorption of the listed drug.” The Generic Drug User Fee Act (GDUFA), as reauthorized, sets forth performance goals for the FDA to review standard ANDA’s within 10 months of their submission, and priority ANDA’s within 8 months of their submission if they satisfy certain requirements. Upon approval of an ANDA, the FDA indicates that the generic product is “therapeutically equivalent” to the RLD and it assigns a therapeutic equivalence rating to the approved generic drug in its publication “Approved Drug Products with Therapeutic Equivalence Evaluations,” also referred to as the “Orange Book.” Physicians and pharmacists consider an “AB” therapeutic equivalence rating to mean that a generic drug is fully substitutable for the RLD. In addition, by operation of certain state laws and numerous health insurance programs, FDA’s designation of an “AB” rating often results in substitution of the generic drug without the knowledge or consent of either the prescribing physician or patient. Special FDA Expedited Review and Approval Programs The FDA has various programs, including fast track designation, accelerated approval, priority review and Breakthrough Therapy Designation, that are intended to expedite or simplify the process for the development and FDA review of drugs that are intended for the treatment of serious or life threatening diseases or conditions and demonstrate the potential to address unmet medical needs. The purpose of these programs is to provide important new drugs to patients earlier than under standard FDA review procedures. While these pathways can reduce the time it takes for the FDA to review an NDA, they do not guarantee that a product will receive FDA approval. In addition, the Right to Try Act of 2018 established a new regulatory pathway to increase access to unapproved, investigational treatments for patients diagnosed with life-threatening diseases or conditions who have exhausted approved treatment options and who are unable to participate in a clinical trial. Fast Track Designation To be eligible for a fast track designation, the FDA must determine, based on the request of a sponsor, that a drug is intended to treat a serious or life threatening disease or condition for which there is no effective treatment and demonstrates the potential to address an unmet medical need for the disease or condition. Under the fast track program, the sponsor of a drug candidate may request the FDA to designate the product for a specific indication as a fast track product concurrent with or after the filing of the IND for the drug candidate. The FDA must make a fast track designation determination within 60 days after receipt of the sponsor’s request. In addition to other benefits, such as the ability to use surrogate endpoints and have greater interactions with the FDA, the FDA may initiate review of sections of a fast track product’s NDA before the application is complete. This rolling review is available if the applicant provides, and the FDA approves, a schedule for the submission of the remaining information and the applicant pays applicable user fees. However, the FDA’s time period goal for reviewing a fast track application does not begin until the last section of the NDA is submitted. A fast track drug also may be eligible for accelerated approval and priority review. In addition, the fast track designation may be withdrawn by the FDA if it believes that the designation is no longer supported by data emerging in the clinical trial process. 142 143 After the NDA submission is accepted for filing, the FDA reviews the NDA to determine, among other things, whether the proposed Abbreviated New Drug Applications for Generic Drugs drug is safe and effective for its intended use, and whether the drug is being manufactured in accordance with cGMP to assure and preserve the drug’s identity, strength, quality and purity. The FDA may refer applications for drugs or drug candidates that present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. The FDA may re-analyze the clinical trial data, which can result in extensive discussions between the FDA and us during the review process. Before approving an NDA, the FDA will conduct a pre-approval inspection of the manufacturing facilities for the new drug to determine whether they comply with cGMPs. The FDA will not approve the drug unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the drug within required specifications. In addition, before approving an NDA, the FDA may also audit data from clinical trials to ensure compliance with GCP requirements. After the FDA evaluates the application, manufacturing process and manufacturing facilities where the drug product and/or its active pharmaceutical ingredient will be produced, it may issue an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete and the application is not ready for approval. A Complete Response Letter usually describes all of the specific deficiencies in the NDA identified by the FDA. The Complete Response Letter may require additional clinical data and/or an additional pivotal clinical trial(s), and/or other significant, expensive and time-consuming requirements related to clinical trials, pre-clinical studies or manufacturing. If a Complete Response Letter is issued, the applicant may either resubmit the NDA, addressing all of the deficiencies identified in the letter, or withdraw the application. Even if such data and information is submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than we interpret the same data. If a drug receives regulatory approval, the approval may be limited to specific diseases and dosages or the indications for use may otherwise be limited. Further, the FDA may require that certain contraindications, warnings or precautions be included in the drug labeling or may condition the approval of the NDA on other changes to the proposed labeling, development of adequate controls and specifications, or a commitment to conduct post-market testing or clinical trials and surveillance to monitor the effects of approved drugs. For example, the FDA may require Phase IV testing which involves clinical trials designed to further assess a drug’s safety and effectiveness and may require testing and surveillance programs to monitor the safety of approved drugs that have been commercialized. The FDA may also place other conditions on approvals including the requirement for a REMS to ensure that the benefits of a drug or biological product outweigh its risks. If the FDA concludes a REMS is needed, the sponsor of the NDA must submit a proposed REMS. The FDA will not approve the NDA without an approved REMS, if required. A REMS could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of drugs. Drug approvals may be withdrawn for non-compliance with regulatory standards or if problems occur following initial marketing. Section 505(b)(2) NDAs NDAs for most new drug products are based on two full clinical studies which must contain substantial evidence of the safety and efficacy of the proposed new product. These applications are submitted under Section 505(b)(1) of the FDCA. The FDA is, however, authorized to approve an alternative type of NDA under Section 505(b)(2) of the FDCA, which authorizes FDA to approve an NDA based on safety and effectiveness data that were not developed by the applicant. Section 505(b)(2) allows the applicant to rely, in part, on the FDA’s previous findings of safety and efficacy for a similar product, or published literature. Specifically, Section 505(b)(2) applies to NDAs for a drug for which the investigations relied upon to show that the drug is safe and effective for the intended use “were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted.” Section 505(b)(2) authorizes NDAs filed under Section 505(b)(2) may provide an alternate and potentially more expeditious pathway to FDA approval for new or improved formulations or new uses of previously approved products. If the 505(b)(2) applicant can establish that reliance on the FDA’s previous approval is scientifically appropriate, the applicant may eliminate the need to conduct certain pre-clinical or clinical studies of the new product. The FDA may also require companies to perform additional studies or measurements to support the change from the approved product. The FDA may then approve the new drug candidate for all or some of the label indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant. In 1984, with passage of the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch- Waxman Act, Congress authorized the FDA to approve generic drugs that are the same as drugs previously approved by the FDA under the NDA provisions of the statute. To obtain approval of a generic drug, an applicant must submit an abbreviated new drug application, or ANDA, to the agency. In support of such applications, a generic manufacturer may rely on the pre-clinical and clinical testing previously conducted for a drug product previously approved under an NDA, known as the reference listed drug, or RLD. Specifically, in order for an ANDA to be approved, the FDA must find that the generic version is identical to the RLD with respect to the active ingredients, the route of administration, the dosage form, and the strength of the drug. At the same time, the FDA must also determine that the generic drug is “bioequivalent” to the innovator drug. Under the statute, a generic drug is bioequivalent to a RLD if “the rate and extent of absorption of the drug do not show a significant difference from the rate and extent of absorption of the listed drug.” The Generic Drug User Fee Act (GDUFA), as reauthorized, sets forth performance goals for the FDA to review standard ANDA’s within 10 months of their submission, and priority ANDA’s within 8 months of their submission if they satisfy certain requirements. Upon approval of an ANDA, the FDA indicates that the generic product is “therapeutically equivalent” to the RLD and it assigns a therapeutic equivalence rating to the approved generic drug in its publication “Approved Drug Products with Therapeutic Equivalence Evaluations,” also referred to as the “Orange Book.” Physicians and pharmacists consider an “AB” therapeutic equivalence rating to mean that a generic drug is fully substitutable for the RLD. In addition, by operation of certain state laws and numerous health insurance programs, FDA’s designation of an “AB” rating often results in substitution of the generic drug without the knowledge or consent of either the prescribing physician or patient. Special FDA Expedited Review and Approval Programs The FDA has various programs, including fast track designation, accelerated approval, priority review and Breakthrough Therapy Designation, that are intended to expedite or simplify the process for the development and FDA review of drugs that are intended for the treatment of serious or life threatening diseases or conditions and demonstrate the potential to address unmet medical needs. The purpose of these programs is to provide important new drugs to patients earlier than under standard FDA review procedures. While these pathways can reduce the time it takes for the FDA to review an NDA, they do not guarantee that a product will receive FDA approval. In addition, the Right to Try Act of 2018 established a new regulatory pathway to increase access to unapproved, investigational treatments for patients diagnosed with life-threatening diseases or conditions who have exhausted approved treatment options and who are unable to participate in a clinical trial. Fast Track Designation To be eligible for a fast track designation, the FDA must determine, based on the request of a sponsor, that a drug is intended to treat a serious or life threatening disease or condition for which there is no effective treatment and demonstrates the potential to address an unmet medical need for the disease or condition. Under the fast track program, the sponsor of a drug candidate may request the FDA to designate the product for a specific indication as a fast track product concurrent with or after the filing of the IND for the drug candidate. The FDA must make a fast track designation determination within 60 days after receipt of the sponsor’s request. In addition to other benefits, such as the ability to use surrogate endpoints and have greater interactions with the FDA, the FDA may initiate review of sections of a fast track product’s NDA before the application is complete. This rolling review is available if the applicant provides, and the FDA approves, a schedule for the submission of the remaining information and the applicant pays applicable user fees. However, the FDA’s time period goal for reviewing a fast track application does not begin until the last section of the NDA is submitted. A fast track drug also may be eligible for accelerated approval and priority review. In addition, the fast track designation may be withdrawn by the FDA if it believes that the designation is no longer supported by data emerging in the clinical trial process. 142 143 Priority Review The FDA may give a priority review designation to drugs that offer major advances in treatment, or provide a treatment where no adequate therapy exists. A priority review means that the goal for the FDA to review an application is six months, rather than the standard review of 10 months under current PDUFA guidelines. These 6- and 10-month review periods are measured from the “filing” date rather than the receipt date for NDAs for new molecular entities, which typically adds approximately two months to the timeline for review and decision from the date of submission. Most products that are eligible for fast track designation are also likely to be considered appropriate to receive a priority review. Breakthrough Therapy Designation Under the provisions of the new Food and Drug Administration Safety and Innovation Act, or FDASIA, enacted by Congress in 2012, a sponsor can request designation of a drug candidate as a “breakthrough therapy,” typically by the end of the drug’s Phase II trials. A breakthrough therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. Drugs designated as breakthrough therapies are also eligible for accelerated approval. For breakthrough therapies, the FDA may take certain actions, such as intensive and early guidance on the drug development program, that are intended to expedite the development and review of an application for approval. Accelerated Approval FDASIA also codified and expanded on FDA’s accelerated approval regulations, under which FDA may approve a drug for a serious or life-threatening illness that provides meaningful therapeutic benefit over existing treatments based on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on an intermediate clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit. A surrogate endpoint is a marker that does not itself measure clinical benefit but is believed to predict clinical benefit. This determination takes into account the severity, rarity or prevalence of the disease or condition and the availability or lack of alternative treatments. As a condition of approval, the FDA may require a sponsor of a drug receiving accelerated approval to perform Phase IV or post-marketing studies to verify and describe the predicted effect on irreversible morbidity or mortality or other clinical endpoint, and the drug may be subject to accelerated withdrawal procedures. All promotional materials for drug candidates approved under accelerated regulations are subject to prior review by the FDA. Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for the FDA review or approval will not be shortened. Furthermore, fast track designation, priority review, accelerated approval and Breakthrough Therapy Designation, do not change the standards for approval and may not ultimately expedite the development or approval process. Pediatric Trials Under PREA, an NDA or supplement thereto must contain data that are adequate to assess the safety and effectiveness of the drug product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. With the enactment of FDASIA, a sponsor who is planning to submit a marketing application for a drug that includes a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration must also submit an initial Pediatric Study Plan, or PSP, within sixty days of an end-of-Phase II meeting or as may be agreed between the sponsor and the FDA. The initial PSP must include an outline of the pediatric study or studies that the sponsor plans to conduct, including study objectives and design, age groups, relevant endpoints and statistical approach, or a justification for not including such detailed information, and any request for a deferral of pediatric assessments or a full or partial waiver of the requirement to provide data from pediatric studies along with supporting information. The FDA and the sponsor must reach agreement on the PSP. A sponsor can submit amendments to an agreed-upon initial PSP at any time if changes to the pediatric plan need to be considered based on data collected from pre-clinical studies, early phase clinical trials, and/or other clinical development programs. The law requires the FDA to send a non-compliance letter to sponsors who do not submit their pediatric assessments as required. Under the Best Pharmaceuticals for Children Act, or BPCA, certain therapeutic candidates may obtain an additional six months of exclusivity if the sponsor submits information requested by the FDA, relating to the use of the active moiety of the product candidate in children. Although the FDA may issue a written request for studies on either approved or unapproved indications, it may only do so where it determines that information relating to that use of a product candidate in a pediatric population, or part of the pediatric population, may produce health benefits in that population. FDASIA permanently reauthorized PREA and BPCA, modifying some of the requirements under these laws, and established priority review vouchers for rare pediatric diseases. Pursuant to the Consolidated Appropriations Act of 2021, the FDA’s authority to award rare pediatric disease vouchers has been extended until September 30, 2024, and until September 30, 2026 for products that receive rare pediatric disease designation by September 30, 2024. Orphan Drug Designation and Exclusivity Under the Orphan Drug Act, the FDA may designate a drug product as an “orphan drug” if it is intended to treat a rare disease or condition (generally meaning that it affects fewer than 200,000 individuals in the United States, or more in cases in which there is no reasonable expectation that the cost of developing and making a drug product available in the United States for treatment of the disease or condition will be recovered from sales of the product). A company must request orphan product designation before submitting an NDA. If the request is granted, the FDA will disclose the identity of the therapeutic agent and its potential use. Orphan product designation does not convey any advantage in or shorten the duration of the regulatory review and approval process, but the product will be entitled to orphan product exclusivity, meaning that the FDA may not approve any other applications for the same product for the same indication for seven years, except in certain limited circumstances. Competitors may receive approval of different products for the indication for which the orphan product has exclusivity and may obtain approval for the same product but for a different indication. If a drug or drug product designated as an orphan product ultimately receives regulatory approval for an indication broader than what was designated in its orphan product application, it may not be entitled to exclusivity. The 21st Century Cures Act, which became law in December 2016, expanded the types of studies that qualify for orphan drug grants. Orphan drug designation also may qualify an applicant for federal and possibly state tax credits relating to research and development costs. Post-Marketing Requirements Following approval of a new drug, a pharmaceutical company and the approved drug are subject to continuing regulation by the FDA, including, among other things, monitoring and recordkeeping activities, reporting to the applicable regulatory authorities of adverse experiences with the drug, providing the regulatory authorities with updated safety and efficacy information, drug sampling and distribution requirements, and complying with applicable promotion and advertising requirements. Prescription drug advertising is subject to federal, state and foreign regulations. In the United States, the FDA regulates prescription drug promotion, including standards for direct-to-consumer advertising, restrictions on promoting drugs for uses or in patient populations that are not described in the drug’s approved labeling (known as “off-label use”), limitations on industry-sponsored scientific and educational activities, and requirements for promotional activities involving the internet. Although physicians may legally prescribe drugs for off-label uses, manufacturers may not market or promote such off-label uses. Prescription drug promotional materials must be submitted to the FDA in conjunction with their first use. Modifications or enhancements to the drug or its labeling or changes of the site of manufacture are often subject to the approval of the FDA and other regulators, which may or may not be received or may result in a lengthy review process. Any distribution of prescription drugs and pharmaceutical samples also must comply with the U.S. Prescription Drug Marketing Act, a part of the FDCA. 144 145 Priority Review The FDA may give a priority review designation to drugs that offer major advances in treatment, or provide a treatment where no adequate therapy exists. A priority review means that the goal for the FDA to review an application is six months, rather than the standard review of 10 months under current PDUFA guidelines. These 6- and 10-month review periods are measured from the “filing” date rather than the receipt date for NDAs for new molecular entities, which typically adds approximately two months to the timeline for review and decision from the date of submission. Most products that are eligible for fast track designation are also likely to be considered appropriate to receive a priority review. Breakthrough Therapy Designation Under the Best Pharmaceuticals for Children Act, or BPCA, certain therapeutic candidates may obtain an additional six months of exclusivity if the sponsor submits information requested by the FDA, relating to the use of the active moiety of the product candidate in children. Although the FDA may issue a written request for studies on either approved or unapproved indications, it may only do so where it determines that information relating to that use of a product candidate in a pediatric population, or part of the pediatric population, may produce health benefits in that population. FDASIA permanently reauthorized PREA and BPCA, modifying some of the requirements under these laws, and established priority review vouchers for rare pediatric diseases. Pursuant to the Consolidated Appropriations Act of 2021, the FDA’s authority to award rare pediatric disease vouchers has been extended until September 30, 2024, and until September 30, 2026 for products that receive rare pediatric disease designation by September 30, 2024. Under the provisions of the new Food and Drug Administration Safety and Innovation Act, or FDASIA, enacted by Congress in Orphan Drug Designation and Exclusivity 2012, a sponsor can request designation of a drug candidate as a “breakthrough therapy,” typically by the end of the drug’s Phase II trials. A breakthrough therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. Drugs designated as breakthrough therapies are also eligible for accelerated approval. For breakthrough therapies, the FDA may take certain actions, such as intensive and early guidance on the drug development program, that are intended to expedite the development and review of an application for approval. Accelerated Approval FDASIA also codified and expanded on FDA’s accelerated approval regulations, under which FDA may approve a drug for a serious or life-threatening illness that provides meaningful therapeutic benefit over existing treatments based on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on an intermediate clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit. A surrogate endpoint is a marker that does not itself measure clinical benefit but is believed to predict clinical benefit. This determination takes into account the severity, rarity or prevalence of the disease or condition and the availability or lack of alternative treatments. As a condition of approval, the FDA may require a sponsor of a drug receiving accelerated approval to perform Phase IV or post-marketing studies to verify and describe the predicted effect on irreversible morbidity or mortality or other clinical endpoint, and the drug may be subject to accelerated withdrawal procedures. All promotional materials for drug candidates approved under accelerated regulations are subject to prior review by the FDA. Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for the FDA review or approval will not be shortened. Furthermore, fast track designation, priority review, accelerated approval and Breakthrough Therapy Designation, do not change the standards for approval and may not ultimately expedite the development or approval process. Pediatric Trials Under PREA, an NDA or supplement thereto must contain data that are adequate to assess the safety and effectiveness of the drug product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. With the enactment of FDASIA, a sponsor who is planning to submit a marketing application for a drug that includes a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration must also submit an initial Pediatric Study Plan, or PSP, within sixty days of an end-of-Phase II meeting or as may be agreed between the sponsor and the FDA. The initial PSP must include an outline of the pediatric study or studies that the sponsor plans to conduct, including study objectives and design, age groups, relevant endpoints and statistical approach, or a justification for not including such detailed information, and any request for a deferral of pediatric assessments or a full or partial waiver of the requirement to provide data from pediatric studies along with supporting information. The FDA and the sponsor must reach agreement on the PSP. A sponsor can submit amendments to an agreed-upon initial PSP at any time if changes to the pediatric plan need to be considered based on data collected from pre-clinical studies, early phase clinical trials, and/or other clinical development programs. The law requires the FDA to send a non-compliance letter to sponsors who do not submit their pediatric assessments as required. Under the Orphan Drug Act, the FDA may designate a drug product as an “orphan drug” if it is intended to treat a rare disease or condition (generally meaning that it affects fewer than 200,000 individuals in the United States, or more in cases in which there is no reasonable expectation that the cost of developing and making a drug product available in the United States for treatment of the disease or condition will be recovered from sales of the product). A company must request orphan product designation before submitting an NDA. If the request is granted, the FDA will disclose the identity of the therapeutic agent and its potential use. Orphan product designation does not convey any advantage in or shorten the duration of the regulatory review and approval process, but the product will be entitled to orphan product exclusivity, meaning that the FDA may not approve any other applications for the same product for the same indication for seven years, except in certain limited circumstances. Competitors may receive approval of different products for the indication for which the orphan product has exclusivity and may obtain approval for the same product but for a different indication. If a drug or drug product designated as an orphan product ultimately receives regulatory approval for an indication broader than what was designated in its orphan product application, it may not be entitled to exclusivity. The 21st Century Cures Act, which became law in December 2016, expanded the types of studies that qualify for orphan drug grants. Orphan drug designation also may qualify an applicant for federal and possibly state tax credits relating to research and development costs. Post-Marketing Requirements Following approval of a new drug, a pharmaceutical company and the approved drug are subject to continuing regulation by the FDA, including, among other things, monitoring and recordkeeping activities, reporting to the applicable regulatory authorities of adverse experiences with the drug, providing the regulatory authorities with updated safety and efficacy information, drug sampling and distribution requirements, and complying with applicable promotion and advertising requirements. Prescription drug advertising is subject to federal, state and foreign regulations. In the United States, the FDA regulates prescription drug promotion, including standards for direct-to-consumer advertising, restrictions on promoting drugs for uses or in patient populations that are not described in the drug’s approved labeling (known as “off-label use”), limitations on industry-sponsored scientific and educational activities, and requirements for promotional activities involving the internet. Although physicians may legally prescribe drugs for off-label uses, manufacturers may not market or promote such off-label uses. Prescription drug promotional materials must be submitted to the FDA in conjunction with their first use. Modifications or enhancements to the drug or its labeling or changes of the site of manufacture are often subject to the approval of the FDA and other regulators, which may or may not be received or may result in a lengthy review process. Any distribution of prescription drugs and pharmaceutical samples also must comply with the U.S. Prescription Drug Marketing Act, a part of the FDCA. 144 145 In the United States, once a drug is approved, its manufacture is subject to comprehensive and continuing regulation by the FDA. The FDA regulations require that drugs be manufactured in specific approved facilities and in accordance with cGMP. Applicants may also rely on third parties for the production of clinical and commercial quantities of drugs, and these third parties must operate in accordance with cGMP regulations. cGMP regulations require among other things, quality control and quality assurance as well as the corresponding maintenance of records and documentation and the obligation to investigate and correct any deviations from cGMP. Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance. These regulations also impose certain organizational, procedural and documentation requirements with respect to manufacturing and quality assurance activities. NDA holders using third- party contract manufacturers, laboratories or packagers are responsible for the selection and monitoring of qualified firms, and, in certain circumstances, qualified suppliers to these firms. These firms and, where applicable, their suppliers are subject to inspections by the FDA at any time, and the discovery of violative conditions, including failure to conform to cGMP, could result in enforcement actions that interrupt the operation of any such facilities or the ability to distribute drugs manufactured, processed or tested by them. Discovery of problems with a drug after approval may result in restrictions on a drug, manufacturer, or holder of an approved NDA, including, among other things, recall or withdrawal of the drug from the market, and may require substantial resources to correct. The FDA also may require Phase IV testing, risk minimization action plans and post-marketing surveillance to monitor the effects of an approved drug or place conditions on an approval that could restrict the distribution or use of the drug. Discovery of previously unknown problems with a drug or the failure to comply with applicable FDA requirements can have negative consequences, including adverse publicity, judicial or administrative enforcement, warning letters from the FDA, mandated corrective advertising or communications with doctors, and civil or criminal penalties, among others. Newly discovered or developed safety or effectiveness data may require changes to a drug’s approved labeling, including the addition of new warnings and contraindications, and also may require the implementation of other risk management measures. Also, new government requirements, including those resulting from new legislation, may be established, or the FDA’s policies may change, which could delay or prevent regulatory approval of our drugs under development. Other U.S. Regulatory Matters Manufacturing, sales, promotion and other activities following drug approval are also subject to regulation by numerous regulatory authorities in addition to the FDA, including, in the United States, the Department of Justice, Centers for Medicare & Medicaid Services, other divisions of the Department of Health and Human Services, the Drug Enforcement Administration for Controlled Substances, the Consumer Product Safety Commission, the Federal Trade Commission, the Occupational Safety & Health Administration, the Environmental Protection Agency and state and local governments. In the United States, sales, marketing and scientific/educational programs must also comply with state and federal fraud and abuse laws. Pricing and rebate programs must comply with the Medicaid rebate requirements of the U.S. Omnibus Budget Reconciliation Act of 1990 and more recent requirements in the Affordable Care Act. If drugs are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. The handling of any controlled substances must comply with the U.S. Controlled Substances Act and Controlled Substances Import and Export Act. Drugs must meet applicable child-resistant packaging requirements under the U.S. Poison Prevention Packaging Act. Manufacturing, sales, promotion and other activities are also potentially subject to federal and state consumer protection and unfair competition laws. The distribution of pharmaceutical drugs is subject to additional requirements and regulations, including extensive record-keeping, investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be licensing, storage and security requirements intended to prevent the unauthorized sale of pharmaceutical drugs. The failure to comply with regulatory requirements subjects firms to possible legal or regulatory action. Depending on the circumstances, failure to meet applicable regulatory requirements can result in criminal prosecution, fines or other penalties, injunctions, recall or seizure of drugs, total or partial suspension of production, denial or withdrawal of product approvals, or refusal to allow a firm to enter into supply contracts, including government contracts. In addition, even if a firm complies with FDA and other requirements, new information regarding the safety or efficacy of a product could lead the FDA to modify or withdraw product approval. Prohibitions or restrictions on sales or withdrawal of future products marketed by us could materially affect our business in an adverse way. 146 147 Changes in regulations, statutes or the interpretation of existing regulations could impact our business in the future by requiring, for example: (i) changes to our manufacturing arrangements; (ii) additions or modifications to product labeling; (iii) the recall or discontinuation of our products; or (iv) additional record-keeping requirements. If any such changes were to be imposed, they could adversely affect the operation of our business. U.S. Patent Term Restoration and Marketing Exclusivity Depending upon the timing, duration and specifics of the FDA approval of our drug candidates, some of our U.S. patents may be eligible for limited patent term extension under the Hatch-Waxman Act. The Hatch-Waxman Act permits a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the time between the effective date of an IND and the submission date of an NDA plus the time between the submission date of an NDA and the approval of that application. Only one patent applicable to an approved drug is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent. The USPTO, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In 2018, the FDA advanced policies aimed at promoting drug competition and patient access to generic drugs, such as issuing guidance about making complex generic drugs and the circumstances in which approval of a generic product application may be delayed. Marketing exclusivity provisions under the FDCA can also delay the submission or the approval of certain marketing applications. The FDCA provides a five-year period of non-patent marketing exclusivity within the United States to the first applicant to obtain approval of an NDA for a NCE. A drug is a NCE if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an ANDA, or a 505(b)(2) NDA submitted by another company for another drug based on the same active moiety, regardless of whether the drug is intended for the same indication as the original innovator drug or for another indication, where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement to one of the patents listed with the FDA by the innovator NDA holder. Specifically, the applicant must certify with respect to each relevant patent that: the required patent information has not been filed; the listed patent has expired; the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration, or the listed patent is invalid, unenforceable or will not be infringed by the new product. A certification that the new product will not infringe the already approved product’s listed patents or that such patents are invalid or unenforceable is called a Paragraph IV certification. If the applicant does not challenge the listed patents or indicate that it is not seeking approval of a patented method of use, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired. If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days after the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months after the receipt of the Paragraph IV notice, expiration of the patent, or a decision in the infringement case that is favorable to the ANDA applicant. To the extent that the Section 505(b)(2) applicant relies on prior FDA findings of safety and efficacy, the applicant is required to certify to the FDA concerning any patents listed for the previously approved product in the Orange Book to the same extent that an ANDA applicant would. The FDCA also provides three years of marketing exclusivity for an NDA, or supplement to an existing NDA if new clinical essential to the approval of the application, for example new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the modification for which the drug received approval on the basis of the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the active agent for the original indication or condition of use. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the pre-clinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness. Orphan drug exclusivity, as described above, may offer a seven-year period of marketing exclusivity, except in certain circumstances. Pediatric exclusivity is another type of regulatory market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to existing exclusivity periods and patent terms. This six-month exclusivity, which runs from the end of other exclusivity protection or patent term, may be granted based on the voluntary completion of a pediatric trial in accordance with an FDA-issued “Written Request” for such a trial. In the United States, once a drug is approved, its manufacture is subject to comprehensive and continuing regulation by the FDA. The FDA regulations require that drugs be manufactured in specific approved facilities and in accordance with cGMP. Applicants may also rely on third parties for the production of clinical and commercial quantities of drugs, and these third parties must operate in accordance with cGMP regulations. cGMP regulations require among other things, quality control and quality assurance as well as the corresponding maintenance of records and documentation and the obligation to investigate and correct any deviations from cGMP. Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance. These regulations also impose certain organizational, procedural and documentation requirements with respect to manufacturing and quality assurance activities. NDA holders using third- party contract manufacturers, laboratories or packagers are responsible for the selection and monitoring of qualified firms, and, in certain circumstances, qualified suppliers to these firms. These firms and, where applicable, their suppliers are subject to inspections by the FDA at any time, and the discovery of violative conditions, including failure to conform to cGMP, could result in enforcement actions that interrupt the operation of any such facilities or the ability to distribute drugs manufactured, processed or tested by them. Discovery of problems with a drug after approval may result in restrictions on a drug, manufacturer, or holder of an approved NDA, including, among other things, recall or withdrawal of the drug from the market, and may require substantial resources to correct. The FDA also may require Phase IV testing, risk minimization action plans and post-marketing surveillance to monitor the effects of an approved drug or place conditions on an approval that could restrict the distribution or use of the drug. Discovery of previously unknown problems with a drug or the failure to comply with applicable FDA requirements can have negative consequences, including adverse publicity, judicial or administrative enforcement, warning letters from the FDA, mandated corrective advertising or communications with doctors, and civil or criminal penalties, among others. Newly discovered or developed safety or effectiveness data may require changes to a drug’s approved labeling, including the addition of new warnings and contraindications, and also may require the implementation of other risk management measures. Also, new government requirements, including those resulting from new legislation, may be established, or the FDA’s policies may change, which could delay or prevent regulatory approval of our drugs under development. Other U.S. Regulatory Matters Manufacturing, sales, promotion and other activities following drug approval are also subject to regulation by numerous regulatory authorities in addition to the FDA, including, in the United States, the Department of Justice, Centers for Medicare & Medicaid Services, other divisions of the Department of Health and Human Services, the Drug Enforcement Administration for Controlled Substances, the Consumer Product Safety Commission, the Federal Trade Commission, the Occupational Safety & Health Administration, the Environmental Protection Agency and state and local governments. In the United States, sales, marketing and scientific/educational programs must also comply with state and federal fraud and abuse laws. Pricing and rebate programs must comply with the Medicaid rebate requirements of the U.S. Omnibus Budget Reconciliation Act of 1990 and more recent requirements in the Affordable Care Act. If drugs are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. The handling of any controlled substances must comply with the U.S. Controlled Substances Act and Controlled Substances Import and Export Act. Drugs must meet applicable child-resistant packaging requirements under the U.S. Poison Prevention Packaging Act. Manufacturing, sales, promotion and other activities are also potentially subject to federal and state consumer protection and unfair competition laws. The distribution of pharmaceutical drugs is subject to additional requirements and regulations, including extensive record-keeping, licensing, storage and security requirements intended to prevent the unauthorized sale of pharmaceutical drugs. The failure to comply with regulatory requirements subjects firms to possible legal or regulatory action. Depending on the circumstances, failure to meet applicable regulatory requirements can result in criminal prosecution, fines or other penalties, injunctions, recall or seizure of drugs, total or partial suspension of production, denial or withdrawal of product approvals, or refusal to allow a firm to enter into supply contracts, including government contracts. In addition, even if a firm complies with FDA and other requirements, new information regarding the safety or efficacy of a product could lead the FDA to modify or withdraw product approval. Prohibitions or restrictions on sales or withdrawal of future products marketed by us could materially affect our business in an adverse way. Changes in regulations, statutes or the interpretation of existing regulations could impact our business in the future by requiring, for example: (i) changes to our manufacturing arrangements; (ii) additions or modifications to product labeling; (iii) the recall or discontinuation of our products; or (iv) additional record-keeping requirements. If any such changes were to be imposed, they could adversely affect the operation of our business. U.S. Patent Term Restoration and Marketing Exclusivity Depending upon the timing, duration and specifics of the FDA approval of our drug candidates, some of our U.S. patents may be eligible for limited patent term extension under the Hatch-Waxman Act. The Hatch-Waxman Act permits a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the time between the effective date of an IND and the submission date of an NDA plus the time between the submission date of an NDA and the approval of that application. Only one patent applicable to an approved drug is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent. The USPTO, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In 2018, the FDA advanced policies aimed at promoting drug competition and patient access to generic drugs, such as issuing guidance about making complex generic drugs and the circumstances in which approval of a generic product application may be delayed. Marketing exclusivity provisions under the FDCA can also delay the submission or the approval of certain marketing applications. The FDCA provides a five-year period of non-patent marketing exclusivity within the United States to the first applicant to obtain approval of an NDA for a NCE. A drug is a NCE if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an ANDA, or a 505(b)(2) NDA submitted by another company for another drug based on the same active moiety, regardless of whether the drug is intended for the same indication as the original innovator drug or for another indication, where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement to one of the patents listed with the FDA by the innovator NDA holder. Specifically, the applicant must certify with respect to each relevant patent that: the required patent information has not been filed; the listed patent has expired; the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration, or the listed patent is invalid, unenforceable or will not be infringed by the new product. A certification that the new product will not infringe the already approved product’s listed patents or that such patents are invalid or unenforceable is called a Paragraph IV certification. If the applicant does not challenge the listed patents or indicate that it is not seeking approval of a patented method of use, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired. If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days after the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months after the receipt of the Paragraph IV notice, expiration of the patent, or a decision in the infringement case that is favorable to the ANDA applicant. To the extent that the Section 505(b)(2) applicant relies on prior FDA findings of safety and efficacy, the applicant is required to certify to the FDA concerning any patents listed for the previously approved product in the Orange Book to the same extent that an ANDA applicant would. The FDCA also provides three years of marketing exclusivity for an NDA, or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the modification for which the drug received approval on the basis of the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the active agent for the original indication or condition of use. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the pre-clinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness. Orphan drug exclusivity, as described above, may offer a seven-year period of marketing exclusivity, except in certain circumstances. Pediatric exclusivity is another type of regulatory market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to existing exclusivity periods and patent terms. This six-month exclusivity, which runs from the end of other exclusivity protection or patent term, may be granted based on the voluntary completion of a pediatric trial in accordance with an FDA-issued “Written Request” for such a trial. 146 147 Rest of the World Regulation of Pharmaceutical Product Development and Approval For other countries outside of China and the United States, such as countries in Europe, Latin America or other parts of Asia, the requirements governing the conduct of clinical trials, drug licensing, pricing and reimbursement vary from country to country. In all cases the clinical trials must be conducted in accordance with GCP requirements and the applicable regulatory requirements and ethical principles. If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution. her employer. Coverage and Reimbursement National Essential Medicines List Patients purchasing medicines included in Category A of the NRDL are entitled to reimbursement of the entire amount of the purchase price. Patients purchasing medicines included in Category B of the NRDL are required to pay a certain percentage of the purchase price and obtain reimbursement for the remainder of the purchase price. The percentage of reimbursement for Category B medicines differs from region to region in the PRC. The total amount of reimbursement for the cost of medicines, in addition to other medical expenses, for an individual participant under the National Medical Insurance Program in a calendar year is capped at the amounts in such participant’s individual account under such program. The amount in a participant’s account varies, depending on the amount of contributions from the participant and his or PRC Coverage and Reimbursement Historically, most of Chinese healthcare costs have been borne by patients out-of-pocket, which has limited the growth of more expensive pharmaceutical products. However, in recent years the number of people covered by government and private insurance has increased. According to the NHC, as of December 31, 2021, approximately 1.4 billion residents in China were enrolled in the national medical insurance program, with participation rates remaining steadily above 95%. In 2021, total income of the National Basic Medical Insurance Fund (including maternity insurance) reached RMB2,873.2 billion, an increase of 15.6% over the previous year. Reimbursement under the National Medical Insurance Program The National Medical Insurance Program was adopted pursuant to the Decision of the State Council on the Establishment of the Urban Employee Basic Medical Insurance Program issued by the State Council on December 14, 1998, under which all employers in urban cities are required to enroll their employees in the basic medical insurance program and the insurance premium is jointly contributed by the employers and employees. The State Council promulgated Guiding Opinions of the State Council about the Pilot Urban Resident Basic Medical Insurance on July 10, 2007, under which urban residents of the pilot district, rather than urban employees, may voluntarily join Urban Resident Basic Medical Insurance. The State Council expected the Pilot Urban Resident Basic Medical Insurance to cover the whole nation by 2010. Participants of the National Medical Insurance Program and their employers, if any, are required to contribute to the payment of insurance premiums on a monthly basis. Program participants are eligible for full or partial reimbursement of the cost of medicines included in the NRDL. The Notice Regarding the Tentative Measures for the Administration of the Scope of Medical Insurance Coverage for Pharmaceutical Products for Urban Employees, jointly issued by several authorities including the Ministry of Labor and Social Security and the MOF, among others, on May 12, 1999, provides that a pharmaceutical product listed in the NRDL must be clinically needed, safe, effective, reasonably priced, easy to use, available in sufficient quantity, and must meet the following requirements: • • • it is set forth in the Pharmacopoeia of the PRC; it meets the standards promulgated by the NMPA; and if imported, it is approved by the NMPA for import. Factors that affect the inclusion of a pharmaceutical product in the NRDL include whether the product is consumed in large volumes and commonly prescribed for clinical use in the PRC and whether it is considered to be important in meeting the basic healthcare needs of the general public. The PRC Ministry of Labor and Social Security, together with other government authorities, has the power to determine inclusion of medicines in the NRDL (also referred to as the “Drug Catalog”), which is divided into two parts, Category A and Category B. Per the Notice on the “National Basic Medical Insurance, Work Injury Insurance and Maternity Insurance Drug Catalog (2022)” issued by the National Healthcare Security Administration and the Ministry of Labor and Social Security, local authorities are required to strictly implement the Drug Catalog (2022) and must not adjust the categories of drugs, remarks and the classification of drugs in the Drug Catalog. On August 18, 2009, MOH and eight other ministries and commissions in the PRC issued the Provisional Measures on the Administration of the National Essential Medicines List, which was later amended in 2015, and the Guidelines on the Implementation of the Establishment of the National Essential Medicines System, which aim to promote essential medicines sold to consumers at fair prices in the PRC and ensure that the general public in the PRC has equal access to the drugs contained in the National Essential Medicines List. MOH promulgated the National Essential Medicines List (Catalog for the Basic Healthcare Institutions) on August 18, 2009, and promulgated the revised National Essential Medicines List on March 13, 2013 and September 30, 2018. According to these regulations, basic healthcare institutions funded by government, which primarily include county-level hospitals, county-level Chinese medicine hospitals, rural clinics and community clinics, shall store up and use drugs listed in the National Essential Medicines List. Per the Opinions of the General Office of the State Council on Improving the National Essential Medicines System, issued and effective on September 13, 2018, with respect to the qualifying drugs on the National Essential Medicines List, the medical insurance department shall prioritize their inclusion in the NDRL and adjust their classifications as Category A or B, respectively, in accordance with the stipulated procedures. Price Controls According to the PRC Drug Administration Law and the PRC Drug Administration Law Implementation Regulations, pharmaceutical products are subject to a directive pricing system or to be adjusted by the market. Per the Notice of the National Healthcare Security Administration on issuing the “Opinions on Doing a Good Job in the Current Drug Price Management”, or the Notice on Current Drug Price Management, effective on November 26, 2019, government guidance prices are to be implemented for narcotic drugs and Class I psychotropic drugs, while prices of other drugs are to be determined by the market. Government guidance prices refer to prices as fixed by business operators according to benchmark prices and ranges of the prices as set by the government department in charge of pricing or other related departments. According to the Pricing Catalogue Initiated by the Central Government (2020 Edition), which was promulgated by the NDRC and effective on May 1, 2020, the National Healthcare Security Administration shall be responsible for setting prices of narcotic drugs and Class I psychotropic drugs. Further, pursuant to the Notice Regarding Further Improvement of the Order of Market Price of Pharmaceutical Products and Medical Services, or the Market Price Notice, jointly promulgated by the NDRC, the State Council Legislative Affairs Office and the State Council Office for Rectifying, the MOH, the NMPA, the MOFCOM, the MOF and Ministry of Labor and Social Security on May 19, 2006, the PRC government exercises price control over pharmaceutical products included in the NRDL and made an overall adjustment of their prices by reducing the retail price of certain overpriced pharmaceutical products and increasing the retail price of certain underpriced pharmaceutical products in demand for clinical use but that have not been produced in large quantities by manufacturers due to their low retail price level. In particular, the retail price charged by hospitals at the county level or above may not exceed 115% of the procurement cost of the relevant pharmaceutical products or 125% for Chinese herbal pieces. The Market Price Notice has been abolished per the NDRC Decision to Abolish Standardized Pricing Directories, effective May 20, 2021. On February 9, 2015, the General Office of the State Council issued the Guiding Opinion on Enhancing Consolidated Procurement of Pharmaceutical Products by Public Hospitals, or the Opinion. The Opinion encourages public hospitals to consolidate their demands and to play a more active role in the procurement of pharmaceutical products. Hospitals are encouraged to directly settle the prices of pharmaceutical products with manufacturers. Consolidated procurement of pharmaceutical products should facilitate hospital reform, reduce patient costs, prevent corrupt conducts, promote fair competition and induce the healthy growth of the pharmaceutical industry. According to the Opinion, provincial tendering processes will continue to be used for the pricing of essential drugs and generic drugs with significant demands, and transparent multi-party price negotiation will be used for some patented drugs and exclusive drugs. 148 149 Rest of the World Regulation of Pharmaceutical Product Development and Approval For other countries outside of China and the United States, such as countries in Europe, Latin America or other parts of Asia, the requirements governing the conduct of clinical trials, drug licensing, pricing and reimbursement vary from country to country. In all cases the clinical trials must be conducted in accordance with GCP requirements and the applicable regulatory requirements and ethical principles. If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution. Patients purchasing medicines included in Category A of the NRDL are entitled to reimbursement of the entire amount of the purchase price. Patients purchasing medicines included in Category B of the NRDL are required to pay a certain percentage of the purchase price and obtain reimbursement for the remainder of the purchase price. The percentage of reimbursement for Category B medicines differs from region to region in the PRC. The total amount of reimbursement for the cost of medicines, in addition to other medical expenses, for an individual participant under the National Medical Insurance Program in a calendar year is capped at the amounts in such participant’s individual account under such program. The amount in a participant’s account varies, depending on the amount of contributions from the participant and his or her employer. Coverage and Reimbursement National Essential Medicines List PRC Coverage and Reimbursement Historically, most of Chinese healthcare costs have been borne by patients out-of-pocket, which has limited the growth of more expensive pharmaceutical products. However, in recent years the number of people covered by government and private insurance has increased. According to the NHC, as of December 31, 2021, approximately 1.4 billion residents in China were enrolled in the national medical insurance program, with participation rates remaining steadily above 95%. In 2021, total income of the National Basic Medical Insurance Fund (including maternity insurance) reached RMB2,873.2 billion, an increase of 15.6% over the previous year. Reimbursement under the National Medical Insurance Program The National Medical Insurance Program was adopted pursuant to the Decision of the State Council on the Establishment of the Urban Employee Basic Medical Insurance Program issued by the State Council on December 14, 1998, under which all employers in urban cities are required to enroll their employees in the basic medical insurance program and the insurance premium is jointly contributed by the employers and employees. The State Council promulgated Guiding Opinions of the State Council about the Pilot Urban Resident Basic Medical Insurance on July 10, 2007, under which urban residents of the pilot district, rather than urban employees, may voluntarily join Urban Resident Basic Medical Insurance. The State Council expected the Pilot Urban Resident Basic Medical Insurance to cover the whole nation by 2010. Participants of the National Medical Insurance Program and their employers, if any, are required to contribute to the payment of insurance premiums on a monthly basis. Program participants are eligible for full or partial reimbursement of the cost of medicines included in the NRDL. The Notice Regarding the Tentative Measures for the Administration of the Scope of Medical Insurance Coverage for Pharmaceutical Products for Urban Employees, jointly issued by several authorities including the Ministry of Labor and Social Security and the MOF, among others, on May 12, 1999, provides that a pharmaceutical product listed in the NRDL must be clinically needed, safe, effective, reasonably priced, easy to use, available in sufficient quantity, and must meet the following requirements: • • • it is set forth in the Pharmacopoeia of the PRC; it meets the standards promulgated by the NMPA; and if imported, it is approved by the NMPA for import. Factors that affect the inclusion of a pharmaceutical product in the NRDL include whether the product is consumed in large volumes and commonly prescribed for clinical use in the PRC and whether it is considered to be important in meeting the basic healthcare needs of the general public. The PRC Ministry of Labor and Social Security, together with other government authorities, has the power to determine inclusion of medicines in the NRDL (also referred to as the “Drug Catalog”), which is divided into two parts, Category A and Category B. Per the Notice on the “National Basic Medical Insurance, Work Injury Insurance and Maternity Insurance Drug Catalog (2022)” issued by the National Healthcare Security Administration and the Ministry of Labor and Social Security, local authorities are required to strictly implement the Drug Catalog (2022) and must not adjust the categories of drugs, remarks and the classification of drugs in the Drug Catalog. On August 18, 2009, MOH and eight other ministries and commissions in the PRC issued the Provisional Measures on the Administration of the National Essential Medicines List, which was later amended in 2015, and the Guidelines on the Implementation of the Establishment of the National Essential Medicines System, which aim to promote essential medicines sold to consumers at fair prices in the PRC and ensure that the general public in the PRC has equal access to the drugs contained in the National Essential Medicines List. MOH promulgated the National Essential Medicines List (Catalog for the Basic Healthcare Institutions) on August 18, 2009, and promulgated the revised National Essential Medicines List on March 13, 2013 and September 30, 2018. According to these regulations, basic healthcare institutions funded by government, which primarily include county-level hospitals, county-level Chinese medicine hospitals, rural clinics and community clinics, shall store up and use drugs listed in the National Essential Medicines List. Per the Opinions of the General Office of the State Council on Improving the National Essential Medicines System, issued and effective on September 13, 2018, with respect to the qualifying drugs on the National Essential Medicines List, the medical insurance department shall prioritize their inclusion in the NDRL and adjust their classifications as Category A or B, respectively, in accordance with the stipulated procedures. Price Controls According to the PRC Drug Administration Law and the PRC Drug Administration Law Implementation Regulations, pharmaceutical products are subject to a directive pricing system or to be adjusted by the market. Per the Notice of the National Healthcare Security Administration on issuing the “Opinions on Doing a Good Job in the Current Drug Price Management”, or the Notice on Current Drug Price Management, effective on November 26, 2019, government guidance prices are to be implemented for narcotic drugs and Class I psychotropic drugs, while prices of other drugs are to be determined by the market. Government guidance prices refer to prices as fixed by business operators according to benchmark prices and ranges of the prices as set by the government department in charge of pricing or other related departments. According to the Pricing Catalogue Initiated by the Central Government (2020 Edition), which was promulgated by the NDRC and effective on May 1, 2020, the National Healthcare Security Administration shall be responsible for setting prices of narcotic drugs and Class I psychotropic drugs. Further, pursuant to the Notice Regarding Further Improvement of the Order of Market Price of Pharmaceutical Products and Medical Services, or the Market Price Notice, jointly promulgated by the NDRC, the State Council Legislative Affairs Office and the State Council Office for Rectifying, the MOH, the NMPA, the MOFCOM, the MOF and Ministry of Labor and Social Security on May 19, 2006, the PRC government exercises price control over pharmaceutical products included in the NRDL and made an overall adjustment of their prices by reducing the retail price of certain overpriced pharmaceutical products and increasing the retail price of certain underpriced pharmaceutical products in demand for clinical use but that have not been produced in large quantities by manufacturers due to their low retail price level. In particular, the retail price charged by hospitals at the county level or above may not exceed 115% of the procurement cost of the relevant pharmaceutical products or 125% for Chinese herbal pieces. The Market Price Notice has been abolished per the NDRC Decision to Abolish Standardized Pricing Directories, effective May 20, 2021. On February 9, 2015, the General Office of the State Council issued the Guiding Opinion on Enhancing Consolidated Procurement of Pharmaceutical Products by Public Hospitals, or the Opinion. The Opinion encourages public hospitals to consolidate their demands and to play a more active role in the procurement of pharmaceutical products. Hospitals are encouraged to directly settle the prices of pharmaceutical products with manufacturers. Consolidated procurement of pharmaceutical products should facilitate hospital reform, reduce patient costs, prevent corrupt conducts, promote fair competition and induce the healthy growth of the pharmaceutical industry. According to the Opinion, provincial tendering processes will continue to be used for the pricing of essential drugs and generic drugs with significant demands, and transparent multi-party price negotiation will be used for some patented drugs and exclusive drugs. 148 149 On April 26, 2014, the NDRC issued the Notice on Issues concerning Improving the Price Control of Low Price Drugs, or the Low Price Drugs Notice, together with the Low Price Drug List, or LPDL. According to the Low Price Drugs Notice, for drugs with relatively low average daily costs within the current government-guided pricing scope (low price drugs), the maximum retail prices set by the government were cancelled. Within the standards of average daily costs, the specific purchase and sale prices are fixed by the producers and operators based on the drug production costs, market supply and demand and market competition. The standards of average daily costs of low price drugs were determined by the NDRC in consideration of the drug production costs, market supply and demand and other factors and based on the current maximum retail prices set by the government (or the national average bid-winning retail prices where the government does not set the maximum retail prices) and the average daily dose calculated according to the package insert. Under the Low Price Drugs Notice, the standards for the daily cost of low price chemical pharmaceuticals and of low price traditional Chinese medicine pharmaceuticals were less than RMB3.0 ($0.46) per day and RMB5.0 ($0.76) per day respectively. The Low Price Drugs Notice has been abolished per the NDRC Decision to Abolish Standardized Pricing Directories, effective May 20, 2021. On May 4, 2015, the NDRC, the National Health and Family Planning Commission, the NMPA, MOFCOM and three other departments issued Opinions on Promoting Drug Pricing Reform. Under these opinions, beginning on June 1, 2015, the restrictions on the prices of the drugs that were subject to government pricing were cancelled except for narcotic drugs and Class I psychotropic drugs which remained subject to maximum factory prices and maximum retail prices set by the NDRC, and following the November 2019 Notice on Current Drug Price Management, narcotic drugs and Class I psychotropic drugs prices have transitioned towards government guidance prices. The medical insurance regulatory authority now has the power to prescribe the standards, procedures, basis and methods of the payment for drugs paid by medical insurance funds. The prices of patented drugs are set through transparent and public negotiation among multiple parties. The prices for blood products not listed in the NRDL, immunity and prevention drugs that are purchased by the Chinese government in a centralized manner, and AIDS antiviral drugs and contraceptives provided by the Chinese government for free, are set through a tendering process. Except as otherwise mentioned above, the prices for other drugs may be determined by the manufacturers and the operators on their own on the basis of production or operation costs and market supply and demand. Centralized Procurement and Tenders The Guiding Opinions concerning the Urban Medical and Health System Reform, promulgated on February 21, 2000, aim to provide medical services with reasonable price and quality to the public through the establishment of an urban medical and health system. One of the measures used to realize this aim is the regulation of the purchasing process of pharmaceutical products by medical institutions. Accordingly, the MOH and other relevant government authorities have promulgated a series of regulations and releases in order to implement the tender requirements. According to the Notice on Issuing Certain Regulations on the Trial Implementation of Centralized Tender Procurement of Drugs by Medical Institutions promulgated on July 7, 2000 and the Notice on Further Improvement on the Implementation of Centralized Tender Procurement of Drugs by Medical Institutions promulgated on August 8, 2001, medical institutions established by county or higher level government are required to implement centralized tender procurement of drugs. The MOH promulgated the Working Regulations of Medical Institutions for Procurement of Drugs by Centralized Tender and Price Negotiations (for Trial Implementation), or the Centralized Procurement Regulations, on March 13, 2002, and promulgated Sample Document for Medical Institutions for Procurement of Drugs by Centralized Tender and Price Negotiations (for Trial Implementation), or the Centralized Tender Sample Document in November 2001, as amended in 2010, to implement the tender process requirements and ensure the requirements are followed uniformly throughout the country. The Centralized Tender Regulations and the Centralized Tender Sample Document provide rules for the tender process and negotiations of the prices of drugs, operational procedures, a code of conduct and standards or measures of evaluating bids and negotiating prices. On January 17, 2009, the MOH, the NMPA and other four national departments jointly promulgated the Opinions on Further Regulating Centralized Procurement of Drugs by Medical Institutions. According to the notice, public medical institutions owned by the government at the county level or higher or owned by state-owned enterprises (including state-controlled enterprises) shall purchase pharmaceutical products through centralized procurement. Each provincial government shall formulate its catalogue of drugs subject to centralized procurement. Specifically, the procurement could be achieved through public tendering, online bidding, centralized price negotiations and online competition platform. Except for drugs in the National Essential Medicines List (the procurement of which shall comply with the relevant rules on the National Essential Medicines List), certain pharmaceutical products which are under the national government’s special control and traditional Chinese medicines, in principle, all drugs used by public medical institutions shall be covered by the catalogue of drugs subject to centralized procurement. On July 7, 2010, the MOH and six other ministries and commissions jointly promulgated the Working Regulations of Medical Institutions for Centralized Procurement of Drugs to further regulate the centralized procurement of drugs and clarify the code of conduct of the parties in centralized drug procurement. The centralized tender process takes the form of public tender operated and organized by provincial or municipal government agencies in principle is conducted once every year in all provinces and cities in China. Drug manufacturing enterprises, in principle, shall bid directly for the centralized tender process. Certain related parties, however, may be engaged to act as bidding agencies. Such intermediaries are not permitted to engage in the distribution of drugs and must have no conflict of interest with the organizing government agencies. The bids are assessed by a committee composed of pharmaceutical experts who will be randomly selected from a database of experts approved by the relevant government authorities. The committee members assess the bids based on a number of factors, including but not limited to, bid price, product quality, clinical effectiveness, qualifications and reputation of the manufacturer, and after-sale services. Only pharmaceuticals that have won in the centralized tender process may be purchased by public medical institutions funded by government in the relevant region. 4+7 Quality Consistency Evaluation On November 15, 2018, China’s Joint Procurement Office published its Paper on Centralized Drug Procurement in “4+7 Cities,” known as the 4+7 Quality Consistency Evaluation process, or 4+7 QCE. The 4+7 QCE initiative is aimed at driving consolidation in the fragmented generic drug market in China. The 4+7 QCE initiative began as a pilot program in 11 cities: Beijing, Tianjin, Shanghai, Chongqing, Shenyang, Dalian, Xiamen, Guangzhou, Shenzhen, Chengdu and Xi’an. Under this pilot program, the public medical institutions in these 11 cities bulk-buy certain generic drugs together, forcing companies to bid for contracts and driving down prices. The 4+7 QCE initiative has expanded nationwide and now covers more varieties of drugs. On September 1, 2019, the Joint Procurement Office published its Paper on Centralized Drug Procurement in Alliance Areas (GY-YD2019-1), such areas covering 25 provinces and regions across China. On December 29, 2019, the Joint Procurement Office published its Paper on Nationwide Centralized Drug Procurement (GY-YD2019-2), promoting procurement nationwide, and on January 13, 2020, the National Healthcare Security Administration, the NHC, the NMPA, the Ministry of Industrial and Information Technology and the Logistics Support Department of the Central Military Commission promulgated the Notice on the Commencement of the Second Batch of State Organized Centralized Drug Procurement and Use, which states that the second batch of national organization of centralized procurement and use of drugs would not be carried out in selected areas but nationwide. On January 22, 2021, the General Office of the State Council issued the Opinions on Promoting the Normalization and Institutionalization of the Centralized and Quantitative Procurement of Drugs, stating that (i) the scope of procurement should focus on including drugs in the NDRL with large dosages and high purchase amounts and gradually cover all kinds of drugs that are clinically necessary and of reliable quality that are marketed in China, so as to ensure that all drugs that should be procured are exhausted, (ii) marketing authorization holders who have obtained drug registration certificates for drugs within the scope of centralized procurement can, in principle, participate in centralized drug procurement, provided they meet the requirements of centralized procurement in areas including but not limited to quality standards, production capacity and supply stability, and (iii) all public medical institutions (including military medical institutions) should participate in centralized drug procurement, and designated pharmacies shall follow the management requirements of designated agreements. U.S. Coverage and Reimbursement Successful sales of our products or drug candidates in the U.S. market, if approved, will depend, in part, on the extent to which our drugs will be covered by third-party payors, such as government health programs, commercial insurance and managed healthcare organizations. Patients who are provided with prescriptions as part of their medical treatment generally rely on such third-party payors to reimburse all or part of the costs associated with their prescriptions and therefore adequate coverage and reimbursement from such third-party payors are critical to new product success. These third-party payors are increasingly reducing reimbursements for medical drugs and services. Additionally, the containment of healthcare costs has become a priority of federal and state governments, and the prices of drugs have been a focus in this effort. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement, requirements for substitution of generic drugs, and pricing transparency requirements. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and results. Decreases in third-party reimbursement for our drug candidates, if approved, or a decision by a third-party payor to not cover our drug candidates could reduce physician usage of such drugs and have a material adverse effect on our sales, results of operations and financial condition. 150 151 On April 26, 2014, the NDRC issued the Notice on Issues concerning Improving the Price Control of Low Price Drugs, or the Low Price Drugs Notice, together with the Low Price Drug List, or LPDL. According to the Low Price Drugs Notice, for drugs with relatively low average daily costs within the current government-guided pricing scope (low price drugs), the maximum retail prices set by the government were cancelled. Within the standards of average daily costs, the specific purchase and sale prices are fixed by the producers and operators based on the drug production costs, market supply and demand and market competition. The standards of average daily costs of low price drugs were determined by the NDRC in consideration of the drug production costs, market supply and demand and other factors and based on the current maximum retail prices set by the government (or the national average bid-winning retail prices where the government does not set the maximum retail prices) and the average daily dose calculated according to the package insert. Under the Low Price Drugs Notice, the standards for the daily cost of low price chemical pharmaceuticals and of low price traditional Chinese medicine pharmaceuticals were less than RMB3.0 ($0.46) per day and RMB5.0 ($0.76) per day respectively. The Low Price Drugs Notice has been abolished per the NDRC Decision to Abolish Standardized Pricing Directories, effective May 20, 2021. On May 4, 2015, the NDRC, the National Health and Family Planning Commission, the NMPA, MOFCOM and three other departments issued Opinions on Promoting Drug Pricing Reform. Under these opinions, beginning on June 1, 2015, the restrictions on the prices of the drugs that were subject to government pricing were cancelled except for narcotic drugs and Class I psychotropic drugs which remained subject to maximum factory prices and maximum retail prices set by the NDRC, and following the November 2019 Notice on Current Drug Price Management, narcotic drugs and Class I psychotropic drugs prices have transitioned towards government guidance prices. The medical insurance regulatory authority now has the power to prescribe the standards, procedures, basis and methods of the payment for drugs paid by medical insurance funds. The prices of patented drugs are set through transparent and public negotiation among multiple parties. The prices for blood products not listed in the NRDL, immunity and prevention drugs that are purchased by the Chinese government in a centralized manner, and AIDS antiviral drugs and contraceptives provided by the Chinese government for free, are set through a tendering process. Except as otherwise mentioned above, the prices for other drugs may be determined by the manufacturers and the operators on their own on the basis of production or operation costs and market supply and demand. Centralized Procurement and Tenders The Guiding Opinions concerning the Urban Medical and Health System Reform, promulgated on February 21, 2000, aim to provide medical services with reasonable price and quality to the public through the establishment of an urban medical and health system. One of the measures used to realize this aim is the regulation of the purchasing process of pharmaceutical products by medical institutions. Accordingly, the MOH and other relevant government authorities have promulgated a series of regulations and releases in order to implement the tender requirements. According to the Notice on Issuing Certain Regulations on the Trial Implementation of Centralized Tender Procurement of Drugs by Medical Institutions promulgated on July 7, 2000 and the Notice on Further Improvement on the Implementation of Centralized Tender Procurement of Drugs by Medical Institutions promulgated on August 8, 2001, medical institutions established by county or higher level government are required to implement centralized tender procurement of drugs. The MOH promulgated the Working Regulations of Medical Institutions for Procurement of Drugs by Centralized Tender and Price Negotiations (for Trial Implementation), or the Centralized Procurement Regulations, on March 13, 2002, and promulgated Sample Document for Medical Institutions for Procurement of Drugs by Centralized Tender and Price Negotiations (for Trial Implementation), or the Centralized Tender Sample Document in November 2001, as amended in 2010, to implement the tender process requirements and ensure the requirements are followed uniformly throughout the country. The Centralized Tender Regulations and the Centralized Tender Sample Document provide rules for the tender process and negotiations of the prices of drugs, operational procedures, a code of conduct and standards or measures of evaluating bids and negotiating prices. On January 17, 2009, the MOH, the NMPA and other four national departments jointly promulgated the Opinions on Further Regulating Centralized Procurement of Drugs by Medical Institutions. According to the notice, public medical institutions owned by the government at the county level or higher or owned by state-owned enterprises (including state-controlled enterprises) shall purchase pharmaceutical products through centralized procurement. Each provincial government shall formulate its catalogue of drugs subject to centralized procurement. Specifically, the procurement could be achieved through public tendering, online bidding, centralized price negotiations and online competition platform. Except for drugs in the National Essential Medicines List (the procurement of which shall comply with the relevant rules on the National Essential Medicines List), certain pharmaceutical products which are under the national government’s special control and traditional Chinese medicines, in principle, all drugs used by public medical institutions shall be covered by the catalogue of drugs subject to centralized procurement. On July 7, 2010, the MOH and six other ministries and commissions jointly promulgated the Working Regulations of Medical Institutions for Centralized Procurement of Drugs to further regulate the centralized procurement of drugs and clarify the code of conduct of the parties in centralized drug procurement. The centralized tender process takes the form of public tender operated and organized by provincial or municipal government agencies in principle is conducted once every year in all provinces and cities in China. Drug manufacturing enterprises, in principle, shall bid directly for the centralized tender process. Certain related parties, however, may be engaged to act as bidding agencies. Such intermediaries are not permitted to engage in the distribution of drugs and must have no conflict of interest with the organizing government agencies. The bids are assessed by a committee composed of pharmaceutical experts who will be randomly selected from a database of experts approved by the relevant government authorities. The committee members assess the bids based on a number of factors, including but not limited to, bid price, product quality, clinical effectiveness, qualifications and reputation of the manufacturer, and after-sale services. Only pharmaceuticals that have won in the centralized tender process may be purchased by public medical institutions funded by government in the relevant region. 4+7 Quality Consistency Evaluation On November 15, 2018, China’s Joint Procurement Office published its Paper on Centralized Drug Procurement in “4+7 Cities,” known as the 4+7 Quality Consistency Evaluation process, or 4+7 QCE. The 4+7 QCE initiative is aimed at driving consolidation in the fragmented generic drug market in China. The 4+7 QCE initiative began as a pilot program in 11 cities: Beijing, Tianjin, Shanghai, Chongqing, Shenyang, Dalian, Xiamen, Guangzhou, Shenzhen, Chengdu and Xi’an. Under this pilot program, the public medical institutions in these 11 cities bulk-buy certain generic drugs together, forcing companies to bid for contracts and driving down prices. The 4+7 QCE initiative has expanded nationwide and now covers more varieties of drugs. On September 1, 2019, the Joint Procurement Office published its Paper on Centralized Drug Procurement in Alliance Areas (GY-YD2019-1), such areas covering 25 provinces and regions across China. On December 29, 2019, the Joint Procurement Office published its Paper on Nationwide Centralized Drug Procurement (GY-YD2019-2), promoting procurement nationwide, and on January 13, 2020, the National Healthcare Security Administration, the NHC, the NMPA, the Ministry of Industrial and Information Technology and the Logistics Support Department of the Central Military Commission promulgated the Notice on the Commencement of the Second Batch of State Organized Centralized Drug Procurement and Use, which states that the second batch of national organization of centralized procurement and use of drugs would not be carried out in selected areas but nationwide. On January 22, 2021, the General Office of the State Council issued the Opinions on Promoting the Normalization and Institutionalization of the Centralized and Quantitative Procurement of Drugs, stating that (i) the scope of procurement should focus on including drugs in the NDRL with large dosages and high purchase amounts and gradually cover all kinds of drugs that are clinically necessary and of reliable quality that are marketed in China, so as to ensure that all drugs that should be procured are exhausted, (ii) marketing authorization holders who have obtained drug registration certificates for drugs within the scope of centralized procurement can, in principle, participate in centralized drug procurement, provided they meet the requirements of centralized procurement in areas including but not limited to quality standards, production capacity and supply stability, and (iii) all public medical institutions (including military medical institutions) should participate in centralized drug procurement, and designated pharmacies shall follow the management requirements of designated agreements. U.S. Coverage and Reimbursement Successful sales of our products or drug candidates in the U.S. market, if approved, will depend, in part, on the extent to which our drugs will be covered by third-party payors, such as government health programs, commercial insurance and managed healthcare organizations. Patients who are provided with prescriptions as part of their medical treatment generally rely on such third-party payors to reimburse all or part of the costs associated with their prescriptions and therefore adequate coverage and reimbursement from such third-party payors are critical to new product success. These third-party payors are increasingly reducing reimbursements for medical drugs and services. Additionally, the containment of healthcare costs has become a priority of federal and state governments, and the prices of drugs have been a focus in this effort. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement, requirements for substitution of generic drugs, and pricing transparency requirements. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and results. Decreases in third-party reimbursement for our drug candidates, if approved, or a decision by a third-party payor to not cover our drug candidates could reduce physician usage of such drugs and have a material adverse effect on our sales, results of operations and financial condition. 150 151 The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, established the Medicare Part D program to provide a voluntary prescription drug benefit to Medicare beneficiaries. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities that provide coverage of outpatient prescription drugs. Unlike Medicare Part A and B, Part D coverage is not standardized. Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee. Medicare payment for some of the costs of prescription drugs may increase demand for drugs for which we receive regulatory approval. However, any negotiated prices for our drugs covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments from non-governmental payors. The American Recovery and Reinvestment Act of 2009 provides funding for the federal government to compare the effectiveness of different treatments for the same illness. The plan for the research was published in 2012 by the U.S. Department of Health and Human Services, the Agency for Healthcare Research and Quality and the National Institutes for Health, and periodic reports on the status of the research and related expenditures are made to Congress. Although the results of the comparative effectiveness studies are not intended to mandate coverage policies for public or private payors, if third-party payors do not consider a drug to be cost-effective compared to other available therapies, they may not cover such drugs as a benefit under their plans or, if they do, the level of payment may not be sufficient. The Affordable Care Act, enacted in March 2010, has had a significant impact on the health care industry. The Affordable Care Act expanded coverage for the uninsured while at the same time containing overall healthcare costs. With regard to pharmaceutical products, the Affordable Care Act, among other things, addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to individuals enrolled in Medicaid managed care organizations, established annual fees and taxes on manufacturers of certain branded prescription drugs, and created a new Medicare Part D coverage gap discount program, in which, beginning in 2019, manufacturers must agree to offer 70% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D. The Bipartisan Budget Act of 2018 made certain changes to Medicare Part D coverage, including changing the date when the Medicare Part D coverage gap is eliminated from 2020 to 2019, sunsetting the exclusion of biosimilars from the Medicare Part D coverage gap discount program in 2019 and reallocating responsibility for discounted pricing under the Medicare Part D coverage gap discount program from third-party payors to pharmaceutical companies. In December 2017, Congress also repealed the “individual mandate,” which was an Affordable Care Act requirement that individuals obtain healthcare insurance coverage or face a penalty. This repeal could affect the total number of patients who have coverage from third-party payors that reimburse for use of our products. In July 2021, the U.S. Supreme Court dismissed a constitutional challenge to the Affordable Care Act brought by a group of Republican attorneys general seeking to invalidate the law in its entirety because of Congress’s repeal of the individual mandate. On December 14, 2018, a U.S. District Court judge in Texas ruled that the Affordable Care Act is unconstitutional in its entirety because of Congress’s repeal of the individual mandate. On December 18, 2019, the U.S. Court of Appeals for the Fifth Circuit affirmed the portion of the district court’s ruling declaring the individual mandate unconstitutional and remanded for the district court to conduct analysis in the first instance on which provisions of the statute are severable from it and thus remain intact. The U.S. Supreme Court agreed to hear the case and a decision is expected by the spring of 2021. In addition, other legislative and regulatory changes have been proposed and adopted in the United States since the Affordable Care Act was enacted that affect reimbursement for prescription drugs. On August 2, 2011, the Budget Control Act of 2011 among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, started in April 2013. Section 4408 of the CARES Act temporarily suspended Medicare sequestration during the period of May 1, 2020 through December 31, 2021, while extending the Medicare sequestration sunset date through 2030. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which among other things, also reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. Regulations adopted by the Centers for Medicare & Medicaid Services or CMS grant Medicare Part B plans authority to apply new cost control measures to steer patients toward lower-priced drug products prior to covering non-preferred, more expensive products. This could potentially have the result of reducing coverage of our products under Medicare Part B. In addition, other proposed legislative and regulatory changes could affect reimbursement for prescription drugs. In January 2017, the Medicare Prescription Drug Price Negotiation Act was proposed in Congress, which would require the government to negotiate Medicare prescription drug prices with pharmaceutical companies. In October 2017, a similar bill, the Medicare Drug Price Negotiation Act of 2017 was proposed in Congress. In November 2017, the CMS announced a Final Rule that would adjust the applicable payment rate as necessary for certain separately payable drugs and biologicals acquired under the 340B Program from average sales price plus 6% to average sales price minus 22.5%. Congress and the U.S. administration continue to evaluate other proposals that could affect third-party reimbursement for our drug candidates, if approved. In October 2020, the U.S. Department of Health and Human Services and the FDA issued a final rule and guidance concerning two new pathways for importing lower-cost drugs into the United States. The final rule allows certain prescription drugs to be imported from Canada, and the guidance describes procedures for drug manufacturers to facilitate the importation of FDA-approved drugs and biologics manufactured abroad and originally intended for sale in a foreign country into the United States. In November 2020, the Department of Health and Human Services, under the outgoing Trump administration, issued a rule eliminating the safe harbor shielding Medicare Part D rebates to pharmacy benefit managers from the Anti-Kickback Statute. In response to litigation brought by a trade association on behalf of pharmacy benefit managers, the Biden administration agreed to delay the rule’s effective date until January 1, 2023. On November 15, 2021, President Biden signed into law the Infrastructure Investment and Jobs Act, which imposed a moratorium until January 1, 2026 at the earliest on the rule removing rebates from safe harbor protection under the Anti-Kickback Statute. In November 2021, the U.S. House of Representatives passed the Build Back Better Act. Under this Act, the federal government would be permitted to negotiate prices for certain Medicare Part B and Part D drugs, and manufacturers would be required to pay Medicare rebates for some Part B and many Part D drugs if their prices increased faster than inflation. To date, the U.S. Senate has not passed the Act, and it is unclear whether the Act or component parts of the Act will ultimately be enacted. Such legislative and regulatory changes could have the effect of lowering the level of coverage or reimbursement for our products. Rest of the World Coverage and Reimbursement In some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the E.U. provides options for its member states to restrict the range of medicinal drugs for which their national health insurance systems provide reimbursement and to control the prices of medicinal drugs for human use. A member state may approve a specific price for the medicinal drug or it may instead adopt a system of direct or indirect controls on the profitability of our company placing the medicinal drug on the market. Historically, drugs launched in the E.U. do not follow price structures of the United States and generally tend to be significantly lower. 152 153 The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, established the Medicare Part D program to provide a voluntary prescription drug benefit to Medicare beneficiaries. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities that provide coverage of outpatient prescription drugs. Unlike Medicare Part A and B, Part D coverage is not standardized. Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee. Medicare payment for some of the costs of prescription drugs may increase demand for drugs for which we receive regulatory approval. However, any negotiated prices for our drugs covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments from non-governmental payors. The American Recovery and Reinvestment Act of 2009 provides funding for the federal government to compare the effectiveness of different treatments for the same illness. The plan for the research was published in 2012 by the U.S. Department of Health and Human Services, the Agency for Healthcare Research and Quality and the National Institutes for Health, and periodic reports on the status of the research and related expenditures are made to Congress. Although the results of the comparative effectiveness studies are not intended to mandate coverage policies for public or private payors, if third-party payors do not consider a drug to be cost-effective compared to other available therapies, they may not cover such drugs as a benefit under their plans or, if they do, the level of payment may not be sufficient. The Affordable Care Act, enacted in March 2010, has had a significant impact on the health care industry. The Affordable Care Act expanded coverage for the uninsured while at the same time containing overall healthcare costs. With regard to pharmaceutical products, the Affordable Care Act, among other things, addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to individuals enrolled in Medicaid managed care organizations, established annual fees and taxes on manufacturers of certain branded prescription drugs, and created a new Medicare Part D coverage gap discount program, in which, beginning in 2019, manufacturers must agree to offer 70% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D. The Bipartisan Budget Act of 2018 made certain changes to Medicare Part D coverage, including changing the date when the Medicare Part D coverage gap is eliminated from 2020 to 2019, sunsetting the exclusion of biosimilars from the Medicare Part D coverage gap discount program in 2019 and reallocating responsibility for discounted pricing under the Medicare Part D coverage gap discount program from third-party payors to pharmaceutical companies. In December 2017, Congress also repealed the “individual mandate,” which was an Affordable Care Act requirement that individuals obtain healthcare insurance coverage or face a penalty. This repeal could affect the total number of patients who have coverage from third-party payors that reimburse for use of our products. In July 2021, the U.S. Supreme Court dismissed a constitutional challenge to the Affordable Care Act brought by a group of Republican attorneys general seeking to invalidate the law in its entirety because of Congress’s repeal of the individual mandate. On December 14, 2018, a U.S. District Court judge in Texas ruled that the Affordable Care Act is unconstitutional in its entirety because of Congress’s repeal of the individual mandate. On December 18, 2019, the U.S. Court of Appeals for the Fifth Circuit affirmed the portion of the district court’s ruling declaring the individual mandate unconstitutional and remanded for the district court to conduct analysis in the first instance on which provisions of the statute are severable from it and thus remain intact. The U.S. Supreme Court agreed to hear the case and a decision is expected by the spring of 2021. In addition, other legislative and regulatory changes have been proposed and adopted in the United States since the Affordable Care Act was enacted that affect reimbursement for prescription drugs. On August 2, 2011, the Budget Control Act of 2011 among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, started in April 2013. Section 4408 of the CARES Act temporarily suspended Medicare sequestration during the period of May 1, 2020 through December 31, 2021, while extending the Medicare sequestration sunset date through 2030. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which among other things, also reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. Regulations adopted by the Centers for Medicare & Medicaid Services or CMS grant Medicare Part B plans authority to apply new cost control measures to steer patients toward lower-priced drug products prior to covering non-preferred, more expensive products. This could potentially have the result of reducing coverage of our products under Medicare Part B. In addition, other proposed legislative and regulatory changes could affect reimbursement for prescription drugs. In January 2017, the Medicare Prescription Drug Price Negotiation Act was proposed in Congress, which would require the government to negotiate Medicare prescription drug prices with pharmaceutical companies. In October 2017, a similar bill, the Medicare Drug Price Negotiation Act of 2017 was proposed in Congress. In November 2017, the CMS announced a Final Rule that would adjust the applicable payment rate as necessary for certain separately payable drugs and biologicals acquired under the 340B Program from average sales price plus 6% to average sales price minus 22.5%. Congress and the U.S. administration continue to evaluate other proposals that could affect third-party reimbursement for our drug candidates, if approved. In October 2020, the U.S. Department of Health and Human Services and the FDA issued a final rule and guidance concerning two new pathways for importing lower-cost drugs into the United States. The final rule allows certain prescription drugs to be imported from Canada, and the guidance describes procedures for drug manufacturers to facilitate the importation of FDA-approved drugs and biologics manufactured abroad and originally intended for sale in a foreign country into the United States. In November 2020, the Department of Health and Human Services, under the outgoing Trump administration, issued a rule eliminating the safe harbor shielding Medicare Part D rebates to pharmacy benefit managers from the Anti-Kickback Statute. In response to litigation brought by a trade association on behalf of pharmacy benefit managers, the Biden administration agreed to delay the rule’s effective date until January 1, 2023. On November 15, 2021, President Biden signed into law the Infrastructure Investment and Jobs Act, which imposed a moratorium until January 1, 2026 at the earliest on the rule removing rebates from safe harbor protection under the Anti-Kickback Statute. In November 2021, the U.S. House of Representatives passed the Build Back Better Act. Under this Act, the federal government would be permitted to negotiate prices for certain Medicare Part B and Part D drugs, and manufacturers would be required to pay Medicare rebates for some Part B and many Part D drugs if their prices increased faster than inflation. To date, the U.S. Senate has not passed the Act, and it is unclear whether the Act or component parts of the Act will ultimately be enacted. Such legislative and regulatory changes could have the effect of lowering the level of coverage or reimbursement for our products. Rest of the World Coverage and Reimbursement In some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the E.U. provides options for its member states to restrict the range of medicinal drugs for which their national health insurance systems provide reimbursement and to control the prices of medicinal drugs for human use. A member state may approve a specific price for the medicinal drug or it may instead adopt a system of direct or indirect controls on the profitability of our company placing the medicinal drug on the market. Historically, drugs launched in the E.U. do not follow price structures of the United States and generally tend to be significantly lower. 152 153 Other Healthcare Laws Commercial Bribery Other PRC Healthcare Laws Advertising of Pharmaceutical Products In accordance with the Interim Administrative Measures for the Censorship of Advertisements for Drugs, Medical Devices, Health Food and Formula Food for Special Medical Purposes effective from March 1, 2020, the State Administration for Market Regulation is responsible for organizing and guiding the censorship of advertisements for drugs, medical devices, health foods and formula foods for special medical purposes. Any advertisement for drugs, medical devices, health food or formula food for special medical purposes shall indicate the advertisement approval number in a prominent position. The validity period of the advertisement approval number for drugs, medical devices, health food and formula food for special medical purposes shall be consistent with the shortest period of validity of the product registration certificate, record-filing certificate, or production license. Where no period of validity is prescribed in the product registration certificate, record-filing certificate or production license, the period of validity of the advertisement approval number shall be two years. Packaging of Pharmaceutical Products According to the Measures for The Administration of Pharmaceutical Packaging, effective on September 1, 1988, pharmaceutical packaging must comply with the provisions of the national standard and professional standard. If there are no standards, the enterprise can formulate its own standard after obtaining the approval of the provincial level drug administration or bureau of standards. The enterprise shall reapply to the relevant authorities if it needs to change the packaging standard. Drugs without packing must not be sold in PRC (except for drugs needed by the army). Product Liability Labor Protection Under the Labor Law of the PRC, effective on January 1, 1995 and subsequently amended on August 27, 2009 and December 29, 2018, the Labor Contract Law of the PRC, effective on January 1, 2008 and subsequently amended on December 28, 2012, and the Implementing Regulations of the Labor Contract Law of the PRC, effective on September 18, 2008, employers must establish a comprehensive management system to protect the rights of their employees, including a system governing occupational health and safety to provide employees with occupational training to prevent occupational injury, and employers are required to truthfully inform prospective employees of the job description, working conditions, location, occupational hazards and status of safe production as well as remuneration and other conditions as requested by the Labor Contract Law of the PRC. Pursuant to the Law of Manufacturing Safety of the People’s Republic of China effective on November 1, 2002 and subsequently amended on December 1, 2014 and September 1, 2021, manufacturers must establish a comprehensive management system to ensure manufacturing safety in accordance with applicable laws and regulations. Manufacturers not meeting relevant legal requirements are not permitted to commence their manufacturing activities. Pursuant to the Administrative Measures for Production effective on March 1, 2011, manufacturers of pharmaceutical products are required to establish production safety and labor protection measures in connection with the operation of their manufacturing equipment and manufacturing process. Pursuant to applicable PRC laws, rules and regulations, including the Social Insurance Law which became effective on July 1, 2011 and subsequently amended on December 29, 2018, the Interim Regulations on the Collection and Payment of Social Security Funds which became effective on January 22, 1999 and subsequently amended on March 24, 2019, the Interim Measures concerning the Maternity Insurance which became effective on January 1, 1995 and the Regulations on Work-related Injury Insurance which became effective on January 1, 2004 and were subsequently amended on December 20, 2010, employers are required to contribute, on behalf of their employees, to a number of social security funds, including funds for basic pension insurance, unemployment insurance, basic medical insurance, work-related injury insurance, and maternity insurance. If an employer fails to make social insurance contributions timely and in full, the social insurance collecting authority will order the employer to make up outstanding contributions within the prescribed time period and impose a late payment fee at the rate of 0.05% per day from the date on which the contribution becomes due. If such employer fails to make social insurance registration, the social insurance collecting authority will order the employer to correct within the prescribed time period. The relevant administrative department may impose a fine equivalent to three times the overdue amount and management personnel who are directly responsible can be fined RMB500 ($76.43) to RMB3,000 ($458.02) if the employer fails to correct within the prescribed time period. Medical production and operation enterprises involved in criminal, investigation or administrative procedure for commercial bribery will be listed in the Adverse Records of Commercial Briberies by provincial health and family planning administrative department. Pursuant to the Provisions on the Establishment of Adverse Records of Commercial Briberies in the Medicine Purchase and Sales Industry issued by the National Health and Family Planning Commission and effective on March 1, 2014, if medical production and operation enterprises are listed into the Adverse Records of Commercial Briberies for the first time, their production shall not be purchased by public medical institutions, and medical and health institutions receiving financial subsidies in local provincial regions for a period of two years following the publication of the Adverse Records, and public medical institutions, and medical and health institutions receiving financial subsidies in other provinces shall lower their rating in bidding or purchasing process. If medical production and operation enterprises are listed into the Adverse Records of Commercial Briberies twice or more times in five years, their production may not be purchased by public medical institutions, and medical and health institutions receiving financial subsidies nationwide in two years from public of the record. As advised by our PRC legal advisor, from a PRC law perspective, a pharmaceutical company will not be penalized by the relevant PRC government authorities merely by virtue of having contractual relationships with distributors or third-party promoters who are engaged in bribery activities, so long as such pharmaceutical company and its employees are not utilizing the distributors or third-party promoters for the implementation of, or acting in conjunction with them in, the prohibited bribery activities. In addition, a pharmaceutical company is under no legal obligation to monitor the operating activities of its distributors and third-party promoters, and will not be subject to penalties or sanctions by relevant PRC government authorities as a result of failure to monitor their operating activities. In addition to the strict new drug approval process, certain PRC laws have been promulgated to protect the rights of consumers and to strengthen the control of medical products in the PRC. Under current PRC law, manufacturers and vendors of defective products in the PRC may incur liability for loss and injury caused by such products. Pursuant to the Civil Code of the PRC, or the PRC Civil Code, promulgated on May 28, 2020 and effective on January 1, 2021, a defective product which causes property damage or physical injury to any person may subject the manufacturer or vendor of such product to civil liability for such damage or injury. On February 22, 1993, the Product Quality Law of the PRC, or the Product Quality Law, was promulgated aiming to define responsibilities for product quality, to protect the legitimate rights and interests of the end-users and consumers and to strengthen the supervision and control of the quality of products. The Product Quality Law was amended by the Ninth National People’s Congress on July 8, 2000 and was later amended by the Eleventh National People’s Congress on August 27, 2009 and the Thirteenth National People’s Congress on December 29, 2018. Pursuant to the amended Product Quality Law, manufacturers who produce defective products may be subject to civil or criminal liability and have their business licenses revoked. The Law of the PRC on the Protection of the Rights and Interests of Consumers was promulgated on October 13, 1993 and was amended on October 25, 2013 to protect consumers’ rights when they purchase or use goods and accept services. All business operators must comply with this law when they manufacture or sell goods and/or provide services to customers. Under the amendment on October 25, 2013, all business operators shall pay high attention to protect the customers’ privacy which they obtain during the business operation. In addition, in extreme situations, pharmaceutical product manufacturers and operators may be subject to criminal liabilities under applicable laws of the PRC if their goods or services lead to the death or injuries of customers or other third parties. Pursuant to the PRC Civil Code, if damages to other persons are caused by defective products that are resulted from the fault of a third party such as the parties providing transportation or warehousing, the producers and the sellers of the products have the right to recover their respective losses from such third parties. If defective products are identified after they have been put into circulation, the producers or the sellers shall take remedial measures such as issuance of warning, and recall of products, etc. in a timely manner. The producers or the sellers shall be liable under tort if they cause damages due to their failure to take remedial measures in a timely manner or have not made efforts to take remedial measures, thus causing damages. If the products are produced and sold with known defects, causing deaths or severe damage to the health of others, the infringed party shall have the right to claim respective punitive damages in addition to compensatory damages. 154 155 Other Healthcare Laws Commercial Bribery Other PRC Healthcare Laws Advertising of Pharmaceutical Products In accordance with the Interim Administrative Measures for the Censorship of Advertisements for Drugs, Medical Devices, Health Food and Formula Food for Special Medical Purposes effective from March 1, 2020, the State Administration for Market Regulation is responsible for organizing and guiding the censorship of advertisements for drugs, medical devices, health foods and formula foods for special medical purposes. Any advertisement for drugs, medical devices, health food or formula food for special medical purposes shall indicate the advertisement approval number in a prominent position. The validity period of the advertisement approval number for drugs, medical devices, health food and formula food for special medical purposes shall be consistent with the shortest period of validity of the product registration certificate, record-filing certificate, or production license. Where no period of validity is prescribed in the product registration certificate, record-filing certificate or production license, the period of validity of the advertisement approval number shall be two years. Packaging of Pharmaceutical Products According to the Measures for The Administration of Pharmaceutical Packaging, effective on September 1, 1988, pharmaceutical packaging must comply with the provisions of the national standard and professional standard. If there are no standards, the enterprise can formulate its own standard after obtaining the approval of the provincial level drug administration or bureau of standards. The enterprise shall reapply to the relevant authorities if it needs to change the packaging standard. Drugs without packing must not be sold in PRC (except for drugs needed by the army). Labor Protection Under the Labor Law of the PRC, effective on January 1, 1995 and subsequently amended on August 27, 2009 and December 29, 2018, the Labor Contract Law of the PRC, effective on January 1, 2008 and subsequently amended on December 28, 2012, and the Implementing Regulations of the Labor Contract Law of the PRC, effective on September 18, 2008, employers must establish a comprehensive management system to protect the rights of their employees, including a system governing occupational health and safety to provide employees with occupational training to prevent occupational injury, and employers are required to truthfully inform prospective employees of the job description, working conditions, location, occupational hazards and status of safe production as well as remuneration and other conditions as requested by the Labor Contract Law of the PRC. Pursuant to the Law of Manufacturing Safety of the People’s Republic of China effective on November 1, 2002 and subsequently amended on December 1, 2014 and September 1, 2021, manufacturers must establish a comprehensive management system to ensure manufacturing safety in accordance with applicable laws and regulations. Manufacturers not meeting relevant legal requirements are not permitted to commence their manufacturing activities. Pursuant to the Administrative Measures for Production effective on March 1, 2011, manufacturers of pharmaceutical products are required to establish production safety and labor protection measures in connection with the operation of their manufacturing equipment and manufacturing process. Pursuant to applicable PRC laws, rules and regulations, including the Social Insurance Law which became effective on July 1, 2011 and subsequently amended on December 29, 2018, the Interim Regulations on the Collection and Payment of Social Security Funds which became effective on January 22, 1999 and subsequently amended on March 24, 2019, the Interim Measures concerning the Maternity Insurance which became effective on January 1, 1995 and the Regulations on Work-related Injury Insurance which became effective on January 1, 2004 and were subsequently amended on December 20, 2010, employers are required to contribute, on behalf of their employees, to a number of social security funds, including funds for basic pension insurance, unemployment insurance, basic medical insurance, work-related injury insurance, and maternity insurance. If an employer fails to make social insurance contributions timely and in full, the social insurance collecting authority will order the employer to make up outstanding contributions within the prescribed time period and impose a late payment fee at the rate of 0.05% per day from the date on which the contribution becomes due. If such employer fails to make social insurance registration, the social insurance collecting authority will order the employer to correct within the prescribed time period. The relevant administrative department may impose a fine equivalent to three times the overdue amount and management personnel who are directly responsible can be fined RMB500 ($76.43) to RMB3,000 ($458.02) if the employer fails to correct within the prescribed time period. Medical production and operation enterprises involved in criminal, investigation or administrative procedure for commercial bribery will be listed in the Adverse Records of Commercial Briberies by provincial health and family planning administrative department. Pursuant to the Provisions on the Establishment of Adverse Records of Commercial Briberies in the Medicine Purchase and Sales Industry issued by the National Health and Family Planning Commission and effective on March 1, 2014, if medical production and operation enterprises are listed into the Adverse Records of Commercial Briberies for the first time, their production shall not be purchased by public medical institutions, and medical and health institutions receiving financial subsidies in local provincial regions for a period of two years following the publication of the Adverse Records, and public medical institutions, and medical and health institutions receiving financial subsidies in other provinces shall lower their rating in bidding or purchasing process. If medical production and operation enterprises are listed into the Adverse Records of Commercial Briberies twice or more times in five years, their production may not be purchased by public medical institutions, and medical and health institutions receiving financial subsidies nationwide in two years from public of the record. As advised by our PRC legal advisor, from a PRC law perspective, a pharmaceutical company will not be penalized by the relevant PRC government authorities merely by virtue of having contractual relationships with distributors or third-party promoters who are engaged in bribery activities, so long as such pharmaceutical company and its employees are not utilizing the distributors or third-party promoters for the implementation of, or acting in conjunction with them in, the prohibited bribery activities. In addition, a pharmaceutical company is under no legal obligation to monitor the operating activities of its distributors and third-party promoters, and will not be subject to penalties or sanctions by relevant PRC government authorities as a result of failure to monitor their operating activities. Product Liability In addition to the strict new drug approval process, certain PRC laws have been promulgated to protect the rights of consumers and to strengthen the control of medical products in the PRC. Under current PRC law, manufacturers and vendors of defective products in the PRC may incur liability for loss and injury caused by such products. Pursuant to the Civil Code of the PRC, or the PRC Civil Code, promulgated on May 28, 2020 and effective on January 1, 2021, a defective product which causes property damage or physical injury to any person may subject the manufacturer or vendor of such product to civil liability for such damage or injury. On February 22, 1993, the Product Quality Law of the PRC, or the Product Quality Law, was promulgated aiming to define responsibilities for product quality, to protect the legitimate rights and interests of the end-users and consumers and to strengthen the supervision and control of the quality of products. The Product Quality Law was amended by the Ninth National People’s Congress on July 8, 2000 and was later amended by the Eleventh National People’s Congress on August 27, 2009 and the Thirteenth National People’s Congress on December 29, 2018. Pursuant to the amended Product Quality Law, manufacturers who produce defective products may be subject to civil or criminal liability and have their business licenses revoked. The Law of the PRC on the Protection of the Rights and Interests of Consumers was promulgated on October 13, 1993 and was amended on October 25, 2013 to protect consumers’ rights when they purchase or use goods and accept services. All business operators must comply with this law when they manufacture or sell goods and/or provide services to customers. Under the amendment on October 25, 2013, all business operators shall pay high attention to protect the customers’ privacy which they obtain during the business operation. In addition, in extreme situations, pharmaceutical product manufacturers and operators may be subject to criminal liabilities under applicable laws of the PRC if their goods or services lead to the death or injuries of customers or other third parties. Pursuant to the PRC Civil Code, if damages to other persons are caused by defective products that are resulted from the fault of a third party such as the parties providing transportation or warehousing, the producers and the sellers of the products have the right to recover their respective losses from such third parties. If defective products are identified after they have been put into circulation, the producers or the sellers shall take remedial measures such as issuance of warning, and recall of products, etc. in a timely manner. The producers or the sellers shall be liable under tort if they cause damages due to their failure to take remedial measures in a timely manner or have not made efforts to take remedial measures, thus causing damages. If the products are produced and sold with known defects, causing deaths or severe damage to the health of others, the infringed party shall have the right to claim respective punitive damages in addition to compensatory damages. 154 155 Other PRC National and Provincial-Level Laws and Regulations We are subject to changing regulations under many other laws and regulations administered by governmental authorities at the national, provincial and municipal levels, some of which are or may become applicable to our business. Our hospital customers are also subject to a wide variety of laws and regulations that could affect the nature and scope of their relationships with us. For example, regulations control the confidentiality of patients’ medical information and the circumstances under which patient medical information may be released for inclusion in our databases, or released by us to third parties. These laws and regulations governing both the disclosure and the use of confidential patient medical information may become more restrictive in the future. Payments to Physicians The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, also created new federal criminal statutes that prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. We also comply with numerous additional state and local laws relating to matters such as safe working conditions, manufacturing practices, environmental protection and fire hazard control. We believe that we are currently in compliance with these laws and regulations; however, we may be required to incur significant costs to comply with these laws and regulations in the future. Unanticipated changes in existing regulatory requirements or adoption of new requirements could therefore have a material adverse effect on our business, results of operations and financial condition. Other U.S. Healthcare Laws We may also be subject to healthcare regulation and enforcement by the U.S. federal government and the states where we may market our drug candidates, if approved. These laws include, without limitation, state and federal anti-kickback, fraud and abuse, false claims, privacy and security and physician sunshine laws and regulations. Anti-Kickback Statute The federal Anti-Kickback Statute prohibits, among other things, any person from knowingly and willfully offering, soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual, for an item or service, or the purchase or order of a good or service, for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs. The majority of states also have anti-kickback laws, which establish similar prohibitions and in some cases may apply to items or services reimbursed by any third-party payor, including commercial insurers. The Anti-Kickback Statute is subject to evolving interpretations. In the past, the government has enforced the Anti-Kickback Statute to reach large settlements with healthcare, pharmaceutical, and biotechnology companies based on a range of financial arrangements with physicians and other healthcare industry entities. A person or entity does not need to have actual knowledge of the Anti-Kickback Statute or specific intent to violate it in order to have committed a violation. Violations of the Anti-Kickback Statute can result in criminal, civil, or administrative liability. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for the purposes of the federal False Claims Act. False Claims Additionally, the civil False Claims Act prohibits knowingly presenting or causing the presentation of a false, fictitious or fraudulent claim for payment to the U.S. government. Actions under the False Claims Act may be brought by the U.S. Attorney General or as a qui tam action by a private individual in the name of the government. Analogous state law equivalents may apply and may be broader in scope than the federal requirements. Violations of the False Claims Act can result in very significant monetary penalties and treble damages. The federal government is using the False Claims Act, and the accompanying threat of significant liability, in its investigation and prosecution of pharmaceutical and biotechnology companies throughout the United States, for example, in connection with the violations of the Anti-Kickback Statute, the promotion of products for unapproved uses and other sales and marketing practices. The government has obtained multi-million and multi-billion dollar settlements under the False Claims Act in addition to individual criminal convictions and corporate resolutions under applicable criminal statutes. Given the significant size of actual and potential settlements, it is expected that the government will continue to devote substantial resources to investigating healthcare providers’ and manufacturers’ compliance with applicable fraud and abuse laws. There has also been a recent trend of increased federal and state regulation of payments made to physicians and other healthcare providers. The Affordable Care Act, among other things, imposes new reporting requirements on drug manufacturers for payments made by them to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Failure to submit required information may result in civil monetary penalties of up to an aggregate of $150,000 per year (or up to an aggregate of $1 million per year for “knowing failures”), for all payments, transfers of value or ownership or investment interests that are not timely, accurately and completely reported in an annual submission. Drug manufacturers were required to begin collecting data on August 1, 2013 and submit reports to the government by March 31, 2014 and June 30, 2014, and the 90th day of each subsequent calendar year. Certain states also mandate implementation of compliance programs, impose restrictions on drug manufacturer marketing practices and/or require the tracking and reporting of gifts, compensation and other remuneration to physicians. The federal government has begun to impose penalties on companies that fail to appropriately report required information. Data Privacy and Security We may also be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information Technology and Clinical Health Act, or HITECH, and their respective implementing regulations, including the final omnibus rule published on January 25, 2013, imposes specified requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to “business associates,” defined as independent contractors or agents of covered entities that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of personal health information in certain circumstances, many of which differ from each other in significant ways, thus complicating compliance efforts. PRC Regulation of Foreign Currency Exchange, Offshore Investment and State-Owned Assets PRC Foreign Currency Exchange Foreign currency exchange regulation in China is primarily governed by the following rules: • Foreign Currency Administration Rules (1996), as last amended on August 5, 2008, or the Exchange Rules; and • Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules. Under the Exchange Rules, the renminbi is convertible for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions. Conversion of renminbi for capital account items, such as direct investment, loan, security investment and repatriation of investment, however, is still subject to the SAFE’s scrutiny. Under the Administration Rules, foreign-invested enterprises may only buy, sell and/or remit foreign currencies at those banks authorized to conduct foreign exchange business after providing valid commercial documents and, in the case of capital account item transactions, obtaining approval from the SAFE. Capital investments by foreign-invested enterprises outside of China are also subject to limitations, which include approvals by the MOFCOM, the SAFE and the NDRC. 156 157 Other PRC National and Provincial-Level Laws and Regulations We are subject to changing regulations under many other laws and regulations administered by governmental authorities at the national, provincial and municipal levels, some of which are or may become applicable to our business. Our hospital customers are also subject to a wide variety of laws and regulations that could affect the nature and scope of their relationships with us. For example, regulations control the confidentiality of patients’ medical information and the circumstances under which patient medical information may be released for inclusion in our databases, or released by us to third parties. These laws and regulations governing both the disclosure and the use of confidential patient medical information may become more restrictive in the future. We also comply with numerous additional state and local laws relating to matters such as safe working conditions, manufacturing practices, environmental protection and fire hazard control. We believe that we are currently in compliance with these laws and regulations; however, we may be required to incur significant costs to comply with these laws and regulations in the future. Unanticipated changes in existing regulatory requirements or adoption of new requirements could therefore have a material adverse effect on our business, results of operations and financial condition. Other U.S. Healthcare Laws We may also be subject to healthcare regulation and enforcement by the U.S. federal government and the states where we may market our drug candidates, if approved. These laws include, without limitation, state and federal anti-kickback, fraud and abuse, false claims, privacy and security and physician sunshine laws and regulations. Anti-Kickback Statute The federal Anti-Kickback Statute prohibits, among other things, any person from knowingly and willfully offering, soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual, for an item or service, or the purchase or order of a good or service, for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs. The majority of states also have anti-kickback laws, which establish similar prohibitions and in some cases may apply to items or services reimbursed by any third-party payor, including commercial insurers. The Anti-Kickback Statute is subject to evolving interpretations. In the past, the government has enforced the Anti-Kickback Statute to reach large settlements with healthcare, pharmaceutical, and biotechnology companies based on a range of financial arrangements with physicians and other healthcare industry entities. A person or entity does not need to have actual knowledge of the Anti-Kickback Statute or specific intent to violate it in order to have committed a violation. Violations of the Anti-Kickback Statute can result in criminal, civil, or administrative liability. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for the purposes of the federal False Claims Act. False Claims Additionally, the civil False Claims Act prohibits knowingly presenting or causing the presentation of a false, fictitious or fraudulent claim for payment to the U.S. government. Actions under the False Claims Act may be brought by the U.S. Attorney General or as a qui tam action by a private individual in the name of the government. Analogous state law equivalents may apply and may be broader in scope than the federal requirements. Violations of the False Claims Act can result in very significant monetary penalties and treble damages. The federal government is using the False Claims Act, and the accompanying threat of significant liability, in its investigation and prosecution of pharmaceutical and biotechnology companies throughout the United States, for example, in connection with the violations of the Anti-Kickback Statute, the promotion of products for unapproved uses and other sales and marketing practices. The government has obtained multi-million and multi-billion dollar settlements under the False Claims Act in addition to individual criminal convictions and corporate resolutions under applicable criminal statutes. Given the significant size of actual and potential settlements, it is expected that the government will continue to devote substantial resources to investigating healthcare providers’ and manufacturers’ compliance with applicable fraud and abuse laws. The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, also created new federal criminal statutes that prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. Payments to Physicians There has also been a recent trend of increased federal and state regulation of payments made to physicians and other healthcare providers. The Affordable Care Act, among other things, imposes new reporting requirements on drug manufacturers for payments made by them to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Failure to submit required information may result in civil monetary penalties of up to an aggregate of $150,000 per year (or up to an aggregate of $1 million per year for “knowing failures”), for all payments, transfers of value or ownership or investment interests that are not timely, accurately and completely reported in an annual submission. Drug manufacturers were required to begin collecting data on August 1, 2013 and submit reports to the government by March 31, 2014 and June 30, 2014, and the 90th day of each subsequent calendar year. Certain states also mandate implementation of compliance programs, impose restrictions on drug manufacturer marketing practices and/or require the tracking and reporting of gifts, compensation and other remuneration to physicians. The federal government has begun to impose penalties on companies that fail to appropriately report required information. Data Privacy and Security We may also be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information Technology and Clinical Health Act, or HITECH, and their respective implementing regulations, including the final omnibus rule published on January 25, 2013, imposes specified requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to “business associates,” defined as independent contractors or agents of covered entities that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of personal health information in certain circumstances, many of which differ from each other in significant ways, thus complicating compliance efforts. PRC Regulation of Foreign Currency Exchange, Offshore Investment and State-Owned Assets PRC Foreign Currency Exchange Foreign currency exchange regulation in China is primarily governed by the following rules: • Foreign Currency Administration Rules (1996), as last amended on August 5, 2008, or the Exchange Rules; and • Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules. Under the Exchange Rules, the renminbi is convertible for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions. Conversion of renminbi for capital account items, such as direct investment, loan, security investment and repatriation of investment, however, is still subject to the SAFE’s scrutiny. Under the Administration Rules, foreign-invested enterprises may only buy, sell and/or remit foreign currencies at those banks authorized to conduct foreign exchange business after providing valid commercial documents and, in the case of capital account item transactions, obtaining approval from the SAFE. Capital investments by foreign-invested enterprises outside of China are also subject to limitations, which include approvals by the MOFCOM, the SAFE and the NDRC. 156 157 Pursuant to the Circular on Further Improving and Adjusting the Direct Investment Foreign Exchange Administration Policies, or Circular 59, promulgated by the SAFE on November 19, 2012, effective on December 17, 2012, and amended in 2015, 2018 and 2019, approval is not required for the opening of and payment into foreign exchange accounts under direct investment, for domestic reinvestment with legal income of foreign investors in China. Circular 59 also simplified the capital verification and confirmation formalities for Chinese foreign-invested enterprises and the foreign capital and foreign exchange registration formalities required for the foreign investors to acquire the equities of Chinese party and other items. Circular 59 further improved the administration on exchange settlement of foreign exchange capital of Chinese foreign-invested enterprises. Foreign Exchange Registration of Offshore Investment by PRC Residents In July 2014, the SAFE issued the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents to Engage in Offshore Investment and Financing and Round Trip Investment via Special Purpose Vehicles, or Circular 37, and its implementation guidelines, which abolishes and supersedes the SAFE’s Circular on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents to Engage in Financing and Round Trip Investment via Overseas Special Purpose Vehicles, or Circular 75. Pursuant to Circular 37 and its implementation guidelines, PRC residents (including PRC institutions and individuals) must register with local branches of the SAFE in connection with their direct or indirect offshore investment in an overseas special purpose vehicle, or SPV, directly established or indirectly controlled by PRC residents for the purposes of offshore investment and financing with their legally owned assets or interests in domestic enterprises, or their legally owned offshore assets or interests. Such PRC residents are also required to amend their registrations with the SAFE when there is a significant change to the SPV, such as changes of the PRC individual resident’s increase or decrease of its capital contribution in the SPV, or any share transfer or exchange, merger, division of the SPV. Failure to comply with the registration procedures set forth in Circular 37 may result in restrictions being imposed on the foreign exchange activities of the relevant onshore company, including the payment of dividends and other distributions to its offshore parent or affiliate, the capital inflow from the offshore entities and settlement of foreign exchange capital, and may also subject relevant onshore company or PRC residents to penalties under PRC foreign exchange administration regulations. In February 2012, the SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plans of Overseas Publicly Listed Companies. Based on this regulation, directors, supervisors, senior management and other employees of domestic subsidiaries or branches of a company listed on an overseas stock market who are PRC citizens or who are non-PRC citizens residing in China for a continuous period of not less than one year, subject to a few exceptions, are required to register with the SAFE or its local counterparts by following certain procedures if they participate in any stock incentive plan of the company listed on an overseas stock market. Foreign exchange income received from the sale of shares or dividends distributed by the overseas listed company may be remitted into a foreign currency account of such PRC citizen or be exchanged into renminbi. Our PRC citizen employees who have been granted share options have been subject to these rules due to our admission to trading on the AIM market and the listing of our ADSs on Nasdaq. Regulation on Investment in Foreign-invested Enterprises Pursuant to PRC law, the registered capital of a limited liability company is the total capital contributions subscribed for by all the shareholders as registered with the company registration authority. A foreign-invested enterprise’s total investment limit was previously approved by or filed with the MOFCOM or its local counterpart by reference to both its registered capital and expected investment scale. A foreign-invested enterprise was required to obtain approval from or file with the MOFCOM or its local counterpart for any increases to its total investment limit. During 2019 and 2020, a series of reforms concerning foreign-invested enterprises came into effect, including but not limited to the Foreign Investment Law of the PRC, effective January 1, 2020; the Implementation Rules for the Foreign Investment Law, effective January 1, 2020, and Measures on Reporting of Foreign Investment Information, effective January 1, 2020. The reformed rules do not require foreign-invested enterprises to complete the abovementioned filing or approval with the MOFCOM in relation to total investment limits; rather, pursuant to Measures on Reporting of Foreign Investment Information, during enterprise incorporation and subsequent changes in commercial registration, foreign investors and foreign-invested enterprises (as applicable) shall submit investment information to the MOFCOM or its local counterpart. The difference between the total investment limit and the registered capital of a foreign-invested enterprise or the cross-border financing risk weighted balance calculated based on a formula by the PBOC represents the foreign debt financing quota to which the foreign-invested enterprise is entitled (i.e., the maximum amount of debt which the company may borrow from a foreign lender). In accordance with these regulations, we and our joint venture partners have contributed financing to our PRC subsidiaries and joint ventures in the form of capital contributions up to the registered capital amount and/or in the form of shareholder loans up to the foreign debt quota. According to the financing needs of our PRC subsidiaries and joint ventures, we and our joint venture partners have requested and received approvals (where necessary) from the government authorities for increases to the total investment limit for certain of our PRC subsidiaries and joint ventures from time to time. As a result, these regulations have not had a material impact to date on our ability to finance such entities. Regulation on Dividend Distribution The principal regulations governing distribution of dividends paid by wholly foreign-owned enterprises include: • Company Law of the PRC (1993), as amended in 1999, 2004, 2005, 2013 and 2018; • Foreign Investment Law of the PRC; and • Implementation Rules for the Foreign Investment Law. • Under these laws and regulations, foreign-invested enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise in China is required to set aside at least 10.0% of its after-tax profit based on PRC accounting standards each year to its general reserves until the accumulative amount of such reserves reach 50.0% of its registered capital. These reserves are not distributable as cash dividends. The board of directors of a foreign-invested enterprise has the discretion to allocate a portion of its after-tax profits to staff welfare and bonus funds, which may not be distributed to equity owners except in the event of liquidation. Filings and Approvals Relating to State-Owned Assets Pursuant to applicable PRC state-owned assets administration laws and regulations, incorporating a joint venture that will have investments of assets that are both state-owned and non-state-owned, investing in an entity that was previously owned by a state-owned enterprise and restructuring an enterprise ultimately owned by the general public require the performance of an assessment of the relevant state-owned assets and the filing of the assessment results with the competent state-owned assets administration, finance authorities or other regulatory authorities and, if applicable, the receipt of approvals from such authorities. Our joint venture partners were required to perform a state-owned asset assessment when Shanghai Hutchison Pharmaceuticals and Hutchison Baiyunshan were incorporated and our joint venture partners contributed state-owned assets, and when we invested in Hutchison Sinopharm, which was previously wholly-owned by Sinopharm, a state-owned enterprise. In addition, Hutchison Sinopharm was required to perform a state-owned asset assessment when Hutchison Sinopharm restructured from an enterprise ultimately owned by the general public into a limited liability enterprise. In all four instances, our joint venture partners have informed us that they or Hutchison Sinopharm have duly filed the relevant state-owned asset assessment results with, and obtained the requisite approvals from, the relevant governmental authorities as required by the foregoing laws and regulations. Accordingly, we believe that such joint ventures are in full compliance with all applicable laws and regulations governing the administration and restructuring of state-owned assets, although we are currently unable to obtain copies of certain filing and approval documents from our joint venture partners due to their internal confidentiality constraints. We have not received any notice of warning or been subject to any penalty or other disciplinary action from the relevant governmental authorities with respect to the applicable laws and regulations governing the administration and restructuring of state-owned assets. 158 159 Pursuant to the Circular on Further Improving and Adjusting the Direct Investment Foreign Exchange Administration Policies, or Circular 59, promulgated by the SAFE on November 19, 2012, effective on December 17, 2012, and amended in 2015, 2018 and 2019, approval is not required for the opening of and payment into foreign exchange accounts under direct investment, for domestic reinvestment with legal income of foreign investors in China. Circular 59 also simplified the capital verification and confirmation formalities for Chinese foreign-invested enterprises and the foreign capital and foreign exchange registration formalities required for the foreign investors to acquire the equities of Chinese party and other items. Circular 59 further improved the administration on exchange settlement of foreign exchange capital of Chinese foreign-invested enterprises. Foreign Exchange Registration of Offshore Investment by PRC Residents In July 2014, the SAFE issued the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents to Engage in Offshore Investment and Financing and Round Trip Investment via Special Purpose Vehicles, or Circular 37, and its implementation guidelines, which abolishes and supersedes the SAFE’s Circular on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents to Engage in Financing and Round Trip Investment via Overseas Special Purpose Vehicles, or Circular 75. Pursuant to Circular 37 and its implementation guidelines, PRC residents (including PRC institutions and individuals) must register with local branches of the SAFE in connection with their direct or indirect offshore investment in an overseas special purpose vehicle, or SPV, directly established or indirectly controlled by PRC residents for the purposes of offshore investment and financing with their legally owned assets or interests in domestic enterprises, or their legally owned offshore assets or interests. Such PRC residents are also required to amend their registrations with the SAFE when there is a significant change to the SPV, such as changes of the PRC individual resident’s increase or decrease of its capital contribution in the SPV, or any share transfer or exchange, merger, division of the SPV. Failure to comply with the registration procedures set forth in Circular 37 may result in restrictions being imposed on the foreign exchange activities of the relevant onshore company, including the payment of dividends and other distributions to its offshore parent or affiliate, the capital inflow from the offshore entities and settlement of foreign exchange capital, and may also subject relevant onshore company or PRC residents to penalties under PRC foreign exchange administration regulations. In February 2012, the SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plans of Overseas Publicly Listed Companies. Based on this regulation, directors, supervisors, senior management and other employees of domestic subsidiaries or branches of a company listed on an overseas stock market who are PRC citizens or who are non-PRC citizens residing in China for a continuous period of not less than one year, subject to a few exceptions, are required to register with the SAFE or its local counterparts by following certain procedures if they participate in any stock incentive plan of the company listed on an overseas stock market. Foreign exchange income received from the sale of shares or dividends distributed by the overseas listed company may be remitted into a foreign currency account of such PRC citizen or be exchanged into renminbi. Our PRC citizen employees who have been granted share options have been subject to these rules due to our admission to trading on the AIM market and the listing of our ADSs on Nasdaq. Regulation on Investment in Foreign-invested Enterprises Pursuant to PRC law, the registered capital of a limited liability company is the total capital contributions subscribed for by all the shareholders as registered with the company registration authority. A foreign-invested enterprise’s total investment limit was previously approved by or filed with the MOFCOM or its local counterpart by reference to both its registered capital and expected investment scale. A foreign-invested enterprise was required to obtain approval from or file with the MOFCOM or its local counterpart for any increases to its total investment limit. During 2019 and 2020, a series of reforms concerning foreign-invested enterprises came into effect, including but not limited to the Foreign Investment Law of the PRC, effective January 1, 2020; the Implementation Rules for the Foreign Investment Law, effective January 1, 2020, and Measures on Reporting of Foreign Investment Information, effective January 1, 2020. The reformed rules do not require foreign-invested enterprises to complete the abovementioned filing or approval with the MOFCOM in relation to total investment limits; rather, pursuant to Measures on Reporting of Foreign Investment Information, during enterprise incorporation and subsequent changes in commercial registration, foreign investors and foreign-invested enterprises (as applicable) shall submit investment information to the MOFCOM or its local counterpart. The difference between the total investment limit and the registered capital of a foreign-invested enterprise or the cross-border financing risk weighted balance calculated based on a formula by the PBOC represents the foreign debt financing quota to which the foreign-invested enterprise is entitled (i.e., the maximum amount of debt which the company may borrow from a foreign lender). In accordance with these regulations, we and our joint venture partners have contributed financing to our PRC subsidiaries and joint ventures in the form of capital contributions up to the registered capital amount and/or in the form of shareholder loans up to the foreign debt quota. According to the financing needs of our PRC subsidiaries and joint ventures, we and our joint venture partners have requested and received approvals (where necessary) from the government authorities for increases to the total investment limit for certain of our PRC subsidiaries and joint ventures from time to time. As a result, these regulations have not had a material impact to date on our ability to finance such entities. Regulation on Dividend Distribution The principal regulations governing distribution of dividends paid by wholly foreign-owned enterprises include: • Company Law of the PRC (1993), as amended in 1999, 2004, 2005, 2013 and 2018; • Foreign Investment Law of the PRC; and • Implementation Rules for the Foreign Investment Law. • Under these laws and regulations, foreign-invested enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise in China is required to set aside at least 10.0% of its after-tax profit based on PRC accounting standards each year to its general reserves until the accumulative amount of such reserves reach 50.0% of its registered capital. These reserves are not distributable as cash dividends. The board of directors of a foreign-invested enterprise has the discretion to allocate a portion of its after-tax profits to staff welfare and bonus funds, which may not be distributed to equity owners except in the event of liquidation. Filings and Approvals Relating to State-Owned Assets Pursuant to applicable PRC state-owned assets administration laws and regulations, incorporating a joint venture that will have investments of assets that are both state-owned and non-state-owned, investing in an entity that was previously owned by a state-owned enterprise and restructuring an enterprise ultimately owned by the general public require the performance of an assessment of the relevant state-owned assets and the filing of the assessment results with the competent state-owned assets administration, finance authorities or other regulatory authorities and, if applicable, the receipt of approvals from such authorities. Our joint venture partners were required to perform a state-owned asset assessment when Shanghai Hutchison Pharmaceuticals and Hutchison Baiyunshan were incorporated and our joint venture partners contributed state-owned assets, and when we invested in Hutchison Sinopharm, which was previously wholly-owned by Sinopharm, a state-owned enterprise. In addition, Hutchison Sinopharm was required to perform a state-owned asset assessment when Hutchison Sinopharm restructured from an enterprise ultimately owned by the general public into a limited liability enterprise. In all four instances, our joint venture partners have informed us that they or Hutchison Sinopharm have duly filed the relevant state-owned asset assessment results with, and obtained the requisite approvals from, the relevant governmental authorities as required by the foregoing laws and regulations. Accordingly, we believe that such joint ventures are in full compliance with all applicable laws and regulations governing the administration and restructuring of state-owned assets, although we are currently unable to obtain copies of certain filing and approval documents from our joint venture partners due to their internal confidentiality constraints. We have not received any notice of warning or been subject to any penalty or other disciplinary action from the relevant governmental authorities with respect to the applicable laws and regulations governing the administration and restructuring of state-owned assets. 158 159 C. Organizational Structure C. Organizational Structure The chart below shows our organizational structure, including our principal subsidiaries and joint ventures, as of January 31, 2023. The chart below shows our organizational structure, including our principal subsidiaries and joint ventures, as of January 31, 2023. Public Shareholders CK Hutchison Holdings Limited Directors 59.4% 38.5% 2.1% The Company (Cayman Islands) staff. We also lease a 26,989 square foot facility in Florham Park, New Jersey where we house our U.S.-based clinical and regulatory Oncology / Immunology Other Ventures(3) 99.8%(1) 100.0%(2) 50.0%(4) HUTCHMED Holdings Limited (Cayman Islands) HUTCHMED Limited (PRC) 100.0% 100.0% 100.0% HUTCHMED International Corporation (Delaware, USA) HUTCHMED Holdings (HK) Limited (Hong Kong) HUTCHMED (Suzhou) Limited (PRC) Shanghai Hutchison Pharmaceuticals Limited (PRC) 51.0%(5) Hutchison Whampoa Sinopharm Pharmaceuticals (Shanghai) Company Limited (PRC) Subsidiaries Non-consolidated Entity Notes: Notes: (1) Employees and former employees of HUTCHMED Limited hold the remaining 0.2% shareholding in HUTCHMED Holdings (1) Employees and former employees of HUTCHMED Limited hold the remaining 0.2% shareholding in HUTCHMED Holdings Limited. Limited. (2) Held through HUTCHMED Investment (HK) Limited, a 100.0% subsidiary of HUTCHMED Holdings Limited. HUTCHMED (2) Held through HUTCHMED Investment (HK) Limited, a 100.0% subsidiary of HUTCHMED Holdings Limited. HUTCHMED Limited’s revenue generated by sales of, and royalties, manufacturing costs and services fees in connection with, our current and Limited’s revenue generated by sales of, and royalties, manufacturing costs and services fees in connection with, our current and future internally developed drug candidates are allocated to the Oncology/Immunology operations. future internally developed drug candidates are allocated to the Oncology/Immunology operations. (3) Our Other Ventures also include Hutchison Hain Organic Holdings Limited, a consolidated joint venture with The Hain Celestial (3) Our Other Ventures also include Hutchison Hain Organic Holdings Limited, a consolidated joint venture with The Hain Celestial Group, Inc., which wholly-owns Hutchison Hain Organic (Hong Kong) Limited and Hutchison Hain Organic (Guangzhou) Limited. Group, Inc., which wholly-owns Hutchison Hain Organic (Hong Kong) Limited and Hutchison Hain Organic (Guangzhou) Limited. (4) Held through our 100.0% subsidiary Shanghai HUTCHMED Investment (HK) Limited. Shanghai Pharmaceuticals Holding Co., (4) Held through our 100.0% subsidiary Shanghai HUTCHMED Investment (HK) Limited. Shanghai Pharmaceuticals Holding Co., Limited is the other 50.0% joint venture partner. Limited is the other 50.0% joint venture partner. (5) Sinopharm Group Co. Limited is the other 49.0% joint venture partner. (5) Sinopharm Group Co. Limited is the other 49.0% joint venture partner. D. Property, Plants and Equipment D. Property, Plants and Equipment We are headquartered in Hong Kong where we have our main administrative offices. We are headquartered in Hong Kong where we have our main administrative offices. 160 160 161 We rent and operate a 4,968 square meter manufacturing facility that complies with applicable GMP standards for fruquintinib and surufatinib in Suzhou, Jiangsu Province in Eastern China, and own a 5,024 square meter facility in Shanghai which houses research and development operations. We lease 9,080 square meters of office and lab space in Shanghai which houses HUTCHMED Limited’s management and staff. In 2020, we entered into a 50-year land use rights agreement for a 28,771 square meter site in Shanghai. We have commenced construction of an almost 55,000 square meter large-scale manufacturing facility for innovative drugs on the site. The construction and qualification of the Shanghai facility is expected to be completed in mid-2023 and technology transfer will start for some projects into the facility in late 2023. The Shanghai factory will be our largest manufacturing facility, with a production capacity estimated to be five times that of our facility in Suzhou. The first phase will be primarily for small molecule production, with an expected production capacity of 250 million tablets and capsules per years. Our non-consolidated joint venture, Shanghai Hutchison Pharmaceuticals, operates a 78,000 square meter large-scale research and development and manufacturing facility in Shanghai for which it has obtained land use rights and property ownership certificates. Our and our joint ventures’ manufacturing operations consist of bulk manufacturing and formulation, fill, and finishing activities that produce products and drug candidates for both clinical and commercial purposes. Our manufacturing capabilities have a large operation scale for our own-brand products. We and our joint ventures manufacture and sell about 2.8 billion doses of medicines a year, in the aggregate, through our well-established manufacturing base. See “—Other Ventures—Shanghai Hutchison Pharmaceuticals” for more details on our manufacturing operations. ITEM 4A. UNRESOLVED STAFF COMMENTS None. ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS You should read the following discussion and analysis of our financial condition and results of operations together with Item 3.A. “Selected Financial Data,” our consolidated financial statements and the related notes and our non-consolidated joint ventures’ consolidated financial statements and the related notes appearing elsewhere in this annual report. This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Exchange Act, including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words “expect,” “anticipate,” “intend,” “believe,” or similar language. All forward-looking statements included in this annual report are based on information available to us on the date hereof, and we assume no obligation to update any such forward- looking statements. In evaluating our business, you should carefully consider the information provided under Item 3.D. “Risk Factors.” Actual results could differ materially from those projected in the forward-looking statements. A. Operating Results. Overview We are a global commercial-stage biopharmaceutical company focused on the discovery, development and commercialization of targeted therapies and immunotherapies for the treatment of patients with cancer and immunological diseases. We conduct our business through our Oncology/Immunology and Other Ventures operations. C. Organizational Structure C. Organizational Structure The chart below shows our organizational structure, including our principal subsidiaries and joint ventures, as of January 31, 2023. The chart below shows our organizational structure, including our principal subsidiaries and joint ventures, as of January 31, 2023. Notes: Notes: Limited. Limited. (1) Employees and former employees of HUTCHMED Limited hold the remaining 0.2% shareholding in HUTCHMED Holdings (1) Employees and former employees of HUTCHMED Limited hold the remaining 0.2% shareholding in HUTCHMED Holdings (2) Held through HUTCHMED Investment (HK) Limited, a 100.0% subsidiary of HUTCHMED Holdings Limited. HUTCHMED (2) Held through HUTCHMED Investment (HK) Limited, a 100.0% subsidiary of HUTCHMED Holdings Limited. HUTCHMED Limited’s revenue generated by sales of, and royalties, manufacturing costs and services fees in connection with, our current and Limited’s revenue generated by sales of, and royalties, manufacturing costs and services fees in connection with, our current and future internally developed drug candidates are allocated to the Oncology/Immunology operations. future internally developed drug candidates are allocated to the Oncology/Immunology operations. (3) Our Other Ventures also include Hutchison Hain Organic Holdings Limited, a consolidated joint venture with The Hain Celestial (3) Our Other Ventures also include Hutchison Hain Organic Holdings Limited, a consolidated joint venture with The Hain Celestial Group, Inc., which wholly-owns Hutchison Hain Organic (Hong Kong) Limited and Hutchison Hain Organic (Guangzhou) Limited. Group, Inc., which wholly-owns Hutchison Hain Organic (Hong Kong) Limited and Hutchison Hain Organic (Guangzhou) Limited. (4) Held through our 100.0% subsidiary Shanghai HUTCHMED Investment (HK) Limited. Shanghai Pharmaceuticals Holding Co., (4) Held through our 100.0% subsidiary Shanghai HUTCHMED Investment (HK) Limited. Shanghai Pharmaceuticals Holding Co., Limited is the other 50.0% joint venture partner. Limited is the other 50.0% joint venture partner. (5) Sinopharm Group Co. Limited is the other 49.0% joint venture partner. (5) Sinopharm Group Co. Limited is the other 49.0% joint venture partner. D. Property, Plants and Equipment D. Property, Plants and Equipment We are headquartered in Hong Kong where we have our main administrative offices. We are headquartered in Hong Kong where we have our main administrative offices. We rent and operate a 4,968 square meter manufacturing facility that complies with applicable GMP standards for fruquintinib and surufatinib in Suzhou, Jiangsu Province in Eastern China, and own a 5,024 square meter facility in Shanghai which houses research and development operations. We lease 9,080 square meters of office and lab space in Shanghai which houses HUTCHMED Limited’s management and staff. In 2020, we entered into a 50-year land use rights agreement for a 28,771 square meter site in Shanghai. We have commenced construction of an almost 55,000 square meter large-scale manufacturing facility for innovative drugs on the site. The construction and qualification of the Shanghai facility is expected to be completed in mid-2023 and technology transfer will start for some projects into the facility in late 2023. The Shanghai factory will be our largest manufacturing facility, with a production capacity estimated to be five times that of our facility in Suzhou. The first phase will be primarily for small molecule production, with an expected production capacity of 250 million tablets and capsules per years. We also lease a 26,989 square foot facility in Florham Park, New Jersey where we house our U.S.-based clinical and regulatory staff. Our non-consolidated joint venture, Shanghai Hutchison Pharmaceuticals, operates a 78,000 square meter large-scale research and development and manufacturing facility in Shanghai for which it has obtained land use rights and property ownership certificates. Our and our joint ventures’ manufacturing operations consist of bulk manufacturing and formulation, fill, and finishing activities that produce products and drug candidates for both clinical and commercial purposes. Our manufacturing capabilities have a large operation scale for our own-brand products. We and our joint ventures manufacture and sell about 2.8 billion doses of medicines a year, in the aggregate, through our well-established manufacturing base. See “—Other Ventures—Shanghai Hutchison Pharmaceuticals” for more details on our manufacturing operations. ITEM 4A. UNRESOLVED STAFF COMMENTS None. ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS You should read the following discussion and analysis of our financial condition and results of operations together with Item 3.A. “Selected Financial Data,” our consolidated financial statements and the related notes and our non-consolidated joint ventures’ consolidated financial statements and the related notes appearing elsewhere in this annual report. This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Exchange Act, including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words “expect,” “anticipate,” “intend,” “believe,” or similar language. All forward-looking statements included in this annual report are based on information available to us on the date hereof, and we assume no obligation to update any such forward- looking statements. In evaluating our business, you should carefully consider the information provided under Item 3.D. “Risk Factors.” Actual results could differ materially from those projected in the forward-looking statements. A. Operating Results. Overview We are a global commercial-stage biopharmaceutical company focused on the discovery, development and commercialization of targeted therapies and immunotherapies for the treatment of patients with cancer and immunological diseases. We conduct our business through our Oncology/Immunology and Other Ventures operations. 160 160 161 Through our Oncology/Immunology operations, our team of approximately 960 scientists and staff has created, developed and in- licensed a deep portfolio of 14 drug candidates. We have advanced 14 oncology drug candidates to clinical trials in China, with four also in active clinical development in the United States and Europe. In China, we have brought three of our internally developed drugs, Elunate (fruquintinib), Sulanda (surufatinib) and Orpathys (savolitinib), to patients, have all been approved and launched in China and the fourth, tazemetostat, has been approved and launched in Hainan Pilot Zone and submitted for registration in Hong Kong. All three drugs are also in late-stage development outside of China. We have additional drug candidates in earlier stage clinical development (Phase I/Ib and Phase Ib/II proof-of-concept studies) and several advanced pre-clinical drug candidates. These drug candidates are being developed to treat a wide spectrum of diseases, including solid tumors, hematological malignancies and immunological diseases which we believe may address unmet medical needs and represent large commercial opportunities. Our success in research and development has led to partnerships with leading global pharmaceutical companies, including AstraZeneca and Eli Lilly. We and our collaboration partners have invested over $1,590 million in our Oncology/Immunology operations as of December 31, 2022, with almost all of these funds used for research and development expenses for the development of our drug candidates. Net loss attributable to our company from our Oncology/Immunology operations was $175.5 million, $291.7 million and $385.4 million for the years ended December 31, 2020, 2021 and 2022, respectively. In addition, we have built large-scale and profitable drug marketing and distribution capabilities through subsidiaries and joint ventures in our Other Ventures, which primarily manufacture, market and distribute prescription drugs and consumer health products in China. Net income attributable to our company generated from our Other Ventures operations was $72.8 million, $142.9 million and $54.6 million for the years ended December 31, 2020, 2021 and 2022, respectively. In addition to helping to fund our Oncology/Immunology operations, we utilize the know-how from our Other Ventures to support the launch of our internally developed Oncology/Immunology products in China. Our Other Ventures also include our businesses focused on a range of health-focused consumer products. Our consolidated revenue was $228.0 million, $356.1 million and $426.4 million for the years ended December 31, 2020, 2021 and 2022, respectively. Net loss attributable to our company was $125.7 million, $194.6 million and $360.8 million for the years ended December 31, 2020, 2021 and 2022, respectively. Basis of Presentation Our consolidated statements of operations data presented herein for the years ended December 31, 2022, 2021 and 2020 and our consolidated balance sheet data presented herein as of December 31, 2022 and 2021 have been derived from our audited consolidated financial statements, which were prepared in accordance with U.S. GAAP, and should be read in conjunction with those statements which are included elsewhere in this annual report. We have two strategic operations, Oncology/Immunology and Other Ventures, that offer different products and services. Our Shanghai Hutchison Pharmaceuticals and Hutchison Baiyunshan (until September 28, 2021 when the disposal of our shareholding interest in Hutchison Baiyunshan was completed) joint ventures under our Other Ventures operations are accounted for under the equity accounting method as non-consolidated entities in our consolidated financial statements, and their consolidated financial statements were prepared in accordance with IFRS as issued by the IASB and audited under auditing standards generally accepted in the United States and included elsewhere in this annual report. The presentation of financial data for our business units excludes certain unallocated costs attributed to expenses incurred by our corporate head office. For more information on our corporate structure, see Item 4.A. “History and Development of the Company.” Research and Development Expenses Factors Affecting our Results of Operations We believe our ability to successfully develop innovative drug candidates through our Oncology/Immunology operations will be the primary factor affecting our long-term competitiveness, as well as our future growth and development. Creating high quality global first-in-class or best-in-class drug candidates requires significant investment of resources over a prolonged period of time, and a core part of our strategy is to continue making sustained investments in this area. As a result of this commitment, our pipeline of drug candidates has been steadily advancing and expanding, with 12 in clinical development. In addition, we are proactively making a strategic shift to focus on the most advanced assets from our internal developed pipeline, that are most likely to drive near-term value. For more information on the nature of the efforts and steps necessary to develop our drug candidates, see Item 4.B. “Business Overview—Our Clinical Pipeline” and “Business Overview—Regulations.” The drug candidates of our Oncology/Immunology operations are still in development, and we have incurred and will continue to incur significant research and development costs for pre-clinical studies and clinical trials. We expect that our research and development expenses will significantly increase in future periods in line with the advancement and expansion of the development of our drug candidates. Research and development expenses include: • • • • • employee compensation related expenses, including salaries, benefits and equity compensation expense; expenses incurred for payments to CROs, investigators and clinical trial sites that conduct our clinical studies; the cost of acquiring, developing, and manufacturing clinical study materials; facilities, depreciation, and other expenses, which include office leases and other overhead expenses; and costs associated with pre-clinical activities and regulatory operations. Research and development expenses incurred by our Oncology/Immunology operations totaled $174.8 million, $299.1 million and $386.9 million for the years ended December 31, 2020, 2021 and 2022, respectively, representing approximately 76.7%, 84.0% and 90.7% of our total consolidated revenue for the respective period. These research and development figures do not include payments made by our collaboration partners directly to third parties to help fund the research and development of our drug candidates. We have been able to fund the research and development expenses for our Oncology/Immunology operations via a range of sources, including revenue generated from our commercialized drugs, payments received from our collaboration partners, cash flows generated from and dividend payments from our Other Ventures, the proceeds raised from our initial public offering on the AIM, initial public offering and follow-on offerings on Nasdaq, initial public offering on the SEHK, investments from other third parties and bank This diversified approach to funding allows us to not depend on any one method of funding for our research and development activities, thereby reducing the risk that sufficient financing will be unavailable as we continue to accelerate the development of our borrowings. drug candidates. For more information on the research and development expenses incurred for the development of our drug candidates, see “—Key Components of Results of Operations—Cost of Revenues and Operating Expenses—Research and Development Expenses.” Our Ability to Commercialize Our Drug Candidates Our ability to generate revenue from our drug candidates depends on our ability to successfully complete clinical trials for our drug candidates and obtain regulatory approvals for them in the United States, Europe, China and other major markets. We believe that our globally-facing strategy of focusing on drug development for novel but relatively well-characterized targets and for validated targets, in combination with our development of multiple drug candidates concurrently and testing them for multiple indications and in combinations with other drugs, enhances the likelihood that our research and development efforts will yield successful drug candidates. Nonetheless, we cannot be certain if any of our drug candidates will receive regulatory approvals. Even if such approvals are granted, we will need to thereafter establish manufacturing supply and engage in extensive marketing prior to generating any revenue from such drugs. The effectiveness of our marketing will depend on the efforts of our dedicated oncology team in China and our collaboration partners in the rest of the world. The ultimate commercial success of our drugs will depend on their acceptance by patients, the medical community and third-party payors and their ability to compete effectively with other therapies on the market. To date, fruquintinib, surufatinib and savolitinib have been approved for sale in China. 162 163 Through our Oncology/Immunology operations, our team of approximately 960 scientists and staff has created, developed and in- licensed a deep portfolio of 14 drug candidates. We have advanced 14 oncology drug candidates to clinical trials in China, with four also in active clinical development in the United States and Europe. In China, we have brought three of our internally developed drugs, Elunate (fruquintinib), Sulanda (surufatinib) and Orpathys (savolitinib), to patients, have all been approved and launched in China and the fourth, tazemetostat, has been approved and launched in Hainan Pilot Zone and submitted for registration in Hong Kong. All three drugs are also in late-stage development outside of China. We have additional drug candidates in earlier stage clinical development (Phase I/Ib and Phase Ib/II proof-of-concept studies) and several advanced pre-clinical drug candidates. These drug candidates are being developed to treat a wide spectrum of diseases, including solid tumors, hematological malignancies and immunological diseases which we believe may address unmet medical needs and represent large commercial opportunities. Our success in research and development has led to partnerships with leading global pharmaceutical companies, including AstraZeneca and Eli Lilly. We and our collaboration partners have invested over $1,590 million in our Oncology/Immunology operations as of December 31, 2022, with almost all of these funds used for research and development expenses for the development of our drug candidates. Net loss attributable to our company from our Oncology/Immunology operations was $175.5 million, $291.7 million and $385.4 million for the years ended December 31, 2020, 2021 and 2022, respectively. In addition, we have built large-scale and profitable drug marketing and distribution capabilities through subsidiaries and joint ventures in our Other Ventures, which primarily manufacture, market and distribute prescription drugs and consumer health products in China. Net income attributable to our company generated from our Other Ventures operations was $72.8 million, $142.9 million and $54.6 million for the years ended December 31, 2020, 2021 and 2022, respectively. In addition to helping to fund our Oncology/Immunology operations, we utilize the know-how from our Other Ventures to support the launch of our internally developed Oncology/Immunology products in China. Our Other Ventures also include our businesses focused on a range of health-focused consumer products. Our consolidated revenue was $228.0 million, $356.1 million and $426.4 million for the years ended December 31, 2020, 2021 and 2022, respectively. Net loss attributable to our company was $125.7 million, $194.6 million and $360.8 million for the years ended December 31, 2020, 2021 and 2022, respectively. Basis of Presentation Our consolidated statements of operations data presented herein for the years ended December 31, 2022, 2021 and 2020 and our consolidated balance sheet data presented herein as of December 31, 2022 and 2021 have been derived from our audited consolidated financial statements, which were prepared in accordance with U.S. GAAP, and should be read in conjunction with those statements which are included elsewhere in this annual report. We have two strategic operations, Oncology/Immunology and Other Ventures, that offer different products and services. Our Shanghai Hutchison Pharmaceuticals and Hutchison Baiyunshan (until September 28, 2021 when the disposal of our shareholding interest in Hutchison Baiyunshan was completed) joint ventures under our Other Ventures operations are accounted for under the equity accounting method as non-consolidated entities in our consolidated financial statements, and their consolidated financial statements were prepared in accordance with IFRS as issued by the IASB and audited under auditing standards generally accepted in the United States and included elsewhere in this annual report. The presentation of financial data for our business units excludes certain unallocated costs attributed to expenses incurred by our corporate head office. For more information on our corporate structure, see Item 4.A. “History and Development of the Company.” Research and Development Expenses Factors Affecting our Results of Operations We believe our ability to successfully develop innovative drug candidates through our Oncology/Immunology operations will be the primary factor affecting our long-term competitiveness, as well as our future growth and development. Creating high quality global first-in-class or best-in-class drug candidates requires significant investment of resources over a prolonged period of time, and a core part of our strategy is to continue making sustained investments in this area. As a result of this commitment, our pipeline of drug candidates has been steadily advancing and expanding, with 12 in clinical development. In addition, we are proactively making a strategic shift to focus on the most advanced assets from our internal developed pipeline, that are most likely to drive near-term value. For more information on the nature of the efforts and steps necessary to develop our drug candidates, see Item 4.B. “Business Overview—Our Clinical Pipeline” and “Business Overview—Regulations.” The drug candidates of our Oncology/Immunology operations are still in development, and we have incurred and will continue to incur significant research and development costs for pre-clinical studies and clinical trials. We expect that our research and development expenses will significantly increase in future periods in line with the advancement and expansion of the development of our drug candidates. Research and development expenses include: • • • • • employee compensation related expenses, including salaries, benefits and equity compensation expense; expenses incurred for payments to CROs, investigators and clinical trial sites that conduct our clinical studies; the cost of acquiring, developing, and manufacturing clinical study materials; facilities, depreciation, and other expenses, which include office leases and other overhead expenses; and costs associated with pre-clinical activities and regulatory operations. Research and development expenses incurred by our Oncology/Immunology operations totaled $174.8 million, $299.1 million and $386.9 million for the years ended December 31, 2020, 2021 and 2022, respectively, representing approximately 76.7%, 84.0% and 90.7% of our total consolidated revenue for the respective period. These research and development figures do not include payments made by our collaboration partners directly to third parties to help fund the research and development of our drug candidates. We have been able to fund the research and development expenses for our Oncology/Immunology operations via a range of sources, including revenue generated from our commercialized drugs, payments received from our collaboration partners, cash flows generated from and dividend payments from our Other Ventures, the proceeds raised from our initial public offering on the AIM, initial public offering and follow-on offerings on Nasdaq, initial public offering on the SEHK, investments from other third parties and bank borrowings. This diversified approach to funding allows us to not depend on any one method of funding for our research and development activities, thereby reducing the risk that sufficient financing will be unavailable as we continue to accelerate the development of our drug candidates. For more information on the research and development expenses incurred for the development of our drug candidates, see “—Key Components of Results of Operations—Cost of Revenues and Operating Expenses—Research and Development Expenses.” Our Ability to Commercialize Our Drug Candidates Our ability to generate revenue from our drug candidates depends on our ability to successfully complete clinical trials for our drug candidates and obtain regulatory approvals for them in the United States, Europe, China and other major markets. We believe that our globally-facing strategy of focusing on drug development for novel but relatively well-characterized targets and for validated targets, in combination with our development of multiple drug candidates concurrently and testing them for multiple indications and in combinations with other drugs, enhances the likelihood that our research and development efforts will yield successful drug candidates. Nonetheless, we cannot be certain if any of our drug candidates will receive regulatory approvals. Even if such approvals are granted, we will need to thereafter establish manufacturing supply and engage in extensive marketing prior to generating any revenue from such drugs. The effectiveness of our marketing will depend on the efforts of our dedicated oncology team in China and our collaboration partners in the rest of the world. The ultimate commercial success of our drugs will depend on their acceptance by patients, the medical community and third-party payors and their ability to compete effectively with other therapies on the market. To date, fruquintinib, surufatinib and savolitinib have been approved for sale in China. 162 163 Our manufacturing site in Suzhou produces commercial supplies of fruquintinib and surufatinib. Our commercial supplies of savolitinib are outsourced and manufactured by a third-party manufacturer based in Shanghai, China. Beginning in October 2020, we assumed responsibility for the development and execution of all on-the-ground medical detailing, promotion and local and regional marketing activities in China for Elunate. Sulanda is marketed by us in China without the support of a collaboration partner. However, we have a limited history of successfully commercializing our internally developed drug candidates, which makes it difficult to evaluate our future prospects. The competitive environment is also an important factor with the commercial success of our potential global first-in-class products, such as sovleplenib, depending on whether we are able to gain regulatory approvals and quickly bring such products to market ahead of competing drug candidates being developed by other companies. For our drug candidates where we retain all rights worldwide, which currently include surufatinib, sovleplenib, amdizalisib, HMPL- 306, HMPL-760, HMPL-453, HMPL-295, HMPL-653, and HMPL-A83, we will be able to retain all the profits if any of them are successfully commercialized if they remain unpartnered, though we will need to bear all the costs associated with such drug candidates. Conversely, as discussed below, for our drug candidates which are subject to collaboration partnerships, our collaboration partners provide funding for development of the drug candidates but are entitled to retain a significant portion of any revenue generated by such drug candidates. Our Collaboration Partnerships Our results of operations have been, and we expect them to continue to be, affected by our collaborations with third parties for the development and commercialization of certain of our drug candidates. Currently, these include savolitinib (global collaboration with AstraZeneca) and fruquintinib (collaboration with Eli Lilly in China and expected collaboration with Takeda outside of China). In addition to providing us with clinical and regulatory support, the payments received from these collaborations have been critical to our ability to develop and quickly advance the pre-clinical and clinical studies of multiple drug candidates concurrently. In particular, our partners cover a portion of our research and development costs for drug candidates developed in collaboration with them. In addition, under our collaboration agreements with AstraZeneca and Eli Lilly, we received upfront payments upon our entry into such agreements and milestone payments upon the achievement of certain development, regulatory and commercial milestones payments for our provision of research and development services for the relevant drug candidate as well as royalties. In the future, we expect to receive such payments from our recently agreed Takeda collaboration as well. Revenue recognized in our consolidated financial statements from such agreements with AstraZeneca and Eli Lilly totaled $29.7 million, $107.1 million and $129.4 million for the years ended December 31, 2020, 2021 and 2022, respectively. Moreover, we have entered into and may consider entering in the future in-licensing arrangements to expand and complement our existing portfolio of novel oncology assets under which we may be obligated to make upfront, milestone and royalty payments. For example, in August 2021, we entered into an in-licensing agreement with Epizyme (a subsidiary of Ipsen Pharma SAS) to collaborate in research, development, manufacturing and commercialization of tazemetostat in Greater China, the licensed territory. In connection with this collaboration, Epizyme received a $25 million upfront payment and an aggregate of $5 million milestone payment to date and is eligible to receive up to an additional $105 million in development and regulatory milestone payments and up to an additional $175 million in sales milestone payments. Epizyme is also eligible to receive tiered royalties of mid-teen to low-twenties percent based on annual net sales of tazemetostat in the licensed territory. China Government Insurance Reimbursement and Drug Pricing Policies Our revenue is affected by the sales volume and pricing of our current and future internally developed drug candidates, if approved. Eligible participants in the government-sponsored medical insurance programs in China are entitled to reimbursement for varying percentages of the cost for any medicines that are included in applicable reimbursement lists. Factors that affect the inclusion of medicines in China’s NRDL and any other applicable reimbursement list may include whether the medicine is consumed in large volumes and commonly prescribed for clinical use in China and whether it is considered to be important in meeting the basic healthcare needs of the general public. For more information, see Item 4.B. “Business Overview—Coverage and Reimbursement—PRC Coverage and Reimbursement.” The inclusion of a medicine in the NRDL or other applicable reimbursement lists can substantially improve the sales volume of the medicine due to the availability of third-party reimbursements. On the other hand, such inclusion may also subject it to centralized procurement processes. The National Healthcare Security Administration has stated that centralized procurement will focus on NRDL-listed and costly-to-procure drugs. Centralized procurement may negatively affect the retail price of our drug candidates. On balance, we believe that, if priced appropriately, the benefit of the inclusion of our drug candidates in the NRDL and other applicable reimbursement lists outweighs the cost of such inclusion. Elunate was added to the NRDL in January 2020 at approximately 60% discount to its initial retail price, and such inclusion was renewed for an additional two-year term starting in January 2022 at a discount of 5% relative to the prior NRDL price. Sulanda was included in the NRDL starting in January 2022 at a 52% discount on its main dosage form, relative to its 2021 initial retail price. Orpathys will be included as a Category B medicine in the updated NRDL, effective from March 1, 2023. Revenue from our Other Ventures, including the revenue of our non-consolidated joint venture Shanghai Hutchison Pharmaceuticals, is affected by the sales volume and pricing of their own-brand and third-party prescription pharmaceutical products. The sales volume of the products sold by these businesses is driven in part by the level of Chinese government spending on healthcare and the coverage of Chinese government medical insurance schemes, which is correlated with patient reimbursements for drug purchases, all of which have increased significantly in recent years as part of healthcare reforms in China. The sales volume of pharmaceutical products in China is also influenced by their representation on the NRDL, which determines eligibility for drug reimbursement, as well as their representation on the National Essential Medicines List, which mandates distribution of drugs in China. Substantially all pharmaceutical products manufactured and sold by Shanghai Hutchison Pharmaceuticals in 2021 were capable of being reimbursed under the NRDL as of December 31, 2022. There were 17 of its drugs included in the National Essential Medicine List, of which two were in active production as of December 31, 2022. She Xiang Bao Xin pills, Shanghai Hutchison Pharmaceuticals’ top- selling drug, is one of the few proprietary drugs included on the National Essential Medicines List. The NRDL and the National Essential Medicines List are subject to revision by the government from time to time, and our results could be materially and adversely affected if any of our products are removed from the NRDL or the National Essential Medicines List. For more information, see Item 3.D. “Risk Factors—Risks Relating to Sales of our Internally Developed Drugs and other Drugs— Reimbursement may not be available for the products currently sold through our Oncology/Immunology and Other Ventures operations or our drug candidates in China, the U.S. or other countries, which could diminish our sales or affect our profitability.” In addition, the pricing of Shanghai Hutchison Pharmaceuticals’ prescription drugs is influenced by the outcomes of periodic provincial and municipal tender processes organized by the various provincial or municipal government agencies in China. For more information, see Item 4.B. “Business Overview—Coverage and Reimbursement—PRC Coverage and Reimbursement.” Ability to Effectively Market Own-Brand and Third-Party Drugs The achievement of milestones for our and in-licensed drug candidates, which is dependent on the outcome of clinical studies, is subject to a high degree of uncertainty and, as a result, we cannot reasonably estimate when we can expect to receive or incur future milestone payments, revenue from related product sales, or other relevant income or expenses or at all. If we are unable to achieve development milestones for our drug candidates or if our partners were to terminate their collaborative agreements with us, payments for research and development services could also be affected. For more information regarding our collaboration agreements, see Item 4.B. “Business Overview—Overview of Our Collaborations.” A key component of our Other Ventures operations is the extensive prescription drugs marketing network operated by our joint ventures Shanghai Hutchison Pharmaceuticals and Hutchison Sinopharm, which includes approximately 2,900 medical sales representatives covering hospitals in about 290 cities and towns in China. Our results of operations are impacted by the effectiveness of this network, including the ability of Shanghai Hutchison Pharmaceuticals to generate sales of She Xiang Bao Xin pills, which represented approximately 90%, 92% and 92% of its total revenue for the years ended December 31, 2020, 2021 and 2022, respectively. In addition, in recent years Hutchison Sinopharm has been increasingly focused on providing distribution and commercialization services for prescription drugs licensed from third parties, and we have established and continue to expand our oncology drug sales team which we utilize for our internally developed drugs for which we have commercialization rights, if approved, throughout China. 164 165 Our manufacturing site in Suzhou produces commercial supplies of fruquintinib and surufatinib. Our commercial supplies of China Government Insurance Reimbursement and Drug Pricing Policies savolitinib are outsourced and manufactured by a third-party manufacturer based in Shanghai, China. Beginning in October 2020, we assumed responsibility for the development and execution of all on-the-ground medical detailing, promotion and local and regional marketing activities in China for Elunate. Sulanda is marketed by us in China without the support of a collaboration partner. However, we have a limited history of successfully commercializing our internally developed drug candidates, which makes it difficult to evaluate our future prospects. The competitive environment is also an important factor with the commercial success of our potential global first-in-class products, such as sovleplenib, depending on whether we are able to gain regulatory approvals and quickly bring such products to market ahead of competing drug candidates being developed by other companies. For our drug candidates where we retain all rights worldwide, which currently include surufatinib, sovleplenib, amdizalisib, HMPL- 306, HMPL-760, HMPL-453, HMPL-295, HMPL-653, and HMPL-A83, we will be able to retain all the profits if any of them are successfully commercialized if they remain unpartnered, though we will need to bear all the costs associated with such drug candidates. Conversely, as discussed below, for our drug candidates which are subject to collaboration partnerships, our collaboration partners provide funding for development of the drug candidates but are entitled to retain a significant portion of any revenue generated by such drug candidates. Our Collaboration Partnerships Our results of operations have been, and we expect them to continue to be, affected by our collaborations with third parties for the development and commercialization of certain of our drug candidates. Currently, these include savolitinib (global collaboration with AstraZeneca) and fruquintinib (collaboration with Eli Lilly in China and expected collaboration with Takeda outside of China). In addition to providing us with clinical and regulatory support, the payments received from these collaborations have been critical to our ability to develop and quickly advance the pre-clinical and clinical studies of multiple drug candidates concurrently. In particular, our partners cover a portion of our research and development costs for drug candidates developed in collaboration with them. In addition, under our collaboration agreements with AstraZeneca and Eli Lilly, we received upfront payments upon our entry into such agreements and milestone payments upon the achievement of certain development, regulatory and commercial milestones payments for our provision of research and development services for the relevant drug candidate as well as royalties. In the future, we expect to receive such payments from our recently agreed Takeda collaboration as well. Revenue recognized in our consolidated financial statements from such agreements with AstraZeneca and Eli Lilly totaled $29.7 million, $107.1 million and $129.4 million for the years ended December 31, 2020, 2021 and 2022, respectively. Moreover, we have entered into and may consider entering in the future in-licensing arrangements to expand and complement our existing portfolio of novel oncology assets under which we may be obligated to make upfront, milestone and royalty payments. For example, in August 2021, we entered into an in-licensing agreement with Epizyme (a subsidiary of Ipsen Pharma SAS) to collaborate in research, development, manufacturing and commercialization of tazemetostat in Greater China, the licensed territory. In connection with this collaboration, Epizyme received a $25 million upfront payment and an aggregate of $5 million milestone payment to date and is eligible to receive up to an additional $105 million in development and regulatory milestone payments and up to an additional $175 million in sales milestone payments. Epizyme is also eligible to receive tiered royalties of mid-teen to low-twenties percent based on annual net sales of tazemetostat in the licensed territory. Our revenue is affected by the sales volume and pricing of our current and future internally developed drug candidates, if approved. Eligible participants in the government-sponsored medical insurance programs in China are entitled to reimbursement for varying percentages of the cost for any medicines that are included in applicable reimbursement lists. Factors that affect the inclusion of medicines in China’s NRDL and any other applicable reimbursement list may include whether the medicine is consumed in large volumes and commonly prescribed for clinical use in China and whether it is considered to be important in meeting the basic healthcare needs of the general public. For more information, see Item 4.B. “Business Overview—Coverage and Reimbursement—PRC Coverage and Reimbursement.” The inclusion of a medicine in the NRDL or other applicable reimbursement lists can substantially improve the sales volume of the medicine due to the availability of third-party reimbursements. On the other hand, such inclusion may also subject it to centralized procurement processes. The National Healthcare Security Administration has stated that centralized procurement will focus on NRDL-listed and costly-to-procure drugs. Centralized procurement may negatively affect the retail price of our drug candidates. On balance, we believe that, if priced appropriately, the benefit of the inclusion of our drug candidates in the NRDL and other applicable reimbursement lists outweighs the cost of such inclusion. Elunate was added to the NRDL in January 2020 at approximately 60% discount to its initial retail price, and such inclusion was renewed for an additional two-year term starting in January 2022 at a discount of 5% relative to the prior NRDL price. Sulanda was included in the NRDL starting in January 2022 at a 52% discount on its main dosage form, relative to its 2021 initial retail price. Orpathys will be included as a Category B medicine in the updated NRDL, effective from March 1, 2023. Revenue from our Other Ventures, including the revenue of our non-consolidated joint venture Shanghai Hutchison Pharmaceuticals, is affected by the sales volume and pricing of their own-brand and third-party prescription pharmaceutical products. The sales volume of the products sold by these businesses is driven in part by the level of Chinese government spending on healthcare and the coverage of Chinese government medical insurance schemes, which is correlated with patient reimbursements for drug purchases, all of which have increased significantly in recent years as part of healthcare reforms in China. The sales volume of pharmaceutical products in China is also influenced by their representation on the NRDL, which determines eligibility for drug reimbursement, as well as their representation on the National Essential Medicines List, which mandates distribution of drugs in China. Substantially all pharmaceutical products manufactured and sold by Shanghai Hutchison Pharmaceuticals in 2021 were capable of being reimbursed under the NRDL as of December 31, 2022. There were 17 of its drugs included in the National Essential Medicine List, of which two were in active production as of December 31, 2022. She Xiang Bao Xin pills, Shanghai Hutchison Pharmaceuticals’ top- selling drug, is one of the few proprietary drugs included on the National Essential Medicines List. The NRDL and the National Essential Medicines List are subject to revision by the government from time to time, and our results could be materially and adversely affected if any of our products are removed from the NRDL or the National Essential Medicines List. For more information, see Item 3.D. “Risk Factors—Risks Relating to Sales of our Internally Developed Drugs and other Drugs— Reimbursement may not be available for the products currently sold through our Oncology/Immunology and Other Ventures operations or our drug candidates in China, the U.S. or other countries, which could diminish our sales or affect our profitability.” In addition, the pricing of Shanghai Hutchison Pharmaceuticals’ prescription drugs is influenced by the outcomes of periodic provincial and municipal tender processes organized by the various provincial or municipal government agencies in China. For more information, see Item 4.B. “Business Overview—Coverage and Reimbursement—PRC Coverage and Reimbursement.” Ability to Effectively Market Own-Brand and Third-Party Drugs The achievement of milestones for our and in-licensed drug candidates, which is dependent on the outcome of clinical studies, is subject to a high degree of uncertainty and, as a result, we cannot reasonably estimate when we can expect to receive or incur future milestone payments, revenue from related product sales, or other relevant income or expenses or at all. If we are unable to achieve development milestones for our drug candidates or if our partners were to terminate their collaborative agreements with us, payments for research and development services could also be affected. For more information regarding our collaboration agreements, see Item 4.B. “Business Overview—Overview of Our Collaborations.” A key component of our Other Ventures operations is the extensive prescription drugs marketing network operated by our joint ventures Shanghai Hutchison Pharmaceuticals and Hutchison Sinopharm, which includes approximately 2,900 medical sales representatives covering hospitals in about 290 cities and towns in China. Our results of operations are impacted by the effectiveness of this network, including the ability of Shanghai Hutchison Pharmaceuticals to generate sales of She Xiang Bao Xin pills, which represented approximately 90%, 92% and 92% of its total revenue for the years ended December 31, 2020, 2021 and 2022, respectively. In addition, in recent years Hutchison Sinopharm has been increasingly focused on providing distribution and commercialization services for prescription drugs licensed from third parties, and we have established and continue to expand our oncology drug sales team which we utilize for our internally developed drugs for which we have commercialization rights, if approved, throughout China. 164 165 If the marketing efforts of these joint ventures to doctors and hospitals are not successful, our revenue and profitability may be negatively affected. Moreover, if we are unsuccessful in marketing any third party drugs, it may adversely affect our ability to enter into commercialization arrangements on acceptable terms, gain rights to market additional third-party drugs or prevent us from expanding the geographic scope of existing arrangements. Seasonality The results of operations of our Other Ventures operations are also affected by seasonal factors. Our Other Ventures operations typically experience higher profits in the first half of the year due to the sale cycles of our distributors, whereby they typically increase their inventories at the beginning of each year. In addition, in the second half of each year, our Other Ventures operations typically spend more on marketing activities to help reduce such inventory held by distributors. We do not experience material seasonal variations in the results of our Oncology/Immunology operations. Critical Accounting Policies and Significant Judgments and Estimates usage based royalty exception. Our discussion and analysis of operating results and financial condition are based upon our consolidated financial statements. The preparation of consolidated financial statements requires us to estimate the effect of various matters that are inherently uncertain as of the date of the consolidated financial statements. Each of these required estimates varies with regard to the level of judgment involved and its potential impact on our reported financial results. Estimates are deemed critical when a different estimate could have reasonably been used or where changes in the estimates are reasonably likely to occur from period to period, and a different estimate would materially impact our financial position, changes in financial position or results of operations. Our significant accounting policies are discussed under note 3 to our consolidated financial statements included in this annual report. We believe the following critical accounting policies are affected by significant judgments and estimates used in the preparation of our consolidated financial statements and that the judgments and estimates are reasonable. Revenue Recognition— Goods and Services We generate revenue from (1) sales of goods, which are the manufacture or purchase and distribution of pharmaceutical products and other consumer health products and (2) provision of services, which are the provision of sales, distribution and marketing services to pharmaceutical manufacturers. We evaluate whether we are the principal or agent for these contracts. Where we obtain control of the goods for distribution, we are the principal (i.e. recognizes sales of goods on a gross basis). Where we do not obtain control of the goods for distribution, we are the agent (i.e. recognizes provision of services on a net basis). Control is primarily evidenced by taking physical possession and inventory risk of the goods. Revenue from sales of goods is recognized when the customer takes possession of the goods. We have determined that this usually occurs upon completed delivery of the goods to the customer site. The amount of revenue recognized is adjusted for expected sales incentives as stipulated in the contract, which are generally issued to customers as direct discounts at the point of sale or indirectly in the form of rebates. Sales incentives are estimated using the expected value method. Additionally, sales are generally made with a limited right of return under certain conditions. Revenues are recorded net of provisions for sales discounts and returns. Revenue from provision of services is recognized when the benefits of the services transfer to the customer over time, which is based on the proportionate value of services rendered as determined under the terms of the relevant contract. Additionally, when the amounts that can be invoiced correspond directly with the value to the customer for performance completed to date, we recognize revenue from provision of services based on amounts that can be invoiced to the customer. Revenue Recognition— License and Collaboration Contracts The transaction price generally includes fixed and variable consideration in the form of upfront payment, research and development cost reimbursements, contingent milestone payments and sales-based royalties. Contingent milestone payments are not included in the transaction price until it becomes probable that a significant reversal of revenue will not occur, which is generally when the specified milestone is achieved. The allocation of the transaction price to each performance obligation is based on the relative standalone selling prices of each performance obligation determined at the inception of the contract. We estimate the standalone selling prices based on the income approach. Control of the license to the drug compounds transfers at the inception date of the collaboration agreements and consequently, amounts allocated to this performance obligation are generally recognized at a point in time. Conversely, research and development services for each specified indication are performed over time and amounts allocated to these performance obligations are generally recognized over time using cost inputs as a measure of progress. We have determined that research and development expenses provide an appropriate depiction of measure of progress for the research and development services. Changes to estimated cost inputs may result in a cumulative catch-up adjustment. Royalty revenues are recognized as future sales occur as they meet the requirements for the sales- Deferred revenue is recognized if allocated consideration is received in advance of the rendering of research and development services. Accounts receivable is recognized based on the terms of the contract and when we have an unconditional right to bill the customer, which is generally when research and development services are rendered. Share-based Compensation We recognize share-based compensation expense on share options granted to employees and directors based on their estimated grant date fair value using the polynomial model. Determining the fair value of share options requires the use of subjective assumptions. This polynomial pricing model uses various inputs to measure fair value, including the market value of our underlying ordinary shares at the grant date, contractual terms, estimated volatility, risk-free interest rates and expected dividend yields. The assumptions in determining the fair value of share options are highly subjective and represent our best estimates, which involve inherent uncertainties and the application of judgment. As a result, if factors change and different assumptions are used, our level of share-based compensation could be materially different in the future. We recognize share-based compensation expense in the consolidated statements of operations on a graded vesting basis over the requisite service period, and account for forfeitures as they occur. Impairment of Long-lived Assets disposal of long-lived assets. We evaluate the recoverability of long-lived assets in accordance with authoritative guidance on accounting for the impairment or We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. Indicators that we consider in deciding when to perform an impairment review include significant under- performance of a business or product line in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in our use of the assets. If indicators of impairment exist, the first step of the impairment test is performed to assess if the carrying value of the net assets exceeds the undiscounted cash flows of the assets. If yes, the second step of the impairment test is performed in order to determine if the carrying value of the net assets exceeds the fair value. If yes, impairment is recognized for the excess. Our Oncology/Immunology reportable segment includes revenue from license and collaboration contracts. The license and collaboration contracts generally contain multiple performance obligations including (1) the license to the commercialization rights of a drug compound and (2) the research and development services for each specified treatment indication, which are accounted for separately if they are distinct, i.e. if a product or service is separately identifiable from other items in the arrangement and if a customer can benefit from it on its own or with other resources that are readily available to the customer. Effective from January 1, 2020, we adopted Accounting Standards Update 2016-13 “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.” We estimate our allowance for current expected credit losses ("CECLs") based on an expected loss model, which requires the consideration of forward-looking economic variables and conditions in the reserve calculation across the portfolio. Allowance for Current Expected Credit Losses ("CECLs") 166 167 If the marketing efforts of these joint ventures to doctors and hospitals are not successful, our revenue and profitability may be negatively affected. Moreover, if we are unsuccessful in marketing any third party drugs, it may adversely affect our ability to enter into commercialization arrangements on acceptable terms, gain rights to market additional third-party drugs or prevent us from expanding the geographic scope of existing arrangements. Seasonality The results of operations of our Other Ventures operations are also affected by seasonal factors. Our Other Ventures operations typically experience higher profits in the first half of the year due to the sale cycles of our distributors, whereby they typically increase their inventories at the beginning of each year. In addition, in the second half of each year, our Other Ventures operations typically spend more on marketing activities to help reduce such inventory held by distributors. We do not experience material seasonal variations in the results of our Oncology/Immunology operations. Critical Accounting Policies and Significant Judgments and Estimates Our discussion and analysis of operating results and financial condition are based upon our consolidated financial statements. The preparation of consolidated financial statements requires us to estimate the effect of various matters that are inherently uncertain as of the date of the consolidated financial statements. Each of these required estimates varies with regard to the level of judgment involved and its potential impact on our reported financial results. Estimates are deemed critical when a different estimate could have reasonably materially impact our financial position, changes in financial position or results of operations. Our significant accounting policies are discussed under note 3 to our consolidated financial statements included in this annual report. We believe the following critical accounting policies are affected by significant judgments and estimates used in the preparation of our consolidated financial statements and that the judgments and estimates are reasonable. Revenue Recognition— Goods and Services We generate revenue from (1) sales of goods, which are the manufacture or purchase and distribution of pharmaceutical products and other consumer health products and (2) provision of services, which are the provision of sales, distribution and marketing services to pharmaceutical manufacturers. We evaluate whether we are the principal or agent for these contracts. Where we obtain control of the goods for distribution, we are the principal (i.e. recognizes sales of goods on a gross basis). Where we do not obtain control of the goods for distribution, we are the agent (i.e. recognizes provision of services on a net basis). Control is primarily evidenced by taking physical The transaction price generally includes fixed and variable consideration in the form of upfront payment, research and development cost reimbursements, contingent milestone payments and sales-based royalties. Contingent milestone payments are not included in the transaction price until it becomes probable that a significant reversal of revenue will not occur, which is generally when the specified milestone is achieved. The allocation of the transaction price to each performance obligation is based on the relative standalone selling prices of each performance obligation determined at the inception of the contract. We estimate the standalone selling prices based on the income approach. Control of the license to the drug compounds transfers at the inception date of the collaboration agreements and consequently, amounts allocated to this performance obligation are generally recognized at a point in time. Conversely, research and development services for each specified indication are performed over time and amounts allocated to these performance obligations are generally recognized over time using cost inputs as a measure of progress. We have determined that research and development expenses provide an appropriate depiction of measure of progress for the research and development services. Changes to estimated cost inputs may result in a cumulative catch-up adjustment. Royalty revenues are recognized as future sales occur as they meet the requirements for the sales- usage based royalty exception. Deferred revenue is recognized if allocated consideration is received in advance of the rendering of research and development services. Accounts receivable is recognized based on the terms of the contract and when we have an unconditional right to bill the customer, which is generally when research and development services are rendered. been used or where changes in the estimates are reasonably likely to occur from period to period, and a different estimate would Share-based Compensation We recognize share-based compensation expense on share options granted to employees and directors based on their estimated grant date fair value using the polynomial model. Determining the fair value of share options requires the use of subjective assumptions. This polynomial pricing model uses various inputs to measure fair value, including the market value of our underlying ordinary shares at the grant date, contractual terms, estimated volatility, risk-free interest rates and expected dividend yields. The assumptions in determining the fair value of share options are highly subjective and represent our best estimates, which involve inherent uncertainties and the application of judgment. As a result, if factors change and different assumptions are used, our level of share-based compensation could be materially different in the future. We recognize share-based compensation expense in the consolidated statements of operations on a graded vesting basis over the requisite service period, and account for forfeitures as they occur. possession and inventory risk of the goods. Impairment of Long-lived Assets Revenue from sales of goods is recognized when the customer takes possession of the goods. We have determined that this usually We evaluate the recoverability of long-lived assets in accordance with authoritative guidance on accounting for the impairment or occurs upon completed delivery of the goods to the customer site. The amount of revenue recognized is adjusted for expected sales disposal of long-lived assets. incentives as stipulated in the contract, which are generally issued to customers as direct discounts at the point of sale or indirectly in the form of rebates. Sales incentives are estimated using the expected value method. Additionally, sales are generally made with a limited right of return under certain conditions. Revenues are recorded net of provisions for sales discounts and returns. Revenue from provision of services is recognized when the benefits of the services transfer to the customer over time, which is based on the proportionate value of services rendered as determined under the terms of the relevant contract. Additionally, when the amounts that can be invoiced correspond directly with the value to the customer for performance completed to date, we recognize revenue from provision of services based on amounts that can be invoiced to the customer. Revenue Recognition— License and Collaboration Contracts We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. Indicators that we consider in deciding when to perform an impairment review include significant under- performance of a business or product line in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in our use of the assets. If indicators of impairment exist, the first step of the impairment test is performed to assess if the carrying value of the net assets exceeds the undiscounted cash flows of the assets. If yes, the second step of the impairment test is performed in order to determine if the carrying value of the net assets exceeds the fair value. If yes, impairment is recognized for the excess. Our Oncology/Immunology reportable segment includes revenue from license and collaboration contracts. The license and collaboration contracts generally contain multiple performance obligations including (1) the license to the commercialization rights of a drug compound and (2) the research and development services for each specified treatment indication, which are accounted for separately if they are distinct, i.e. if a product or service is separately identifiable from other items in the arrangement and if a customer can benefit from it on its own or with other resources that are readily available to the customer. Effective from January 1, 2020, we adopted Accounting Standards Update 2016-13 “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.” We estimate our allowance for current expected credit losses ("CECLs") based on an expected loss model, which requires the consideration of forward-looking economic variables and conditions in the reserve calculation across the portfolio. Allowance for Current Expected Credit Losses ("CECLs") 166 167 We estimate our allowances for CECLs for accounts and other receivables (except for prepayments) by considering past events, including any historical default, current economic conditions and certain forward-looking information, including reasonable and supportable forecasts. From January 1, 2020 onwards, the methodologies that the Group uses to estimate the allowance for CECLs for accounts and other receivables are as follows: Individually evaluated—we review all accounts and other receivables considered at risk on a timely basis and perform an analysis based upon current information available about the customers and other debtors, which may include financial statements, news reports, published credit ratings as well as collateral net of repossession cost, prior collection history and current and future expected economic conditions. Using this information, we determine the expected cash flow for the accounts and other receivables and calculate an estimate of the potential loss and the probability of loss. For those accounts for which the loss is probable, we record a specific allowance. Collectively evaluated—we determine our allowance for CECLs for collectively evaluated accounts and other receivables based on appropriate groupings. We consider forward-looking macroeconomic variables, which may include gross domestic product, unemployment rates, equity prices and corporate profits when quantifying the impact of economic forecasts on our allowance for expected credit losses. Macroeconomic variables may vary based on historical experiences, portfolio composition and current environment. We also consider the impact of current conditions and economic forecasts relating to specific industries and client-credit ratings, in addition to performing a qualitative review of credit risk factors across the portfolio. Forward-looking estimates require the use of judgment, particularly in times of economic uncertainty. See note 3 to our consolidated financial statements included in this annual report for information regarding recent accounting pronouncements. Recent Accounting Pronouncements Key Components of Results of Operations The following tables set forth our selected consolidated financial data. We have derived the selected consolidated statements of operations data for the years ended December 31, 2022, 2021 and 2020 and the selected consolidated balance sheet data as of December 31, 2022 and 2021 from our audited consolidated financial statements, which were prepared in accordance with U.S. GAAP and are included elsewhere in this annual report. The following selected consolidated financial data for the years ended December 31, 2019 and 2018 and as of December 31, 2020, 2019 and 2018 have been derived from our audited consolidated financial statements for those years, which were prepared in accordance with U.S. GAAP and are not included in this annual report. Consolidated statement of operations data: Revenues Goods—third parties —related parties Services —commercialization—third parties —collaboration research and development —third parties —research and development—related parties Other collaboration revenue —royalties—third parties —licensing—third parties Total revenues Operating expenses Costs of goods—third parties Costs of goods—related parties Costs of services—commercialization —third parties Research and development expenses Selling expenses Administrative expenses Total operating expenses Gain on divestment of an equity investee Other (expense)/income Interest income Other income Interest expense Other expense Net loss share) Net loss Total other (expense)/income Loss before income taxes and equity in earnings of equity investees Income tax benefit/(expense) Equity in earnings of equity investees, net of tax Less: Net income attributable to non-controlling interests Net loss attributable to the Company Losses per share attributable to the Company—basic and diluted (US$ per Number of shares used in per share calculation—basic and diluted Other comprehensive (loss)/income Foreign currency translation (loss)/gain Total comprehensive loss Less: Comprehensive loss/(income) attributable to non-controlling interests Total comprehensive loss attributable to the Company Consolidated balance sheet data: Cash and cash equivalents Short-term investments Total assets Total current liabilities Total non-current liabilities Total shareholders’ equity Year Ended December 31, 2022 2021 2020 2019 2018 $’000 (except share and per share data) 314,329 266,199 203,606 175,990 426,409 356,128 227,976 204,890 (178,828) (152,729) (129,346) 5,293 41,275 23,741 507 26,310 14,954 (268,698) (3,616) (38,789) (386,893) (43,933) (92,173) (834,102) (407,693) — 9,599 1,833 (652) (13,509) (2,729) (410,422) 283 49,753 (360,386) (449) (360,835) 4,256 27,428 18,995 525 15,064 23,661 (229,448) (3,114) (25,672) (299,086) (37,827) (89,298) (684,445) (328,317) 121,310 2,076 2,426 (592) (12,643) (8,733) (215,740) (11,918) 60,617 (167,041) (27,607) (194,648) 5,484 3,734 9,771 491 4,890 — 7,637 2,584 15,532 494 2,653 — (3,671) (6,020) (174,776) (11,334) (50,015) (424,644) (196,668) — 3,236 4,600 (787) (115) 6,934 (189,734) (4,829) 79,046 (115,517) (10,213) (125,730) (5,494) (1,929) (138,190) (13,724) (39,210) (351,276) (146,386) — 4,944 1,855 (1,030) (488) 5,281 (141,105) (3,274) 40,700 (103,679) (2,345) (106,024) 156,234 8,306 11,660 17,681 7,832 261 12,135 214,109 (5,978) (8,620) (114,161) (17,736) (30,909) (306,750) (92,641) — 5,978 1,798 (1,009) (781) 5,986 (86,655) (3,964) 19,333 (71,286) (3,519) (74,805) (0.43) (0.25) (0.18) (0.16) (0.11) 847,143,540 792,684,524 697,931,437 665,683,145 664,263,820 (360,386) (167,041) (115,517) (103,679) (71,286) (8,469) (368,855) 545 (368,310) 2,964 (164,077) (28,029) (192,106) 9,530 (105,987) (11,413) (117,400) (4,331) (108,010) (1,620) (109,630) (6,626) (77,912) (2,566) (80,478) 2022 2021 2020 2019 2018 313,278 317,718 1,029,445 353,903 38,672 636,870 377,542 634,158 1,372,661 311,658 21,489 1,039,514 235,630 199,546 724,118 158,397 46,772 518,949 121,157 96,011 465,122 113,101 39,118 312,903 86,036 214,915 532,118 85,479 34,384 412,255 168 169 We estimate our allowances for CECLs for accounts and other receivables (except for prepayments) by considering past events, including any historical default, current economic conditions and certain forward-looking information, including reasonable and supportable forecasts. From January 1, 2020 onwards, the methodologies that the Group uses to estimate the allowance for CECLs for accounts and other receivables are as follows: Individually evaluated—we review all accounts and other receivables considered at risk on a timely basis and perform an analysis based upon current information available about the customers and other debtors, which may include financial statements, news reports, published credit ratings as well as collateral net of repossession cost, prior collection history and current and future expected economic conditions. Using this information, we determine the expected cash flow for the accounts and other receivables and calculate an estimate of the potential loss and the probability of loss. For those accounts for which the loss is probable, we record a specific allowance. Collectively evaluated—we determine our allowance for CECLs for collectively evaluated accounts and other receivables based on appropriate groupings. We consider forward-looking macroeconomic variables, which may include gross domestic product, unemployment rates, equity prices and corporate profits when quantifying the impact of economic forecasts on our allowance for expected credit losses. Macroeconomic variables may vary based on historical experiences, portfolio composition and current environment. We also consider the impact of current conditions and economic forecasts relating to specific industries and client-credit ratings, in addition to performing a qualitative review of credit risk factors across the portfolio. Forward-looking estimates require the use of judgment, particularly in times of economic uncertainty. See note 3 to our consolidated financial statements included in this annual report for information regarding recent accounting pronouncements. Recent Accounting Pronouncements Key Components of Results of Operations The following tables set forth our selected consolidated financial data. We have derived the selected consolidated statements of operations data for the years ended December 31, 2022, 2021 and 2020 and the selected consolidated balance sheet data as of December 31, 2022 and 2021 from our audited consolidated financial statements, which were prepared in accordance with U.S. GAAP and are included elsewhere in this annual report. The following selected consolidated financial data for the years ended December 31, 2019 and 2018 and as of December 31, 2020, 2019 and 2018 have been derived from our audited consolidated financial statements for those years, which were prepared in accordance with U.S. GAAP and are not included in this annual report. Consolidated statement of operations data: Revenues Goods—third parties —related parties Services —commercialization—third parties —collaboration research and development —third parties —research and development—related parties Other collaboration revenue —royalties—third parties —licensing—third parties Total revenues Operating expenses Costs of goods—third parties Costs of goods—related parties Costs of services—commercialization —third parties Research and development expenses Selling expenses Administrative expenses Total operating expenses Gain on divestment of an equity investee Other (expense)/income Interest income Other income Interest expense Other expense Total other (expense)/income Loss before income taxes and equity in earnings of equity investees Income tax benefit/(expense) Equity in earnings of equity investees, net of tax Net loss Less: Net income attributable to non-controlling interests Net loss attributable to the Company Losses per share attributable to the Company—basic and diluted (US$ per share) Number of shares used in per share calculation—basic and diluted Net loss Other comprehensive (loss)/income Foreign currency translation (loss)/gain Total comprehensive loss Less: Comprehensive loss/(income) attributable to non-controlling interests Total comprehensive loss attributable to the Company Consolidated balance sheet data: Cash and cash equivalents Short-term investments Total assets Total current liabilities Total non-current liabilities Total shareholders’ equity Year Ended December 31, 2022 2021 2019 2020 $’000 (except share and per share data) 2018 314,329 5,293 41,275 23,741 507 26,310 14,954 426,409 (268,698) (3,616) (38,789) (386,893) (43,933) (92,173) (834,102) (407,693) — 9,599 1,833 (652) (13,509) (2,729) (410,422) 283 49,753 (360,386) (449) (360,835) 266,199 4,256 27,428 18,995 525 15,064 23,661 356,128 (229,448) (3,114) (25,672) (299,086) (37,827) (89,298) (684,445) (328,317) 121,310 2,076 2,426 (592) (12,643) (8,733) (215,740) (11,918) 60,617 (167,041) (27,607) (194,648) 203,606 5,484 3,734 9,771 491 4,890 — 227,976 (178,828) (3,671) (6,020) (174,776) (11,334) (50,015) (424,644) (196,668) — 3,236 4,600 (787) (115) 6,934 (189,734) (4,829) 79,046 (115,517) (10,213) (125,730) 175,990 7,637 2,584 15,532 494 2,653 — 204,890 (152,729) (5,494) (1,929) (138,190) (13,724) (39,210) (351,276) (146,386) — 4,944 1,855 (1,030) (488) 5,281 (141,105) (3,274) 40,700 (103,679) (2,345) (106,024) 156,234 8,306 11,660 17,681 7,832 261 12,135 214,109 (129,346) (5,978) (8,620) (114,161) (17,736) (30,909) (306,750) (92,641) — 5,978 1,798 (1,009) (781) 5,986 (86,655) (3,964) 19,333 (71,286) (3,519) (74,805) (0.43) (0.25) (0.18) (0.16) (0.11) 847,143,540 (360,386) 792,684,524 (167,041) 697,931,437 (115,517) 665,683,145 (103,679) 664,263,820 (71,286) (8,469) (368,855) 545 (368,310) 2,964 (164,077) (28,029) (192,106) 9,530 (105,987) (11,413) (117,400) (4,331) (108,010) (1,620) (109,630) (6,626) (77,912) (2,566) (80,478) 2022 2021 2020 2019 2018 313,278 317,718 1,029,445 353,903 38,672 636,870 377,542 634,158 1,372,661 311,658 21,489 1,039,514 235,630 199,546 724,118 158,397 46,772 518,949 121,157 96,011 465,122 113,101 39,118 312,903 86,036 214,915 532,118 85,479 34,384 412,255 168 169 Revenues We derive our consolidated revenue primarily from (i) the sales of goods and services to Eli Lilly as well as royalties on in-market sales of Elunate by Eli Lilly, (ii) the sales of goods to AstraZeneca as well as royalties on in-market sales of Orpathys by AstraZeneca, (iii) sales of our unpartnered drug Sulanda, (iv) licensing and collaboration projects conducted by our Oncology/Immunology operations, which generate revenue in the form of upfront payments, milestone payments, payments received for providing research and development services for our collaboration projects; and (v) the sales of goods by our Other Ventures, which generate revenue from the distribution and marketing of prescription pharmaceutical and consumer health products. The following table sets forth the components of our consolidated revenue for the years indicated, which does not include the revenue from our non-consolidated joint venture, Shanghai Hutchison Pharmaceuticals. In September 2021, we sold our interest in our non-consolidated joint venture, Hutchison Baiyunshan, and its historical financial results and the gain on its divestment are reflected in our consolidated financial statements. Our revenue from research and development projects for related parties is attributable to income for research and development services that we received from Shanghai Hutchison Pharmaceuticals. Our revenue from sales to related parties is attributable to sales by our Other Ventures to indirect subsidiaries of CK Hutchison. 2022 Year Ended December 31, 2021 2020 $’000 % $’000 % $’000 % Investees.” Revenues Oncology/Immunology: Goods—third parties Services: Services—Commercialization—third parties Collaboration R&D—third parties R&D services—related parties Other collaboration revenue: Royalties—third parties Licensing—third parties Subtotal Other Ventures: Goods—third parties Goods—related parties Subtotal Total 57,057 13.4 33,937 9.5 11,329 41,275 23,741 507 26,310 14,954 163,844 257,272 5,293 262,565 426,409 9.7 5.5 0.1 6.2 3.5 38.4 27,428 18,995 525 7.7 5.3 0.2 3,734 9,771 491 15,064 23,661 119,610 4.2 6.7 33.6 4,890 — 30,215 60.3 1.3 61.6 100.0 232,262 4,256 236,518 356,128 1.2 65.2 192,277 5,484 66.4 197,761 100.0 227,976 5.0 1.7 4.3 0.2 2.1 — 13.3 84.3 2.4 86.7 100.0 Revenue from our Other Ventures primarily comprises revenue from prescription drugs including the commercial services, logistics and distribution business of our consolidated Hutchison Sinopharm joint venture with Sinopharm, a leading distributor of pharmaceutical and healthcare products and a leading supply chain service provider in China. Revenue from our Other Ventures also comprises revenue from sales of organic and natural products by Hutchison Hain Organic, Zhi Ling Tong infant nutrition and other health supplement products manufactured by Hutchison Healthcare and distributed through Hutchison Sinopharm up till the end of September and from October 1, 2022 onwards, through our non-consolidated joint venture, Shanghai Hutchison Pharmaceuticals, and certain third-party consumer products distributed and marketed by HUTCHMED Science Nutrition. The revenue of our non-consolidated joint venture, Shanghai Hutchison Pharmaceuticals, the accounts of which are prepared in accordance with IFRS as issued by the IASB and whose revenue is not included in our consolidated revenue, was $276.4 million, $332.6 million and $370.6 million for the years ended December 31, 2020, 2021 and 2022, respectively. Shanghai Hutchison Pharmaceuticals is a joint venture with Shanghai Pharmaceuticals, a leading pharmaceuticals company in China, and primarily focuses on the manufacture and sale of prescription pharmaceutical products in China. We and Shanghai Pharmaceuticals each own 50% of this joint venture. We have the right to nominate the general manager and other management of this joint venture and run its day-to-day operations. The effect of Shanghai Hutchison Pharmaceuticals on our consolidated financial results is discussed below under “—Equity in Earnings of Equity The revenue of our former non-consolidated joint venture, Hutchison Baiyunshan, the accounts of which are prepared in accordance with IFRS as issued by the IASB and whose financial results up to September 28, 2021 are reflected in our consolidated financial statements, was $232.4 million and $209.5 million for the year ended December 31, 2020 and the period ended September 28, 2021, respectively. Hutchison Baiyunshan was a joint venture with Guangzhou Baiyunshan, a leading China-based pharmaceutical company. We sold our interest in this joint venture on September 28, 2021 and recognized a gain on divestment attributable to our Group, net of taxes, of $82.9 million from this transaction. The effect of Hutchison Baiyunshan on our consolidated financial results is discussed under “—Equity in Earnings of Equity Investees.” Cost of Revenues and Operating Expenses Cost of Revenues Our cost of revenues is primarily attributable to the cost of revenues of Hutchison Sinopharm and HUTCHMED Limited. Our cost of revenues to related parties is attributable to sales to indirect subsidiaries of CK Hutchison. The following table sets forth the components of our cost of revenues attributable to third parties and related parties for the years indicated. Revenue from Oncology/Immunology primarily comprises revenue from Elunate, Sulanda and Orpathys in China. The revenue we generate from Elunate is primarily comprised of revenue from the sales of Elunate to Eli Lilly which we manufacture and sell at cost, promotion and marketing services to Eli Lilly and royalty revenue. The revenue we generate from Sulanda, an unpartnered drug, is primarily comprised of revenue from sales of Sulanda to distributors. The revenue we generate from Orpathys is primarily comprised of revenue from the sales of Orpathys to AstraZeneca as well as royalty revenue. Additionally, Oncology/Immunology revenue includes revenue from licensing, co-development and commercialization agreements for upfront, milestone and research and development services payments for our drug candidates developed in collaboration with AstraZeneca and Eli Lilly. Cost of Revenues Costs of goods—third parties Costs of goods—related parties Costs of services—third parties Total 2022 2021 2020 $’000 % $’000 % $’000 % Year Ended December 31, 268,698 3,616 38,789 311,103 86.4 1.1 12.5 100.0 229,448 3,114 25,672 258,234 88.9 178,828 1.2 9.9 3,671 6,020 100.0 188,519 94.9 1.9 3.2 100.0 The following table sets forth the components of revenues of our Other Ventures by product type for the years indicated. The following table sets forth the components of cost of revenues of our Other Ventures by product type for the years indicated. Revenues—Other Ventures Prescription drug products Consumer health products Total 2022 Year Ended December 31, 2021 2020 $’000 % $’000 % $’000 % 237,293 25,272 262,565 90.4 9.6 100.0 204,091 32,427 236,518 86.3 165,072 32,689 13.7 100.0 197,761 83.5 16.5 100.0 Cost of Revenues—Other Ventures Prescription drug products Consumer health products Total Year Ended December 31, 2022 2021 2020 $’000 % $’000 % $’000 % 228,968 12,943 241,911 94.6 5.4 100.0 196,375 17,053 92.0 158,910 8.0 17,500 213,428 100.0 176,410 90.1 9.9 100.0 170 171 Revenues We derive our consolidated revenue primarily from (i) the sales of goods and services to Eli Lilly as well as royalties on in-market sales of Elunate by Eli Lilly, (ii) the sales of goods to AstraZeneca as well as royalties on in-market sales of Orpathys by AstraZeneca, (iii) sales of our unpartnered drug Sulanda, (iv) licensing and collaboration projects conducted by our Oncology/Immunology operations, which generate revenue in the form of upfront payments, milestone payments, payments received for providing research and development services for our collaboration projects; and (v) the sales of goods by our Other Ventures, which generate revenue from the distribution and marketing of prescription pharmaceutical and consumer health products. The following table sets forth the components of our consolidated revenue for the years indicated, which does not include the revenue from our non-consolidated joint venture, Shanghai Hutchison Pharmaceuticals. In September 2021, we sold our interest in our non-consolidated joint venture, Hutchison Baiyunshan, and its historical financial results and the gain on its divestment are reflected in our consolidated financial statements. Our revenue from research and development projects for related parties is attributable to income for research and development services that we received from Shanghai Hutchison Pharmaceuticals. Our revenue from sales to related parties is attributable to sales by our Other Ventures to indirect subsidiaries of CK Hutchison. Revenues Oncology/Immunology: Goods—third parties Services: Services—Commercialization—third parties Collaboration R&D—third parties R&D services—related parties Other collaboration revenue: Royalties—third parties Licensing—third parties Subtotal Other Ventures: Goods—third parties Goods—related parties Subtotal Total Year Ended December 31, 2022 2021 2020 $’000 % $’000 % $’000 % 57,057 13.4 33,937 9.5 11,329 9.7 5.5 0.1 6.2 3.5 27,428 18,995 525 15,064 23,661 7.7 5.3 0.2 4.2 6.7 3,734 9,771 491 4,890 — 38.4 119,610 33.6 30,215 232,262 65.2 192,277 60.3 1.3 61.6 100.0 4,256 236,518 356,128 1.2 5,484 66.4 197,761 100.0 227,976 100.0 5.0 1.7 4.3 0.2 2.1 — 13.3 84.3 2.4 86.7 41,275 23,741 507 26,310 14,954 163,844 257,272 5,293 262,565 426,409 Revenue from our Other Ventures primarily comprises revenue from prescription drugs including the commercial services, logistics and distribution business of our consolidated Hutchison Sinopharm joint venture with Sinopharm, a leading distributor of pharmaceutical and healthcare products and a leading supply chain service provider in China. Revenue from our Other Ventures also comprises revenue from sales of organic and natural products by Hutchison Hain Organic, Zhi Ling Tong infant nutrition and other health supplement products manufactured by Hutchison Healthcare and distributed through Hutchison Sinopharm up till the end of September and from October 1, 2022 onwards, through our non-consolidated joint venture, Shanghai Hutchison Pharmaceuticals, and certain third-party consumer products distributed and marketed by HUTCHMED Science Nutrition. The revenue of our non-consolidated joint venture, Shanghai Hutchison Pharmaceuticals, the accounts of which are prepared in accordance with IFRS as issued by the IASB and whose revenue is not included in our consolidated revenue, was $276.4 million, $332.6 million and $370.6 million for the years ended December 31, 2020, 2021 and 2022, respectively. Shanghai Hutchison Pharmaceuticals is a joint venture with Shanghai Pharmaceuticals, a leading pharmaceuticals company in China, and primarily focuses on the manufacture and sale of prescription pharmaceutical products in China. We and Shanghai Pharmaceuticals each own 50% of this joint venture. We have the right to nominate the general manager and other management of this joint venture and run its day-to-day operations. The effect of Shanghai Hutchison Pharmaceuticals on our consolidated financial results is discussed below under “—Equity in Earnings of Equity Investees.” The revenue of our former non-consolidated joint venture, Hutchison Baiyunshan, the accounts of which are prepared in accordance with IFRS as issued by the IASB and whose financial results up to September 28, 2021 are reflected in our consolidated financial statements, was $232.4 million and $209.5 million for the year ended December 31, 2020 and the period ended September 28, 2021, respectively. Hutchison Baiyunshan was a joint venture with Guangzhou Baiyunshan, a leading China-based pharmaceutical company. We sold our interest in this joint venture on September 28, 2021 and recognized a gain on divestment attributable to our Group, net of taxes, of $82.9 million from this transaction. The effect of Hutchison Baiyunshan on our consolidated financial results is discussed under “—Equity in Earnings of Equity Investees.” Cost of Revenues and Operating Expenses Cost of Revenues Our cost of revenues is primarily attributable to the cost of revenues of Hutchison Sinopharm and HUTCHMED Limited. Our cost of revenues to related parties is attributable to sales to indirect subsidiaries of CK Hutchison. The following table sets forth the components of our cost of revenues attributable to third parties and related parties for the years indicated. Revenue from Oncology/Immunology primarily comprises revenue from Elunate, Sulanda and Orpathys in China. The revenue we generate from Elunate is primarily comprised of revenue from the sales of Elunate to Eli Lilly which we manufacture and sell at cost, promotion and marketing services to Eli Lilly and royalty revenue. The revenue we generate from Sulanda, an unpartnered drug, is primarily comprised of revenue from sales of Sulanda to distributors. The revenue we generate from Orpathys is primarily comprised of revenue from the sales of Orpathys to AstraZeneca as well as royalty revenue. Additionally, Oncology/Immunology revenue includes revenue from licensing, co-development and commercialization agreements for upfront, milestone and research and development services payments for our drug candidates developed in collaboration with AstraZeneca and Eli Lilly. Cost of Revenues Costs of goods—third parties Costs of goods—related parties Costs of services—third parties Total 2022 Year Ended December 31, 2021 2020 $’000 % $’000 % $’000 % 268,698 3,616 38,789 311,103 86.4 1.1 12.5 100.0 229,448 3,114 25,672 258,234 88.9 1.2 9.9 100.0 178,828 3,671 6,020 188,519 94.9 1.9 3.2 100.0 The following table sets forth the components of revenues of our Other Ventures by product type for the years indicated. The following table sets forth the components of cost of revenues of our Other Ventures by product type for the years indicated. Revenues—Other Ventures Prescription drug products Consumer health products Total Year Ended December 31, 2022 2021 2020 $’000 % $’000 % $’000 % 237,293 25,272 262,565 90.4 9.6 204,091 32,427 86.3 165,072 13.7 32,689 100.0 236,518 100.0 197,761 83.5 16.5 100.0 Cost of Revenues—Other Ventures Prescription drug products Consumer health products Total 2022 $’000 % Year Ended December 31, 2021 % $’000 2020 % $’000 228,968 12,943 241,911 94.6 5.4 100.0 196,375 17,053 213,428 92.0 8.0 100.0 158,910 17,500 176,410 90.1 9.9 100.0 170 171 Research and Development Expenses Our research and development expenses are attributable to our Oncology/Immunology operations. These costs primarily comprise the cost of research and development for our drug candidates, including clinical trial related costs such as payments to third-party CROs, personnel compensation and related costs, and other research and development expenses. The following table sets forth the components of our research and development expenses and the clinical trial related costs incurred for the development of our main drug candidates for the years indicated. • • significant and changing government regulation; and the timing and receipt of any regulatory approvals. R&D Expenses Oncology/Immunology: Savolitinib (targeting MET) Fruquintinib (targeting VEGFR1/2/3) Surufatinib (targeting VEGFR/FGFR1/CSF-1R) Sovleplenib (targeting Syk) Amdizalisib (targeting PI3Kδ) HMPL-453 (targeting FGFR) HMPL-306 (targeting IDH 1/2) HMPL-295 (targeting ERK) HMPL-760 (targeting BTK) HMPL-653 (targeting CSF-1R) HMPL-A83 (IgG4-type humanized anti-CD47 monoclonal antibody) Tazemetostat (targeting EZH2) Epitinib (targeting EGFRm+ with brain metastasis) Theliatinib (targeting EGFR wild-type) Others and government grant Total clinical trial related costs Personnel compensation and related costs Other research and development costs Total 2022 Year Ended December 31, 2021 2020 $’000 % $’000 % $’000 % 48,249 52,115 37,635 23,138 27,046 2,776 14,865 1,362 4,954 1,778 2,840 19,019 — — 20,158 255,935 119,306 11,652 386,893 12.5 13.5 9.7 6.0 7.0 0.7 3.8 0.4 1.3 0.5 0.7 4.9 — — 5.2 66.2 30.8 3.0 100.0 26,152 57,707 47,971 8,602 21,044 1,708 10,073 692 5,288 132 — 12,139 — — (1,457) 190,051 91,639 17,396 299,086 8.7 19.3 16.0 2.9 7.0 0.6 3.4 0.2 1.8 — — 5,341 28,254 32,106 7,422 7,383 1,356 5,389 — — — — 4.1 — — (0.4) 63.6 30.6 5.8 100.0 — 808 (74) 17,884 105,869 63,542 5,365 174,776 3.1 16.2 18.4 4.2 4.2 0.8 3.1 — — — — — 0.5 — 10.1 60.6 36.3 3.1 100.0 The following table summarizes our research and development expenses by location for the years indicated. Administrative expenses are also incurred by our corporate head office, which are not allocated to either Oncology/Immunology or PRC U.S. and others Total 2022 Year Ended December 31, 2021 2020 $’000 215,963 170,930 386,893 % 55.8 44.2 100.0 $’000 159,038 140,048 299,086 % 53.2 46.8 100.0 $’000 111,473 63,303 174,776 % 63.8 36.2 100.0 We cannot determine with certainty the duration and completion costs of the current or future pre-clinical or clinical studies of our drug candidates or if, when, or to what extent we will generate revenues from the commercialization and sale of any of our drug candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our drug candidates currently under development. The duration, costs, and timing of clinical studies and development of our drug candidates will depend on a variety of factors, including: • • • the scope, rate of progress and expense of our ongoing as well as any additional clinical studies and other research and development activities; Our Other Ventures’ administrative expenses primarily comprise the salaries and benefits of administrative staff, office leases and other overhead expenses incurred by Hutchison Sinopharm, Hutchison Hain Organic and Hutchison Healthcare. future clinical study results; uncertainties in clinical study enrollment rate; Our corporate head office administrative expenses primarily comprise the salaries and benefits of our corporate head office employees and directors, office leases and other overhead expenses. 172 173 A change in the outcome of any of these variables with respect to the development of a drug candidate could mean a significant change in the costs and timing associated with the development of that drug candidate. For more information on the risks associated with the development of our drug candidates, see Item 3.D. “Risk Factors—Risks Relating to Our Oncology/Immunology Operations and Development of Our Drug Candidates—All of our drug candidates, other than fruquintinib, surufatinib and savolitinib for approved indications in China, are still in development. If we are unable to obtain regulatory approval and ultimately commercialize our drug candidates, or if we experience significant delays in doing so, our business will be The following table sets forth the components of our selling expenses for the years indicated. Year Ended December 31, 2022 2021 2020 $’000 % $’000 % $’000 % 33,862 10,071 43,933 77.1 22.9 100.0 24,627 13,200 37,827 65.1 34.9 100.0 237 11,097 11,334 2.1 97.9 100.0 Our selling expenses primarily comprise selling expenses incurred by our Oncology/Immunology operations by HUTCHMED Limited for sales and marketing expenses and related personnel expenses for our unpartnered drug Sulanda and sales of Elunate to third parties other than Eli Lilly. It also includes sales and marketing expenses and related personnel expenses incurred by our Other Ventures in their distribution and marketing of pharmaceutical and consumer health products. The following table sets forth the components of our administrative expenses for the years indicated. materially harmed.” Selling Expenses Selling Expenses Oncology/Immunology Other Ventures Total Administrative Expenses Other Ventures. Administrative Expenses Oncology/Immunology Other Ventures Corporate Head Office Total Year Ended December 31, 2022 2021 2020 $’000 % $’000 % $’000 % 58,395 3,482 30,296 92,173 63.3 3.8 32.9 100.0 48,359 7,712 33,227 89,298 54.2 8.6 37.2 100.0 19,144 6,129 24,742 50,015 38.3 12.3 49.4 100.0 Oncology/Immunology’s administrative expenses are comprised of the salaries and benefits of administrative staff, office leases and other overhead expenses incurred by HUTCHMED Limited. Research and Development Expenses Our research and development expenses are attributable to our Oncology/Immunology operations. These costs primarily comprise the cost of research and development for our drug candidates, including clinical trial related costs such as payments to third-party CROs, personnel compensation and related costs, and other research and development expenses. The following table sets forth the components of our research and development expenses and the clinical trial related costs incurred for the development of our main drug candidates for the years indicated. R&D Expenses Oncology/Immunology: Savolitinib (targeting MET) Fruquintinib (targeting VEGFR1/2/3) Surufatinib (targeting VEGFR/FGFR1/CSF-1R) Sovleplenib (targeting Syk) Amdizalisib (targeting PI3Kδ) HMPL-453 (targeting FGFR) HMPL-306 (targeting IDH 1/2) HMPL-295 (targeting ERK) HMPL-760 (targeting BTK) HMPL-653 (targeting CSF-1R) HMPL-A83 (IgG4-type humanized anti-CD47 monoclonal antibody) Tazemetostat (targeting EZH2) Epitinib (targeting EGFRm+ with brain metastasis) Theliatinib (targeting EGFR wild-type) Others and government grant Total clinical trial related costs Personnel compensation and related costs Other research and development costs Total PRC U.S. and others Total 2022 2021 2020 $’000 % $’000 % $’000 % Year Ended December 31, 48,249 52,115 37,635 23,138 27,046 2,776 14,865 1,362 4,954 1,778 2,840 19,019 — — 20,158 255,935 119,306 11,652 386,893 12.5 13.5 9.7 6.0 7.0 0.7 3.8 0.4 1.3 0.5 0.7 4.9 — — 5.2 66.2 30.8 3.0 100.0 26,152 57,707 47,971 8,602 21,044 1,708 10,073 692 5,288 132 12,139 — — — (1,457) 190,051 91,639 17,396 299,086 8.7 19.3 16.0 2.9 7.0 0.6 3.4 0.2 1.8 — — 4.1 — — 5,341 28,254 32,106 7,422 7,383 1,356 5,389 — — — — — 808 (74) (0.4) 63.6 30.6 5.8 17,884 105,869 63,542 5,365 100.0 174,776 100.0 3.1 16.2 18.4 4.2 4.2 0.8 3.1 — — — — — 0.5 — 10.1 60.6 36.3 3.1 Year Ended December 31, 2022 2021 2020 $’000 215,963 170,930 386,893 % 55.8 44.2 100.0 $’000 159,038 140,048 299,086 % 53.2 46.8 $’000 111,473 63,303 100.0 174,776 % 63.8 36.2 100.0 We cannot determine with certainty the duration and completion costs of the current or future pre-clinical or clinical studies of our drug candidates or if, when, or to what extent we will generate revenues from the commercialization and sale of any of our drug candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our drug candidates currently under development. The duration, costs, and timing of clinical studies and development of our drug candidates will depend on a variety of factors, including: the scope, rate of progress and expense of our ongoing as well as any additional clinical studies and other research and development activities; future clinical study results; • • • uncertainties in clinical study enrollment rate; • • significant and changing government regulation; and the timing and receipt of any regulatory approvals. A change in the outcome of any of these variables with respect to the development of a drug candidate could mean a significant change in the costs and timing associated with the development of that drug candidate. For more information on the risks associated with the development of our drug candidates, see Item 3.D. “Risk Factors—Risks Relating to Our Oncology/Immunology Operations and Development of Our Drug Candidates—All of our drug candidates, other than fruquintinib, surufatinib and savolitinib for approved indications in China, are still in development. If we are unable to obtain regulatory approval and ultimately commercialize our drug candidates, or if we experience significant delays in doing so, our business will be materially harmed.” Selling Expenses The following table sets forth the components of our selling expenses for the years indicated. Selling Expenses Oncology/Immunology Other Ventures Total 2022 Year Ended December 31, 2021 2020 $’000 % $’000 % $’000 % 33,862 10,071 43,933 77.1 22.9 100.0 24,627 13,200 37,827 65.1 34.9 100.0 237 11,097 11,334 2.1 97.9 100.0 Our selling expenses primarily comprise selling expenses incurred by our Oncology/Immunology operations by HUTCHMED Limited for sales and marketing expenses and related personnel expenses for our unpartnered drug Sulanda and sales of Elunate to third parties other than Eli Lilly. It also includes sales and marketing expenses and related personnel expenses incurred by our Other Ventures in their distribution and marketing of pharmaceutical and consumer health products. Administrative Expenses The following table sets forth the components of our administrative expenses for the years indicated. The following table summarizes our research and development expenses by location for the years indicated. Administrative expenses are also incurred by our corporate head office, which are not allocated to either Oncology/Immunology or Other Ventures. Administrative Expenses Oncology/Immunology Other Ventures Corporate Head Office Total 2022 Year Ended December 31, 2021 2020 $’000 % $’000 % $’000 % 58,395 3,482 30,296 92,173 63.3 3.8 32.9 100.0 48,359 7,712 33,227 89,298 54.2 8.6 37.2 100.0 19,144 6,129 24,742 50,015 38.3 12.3 49.4 100.0 Oncology/Immunology’s administrative expenses are comprised of the salaries and benefits of administrative staff, office leases and other overhead expenses incurred by HUTCHMED Limited. Our Other Ventures’ administrative expenses primarily comprise the salaries and benefits of administrative staff, office leases and other overhead expenses incurred by Hutchison Sinopharm, Hutchison Hain Organic and Hutchison Healthcare. Our corporate head office administrative expenses primarily comprise the salaries and benefits of our corporate head office employees and directors, office leases and other overhead expenses. 172 173 Equity in Earnings of Equity Investees The following table shows our investments in our equity investees as of the dates indicated. We have historically derived a significant portion of our net income from our equity in earnings of equity investees, which was primarily attributable to our non-consolidated joint venture, Shanghai Hutchison Pharmaceuticals and former non-consolidated joint venture, Hutchison Baiyunshan. Our equity in earnings of equity investees, net of tax, contributed by Shanghai Hutchison Pharmaceuticals was $33.5 million, $44.7 million and $49.7 million for the years ended December 31, 2020, 2021 and 2022 respectively. Our equity in earnings of equity investees, net of tax, contributed by Hutchison Baiyunshan was $45.6 million and $15.9 million for the year ended December 31, 2020 and the period ended September 28, 2021, respectively. Equity in earnings of Hutchison Baiyunshan for year ended December 31, 2020 included a one-time gain of $36.0 million from land compensation for a return of land-use rights to the Guangzhou government and for the period ended September 28, 2021 included a one-time gain of $7.0 million for additional land compensation. The following table shows the revenue of Shanghai Hutchison Pharmaceuticals and Hutchison Baiyunshan for the periods indicated. The consolidated financial statements of these joint ventures are prepared in accordance with IFRS as issued by the IASB and are presented separately elsewhere in this annual report. 2022 Year Ended December 31, 2021 2020 $’000 % $’000 % $’000 % Shanghai Hutchison Pharmaceuticals Others Total Current assets Non-current assets Current liabilities Non-current liabilities Net assets As of December 31, 2022 2021 $’000 73,461 316 73,777 75,999 480 76,479 As of December 31, 2022 2021 $’000 214,267 80,062 (147,952) (4,944) 141,433 190,260 91,605 (128,993) (7,131) 145,741 The following table shows the financial position of Shanghai Hutchison Pharmaceuticals as of the dates indicated. Revenue Other Ventures: Shanghai Hutchison Pharmaceuticals Hutchison Baiyunshan (1) Total 370,600 — 370,600 100.0 332,648 — 209,528 542,176 100.0 61.4 38.6 100.0 276,354 232,368 508,722 54.3 45.7 100.0 The following table sets forth a summary of our consolidated results of operations for the years indicated, both in absolute amounts and as percentages of our revenues. This information should be read together with our consolidated financial statements and related notes included elsewhere in this annual report. Our operating results in any period are not necessarily indicative of the results that may Results of Operations (1) On September 28, 2021, we completed the disposal of our equity interest in Hutchison Baiyunshan. Revenue in 2021 reflects the be expected for any future period. period from January 1, 2021 to September 28, 2021. The following table shows the amount of equity in earnings of equity investees, net of tax, of our non-consolidated joint ventures for the years indicated. Equity in earnings of equity investees, net of tax Other Ventures: Shanghai Hutchison Pharmaceuticals(1) Hutchison Baiyunshan(2) Oncology/Immunology: Others Total 2022 Year Ended December 31, 2021 2020 $’000 % $’000 % $’000 % 49,748 — 5 49,753 100.0 44,678 — 15,919 73.7 26.3 33,502 45,641 42.4 57.7 — 100.0 20 60,617 — 100.0 (97) 79,046 (0.1) 100.0 Revenues Cost of revenues Research and development expenses Selling expenses Administrative expenses Gain on divestment of an equity investee Other (expense)/income Income tax benefit/ (expense) Equity in earnings of equity investees, net of tax Net loss Net loss attributable to our company Year Ended December 31, 2022 2021 2020 $’000 % $’000 % $’000 % 426,409 (311,103) (386,893) (43,933) (92,173) — (2,729) 283 49,753 (360,386) (360,835) 100.0 (73.1) (90.7) (10.3) (21.6) (0.6) 0.1 11.7 (84.5) (84.6) 356,128 100.0 227,976 (258,234) (72.5) (299,086) (84.0) (37,827) (10.6) (89,298) (25.1) (188,519) (174,776) (11,334) (50,015) (8,733) (11,918) 60,617 34.1 (2.5) (3.3) 17.0 — 6,934 (4,829) 79,046 (167,041) (46.9) (115,517) (194,648) (54.7) (125,730) 100.0 (82.7) (76.7) (5.0) (21.9) — 3.0 (2.1) 34.7 (50.7) (55.2) — 121,310 Taxation (1) The amount for the years ended December 31, 2021 and 2022 includes elimination of unrealized profits on transactions with the Group of $36,000 and $110,000 respectively. Cayman Islands (2) The amount for the year ended December 31, 2020 and for the period ended September 28, 2021 includes a one-time gain of $36.0 million and $7.0 million, respectively, from land compensation for a return of land use rights to the Guangzhou government. On September 28, 2021, we completed the divestment of our shareholding interest in Hutchison Baiyunshan. Equity in earnings of Hutchison Baiyunshan reflects the period from January 1, 2021 to September 28, 2021. HUTCHMED (China) Limited is incorporated in the Cayman Islands. The Cayman Islands currently levies no taxes on profits, income, gains or appreciation earned by individuals or corporations. In addition, our payment of dividends, if any, is not subject to withholding tax in the Cayman Islands. For more information, see Item 10.E. “Taxation—Overview of Tax Implications of Various Other Jurisdictions—Cayman Islands Taxation.” Investments in equity investees mainly consisted of our investment in Shanghai Hutchison Pharmaceuticals. The fluctuation in the investments in equity investees was primarily due to recording our equity in earnings of Shanghai Hutchison Pharmaceuticals, net of tax, offset by dividends declared. 174 175 Equity in Earnings of Equity Investees The following table shows our investments in our equity investees as of the dates indicated. Shanghai Hutchison Pharmaceuticals Others Total As of December 31, 2022 2021 $’000 73,461 316 73,777 75,999 480 76,479 The following table shows the financial position of Shanghai Hutchison Pharmaceuticals as of the dates indicated. Current assets Non-current assets Current liabilities Non-current liabilities Net assets As of December 31, 2022 2021 $’000 214,267 80,062 (147,952) (4,944) 141,433 190,260 91,605 (128,993) (7,131) 145,741 Results of Operations The following table sets forth a summary of our consolidated results of operations for the years indicated, both in absolute amounts and as percentages of our revenues. This information should be read together with our consolidated financial statements and related notes included elsewhere in this annual report. Our operating results in any period are not necessarily indicative of the results that may be expected for any future period. We have historically derived a significant portion of our net income from our equity in earnings of equity investees, which was primarily attributable to our non-consolidated joint venture, Shanghai Hutchison Pharmaceuticals and former non-consolidated joint venture, Hutchison Baiyunshan. Our equity in earnings of equity investees, net of tax, contributed by Shanghai Hutchison Pharmaceuticals was $33.5 million, $44.7 million and $49.7 million for the years ended December 31, 2020, 2021 and 2022 respectively. Our equity in earnings of equity investees, net of tax, contributed by Hutchison Baiyunshan was $45.6 million and $15.9 million for the year ended December 31, 2020 and the period ended September 28, 2021, respectively. Equity in earnings of Hutchison Baiyunshan for year ended December 31, 2020 included a one-time gain of $36.0 million from land compensation for a return of land-use rights to the Guangzhou government and for the period ended September 28, 2021 included a one-time gain of $7.0 million for additional land compensation. The following table shows the revenue of Shanghai Hutchison Pharmaceuticals and Hutchison Baiyunshan for the periods indicated. The consolidated financial statements of these joint ventures are prepared in accordance with IFRS as issued by the IASB and are presented separately elsewhere in this annual report. Revenue Other Ventures: Shanghai Hutchison Pharmaceuticals Hutchison Baiyunshan (1) Total Year Ended December 31, 2022 2021 2020 $’000 % $’000 % $’000 % 370,600 100.0 332,648 — — 209,528 61.4 38.6 370,600 100.0 542,176 100.0 276,354 232,368 508,722 54.3 45.7 100.0 (1) On September 28, 2021, we completed the disposal of our equity interest in Hutchison Baiyunshan. Revenue in 2021 reflects the period from January 1, 2021 to September 28, 2021. The following table shows the amount of equity in earnings of equity investees, net of tax, of our non-consolidated joint ventures for the years indicated. Year Ended December 31, 2021 $’000 % % % 2020 2022 Equity in earnings of equity investees, net of tax Other Ventures: Shanghai Hutchison Pharmaceuticals(1) Hutchison Baiyunshan(2) Oncology/Immunology: Others Total Year Ended December 31, 2022 2021 2020 $’000 % $’000 % $’000 % 49,748 100.0 44,678 — 15,919 73.7 26.3 33,502 45,641 — 20 — (97) 49,753 100.0 60,617 100.0 79,046 — 5 42.4 57.7 (0.1) 100.0 Revenues Cost of revenues Research and development expenses Selling expenses Administrative expenses Gain on divestment of an equity investee Other (expense)/income Income tax benefit/ (expense) Equity in earnings of equity investees, net of tax Net loss Net loss attributable to our company (1) The amount for the years ended December 31, 2021 and 2022 includes elimination of unrealized profits on transactions with the Group of $36,000 and $110,000 respectively. Cayman Islands Taxation $’000 426,409 (311,103) (386,893) (43,933) (92,173) — (2,729) 283 49,753 (360,386) (360,835) 100.0 (73.1) (90.7) (10.3) (21.6) 356,128 100.0 (258,234) (72.5) (299,086) (84.0) (37,827) (10.6) (25.1) (89,298) 34.1 — 121,310 (2.5) (8,733) (3.3) (11,918) 17.0 60,617 (167,041) (46.9) (194,648) (54.7) (0.6) 0.1 11.7 (84.5) (84.6) $’000 227,976 (188,519) (174,776) (11,334) (50,015) — 6,934 (4,829) 79,046 (115,517) (125,730) 100.0 (82.7) (76.7) (5.0) (21.9) — 3.0 (2.1) 34.7 (50.7) (55.2) (2) The amount for the year ended December 31, 2020 and for the period ended September 28, 2021 includes a one-time gain of $36.0 million and $7.0 million, respectively, from land compensation for a return of land use rights to the Guangzhou government. On September 28, 2021, we completed the divestment of our shareholding interest in Hutchison Baiyunshan. Equity in earnings of Hutchison Baiyunshan reflects the period from January 1, 2021 to September 28, 2021. HUTCHMED (China) Limited is incorporated in the Cayman Islands. The Cayman Islands currently levies no taxes on profits, income, gains or appreciation earned by individuals or corporations. In addition, our payment of dividends, if any, is not subject to withholding tax in the Cayman Islands. For more information, see Item 10.E. “Taxation—Overview of Tax Implications of Various Other Jurisdictions—Cayman Islands Taxation.” Investments in equity investees mainly consisted of our investment in Shanghai Hutchison Pharmaceuticals. The fluctuation in the investments in equity investees was primarily due to recording our equity in earnings of Shanghai Hutchison Pharmaceuticals, net of tax, offset by dividends declared. 174 175 People’s Republic of China Our subsidiaries and a joint venture incorporated in the PRC are governed by the EIT Law and regulations. Under the EIT Law, the standard EIT rate is 25% on taxable profits as reduced by available tax losses. Tax losses may be carried forward to offset any taxable profits for the following five years (extended to ten years for those with HNTE status, with effective from January 1, 2018). HUTCHMED Limited and our non-consolidated joint venture, Shanghai Hutchison Pharmaceuticals, have been successful in their respective applications to renew their HNTE status for three years from January 1, 2020 to December 31, 2022. Accordingly, these entities are eligible to a preferential EIT rate of 15% for the years ended/ending December 31, 2020, 2021 and 2022. HUTCHMED (Suzhou) Limited, a wholly owned subsidiary of HUTCHMED Limited, successful renewed its HNTE status for another three years from January 1, 2021 to December 31, 2023. Accordingly, it is eligible for a preferential EIT rate of 15% for the years ended December 31, 2021, 2022 and 2023. For more information, see Item 10.E. “Taxation—Taxation in the PRC.” Please also see Item. 3 “Key Information—Risk Factors— Other Risks and Risks Relating to Doing Business in China—Our business benefits from certain PRC government tax incentives. The expiration of, changes to, or our PRC subsidiaries/joint venture failing to continuously meet the criteria for these incentives could have a material adverse effect on our operating results by significantly increasing our tax expenses.” According to the EIT Law and its implementation regulations, dividends declared after January 1, 2008 and paid by PRC foreign- invested enterprises to their non-PRC parent companies will be subject to PRC withholding tax at 10% unless there is a tax treaty between the PRC and the jurisdiction in which the overseas parent company is a tax resident and which specifically exempts or reduces such withholding tax, and such tax exemption or reduction is approved by the relevant PRC tax authorities. Pursuant to the tax arrangement between PRC and Hong Kong, if a shareholder of the PRC enterprise is a Hong Kong tax resident and directly holds a 25% or more equity interest in the PRC enterprise and is considered to be the beneficial owner of dividends paid by the PRC enterprise, such withholding tax rate may be lowered to 5%, subject to approval by the relevant PRC tax authorities. For more information, see Item 10.E. “Taxation—Taxation in the PRC” and “Taxation—Overview of Tax Implications of Various Other Jurisdictions— Hong Kong Taxation.” Revenue from Oncology/Immunology increased by 37.0% from $119.6 million for the year ended December 31, 2021 to $163.8 million for the year ended December 31, 2022, primarily due to an increase in revenue related to the sales of Sulanda from $11.6 million for the year ended December 31, 2021 to $32.3 million for the year ended December 31, 2022. The increase was also attributable to the sales of Elunate from $53.5 million for the year ended December 31, 2021 (of which $15.8 million was revenue from sales of goods primarily to Eli Lilly, $10.3 million was royalty revenue and $27.4 million was revenue from promotion and marketing services to Eli Lilly) to $69.9 million for the year ended December 31, 2022 (of which $14.7 million was revenue from sales of goods primarily to Eli Lilly, $13.9 million was royalty revenue and $41.3 million was revenue from promotion and marketing services to Eli Lilly). Sales of Orpathys have also contributed to the increase in revenue from $11.3 million for the year ended December 31, 2021 (of which $6.5 million was revenue from sales of goods and $4.8 million was royalty revenue) to $22.3 million for the year ended December 31, 2022 (of which $9.9 million was revenue from sales of goods and $12.4 million was royalty revenue). The increase has been netted off by reduction in revenue related to collaboration research and development services which have decreased from $42.7 million for the year ended December 31, 2021 to $38.7 million for the year ended December 31, 2022, primarily attributable to receipt of a $25.0 million milestone payment from AstraZeneca upon the commercial launch of Orpathys in August 2021 compared to the receipt of a $15.0 million milestone payment upon initiating start-up activities for a Global Phase III study of Orpathys in Lung Cancer in March 2022. Such decrease has been netted off by the increase in revenue from other collaboration research and development from $17.7 million for the year ended December 31, 2021 to $23.7 million for the year end December 31, 2022. Revenue from our Other Ventures increased by 11.0% from $236.5 million for the year ended December 31, 2021 to $262.6 million for the year ended December 31, 2022, primarily due to an increase in sales of prescription drugs products. Revenue from sales of prescription drugs increased by 16.3% from $204.1 million for the year ended December 31, 2021 to $237.3 million for the year ended December 31, 2022, primarily due to increased sales by our consolidated joint venture Hutchison Sinopharm. Revenue from sales of our consumer health products on the other hand has decreased by 22.1% from $32.4 million for the year ended December 31, 2021 to $25.3 million for the year ended December 31, 2022, primarily due to decreased sales by our consolidated joint venture Hutchison Hain Organic. Cost of Revenues Hong Kong Our company and certain of its subsidiaries are subject to Hong Kong Profits Tax laws and regulations. Hong Kong has a two-tiered Profits Tax rates regime under which the first HK$2.0 million ($0.3 million) of assessable profits of qualifying corporations will be taxed at 8.25%, with the remaining assessable profits taxed at 16.5%. Hong Kong Profits Tax has been provided for at the relevant rates on the estimated assessable profits less estimated available tax losses, if any, of these entities as applicable. Our cost of revenues increased by 20.5% from $258.2 million for the year ended December 31, 2021 to $311.1 million for the year ended December 31, 2022. This increase was due to increased sales by the Oncology/Immunology and Other Ventures operations. Cost of revenues from Oncology/Immunology increased by 54.4% from $44.8 million for the year ended December 31, 2021 to $69.2 million for the year ended December 31, 2022, primarily due to an increase in sales of Sulanda, Elunate (including the provision of promotion and marketing services to Eli Lilly), and Orpathys. Period-to-Period Comparison of Results of Operations Cost of revenues from our Other Ventures increased by 13.3% from $213.4 million for the year ended December 31, 2021 to $241.9 million for the year ended December 31, 2022, which was primarily due to increased sales. Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Revenues Our revenue increased by 19.7% from $356.1 million for the year ended December 31, 2021 to $426.4 million for the year ended December 31, 2022, which resulted from increased revenue primarily in the Oncology/Immunology operations. Cost of revenues as a percentage of our revenues increased from 72.5% to 73.0% across these periods. Research and Development Expenses Our research and development expenses incurred by Oncology/Immunology increased by 29.4% from $299.1 million for the year ended December 31, 2021 to $386.9 million for the year ended December 31, 2022, which was primarily due to a $65.9 million increase in CROs and other clinical trial related costs and a $21.9 million increase in employee compensation related and other costs. These increased costs were due to an expansion of clinical activities. In particular, this increase was attributable to the expansion of the clinical activities of fruquintinib, savolitinib, amdizalisib and sovleplenib. Such increase was also attributable to the decrease in government grants recognized. As a result, research and development expenses as a percentage of our revenue increased from 84.0% to 90.7% across these periods. Selling Expenses Our selling expenses increased by 16.1% from $37.8 million for the year ended December 31, 2021 to $43.9 million for the year ended December 31, 2022, primarily due to the increased marketing activities. Selling expenses as a percentage of our revenues decreased from 10.6% to 10.3% across these periods. 176 177 People’s Republic of China Our subsidiaries and a joint venture incorporated in the PRC are governed by the EIT Law and regulations. Under the EIT Law, the standard EIT rate is 25% on taxable profits as reduced by available tax losses. Tax losses may be carried forward to offset any taxable profits for the following five years (extended to ten years for those with HNTE status, with effective from January 1, 2018). HUTCHMED Limited and our non-consolidated joint venture, Shanghai Hutchison Pharmaceuticals, have been successful in their respective applications to renew their HNTE status for three years from January 1, 2020 to December 31, 2022. Accordingly, these entities are eligible to a preferential EIT rate of 15% for the years ended/ending December 31, 2020, 2021 and 2022. HUTCHMED (Suzhou) Limited, a wholly owned subsidiary of HUTCHMED Limited, successful renewed its HNTE status for another three years from January 1, 2021 to December 31, 2023. Accordingly, it is eligible for a preferential EIT rate of 15% for the years ended December 31, 2021, 2022 and 2023. For more information, see Item 10.E. “Taxation—Taxation in the PRC.” Please also see Item. 3 “Key Information—Risk Factors— Other Risks and Risks Relating to Doing Business in China—Our business benefits from certain PRC government tax incentives. The expiration of, changes to, or our PRC subsidiaries/joint venture failing to continuously meet the criteria for these incentives could have a material adverse effect on our operating results by significantly increasing our tax expenses.” According to the EIT Law and its implementation regulations, dividends declared after January 1, 2008 and paid by PRC foreign- invested enterprises to their non-PRC parent companies will be subject to PRC withholding tax at 10% unless there is a tax treaty between the PRC and the jurisdiction in which the overseas parent company is a tax resident and which specifically exempts or reduces such withholding tax, and such tax exemption or reduction is approved by the relevant PRC tax authorities. Pursuant to the tax arrangement between PRC and Hong Kong, if a shareholder of the PRC enterprise is a Hong Kong tax resident and directly holds a 25% or more equity interest in the PRC enterprise and is considered to be the beneficial owner of dividends paid by the PRC enterprise, such withholding tax rate may be lowered to 5%, subject to approval by the relevant PRC tax authorities. For more information, see Item 10.E. “Taxation—Taxation in the PRC” and “Taxation—Overview of Tax Implications of Various Other Jurisdictions— Hong Kong Taxation.” Hong Kong Our company and certain of its subsidiaries are subject to Hong Kong Profits Tax laws and regulations. Hong Kong has a two-tiered Profits Tax rates regime under which the first HK$2.0 million ($0.3 million) of assessable profits of qualifying corporations will be taxed at 8.25%, with the remaining assessable profits taxed at 16.5%. Hong Kong Profits Tax has been provided for at the relevant rates on the estimated assessable profits less estimated available tax losses, if any, of these entities as applicable. Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Revenues Our revenue increased by 19.7% from $356.1 million for the year ended December 31, 2021 to $426.4 million for the year ended December 31, 2022, which resulted from increased revenue primarily in the Oncology/Immunology operations. Revenue from Oncology/Immunology increased by 37.0% from $119.6 million for the year ended December 31, 2021 to $163.8 million for the year ended December 31, 2022, primarily due to an increase in revenue related to the sales of Sulanda from $11.6 million for the year ended December 31, 2021 to $32.3 million for the year ended December 31, 2022. The increase was also attributable to the sales of Elunate from $53.5 million for the year ended December 31, 2021 (of which $15.8 million was revenue from sales of goods primarily to Eli Lilly, $10.3 million was royalty revenue and $27.4 million was revenue from promotion and marketing services to Eli Lilly) to $69.9 million for the year ended December 31, 2022 (of which $14.7 million was revenue from sales of goods primarily to Eli Lilly, $13.9 million was royalty revenue and $41.3 million was revenue from promotion and marketing services to Eli Lilly). Sales of Orpathys have also contributed to the increase in revenue from $11.3 million for the year ended December 31, 2021 (of which $6.5 million was revenue from sales of goods and $4.8 million was royalty revenue) to $22.3 million for the year ended December 31, 2022 (of which $9.9 million was revenue from sales of goods and $12.4 million was royalty revenue). The increase has been netted off by reduction in revenue related to collaboration research and development services which have decreased from $42.7 million for the year ended December 31, 2021 to $38.7 million for the year ended December 31, 2022, primarily attributable to receipt of a $25.0 million milestone payment from AstraZeneca upon the commercial launch of Orpathys in August 2021 compared to the receipt of a $15.0 million milestone payment upon initiating start-up activities for a Global Phase III study of Orpathys in Lung Cancer in March 2022. Such decrease has been netted off by the increase in revenue from other collaboration research and development from $17.7 million for the year ended December 31, 2021 to $23.7 million for the year end December 31, 2022. Revenue from our Other Ventures increased by 11.0% from $236.5 million for the year ended December 31, 2021 to $262.6 million for the year ended December 31, 2022, primarily due to an increase in sales of prescription drugs products. Revenue from sales of prescription drugs increased by 16.3% from $204.1 million for the year ended December 31, 2021 to $237.3 million for the year ended December 31, 2022, primarily due to increased sales by our consolidated joint venture Hutchison Sinopharm. Revenue from sales of our consumer health products on the other hand has decreased by 22.1% from $32.4 million for the year ended December 31, 2021 to $25.3 million for the year ended December 31, 2022, primarily due to decreased sales by our consolidated joint venture Hutchison Hain Organic. Cost of Revenues Our cost of revenues increased by 20.5% from $258.2 million for the year ended December 31, 2021 to $311.1 million for the year ended December 31, 2022. This increase was due to increased sales by the Oncology/Immunology and Other Ventures operations. Cost of revenues from Oncology/Immunology increased by 54.4% from $44.8 million for the year ended December 31, 2021 to $69.2 million for the year ended December 31, 2022, primarily due to an increase in sales of Sulanda, Elunate (including the provision of promotion and marketing services to Eli Lilly), and Orpathys. Period-to-Period Comparison of Results of Operations Cost of revenues from our Other Ventures increased by 13.3% from $213.4 million for the year ended December 31, 2021 to $241.9 million for the year ended December 31, 2022, which was primarily due to increased sales. Cost of revenues as a percentage of our revenues increased from 72.5% to 73.0% across these periods. Research and Development Expenses Our research and development expenses incurred by Oncology/Immunology increased by 29.4% from $299.1 million for the year ended December 31, 2021 to $386.9 million for the year ended December 31, 2022, which was primarily due to a $65.9 million increase in CROs and other clinical trial related costs and a $21.9 million increase in employee compensation related and other costs. These increased costs were due to an expansion of clinical activities. In particular, this increase was attributable to the expansion of the clinical activities of fruquintinib, savolitinib, amdizalisib and sovleplenib. Such increase was also attributable to the decrease in government grants recognized. As a result, research and development expenses as a percentage of our revenue increased from 84.0% to 90.7% across these periods. Selling Expenses Our selling expenses increased by 16.1% from $37.8 million for the year ended December 31, 2021 to $43.9 million for the year ended December 31, 2022, primarily due to the increased marketing activities. Selling expenses as a percentage of our revenues decreased from 10.6% to 10.3% across these periods. 176 177 Administrative Expenses Our administrative expenses increased by 3.2% from $89.3 million for the year ended December 31, 2021 to $92.2 million for the year ended December 31, 2022. This was primarily due to a $10.0 million increase in administrative expenses incurred by Oncology/Immunology, which was mainly related to increased staff costs and other office expenses to support our expanded clinical activities. Administrative expenses as a percentage of our revenues decreased from 25.1% to 21.6% across these periods. Gain on Divestment of an Equity Investee We had a gain on divestment of an equity investee of $121.3 million for the year ended December 31, 2021, before applicable capital gain taxes and amounts attributable to non-controlling interests, which is related to the disposal of our shareholding interest in Hutchison Baiyunshan. Other (Expense)/ Income Our net other expenses decreased by 68.8% from $8.7 million for the year ended December 31, 2021 to $2.7 million for the year ended December 31, 2022 primarily due to higher interest income of $7.5 million. Income Tax Benefit/(Expense) Our income tax expense decreased from $11.9 million for the year ended December 31, 2021 to $0.3 million income tax benefit for the year ended December 31, 2022, primarily due to the capital gains taxes related to the disposal of our shareholding interest in Hutchison Baiyunshan on September 28, 2021. Net Loss Equity in Earnings of Equity Investees Cost of sales increased by 15.4% from $77.6 million for the year December 31, 2021 to $89.5 million for the year ended December 31, 2022, primarily due to higher sales of She Xiang Bao Xin pills. Shanghai Hutchison Pharmaceuticals’ revenue increased at a lower rate than the cost of sales due to shut down costs associated with the temporary shutdown of the factory during the COVID-19 outbreak. Selling expenses increased by 10.0% from $131.8 million for the year ended December 31, 2021 to $145.0 million for the year ended December 31, 2022, as a result of increased spending on marketing and promotional activities to support the increase in sales. Administrative expenses decreased by 4.0% from $22.6 million for the year ended December 31, 2021 to $21.7 million for the year ended December 31, 2022, primarily due to a decrease in research and development expenses for new products. Other net operating income decreased by 55.3% from $4.8 million for the year ended December 31, 2021 to $2.1 million for the year ended December 31, 2022, primarily due to a decrease in government grants and interest income. Taxation charge increased by 5.3% from $15.9 million for the year ended December 31, 2021 to $16.7 million for the year ended December 31, 2022, primarily due to an increase in taxable profit. As a result of the foregoing, profit increased by 11.5% from $89.4 million for the year ended December 31, 2021 to $99.7 million for the year ended December 31, 2022. Our equity in earnings of equity investees contributed by this joint venture was $44.7 million and $49.7 million for the years ended December 31, 2021 and 2022, respectively. For more information on the financial results of our non-consolidated joint ventures, see “—Key Components of Results of Operations— Equity in Earnings of Equity Investees.” Our equity in earnings of equity investees, net of tax, decreased by 17.9% from $60.6 million for the year ended December 31, 2021 to $49.8 million for the year ended December 31, 2022, primarily due to the disposal of Hutchison Baiyunshan on September 28, 2021. As a result of the foregoing, our net loss increased from $167.0 million for the year ended December 31, 2021 to $360.4 million for the year ended December 31, 2022. Net loss attributable to our company increased from $194.6 million for the year ended December 31, 2021 to $360.8 million for the year ended December 31, 2022. Shanghai Hutchison Pharmaceuticals Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 The following table shows a summary of the results of operations of Shanghai Hutchison Pharmaceuticals for the years indicated. The consolidated financial statements of Shanghai Hutchison Pharmaceuticals are prepared in accordance with IFRS as issued by the IASB and are presented separately elsewhere in this annual report. For a discussion of our results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020, see Item 5.A. “Operating Results” of our annual report on Form 20-F for the year ended December 31, 2021, filed with the SEC on Revenue Cost of sales Selling expenses Administrative expenses Other net operating income Taxation charge Profit for the year Equity in earnings of equity investee attributable to our company(1) Year Ended December 31, 2022 2021 ($’000) 370,600 (89,487) (144,979) (21,727) 2,126 (16,738) 99,683 49,748 % 100.0 (24.1) (39.1) (5.9) 0.5 (4.5) 26.9 13.4 ($’000) 332,648 (77,559) (131,821) (22,627) 4,759 (15,896) 89,388 44,678 % 100.0 (23.3) (39.6) (6.8) 1.4 (4.8) 26.9 13.4 (1) The amount for the years ended December 31, 2021 and 2022 includes elimination of unrealized profits on transactions with the Group of $36,000 and $110,000 respectively. our drug candidates.” Shanghai Hutchison Pharmaceuticals’ revenue increased by 11.4% from $332.6 million for the year ended December 31, 2021 to $370.6 million for the year ended December 31, 2022, primarily due to an increase in sales of She Xiang Bao Xin pills, a vasodilator used in the treatment of heart conditions. Sales of She Xiang Bao Xin pills increased by 11.2% from $307.1 million for the year ended December 31, 2021 to $341.6 million for the year ended December 31, 2022. As of December 31, 2022, we had cash and cash equivalents of $313.3 million and short-term investments of $317.7 million and unutilized bank facilities of $140.3 million. Substantially all of our bank deposits are at major financial institutions, which we believe are of high credit quality. As of December 31, 2022, we had $18.1 million in bank loans, all of which was related to a fixed asset loan from BOC. The total weighted average cost of bank borrowings for the year ended December 31, 2022 was 1.73% per annum. For additional information, see “—Loan Facilities.” 178 179 March 3, 2022. B. Liquidity and Capital Resources To date, we have taken a multi-source approach to fund our operations, including through cash flows generated and dividend payments from our Oncology/Immunology and Other Ventures operations, service and milestone and upfront payments from our collaboration partners, bank borrowings, investments from other third parties, proceeds from our listings on various stock exchanges and follow-on offerings. Our Oncology/Immunology operations have historically not generated significant profits or have operated at a net loss, as creating potential global first-in-class or best-in-class drug candidates requires a significant investment of resources over a prolonged period of time. As a result, we anticipate that we may need additional financing for our Oncology/Immunology operations in future periods. See Item 3.D. “Risk Factors—Risks Relating to Our Oncology/Immunology Operations and Development of Our Drug Candidates— Historically, our in house research and development division, which is included in our Oncology/Immunology operations, has not generated significant profits or has operated at a net loss. Our future profitability is dependent on the successful commercialization of Gain on Divestment of an Equity Investee Hutchison Baiyunshan. Other (Expense)/ Income Income Tax Benefit/(Expense) Hutchison Baiyunshan on September 28, 2021. Equity in Earnings of Equity Investees Administrative Expenses Our administrative expenses increased by 3.2% from $89.3 million for the year ended December 31, 2021 to $92.2 million for the year ended December 31, 2022. This was primarily due to a $10.0 million increase in administrative expenses incurred by Cost of sales increased by 15.4% from $77.6 million for the year December 31, 2021 to $89.5 million for the year ended December 31, 2022, primarily due to higher sales of She Xiang Bao Xin pills. Shanghai Hutchison Pharmaceuticals’ revenue increased at a lower rate than the cost of sales due to shut down costs associated with the temporary shutdown of the factory during the COVID-19 outbreak. Oncology/Immunology, which was mainly related to increased staff costs and other office expenses to support our expanded clinical Selling expenses increased by 10.0% from $131.8 million for the year ended December 31, 2021 to $145.0 million for the year activities. Administrative expenses as a percentage of our revenues decreased from 25.1% to 21.6% across these periods. ended December 31, 2022, as a result of increased spending on marketing and promotional activities to support the increase in sales. We had a gain on divestment of an equity investee of $121.3 million for the year ended December 31, 2021, before applicable capital gain taxes and amounts attributable to non-controlling interests, which is related to the disposal of our shareholding interest in Other net operating income decreased by 55.3% from $4.8 million for the year ended December 31, 2021 to $2.1 million for the Administrative expenses decreased by 4.0% from $22.6 million for the year ended December 31, 2021 to $21.7 million for the year ended December 31, 2022, primarily due to a decrease in research and development expenses for new products. Our net other expenses decreased by 68.8% from $8.7 million for the year ended December 31, 2021 to $2.7 million for the year ended December 31, 2022 primarily due to higher interest income of $7.5 million. year ended December 31, 2022, primarily due to a decrease in government grants and interest income. Taxation charge increased by 5.3% from $15.9 million for the year ended December 31, 2021 to $16.7 million for the year ended December 31, 2022, primarily due to an increase in taxable profit. As a result of the foregoing, profit increased by 11.5% from $89.4 million for the year ended December 31, 2021 to $99.7 million for the year ended December 31, 2022. Our equity in earnings of equity investees contributed by this joint venture was $44.7 million and $49.7 million for the years ended December 31, 2021 and 2022, respectively. Our income tax expense decreased from $11.9 million for the year ended December 31, 2021 to $0.3 million income tax benefit for the year ended December 31, 2022, primarily due to the capital gains taxes related to the disposal of our shareholding interest in For more information on the financial results of our non-consolidated joint ventures, see “—Key Components of Results of Operations— Equity in Earnings of Equity Investees.” Net Loss Our equity in earnings of equity investees, net of tax, decreased by 17.9% from $60.6 million for the year ended December 31, 2021 to $49.8 million for the year ended December 31, 2022, primarily due to the disposal of Hutchison Baiyunshan on September 28, 2021. As a result of the foregoing, our net loss increased from $167.0 million for the year ended December 31, 2021 to $360.4 million for the year ended December 31, 2022. Net loss attributable to our company increased from $194.6 million for the year ended December 31, 2021 to $360.8 million for the year ended December 31, 2022. Shanghai Hutchison Pharmaceuticals Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 The following table shows a summary of the results of operations of Shanghai Hutchison Pharmaceuticals for the years indicated. The consolidated financial statements of Shanghai Hutchison Pharmaceuticals are prepared in accordance with IFRS as issued by the IASB and are presented separately elsewhere in this annual report. For a discussion of our results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020, see Item 5.A. “Operating Results” of our annual report on Form 20-F for the year ended December 31, 2021, filed with the SEC on March 3, 2022. Revenue Cost of sales Selling expenses Administrative expenses Other net operating income Taxation charge Profit for the year Year Ended December 31, 2022 2021 ($’000) 370,600 (89,487) (144,979) (21,727) 2,126 (16,738) 99,683 49,748 % 100.0 (24.1) (39.1) (5.9) 0.5 (4.5) 26.9 13.4 ($’000) 332,648 (77,559) (131,821) (22,627) 4,759 (15,896) 89,388 44,678 % 100.0 (23.3) (39.6) (6.8) 1.4 (4.8) 26.9 13.4 Equity in earnings of equity investee attributable to our company(1) (1) The amount for the years ended December 31, 2021 and 2022 includes elimination of unrealized profits on transactions with the Group of $36,000 and $110,000 respectively. Shanghai Hutchison Pharmaceuticals’ revenue increased by 11.4% from $332.6 million for the year ended December 31, 2021 to $370.6 million for the year ended December 31, 2022, primarily due to an increase in sales of She Xiang Bao Xin pills, a vasodilator used in the treatment of heart conditions. Sales of She Xiang Bao Xin pills increased by 11.2% from $307.1 million for the year ended December 31, 2021 to $341.6 million for the year ended December 31, 2022. B. Liquidity and Capital Resources To date, we have taken a multi-source approach to fund our operations, including through cash flows generated and dividend payments from our Oncology/Immunology and Other Ventures operations, service and milestone and upfront payments from our collaboration partners, bank borrowings, investments from other third parties, proceeds from our listings on various stock exchanges and follow-on offerings. Our Oncology/Immunology operations have historically not generated significant profits or have operated at a net loss, as creating potential global first-in-class or best-in-class drug candidates requires a significant investment of resources over a prolonged period of time. As a result, we anticipate that we may need additional financing for our Oncology/Immunology operations in future periods. See Item 3.D. “Risk Factors—Risks Relating to Our Oncology/Immunology Operations and Development of Our Drug Candidates— Historically, our in house research and development division, which is included in our Oncology/Immunology operations, has not generated significant profits or has operated at a net loss. Our future profitability is dependent on the successful commercialization of our drug candidates.” As of December 31, 2022, we had cash and cash equivalents of $313.3 million and short-term investments of $317.7 million and unutilized bank facilities of $140.3 million. Substantially all of our bank deposits are at major financial institutions, which we believe are of high credit quality. As of December 31, 2022, we had $18.1 million in bank loans, all of which was related to a fixed asset loan from BOC. The total weighted average cost of bank borrowings for the year ended December 31, 2022 was 1.73% per annum. For additional information, see “—Loan Facilities.” 178 179 Certain of our subsidiaries and joint ventures, including those registered as wholly foreign-owned enterprises in China, are required to set aside at least 10.0% of their after-tax profits to their general reserves until such reserves reach 50.0% of their registered capital. In addition, certain of our joint ventures are required to allocate certain of their after-tax profits as determined in accordance with related regulations and their respective articles of association to the reserve funds upon their board approval. Profit appropriated to the reserve funds for our subsidiaries and joint ventures incorporated in the PRC was approximately $44,000, $89,000 and $318,000 for the years ended December 31, 2020, 2021 and 2022, respectively. In addition, as a result of PRC regulations restricting dividend distributions from such reserve funds and from a company’s registered capital, our PRC subsidiaries are restricted in their ability to transfer a certain amount of their net assets to us as cash dividends, loans or advances. This restricted portion amounted to $0.1 million as of December 31, 2022. Although we do not currently require any such dividends, loans or advances from our PRC subsidiaries to fund our operations, should we require additional sources of liquidity in the future, such restrictions may have a material adverse effect on our liquidity and capital resources. For more information, see Item 4.B. “Business Overview—Regulation—PRC Regulation of Foreign Currency Exchange, Offshore Investment and State-Owned Assets— Regulation on Investment in Foreign invested Enterprises—Regulation on Dividend Distribution.” In addition, our non-consolidated joint venture Shanghai Hutchison Pharmaceuticals held $33.9 million in cash and cash equivalents and no bank borrowings as of December 31, 2022. Such cash and cash equivalents are only accessible by us through dividend payments from the joint venture. The level of dividends declared by the joint venture is subject to agreement each year between us and our joint venture partner based on the profitability and working capital needs of the joint venture. As a result, we cannot guarantee that the joint venture will continue to pay dividends to us in the future at the same rate we have enjoyed in the past, or at all, which may have a material adverse effect on our liquidity and capital resources. For more information, see Item 3.D. “Risk Factors—Risks Relating to Sales of our Internally Developed Drugs and Other Drugs—As a significant portion of the operations of our Other Ventures is conducted through joint venture, we are largely dependent on the success of our joint venture and our receipt of dividends or other payments from our joint venture for cash to fund our operations and our investment in joint venture subject to liquidity risk.” We believe that our current levels of cash and cash equivalents, short-term investments, along with cash flows from operations, dividend payments and unutilized bank borrowings, will be sufficient to meet our anticipated cash needs for at least the next 12 months. In the long term, we believe that we can meet our need for cash through revenues generated from marketed products, public and private sales of our securities and the potential disposals of our remaining non-core businesses. However, we may require additional financing in order to fund all of the clinical development efforts that we plan to undertake to accelerate the development of our clinical-stage drug candidates. For more information, see Item 3.D. “Risk Factors—Risks Relating to Our Financial Position and Need for Capital.” Cash Flow Data: Net cash used in operating activities Net cash generated from/(used in) investing activities Net cash (used in)/generated from financing activities Net (decrease)/increase in cash and cash equivalents Effect of exchange rate changes Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year Net Cash used in Operating Activities 2022 Year Ended December 31, 2021 ($’000) 2020 (268,599) 296,588 (82,763) (54,774) (9,490) 377,542 313,278 (204,223) (306,320) 650,028 139,485 2,427 235,630 377,542 (62,066) (125,441) 296,434 108,927 5,546 121,157 235,630 Net cash used in operating activities was $204.2 million for the year ended December 31, 2021, compared to net cash used in operating activities of $268.6 million for the year ended December 31, 2022. The net change of $64.4 million was primarily attributable to higher operating expenses of $149.7 million from $684.4 million for the year ended December 31, 2021 to $834.1 million for the year ended December 31, 2022. The foregoing was partially offset by an increase in revenue of $70.3 million from $356.1 million for the year ended December 31, 2021 to $426.4 million for the year ended December 31, 2022 and an increase in changes of working capital of $26.2 million from $32.5 million for the year ended December 31, 2021 to $58.7 million for the year ended December 31, 2022. For a discussion of our net cash used in operating activities for the years ended December 31, 2021 and 2020, see Item 5.B. “Liquidity and Capital Resources” of our annual report on Form 20-F for the year ended December 31, 2021, filed with the SEC on March 3, 2022. Net Cash generated from/(used in) Investing Activities Net cash used in investing activities was $306.3 million for the year ended December 31, 2021, compared to net cash generated from investing activities of $296.6 million for the year ended December 31, 2022. The net change of $602.9 million was primarily attributable to short-term investments which had net deposits of $434.6 million for the year ended December 31, 2021 as compared to net withdrawals of $316.4 million for the year ended December 31, 2022. The net change was partially offset by the proceeds received from divestment of Hutchison Baiyunshan of $159.1 million during the year ended December 31, 2021, compared to a dividend of $16.5 million received from divestment of the equity investee during the year ended December 31, 2022. For a discussion of our net cash (used in)/generated from investing activities for the years ended December 31, 2021 and 2020, see Item 5.B. “Liquidity and Capital Resources” of our annual report on Form 20-F for the year ended December 31, 2021, filed with the SEC on March 3, 2022. Net Cash (used in)/generated from Financing Activities Net cash generated from financing activities was $650.0 million for the year ended December 31, 2021, compared to net cash used in financing activities of $82.8 million for the year ended December 31, 2022. The net change of $732.8 million was mainly attributable to net proceeds from issuances of shares of $685.4 million primarily from a private placement in April 2021 and our public offering on the SEHK. The net change was also attributable to an increase in purchases of ADSs of $20.8 million by a trustee for the settlement of equity awards of the Company which totaled $27.3 million for the year ended December 31, 2021 as compared to $48.1 million for the year ended December 31, 2022, as well as an increase in dividend paid to non-controlling shareholders of subsidiaries of $15.7 million from $9.9 million for the year ended December 31, 2021 to $25.6 million for the year ended December 31, 2022. For a discussion of our net cash (used in)/generated from financing activities for the years ended December 31, 2021 and 2020, see Item 5.B. “Liquidity and Capital Resources” of our annual report on Form 20-F for the year ended December 31, 2021, filed with the The following table sets forth our contractual obligations as of December 31, 2022. For more information on bank borrowings and interest on bank borrowings, please see “—Loan Facilities.” Our purchase obligations relate to property, plant and equipment that are contracted for but not yet paid. Our lease obligations primarily comprise future aggregate minimum lease payments in respect of various factories, warehouse, offices and other assets under non-cancellable lease agreements. For more information on purchase obligations and lease obligations, please see “—Capital Expenditures.” SEC on March 3, 2022. Contractual Obligations Bank borrowings Interest on bank borrowings Purchase obligations Lease obligations Total Payment Due by Period Less Than Total 1 Year 1‑2 Years 2‑5 Years More Than 5 Years 18,104 4,294 22,130 10,122 54,650 — 318 20,323 4,498 25,139 ($’000) — 636 161 3,431 4,228 2,278 1,837 1,646 2,078 7,839 15,826 1,503 — 115 17,444 180 181 Certain of our subsidiaries and joint ventures, including those registered as wholly foreign-owned enterprises in China, are required to set aside at least 10.0% of their after-tax profits to their general reserves until such reserves reach 50.0% of their registered capital. In addition, certain of our joint ventures are required to allocate certain of their after-tax profits as determined in accordance with related regulations and their respective articles of association to the reserve funds upon their board approval. Profit appropriated to the reserve funds for our subsidiaries and joint ventures incorporated in the PRC was approximately $44,000, $89,000 and $318,000 for the years ended December 31, 2020, 2021 and 2022, respectively. In addition, as a result of PRC regulations restricting dividend distributions from such reserve funds and from a company’s registered capital, our PRC subsidiaries are restricted in their ability to transfer a certain amount of their net assets to us as cash dividends, loans or advances. This restricted portion amounted to $0.1 million as of December 31, 2022. Although we do not currently require any such dividends, loans or advances from our PRC subsidiaries to fund our operations, should we require additional sources of liquidity in the future, such restrictions may have a material adverse effect on our liquidity and capital resources. For more information, see Item 4.B. “Business Overview—Regulation—PRC Regulation of Foreign Currency Exchange, Offshore Investment and State-Owned Assets— Regulation on Investment in Foreign invested Enterprises—Regulation on Dividend Distribution.” In addition, our non-consolidated joint venture Shanghai Hutchison Pharmaceuticals held $33.9 million in cash and cash equivalents and no bank borrowings as of December 31, 2022. Such cash and cash equivalents are only accessible by us through dividend payments from the joint venture. The level of dividends declared by the joint venture is subject to agreement each year between us and our joint venture partner based on the profitability and working capital needs of the joint venture. As a result, we cannot guarantee that the joint venture will continue to pay dividends to us in the future at the same rate we have enjoyed in the past, or at all, which may have a material adverse effect on our liquidity and capital resources. For more information, see Item 3.D. “Risk Factors—Risks Relating to Sales of our Internally Developed Drugs and Other Drugs—As a significant portion of the operations of our Other Ventures is conducted through joint venture, we are largely dependent on the success of our joint venture and our receipt of dividends or other payments from our joint venture for cash to fund our operations and our investment in joint venture subject to liquidity risk.” We believe that our current levels of cash and cash equivalents, short-term investments, along with cash flows from operations, dividend payments and unutilized bank borrowings, will be sufficient to meet our anticipated cash needs for at least the next 12 months. In the long term, we believe that we can meet our need for cash through revenues generated from marketed products, public and private sales of our securities and the potential disposals of our remaining non-core businesses. However, we may require additional financing in order to fund all of the clinical development efforts that we plan to undertake to accelerate the development of our clinical-stage drug candidates. For more information, see Item 3.D. “Risk Factors—Risks Relating to Our Financial Position and Need for Capital.” Cash Flow Data: Net cash used in operating activities Net cash generated from/(used in) investing activities Net cash (used in)/generated from financing activities Net (decrease)/increase in cash and cash equivalents Effect of exchange rate changes Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year Net Cash used in Operating Activities Year Ended December 31, 2022 2020 2021 ($’000) (268,599) 296,588 (82,763) (54,774) (9,490) 377,542 313,278 (204,223) (306,320) (62,066) (125,441) 650,028 139,485 2,427 235,630 377,542 296,434 108,927 5,546 121,157 235,630 Net cash used in operating activities was $204.2 million for the year ended December 31, 2021, compared to net cash used in operating activities of $268.6 million for the year ended December 31, 2022. The net change of $64.4 million was primarily attributable to higher operating expenses of $149.7 million from $684.4 million for the year ended December 31, 2021 to $834.1 million for the year ended December 31, 2022. The foregoing was partially offset by an increase in revenue of $70.3 million from $356.1 million for the year ended December 31, 2021 to $426.4 million for the year ended December 31, 2022 and an increase in changes of working capital of $26.2 million from $32.5 million for the year ended December 31, 2021 to $58.7 million for the year ended December 31, 2022. For a discussion of our net cash used in operating activities for the years ended December 31, 2021 and 2020, see Item 5.B. “Liquidity and Capital Resources” of our annual report on Form 20-F for the year ended December 31, 2021, filed with the SEC on March 3, 2022. Net Cash generated from/(used in) Investing Activities Net cash used in investing activities was $306.3 million for the year ended December 31, 2021, compared to net cash generated from investing activities of $296.6 million for the year ended December 31, 2022. The net change of $602.9 million was primarily attributable to short-term investments which had net deposits of $434.6 million for the year ended December 31, 2021 as compared to net withdrawals of $316.4 million for the year ended December 31, 2022. The net change was partially offset by the proceeds received from divestment of Hutchison Baiyunshan of $159.1 million during the year ended December 31, 2021, compared to a dividend of $16.5 million received from divestment of the equity investee during the year ended December 31, 2022. For a discussion of our net cash (used in)/generated from investing activities for the years ended December 31, 2021 and 2020, see Item 5.B. “Liquidity and Capital Resources” of our annual report on Form 20-F for the year ended December 31, 2021, filed with the SEC on March 3, 2022. Net Cash (used in)/generated from Financing Activities Net cash generated from financing activities was $650.0 million for the year ended December 31, 2021, compared to net cash used in financing activities of $82.8 million for the year ended December 31, 2022. The net change of $732.8 million was mainly attributable to net proceeds from issuances of shares of $685.4 million primarily from a private placement in April 2021 and our public offering on the SEHK. The net change was also attributable to an increase in purchases of ADSs of $20.8 million by a trustee for the settlement of equity awards of the Company which totaled $27.3 million for the year ended December 31, 2021 as compared to $48.1 million for the year ended December 31, 2022, as well as an increase in dividend paid to non-controlling shareholders of subsidiaries of $15.7 million from $9.9 million for the year ended December 31, 2021 to $25.6 million for the year ended December 31, 2022. For a discussion of our net cash (used in)/generated from financing activities for the years ended December 31, 2021 and 2020, see Item 5.B. “Liquidity and Capital Resources” of our annual report on Form 20-F for the year ended December 31, 2021, filed with the SEC on March 3, 2022. Contractual Obligations The following table sets forth our contractual obligations as of December 31, 2022. For more information on bank borrowings and interest on bank borrowings, please see “—Loan Facilities.” Our purchase obligations relate to property, plant and equipment that are contracted for but not yet paid. Our lease obligations primarily comprise future aggregate minimum lease payments in respect of various factories, warehouse, offices and other assets under non-cancellable lease agreements. For more information on purchase obligations and lease obligations, please see “—Capital Expenditures.” Bank borrowings Interest on bank borrowings Purchase obligations Lease obligations Total Payment Due by Period Less Than Total 1 Year 1‑2 Years 2‑5 Years More Than 5 Years 18,104 4,294 22,130 10,122 54,650 — 318 20,323 4,498 25,139 ($’000) — 636 161 3,431 4,228 2,278 1,837 1,646 2,078 7,839 15,826 1,503 — 115 17,444 180 181 Shanghai Hutchison Pharmaceuticals Capital Expenditures The following table sets forth the contractual obligations of our non-consolidated joint venture Shanghai Hutchison Pharmaceuticals as of December 31, 2022. Shanghai Hutchison Pharmaceuticals’ purchase obligations comprise capital commitments for property, plant and equipment contracted for but not yet paid. Shanghai Hutchison Pharmaceuticals’ lease obligations primarily comprise future aggregate minimum lease payments in respect of various offices under non-cancellable lease agreements. Purchase obligations Lease obligations Total Loan Facilities Payment Due by Period Less Than 1 Year 1‑2 Years 2‑5 Years More Than 5 Years 1,307 826 2,133 ($’000) — 757 757 — 660 660 — — — Total 1,307 2,243 3,550 In May 2019, HUTCHMED Group (HK) Limited entered into a credit facility arrangement with HSBC for the provision of unsecured credit facilities in the aggregate amount of HK$400.0 million ($51.3 million). The 3-year credit facilities include (i) a HK$210.0 million ($26.9 million) term loan facility and (ii) a HK$190.0 million ($24.4 million) revolving loan facility, both with an interest rate at HIBOR plus 0.85% per annum. These credit facilities are guaranteed by us and include certain financial covenant requirements. In October 2019, we drew down HK$210.0 million ($26.9 million) from the term loan facility which was repaid in May 2022. The revolving loan facility also expired in May 2022. In August 2020, HUTCHMED Group (HK) Limited entered into a 24-month revolving credit facility with Deutsche Bank AG in the amount of HK$117.0 million ($15.0 million) with an interest rate at HIBOR plus 4.5% per annum. This revolving facility is guaranteed by us and includes certain financial covenant requirements. The revolving loan facility expired in August 2022. In October 2021, HUTCHMED Limited entered into a 10-year fixed asset loan facility agreement with Bank of China Limited for the provision of a secured credit facility of RMB754.9 million ($108.4 million) with an annual interest rate at the 5-year China Loan Prime Rate less 0.80% (which was supplemented in June 2022). This credit facility is guaranteed by HUTCHMED Limited’s immediate holding company, HUTCHMED Investment (HK) Limited, and secured by the underlying leasehold land and buildings of HUTCHMED Limited, and includes certain financial covenant requirements. As of December 31, 2022, RMB126.1 million ($18.1 million) was utilized from the fixed asset loan facility. In May 2022, HUTCHMED Group (HK) Limited entered into a 12-month revolving credit facility with HSBC in the amount of HK$390.0 million ($50.0 million) with an interest rate at HIBOR plus 0.5% per annum. This revolving facility is guaranteed by us. As of December 31, 2022, no amount was drawn from the revolving loan facility. Our non-consolidated joint venture Shanghai Hutchison Pharmaceuticals had no bank borrowings outstanding as of December 31, 2022. Gearing Ratio The gearing ratio of our group, which was calculated by dividing total interest-bearing loans by total equity, was 2.8% as of December 31, 2022, an increase from 2.6% as of December 31, 2021. The increase was primarily attributable to the decrease in equity due to the increase in net loss during the year. We had capital expenditures of $19.6 million, $16.8 million and $36.7 million for the years ended December 31, 2020, 2021 and 2022, respectively. Our capital expenditures during these periods were primarily used for the purchases of leasehold land and property, plant and equipment for a new large-scale manufacturing facility for innovative drugs in Shanghai, China and to expand research facilities and our manufacturing facility in Suzhou, China. Our capital expenditures have been primarily funded by cash flows from operations, bank borrowings and proceeds from our initial public and follow-on offerings in Hong Kong and the United States and other equity offerings. As of December 31, 2022, we had commitments for capital expenditures of approximately $22.1 million, primarily for the construction of the new manufacturing facility in Shanghai. We expect to fund these capital expenditures through cash flows from operations, bank borrowings and existing cash resources. Our non-consolidated joint venture Shanghai Hutchison Pharmaceuticals had capital expenditures of $2.4 million, $3.4 million and $1.9 million for the years ended December 31, 2020, 2021 and 2022, respectively. These capital expenditures were primarily related to the renovation of new office and improvements to its production facilities in Shanghai. These capital expenditures were primarily funded through cash flows from operations of Shanghai Hutchison Pharmaceuticals. C. Research and Development, Patents and Licenses, etc. Full details of our research and development activities and expenditures are given in the “Business” and “Operating and Financial Review and Prospects” sections of this annual report above. Other than as described elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material adverse effect on our revenue, income, profitability, liquidity or capital resources, or that would cause our reported financial information not necessarily to be indicative of future operation results or financial condition. D. Trend Information. E. Critical Accounting Estimates. For information on our critical accounting estimates, please see “—Operating Results—Critical Accounting Policies and Significant Judgments and Estimates” section of this annual report above. 182 183 Shanghai Hutchison Pharmaceuticals Capital Expenditures The following table sets forth the contractual obligations of our non-consolidated joint venture Shanghai Hutchison Pharmaceuticals as of December 31, 2022. Shanghai Hutchison Pharmaceuticals’ purchase obligations comprise capital commitments for property, plant and equipment contracted for but not yet paid. Shanghai Hutchison Pharmaceuticals’ lease obligations primarily comprise future aggregate minimum lease payments in respect of various offices under non-cancellable lease agreements. Purchase obligations Lease obligations Total Loan Facilities Payment Due by Period Less Than Total 1 Year 1‑2 Years 2‑5 Years 1,307 2,243 3,550 1,307 826 2,133 ($’000) — 757 757 — 660 660 More Than 5 Years — — — In May 2019, HUTCHMED Group (HK) Limited entered into a credit facility arrangement with HSBC for the provision of unsecured credit facilities in the aggregate amount of HK$400.0 million ($51.3 million). The 3-year credit facilities include (i) a HK$210.0 million ($26.9 million) term loan facility and (ii) a HK$190.0 million ($24.4 million) revolving loan facility, both with an interest rate at HIBOR plus 0.85% per annum. These credit facilities are guaranteed by us and include certain financial covenant requirements. In October 2019, we drew down HK$210.0 million ($26.9 million) from the term loan facility which was repaid in May 2022. The revolving loan facility also expired in May 2022. In August 2020, HUTCHMED Group (HK) Limited entered into a 24-month revolving credit facility with Deutsche Bank AG in the amount of HK$117.0 million ($15.0 million) with an interest rate at HIBOR plus 4.5% per annum. This revolving facility is guaranteed by us and includes certain financial covenant requirements. The revolving loan facility expired in August 2022. In October 2021, HUTCHMED Limited entered into a 10-year fixed asset loan facility agreement with Bank of China Limited for the provision of a secured credit facility of RMB754.9 million ($108.4 million) with an annual interest rate at the 5-year China Loan Prime Rate less 0.80% (which was supplemented in June 2022). This credit facility is guaranteed by HUTCHMED Limited’s immediate holding company, HUTCHMED Investment (HK) Limited, and secured by the underlying leasehold land and buildings of HUTCHMED Limited, and includes certain financial covenant requirements. As of December 31, 2022, RMB126.1 million ($18.1 million) was utilized from the fixed asset loan facility. In May 2022, HUTCHMED Group (HK) Limited entered into a 12-month revolving credit facility with HSBC in the amount of HK$390.0 million ($50.0 million) with an interest rate at HIBOR plus 0.5% per annum. This revolving facility is guaranteed by us. As of December 31, 2022, no amount was drawn from the revolving loan facility. Our non-consolidated joint venture Shanghai Hutchison Pharmaceuticals had no bank borrowings outstanding as of December 31, 2022. Gearing Ratio The gearing ratio of our group, which was calculated by dividing total interest-bearing loans by total equity, was 2.8% as of December 31, 2022, an increase from 2.6% as of December 31, 2021. The increase was primarily attributable to the decrease in equity due to the increase in net loss during the year. We had capital expenditures of $19.6 million, $16.8 million and $36.7 million for the years ended December 31, 2020, 2021 and 2022, respectively. Our capital expenditures during these periods were primarily used for the purchases of leasehold land and property, plant and equipment for a new large-scale manufacturing facility for innovative drugs in Shanghai, China and to expand research facilities and our manufacturing facility in Suzhou, China. Our capital expenditures have been primarily funded by cash flows from operations, bank borrowings and proceeds from our initial public and follow-on offerings in Hong Kong and the United States and other equity offerings. As of December 31, 2022, we had commitments for capital expenditures of approximately $22.1 million, primarily for the construction of the new manufacturing facility in Shanghai. We expect to fund these capital expenditures through cash flows from operations, bank borrowings and existing cash resources. Our non-consolidated joint venture Shanghai Hutchison Pharmaceuticals had capital expenditures of $2.4 million, $3.4 million and $1.9 million for the years ended December 31, 2020, 2021 and 2022, respectively. These capital expenditures were primarily related to the renovation of new office and improvements to its production facilities in Shanghai. These capital expenditures were primarily funded through cash flows from operations of Shanghai Hutchison Pharmaceuticals. C. Research and Development, Patents and Licenses, etc. Full details of our research and development activities and expenditures are given in the “Business” and “Operating and Financial Review and Prospects” sections of this annual report above. D. Trend Information. Other than as described elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material adverse effect on our revenue, income, profitability, liquidity or capital resources, or that would cause our reported financial information not necessarily to be indicative of future operation results or financial condition. E. Critical Accounting Estimates. For information on our critical accounting estimates, please see “—Operating Results—Critical Accounting Policies and Significant Judgments and Estimates” section of this annual report above. 182 183 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A. Directors and Senior Management. Business Experience and Qualifications of our Directors and Senior Management Below is a list of the names and ages of our directors and officers as of January 31, 2023, and a brief account of the business experience of each of them. The business address for our directors and officers is c/o HUTCHMED (China) Limited, Level 18, The Metropolis Tower, 10 Metropolis Drive, Hunghom, Kowloon, Hong Kong. Name TO Chi Keung, Simon Weiguo SU CHENG Chig Fung, Johnny Edith SHIH Dan ELDAR Lefei SUN Paul Rutherford CARTER Karen Jean FERRANTE Graeme Allan JACK MOK Shu Kam, Tony Michael Ming SHI Karen Jane ATKIN Zhenping WU Mark Kin Hung LEE May Qingmei WANG Hong CHEN Charles George Rupert NIXON Age Position 71 Executive Director and Chairman 65 Executive Director, Chief Executive Officer and Chief Scientific Officer 56 Executive Director and Chief Financial Officer 71 Non-executive Director and Company Secretary 69 Non-executive Director 43 Non-executive Director 62 Senior Independent Non-executive Director Independent Non-executive Director 65 Independent Non-executive Director 72 Independent Non-executive Director 62 57 Executive Vice President, Head of R&D and Chief Medical Officer 57 Executive Vice President and Chief Operating Officer 63 Executive Vice President, Pharmaceutical Sciences and Manufacturing 45 Senior Vice President, Corporate Finance and Development 59 Senior Vice President, Business Development and Strategic Alliances 52 Senior Vice President and Chief Commercial Officer (China) 53 Group General Counsel To Chi Keung, Simon has been a director since 2000 and an executive director and chairman of our Company since 2006. He is also a member of our nomination committee, remuneration committee and technical committee. He is the managing director of Hutchison Whampoa (China) Limited (“Hutchison China”) and has been with Hutchison China for over 40 years, building its business from a small trading company to a multi-billion dollar investment group. He has negotiated major transactions with multinational corporations such as Procter & Gamble, Lockheed, Pirelli, Beiersdorf, United Airlines, and British Airways. He is currently a non-executive director of Gama Aviation Plc and formerly served as independent non-executive director on the boards of China Southern Airlines Company Limited and Air China Limited. In addition, Mr. To is a director of certain substantial shareholders (within the meaning of the Securities and Futures Ordinance) of the Company and certain companies controlled by substantial shareholders of the Company. Mr. To’s career in China spans more than 45 years. He is the original founder of the China healthcare business of Hutchison Whampoa Limited (currently a subsidiary of CK Hutchison) and has been instrumental in its acquisitions made to date. He received a Bachelor’s degree in Mechanical Engineering from Imperial College, London and a Master in Business Administration from Stanford University’s Graduate School of Business. Weiguo Su has been an executive director since 2017 and chief executive officer of our Company since March 4, 2022. He is also our chief scientific officer since 2012. He is also a member of our technical committee. Dr. Su has headed all drug discovery and research since he joined our company, including master-minding our scientific strategy, being a key leader of our Oncology/Immunology operations, and responsible for the discovery of each and every small molecule drug candidate in our pipeline. Prior to joining our company in 2005, Dr. Su worked with the U.S. research and development department of Pfizer, Inc. In 2017, Dr. Su was granted the prestigious award by the China Pharmaceutical Innovation and Research Development Association (PhIRDA) as one of the Most Influential Drug R&D Leaders in China. Dr. Su received a bachelor of science degree in chemistry from Fudan University in Shanghai and completed a PhD and post-doctoral fellowship in chemistry at Harvard University under the guidance of Nobel Laureate Professor E. J. Corey. Cheng Chig Fung, Johnny has been an executive director since 2011 and our chief financial officer since 2008. He is a member of our sustainability committee. Prior to joining our company, Mr. Cheng was vice president, finance of Bristol Myers Squibb in China and was a director of Sino-American Shanghai Squibb Pharmaceuticals Ltd. and Bristol-Myers Squibb (China) Investment Co. Ltd. in Shanghai between late 2006 and 2008. Mr. Cheng started his career as an auditor with Price Waterhouse (currently PricewaterhouseCoopers) in Australia and then KPMG in Beijing before spending eight years with Nestlé China where he was in charge of a number of finance and control functions in various operations. Mr. Cheng received a bachelor of economics, accounting major from the University of Adelaide and is a member of Chartered Accountants Australia and New Zealand. Edith Shih has been a non-executive director since 2006, the company secretary of our company and the company secretary of group companies since 2000. She is also chairman of our sustainability committee. She has over 35 years of experience in legal, regulatory, corporate finance, compliance and corporate governance fields. She is also executive director and company secretary of CK Hutchison. She has been with the Cheung Kong (Holdings) Limited (“CKH”) group since 1989 and with Hutchison Whampoa Limited (“HWL”) since 1991. Both CKH and HWL were formerly listed on SEHK and became wholly-owned subsidiaries of CK Hutchison in 2015. She has acted in various capacities within the HWL group, including head group general counsel and company secretary of HWL as well as director and company secretary of HWL subsidiaries and associated companies. Ms. Shih is in addition a non-executive director of Hutchison Telecommunications Hong Kong Holdings Limited, Hutchison Port Holdings Management Pte. Limited as the trustee-manager of Hutchison Port Holdings Trust and a commissioner of PT Duta Intidaya Tbk. In addition, Ms. Shih is a director of certain substantial shareholders (within the meaning of the Securities and Futures Ordinance) of our company and certain companies controlled by certain substantial shareholders of our company. The aforementioned companies are either subsidiaries or associated companies of CK Hutchison of which Ms. Shih has oversight as a director of CK Hutchison. She is a past international president and current member of the council of The Chartered Governance Institute (“CGI”) as well as a past president and current honorary advisor of The Hong Kong Chartered Governance Institute (“HKCGI”) and current chairperson of its nomination committee. Further, she is also chairman of the process review panel for the Accounting and Financial Reporting Council (formerly known as the Financial Reporting Council) and a member of the Securities and Futures Appeals Tribunal and of the Executive Committee and Council of The Hong Kong Management Association. Ms. Shih is a solicitor qualified in England and Wales, Hong Kong and Victoria, Australia and a fellow of both the CGI and HKCGI, holding chartered secretary and chartered governance professional dual designations. She holds a bachelor of science degree and a master of arts degree from the University of the Philippines as well as a master of arts degree and a master of education degree from Columbia University, New York. Dan Eldar has been a non-executive director of our company since 2016. He has more than 30 years of experience as a senior executive, leading global operations in telecommunications, water, biotech and healthcare. He is an executive director of Hutchison Water Israel Ltd which focuses on large scale projects including desalination, wastewater treatment and water reuse. He was formerly an independent non-executive director of Leumi Card Ltd., a subsidiary of Bank Leumi Le-Israel B.M., one of Israel’s leading credit card companies. Dr. Eldar received a doctor of philosophy degree in government from Harvard University, master of arts degree in government from Harvard University, master of arts degree in political science and public administration from the Hebrew University of Jerusalem and a bachelor of arts degree in political science from the Hebrew University of Jerusalem. Lefei Sun has been a non-executive director of our company since 2022. He is also a member of our technical committee. He has been the managing director and head of China healthcare for General Atlantic since 2018, in charge of private equity investment and portfolio management in healthcare and life sciences sectors. Before joining General Atlantic, Mr. Sun was the founding partner of Huatai Healthcare Investment Fund, successfully leading the investment in Mindray Medical, which is listed on Shenzhen Stock Exchange. Mr. Sun is also a director of Adagene Іnc. and Genesis MedTech Group Inc. He was formerly a director of CANbridge Pharmaceuticals Іnc. and Ocumension Therapeutics Іnc. Mr. Sun holds a bachelor of science degree in mathematics and physics from Tsinghua University. He also holds a master of arts degree in neuroscience from the Johns Hopkins University. Paul Rutherford Carter has been a senior independent non-executive director of our company since 2017. He is also chairman of our remuneration committee and a member of our audit committee and technical committee. He has more than 26 years of experience in the pharmaceutical industry. From 2006 to 2016, Mr. Carter served in various senior executive roles at Gilead Sciences, Inc. (“Gilead”), a research-based biopharmaceutical company, with the last position as executive vice president, commercial operations. In this role, Mr. Carter headed the worldwide commercial organization responsible for the launch and commercialization of all of the products of Gilead. He also worked as a senior executive at GlaxoSmithKline Plc. He is currently a director of Immatics N.V. and VectivBio Holding AG. He is the chairman of Evox Therapeutics and a retained advisor to several firms active in the life sciences sector. He was formerly a director of Alder Biopharmaceuticals, Inc and Mallinckrodt plc. Mr. Carter received a degree in business studies from the Ealing School of Business and Management (now merged into University of West London) and is a fellow of the Chartered Institute of Management Accountants in the United Kingdom. 184 185 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A. Directors and Senior Management. Business Experience and Qualifications of our Directors and Senior Management Below is a list of the names and ages of our directors and officers as of January 31, 2023, and a brief account of the business experience of each of them. The business address for our directors and officers is c/o HUTCHMED (China) Limited, Level 18, The Metropolis Tower, 10 Metropolis Drive, Hunghom, Kowloon, Hong Kong. Name TO Chi Keung, Simon Weiguo SU CHENG Chig Fung, Johnny Edith SHIH Dan ELDAR Lefei SUN Paul Rutherford CARTER Karen Jean FERRANTE Graeme Allan JACK MOK Shu Kam, Tony Michael Ming SHI Karen Jane ATKIN Zhenping WU Mark Kin Hung LEE May Qingmei WANG Hong CHEN Age Position 71 Executive Director and Chairman 65 Executive Director, Chief Executive Officer and Chief Scientific Officer 56 Executive Director and Chief Financial Officer 71 Non-executive Director and Company Secretary 69 Non-executive Director 43 Non-executive Director 62 Senior Independent Non-executive Director 65 72 62 Independent Non-executive Director Independent Non-executive Director Independent Non-executive Director 57 Executive Vice President, Head of R&D and Chief Medical Officer 57 Executive Vice President and Chief Operating Officer 63 Executive Vice President, Pharmaceutical Sciences and Manufacturing 45 Senior Vice President, Corporate Finance and Development 59 Senior Vice President, Business Development and Strategic Alliances 52 Senior Vice President and Chief Commercial Officer (China) Charles George Rupert NIXON 53 Group General Counsel To Chi Keung, Simon has been a director since 2000 and an executive director and chairman of our Company since 2006. He is also a member of our nomination committee, remuneration committee and technical committee. He is the managing director of Hutchison Whampoa (China) Limited (“Hutchison China”) and has been with Hutchison China for over 40 years, building its business from a small trading company to a multi-billion dollar investment group. He has negotiated major transactions with multinational corporations such as Procter & Gamble, Lockheed, Pirelli, Beiersdorf, United Airlines, and British Airways. He is currently a non-executive director of Gama Aviation Plc and formerly served as independent non-executive director on the boards of China Southern Airlines Company Limited and Air China Limited. In addition, Mr. To is a director of certain substantial shareholders (within the meaning of the Securities and Futures Ordinance) of the Company and certain companies controlled by substantial shareholders of the Company. Mr. To’s career in China spans more than 45 years. He is the original founder of the China healthcare business of Hutchison Whampoa Limited (currently a subsidiary of CK Hutchison) and has been instrumental in its acquisitions made to date. He received a Bachelor’s degree in Mechanical Engineering from Imperial College, London and a Master in Business Administration from Stanford University’s Graduate School of Business. E. J. Corey. Weiguo Su has been an executive director since 2017 and chief executive officer of our Company since March 4, 2022. He is also our chief scientific officer since 2012. He is also a member of our technical committee. Dr. Su has headed all drug discovery and research since he joined our company, including master-minding our scientific strategy, being a key leader of our Oncology/Immunology operations, and responsible for the discovery of each and every small molecule drug candidate in our pipeline. Prior to joining our company in 2005, Dr. Su worked with the U.S. research and development department of Pfizer, Inc. In 2017, Dr. Su was granted the prestigious award by the China Pharmaceutical Innovation and Research Development Association (PhIRDA) as one of the Most Influential Drug R&D Leaders in China. Dr. Su received a bachelor of science degree in chemistry from Fudan University in Shanghai and completed a PhD and post-doctoral fellowship in chemistry at Harvard University under the guidance of Nobel Laureate Professor Cheng Chig Fung, Johnny has been an executive director since 2011 and our chief financial officer since 2008. He is a member of our sustainability committee. Prior to joining our company, Mr. Cheng was vice president, finance of Bristol Myers Squibb in China and was a director of Sino-American Shanghai Squibb Pharmaceuticals Ltd. and Bristol-Myers Squibb (China) Investment Co. Ltd. in Shanghai between late 2006 and 2008. Mr. Cheng started his career as an auditor with Price Waterhouse (currently PricewaterhouseCoopers) in Australia and then KPMG in Beijing before spending eight years with Nestlé China where he was in charge of a number of finance and control functions in various operations. Mr. Cheng received a bachelor of economics, accounting major from the University of Adelaide and is a member of Chartered Accountants Australia and New Zealand. Edith Shih has been a non-executive director since 2006, the company secretary of our company and the company secretary of group companies since 2000. She is also chairman of our sustainability committee. She has over 35 years of experience in legal, regulatory, corporate finance, compliance and corporate governance fields. She is also executive director and company secretary of CK Hutchison. She has been with the Cheung Kong (Holdings) Limited (“CKH”) group since 1989 and with Hutchison Whampoa Limited (“HWL”) since 1991. Both CKH and HWL were formerly listed on SEHK and became wholly-owned subsidiaries of CK Hutchison in 2015. She has acted in various capacities within the HWL group, including head group general counsel and company secretary of HWL as well as director and company secretary of HWL subsidiaries and associated companies. Ms. Shih is in addition a non-executive director of Hutchison Telecommunications Hong Kong Holdings Limited, Hutchison Port Holdings Management Pte. Limited as the trustee-manager of Hutchison Port Holdings Trust and a commissioner of PT Duta Intidaya Tbk. In addition, Ms. Shih is a director of certain substantial shareholders (within the meaning of the Securities and Futures Ordinance) of our company and certain companies controlled by certain substantial shareholders of our company. The aforementioned companies are either subsidiaries or associated companies of CK Hutchison of which Ms. Shih has oversight as a director of CK Hutchison. She is a past international president and current member of the council of The Chartered Governance Institute (“CGI”) as well as a past president and current honorary advisor of The Hong Kong Chartered Governance Institute (“HKCGI”) and current chairperson of its nomination committee. Further, she is also chairman of the process review panel for the Accounting and Financial Reporting Council (formerly known as the Financial Reporting Council) and a member of the Securities and Futures Appeals Tribunal and of the Executive Committee and Council of The Hong Kong Management Association. Ms. Shih is a solicitor qualified in England and Wales, Hong Kong and Victoria, Australia and a fellow of both the CGI and HKCGI, holding chartered secretary and chartered governance professional dual designations. She holds a bachelor of science degree and a master of arts degree from the University of the Philippines as well as a master of arts degree and a master of education degree from Columbia University, New York. Dan Eldar has been a non-executive director of our company since 2016. He has more than 30 years of experience as a senior executive, leading global operations in telecommunications, water, biotech and healthcare. He is an executive director of Hutchison Water Israel Ltd which focuses on large scale projects including desalination, wastewater treatment and water reuse. He was formerly an independent non-executive director of Leumi Card Ltd., a subsidiary of Bank Leumi Le-Israel B.M., one of Israel’s leading credit card companies. Dr. Eldar received a doctor of philosophy degree in government from Harvard University, master of arts degree in government from Harvard University, master of arts degree in political science and public administration from the Hebrew University of Jerusalem and a bachelor of arts degree in political science from the Hebrew University of Jerusalem. Lefei Sun has been a non-executive director of our company since 2022. He is also a member of our technical committee. He has been the managing director and head of China healthcare for General Atlantic since 2018, in charge of private equity investment and portfolio management in healthcare and life sciences sectors. Before joining General Atlantic, Mr. Sun was the founding partner of Huatai Healthcare Investment Fund, successfully leading the investment in Mindray Medical, which is listed on Shenzhen Stock Exchange. Mr. Sun is also a director of Adagene Іnc. and Genesis MedTech Group Inc. He was formerly a director of CANbridge Pharmaceuticals Іnc. and Ocumension Therapeutics Іnc. Mr. Sun holds a bachelor of science degree in mathematics and physics from Tsinghua University. He also holds a master of arts degree in neuroscience from the Johns Hopkins University. Paul Rutherford Carter has been a senior independent non-executive director of our company since 2017. He is also chairman of our remuneration committee and a member of our audit committee and technical committee. He has more than 26 years of experience in the pharmaceutical industry. From 2006 to 2016, Mr. Carter served in various senior executive roles at Gilead Sciences, Inc. (“Gilead”), a research-based biopharmaceutical company, with the last position as executive vice president, commercial operations. In this role, Mr. Carter headed the worldwide commercial organization responsible for the launch and commercialization of all of the products of Gilead. He also worked as a senior executive at GlaxoSmithKline Plc. He is currently a director of Immatics N.V. and VectivBio Holding AG. He is the chairman of Evox Therapeutics and a retained advisor to several firms active in the life sciences sector. He was formerly a director of Alder Biopharmaceuticals, Inc and Mallinckrodt plc. Mr. Carter received a degree in business studies from the Ealing School of Business and Management (now merged into University of West London) and is a fellow of the Chartered Institute of Management Accountants in the United Kingdom. 184 185 Karen Jean Ferrante has been an independent non-executive director of our company since 2017. She is also chairman of our technical committee and a member of our audit committee. She has more than 26 years of experience in the pharmaceutical industry. She was the former chief medical officer and head of research and development of Tokai Pharmaceuticals, Inc., a biopharmaceutical company focused on developing and commercializing innovative therapies for prostate cancer and other hormonally driven diseases. Dr. Ferrante previously held senior positions at Millennium Pharmaceuticals, Inc. and its parent company, Takeda Pharmaceutical Company Limited, including chief medical officer and most recently as oncology therapeutic area and Cambridge USA site head. She had also held positions of increasing responsibility at Pfizer Inc. (“Pfizer”), with the last position as vice president, oncology development. Dr. Ferrante is currently a member of the board of directors of MacroGenics, Inc., and Cogent Biosciences, Inc. (formerly Unum Therapeutics Inc.). Dr. Ferrante was previously a director of Baxalta Incorporated until it was acquired by Shire plc in 2016 and a director of Progenics Pharmaceuticals, Inc., until it was acquired by Lantheus Holdings, Inc. in 2020. She was previously a member of the scientific advisory board of Trillium Therapeutics Inc. until it was acquired by Pfizer in November 2021. She was also a past member of the Scientific Advisory Board of Kazia Therapeutics Limited. Dr. Ferrante is an author of a number of papers in the field of oncology, an active participant in academic and professional associations and symposia and holder of several patents. Dr. Ferrante received a bachelor of science degree in chemistry and biology from Providence College and a doctor of medicine from Georgetown University. Graeme Allan Jack has been an independent non-executive director of our company since 2017. He is also chairman of our audit committee and a member of our nomination committee and remuneration committee. He has more than 40 years of experience in finance and audit. He retired as partner of PricewaterhouseCoopers in 2006 after a distinguished career with the firm for over 33 years. He is currently an independent non-executive director of The Greenbrier Companies, Inc. (an international supplier of equipment and services to the freight rail transportation markets) and Hutchison Port Holdings Management Pte. Limited as the trustee-manager of Hutchison Port Holdings Trust (a developer and operator of deep water container terminals). He was formerly a director of COSCO SHIPPING Development Co., Ltd. (formerly known as “China Shipping Container Lines Company Limited”, an integrated financial services platform principally engaged in vessel and container leasing). Mr. Jack received a bachelor of commerce degree from University of New South Wales, Australia and is a fellow of the Hong Kong Institute of Certified Public Accountants and an associate of Chartered Accountants Australia and New Zealand. Mok Shu Kam, Tony has been an independent non-executive director of our company since 2017. He is also chairman of our nomination committee and a member of our sustainability committee and technical committee. Professor Mok has more than 31 years of experience in clinical oncology with his main research interest focusing on biomarker and molecular targeted therapy in lung cancer. He is currently Li Shu Fan Medical Foundation named professor and chairman of department of clinical oncology at The Chinese University of Hong Kong. Professor Mok has contributed to over 250 articles in international peer-reviewed journals, as well as multiple editorials and textbooks. In October 2018, Professor Mok was the first Chinese to be bestowed with the European Society for Medical Oncology (ESMO) Lifetime Achievement Award, one of the most prestigious international honors and recognitions given to cancer researchers, for his contribution to and leadership in lung cancer research worldwide. Professor Mok is a non-executive director of AstraZeneca PLC, a non-executive independent director of Lunit USA Inc and a member of the scientific advisory board of Prenetics Global Limited (“Prenetics”). He is co-founder of Sanomics Limited (acquired by ACT Genomics Holdings Ltd. in November 2021) and Aurora Tele-Oncology Limited. He was formerly a board director of the American Society of Clinical Oncology (“ASCO”), a steering committee member of the Chinese Society of Clinical Oncology, past president of the International Association for the Study of Lung Cancer, and the chairman of the board of ACT Genomics Holdings Ltd. until it was acquired by Prenetics in December 2022. Professor Mok is also closely affiliated with the oncology community in China and has been awarded an Honorary Professorship at Guangdong Province People’s Hospital, Guest Professorship at Peking Union Medical College Hospital and Visiting Professorship at Shanghai Jiao Tong University. He received his bachelor of medical science degree and a doctor of medicine from University of Alberta, Canada. He is also a fellow of the Royal College of Physicians and Surgeons of Canada, Hong Kong College of Physicians, Hong Kong Academy of Medicine, Royal College of Physicians of Edinburgh and ASCO. Michael Ming Shi is our executive vice president, head of R&D and chief medical officer, oversees the drug discovery and development of our Company from strategy to execution. Prior to joining our company in 2022, Dr. Shi was the global head of R&D and chief medical officer at Transcenta Holding Limited where he helped build a strong global research and development organization across China and the U.S. and advanced seven programs into clinical development and multiple preclinical candidate nominations. Before that, Dr. Shi worked at Novartis for over 15 years, where he held various senior leadership positions including global program clinical head in clinical development. He played key leadership roles in the clinical development of multiple novel oncology/hematology products from clinical proof-of-concept to successful execution of global pivotal trials, product registration and life-cycle management. Dr. Shi is a member of the American Society of Clinical Oncology, European Society of Clinical Oncology, American Society of Hematology, American Association for Cancer Research, Sino-American Pharmaceutical Association and an executive committee member of the US-China Anticancer Association (USCACA). Dr. Shi also worked as the program director of genetics variation at National Institues of Health (“NIH”) under the direct supervision of former NIH director Dr. Francis Collins and was an adjunct assistant professor at the University of Michigan Medical School. Dr. Shi holds a PhD in molecular pharmacology and toxicology from the University of Southern California, and conducted postdoctoral research at the Harvard Medical School. He received his medical education from Peking Union Medical College. Karen Jane Atkin is our executive vice president and chief operating officer. Prior to joining our company in 2021, Dr. Atkin spent 24 years at AstraZeneca in senior medical, regulatory, pharmacovigilance, R&D and commercial leadership roles, including as senior vice president of medical for biopharmaceuticals, vice president of the global infection, neuroscience and autoimmunity therapy area and the established branch business, country president of Indonesia and led China R&D for over four years. Dr. Atkin is also a registered physician with advanced level qualifications in internal medicine and pharmaceutical medicine. Dr. Atkin holds three bachelor’s degrees in physiology, medicine and surgery, respectively, from University College London. She graduated with a first class honors degree in medicine, holds a master of business administration from the Open University, and is a member of the Royal College of Physicians and a fellow of the Faculty of Pharmaceutical Medicine in the UK. Zhenping Wu joined our company in 2008 and is our executive vice president of pharmaceutical sciences and manufacturing. Dr. Wu has over 29 years of experience in drug discovery and development. His past positions include senior director of pharmaceutical sciences at Phenomix Corporation, a U.S.-based biotechnology company, director of pharmaceutical development at Pfizer Global Research & Development in California (formerly Agouron Pharmaceuticals) and a group leader at Roche at its Palo Alto site. He is a past chairman and president of the board of the Sino-American Biotechnology and Pharmaceutical Association. Dr. Wu received a PhD from the University of Hong Kong and a master in business administration from the University of California at Irvine. Mark Kin Hung Lee is our senior vice president of corporate finance and development and joined our company in 2009. He began working in healthcare investment banking in the United States and Europe in 1998. Based in the New York and London offices of Credit Suisse, Mr. Lee was involved in the execution and origination of mergers, acquisitions, public and private financings and corporate strategy for life science companies such as AstraZeneca, Bristol-Myers Squibb and Genzyme, as well as other medical product and service companies. Mr. Lee received his bachelor’s degree in biochemical engineering with first class honors from University College London, where he was awarded a Dean’s Commendation. He also received a master of business administration from the Massachusetts Institute of Technology’s Sloan School of Management. May Qingmei Wang is our senior vice president of business development and strategic alliances. Prior to joining our company in 2010, Dr. Wang spent 16 years with Eli Lilly where she was the head of Eli Lilly’s Asian Biology Research and responsible for establishing and managing research collaborations in China and across Asia. Dr. Wang holds numerous patents, has published more than 50 peer-reviewed articles and has given dozens of seminars and plenary lectures. Dr. Wang received a PhD in biochemistry from Purdue University. Hong Chen is our senior vice president and chief commercial officer (China). Prior to joining our company in 2011, Mr. Chen spent 12 years with Bristol-Myers Squibb and was last serving as its national sales & marketing director in China. Mr. Chen received a bachelor’s degree in medicine from Nanjing Medical University and an EMBA from Cheung Kong Graduate School of Business. Charles George Rupert Nixon has been our group general counsel since 2015 and has worked with us since 2006. Prior to joining us, Mr. Nixon was group senior legal counsel for Hutchison Whampoa Limited (previously a listed company in Hong Kong and after a restructuring, a subsidiary of CK Hutchison) in both Hong Kong and London and prior to that senior legal counsel for Three UK, a mobile phone operator. Mr. Nixon has been with the CK Hutchison Group since 2001. Mr. Nixon received an LLB (Hons) from Middlesex University and is a qualified solicitor in England & Wales with over 30 years of experience. 186 187 Karen Jean Ferrante has been an independent non-executive director of our company since 2017. She is also chairman of our technical committee and a member of our audit committee. She has more than 26 years of experience in the pharmaceutical industry. She was the former chief medical officer and head of research and development of Tokai Pharmaceuticals, Inc., a biopharmaceutical company focused on developing and commercializing innovative therapies for prostate cancer and other hormonally driven diseases. Dr. Ferrante previously held senior positions at Millennium Pharmaceuticals, Inc. and its parent company, Takeda Pharmaceutical Company Limited, including chief medical officer and most recently as oncology therapeutic area and Cambridge USA site head. She had also held positions of increasing responsibility at Pfizer Inc. (“Pfizer”), with the last position as vice president, oncology development. Dr. Ferrante is currently a member of the board of directors of MacroGenics, Inc., and Cogent Biosciences, Inc. (formerly Unum Therapeutics Inc.). Dr. Ferrante was previously a director of Baxalta Incorporated until it was acquired by Shire plc in 2016 and a director of Progenics Pharmaceuticals, Inc., until it was acquired by Lantheus Holdings, Inc. in 2020. She was previously a member of the scientific advisory board of Trillium Therapeutics Inc. until it was acquired by Pfizer in November 2021. She was also a past member of the Scientific Advisory Board of Kazia Therapeutics Limited. Dr. Ferrante is an author of a number of papers in the field of oncology, an active participant in academic and professional associations and symposia and holder of several patents. Dr. Ferrante received a bachelor of science degree in chemistry and biology from Providence College and a doctor of medicine from Georgetown University. Graeme Allan Jack has been an independent non-executive director of our company since 2017. He is also chairman of our audit committee and a member of our nomination committee and remuneration committee. He has more than 40 years of experience in finance and audit. He retired as partner of PricewaterhouseCoopers in 2006 after a distinguished career with the firm for over 33 years. He is currently an independent non-executive director of The Greenbrier Companies, Inc. (an international supplier of equipment and services to the freight rail transportation markets) and Hutchison Port Holdings Management Pte. Limited as the trustee-manager of Hutchison Port Holdings Trust (a developer and operator of deep water container terminals). He was formerly a director of COSCO SHIPPING Development Co., Ltd. (formerly known as “China Shipping Container Lines Company Limited”, an integrated financial services platform principally engaged in vessel and container leasing). Mr. Jack received a bachelor of commerce degree from University of New South Wales, Australia and is a fellow of the Hong Kong Institute of Certified Public Accountants and an associate of Chartered Accountants Australia and New Zealand. Mok Shu Kam, Tony has been an independent non-executive director of our company since 2017. He is also chairman of our nomination committee and a member of our sustainability committee and technical committee. Professor Mok has more than 31 years of experience in clinical oncology with his main research interest focusing on biomarker and molecular targeted therapy in lung cancer. He is currently Li Shu Fan Medical Foundation named professor and chairman of department of clinical oncology at The Chinese University of Hong Kong. Professor Mok has contributed to over 250 articles in international peer-reviewed journals, as well as multiple editorials and textbooks. In October 2018, Professor Mok was the first Chinese to be bestowed with the European Society for Medical Oncology (ESMO) Lifetime Achievement Award, one of the most prestigious international honors and recognitions given to cancer researchers, for his contribution to and leadership in lung cancer research worldwide. Professor Mok is a non-executive director of AstraZeneca PLC, a non-executive independent director of Lunit USA Inc and a member of the scientific advisory board of Prenetics Global Limited (“Prenetics”). He is co-founder of Sanomics Limited (acquired by ACT Genomics Holdings Ltd. in November 2021) and Aurora Tele-Oncology Limited. He was formerly a board director of the American Society of Clinical Oncology (“ASCO”), a steering committee member of the Chinese Society of Clinical Oncology, past president of the International Association for the Study of Lung Cancer, and the chairman of the board of ACT Genomics Holdings Ltd. until it was acquired by Prenetics in December 2022. Professor Mok is also closely affiliated with the oncology community in China and has been awarded an Honorary Professorship at Guangdong Province People’s Hospital, Guest Professorship at Peking Union Medical College Hospital and Visiting Professorship at Shanghai Jiao Tong University. He received his bachelor of medical science degree and a doctor of medicine from University of Alberta, Canada. He is also a fellow of the Royal College of Physicians and Surgeons of Canada, Hong Kong College of Physicians, Hong Kong Academy of Medicine, Royal College of Physicians of Edinburgh and ASCO. Michael Ming Shi is our executive vice president, head of R&D and chief medical officer, oversees the drug discovery and development of our Company from strategy to execution. Prior to joining our company in 2022, Dr. Shi was the global head of R&D and chief medical officer at Transcenta Holding Limited where he helped build a strong global research and development organization across China and the U.S. and advanced seven programs into clinical development and multiple preclinical candidate nominations. Before that, Dr. Shi worked at Novartis for over 15 years, where he held various senior leadership positions including global program clinical head in clinical development. He played key leadership roles in the clinical development of multiple novel oncology/hematology products from clinical proof-of-concept to successful execution of global pivotal trials, product registration and life-cycle management. Dr. Shi is a member of the American Society of Clinical Oncology, European Society of Clinical Oncology, American Society of Hematology, American Association for Cancer Research, Sino-American Pharmaceutical Association and an executive committee member of the US-China Anticancer Association (USCACA). Dr. Shi also worked as the program director of genetics variation at National Institues of Health (“NIH”) under the direct supervision of former NIH director Dr. Francis Collins and was an adjunct assistant professor at the University of Michigan Medical School. Dr. Shi holds a PhD in molecular pharmacology and toxicology from the University of Southern California, and conducted postdoctoral research at the Harvard Medical School. He received his medical education from Peking Union Medical College. Karen Jane Atkin is our executive vice president and chief operating officer. Prior to joining our company in 2021, Dr. Atkin spent 24 years at AstraZeneca in senior medical, regulatory, pharmacovigilance, R&D and commercial leadership roles, including as senior vice president of medical for biopharmaceuticals, vice president of the global infection, neuroscience and autoimmunity therapy area and the established branch business, country president of Indonesia and led China R&D for over four years. Dr. Atkin is also a registered physician with advanced level qualifications in internal medicine and pharmaceutical medicine. Dr. Atkin holds three bachelor’s degrees in physiology, medicine and surgery, respectively, from University College London. She graduated with a first class honors degree in medicine, holds a master of business administration from the Open University, and is a member of the Royal College of Physicians and a fellow of the Faculty of Pharmaceutical Medicine in the UK. Zhenping Wu joined our company in 2008 and is our executive vice president of pharmaceutical sciences and manufacturing. Dr. Wu has over 29 years of experience in drug discovery and development. His past positions include senior director of pharmaceutical sciences at Phenomix Corporation, a U.S.-based biotechnology company, director of pharmaceutical development at Pfizer Global Research & Development in California (formerly Agouron Pharmaceuticals) and a group leader at Roche at its Palo Alto site. He is a past chairman and president of the board of the Sino-American Biotechnology and Pharmaceutical Association. Dr. Wu received a PhD from the University of Hong Kong and a master in business administration from the University of California at Irvine. Mark Kin Hung Lee is our senior vice president of corporate finance and development and joined our company in 2009. He began working in healthcare investment banking in the United States and Europe in 1998. Based in the New York and London offices of Credit Suisse, Mr. Lee was involved in the execution and origination of mergers, acquisitions, public and private financings and corporate strategy for life science companies such as AstraZeneca, Bristol-Myers Squibb and Genzyme, as well as other medical product and service companies. Mr. Lee received his bachelor’s degree in biochemical engineering with first class honors from University College London, where he was awarded a Dean’s Commendation. He also received a master of business administration from the Massachusetts Institute of Technology’s Sloan School of Management. May Qingmei Wang is our senior vice president of business development and strategic alliances. Prior to joining our company in 2010, Dr. Wang spent 16 years with Eli Lilly where she was the head of Eli Lilly’s Asian Biology Research and responsible for establishing and managing research collaborations in China and across Asia. Dr. Wang holds numerous patents, has published more than 50 peer-reviewed articles and has given dozens of seminars and plenary lectures. Dr. Wang received a PhD in biochemistry from Purdue University. Hong Chen is our senior vice president and chief commercial officer (China). Prior to joining our company in 2011, Mr. Chen spent 12 years with Bristol-Myers Squibb and was last serving as its national sales & marketing director in China. Mr. Chen received a bachelor’s degree in medicine from Nanjing Medical University and an EMBA from Cheung Kong Graduate School of Business. Charles George Rupert Nixon has been our group general counsel since 2015 and has worked with us since 2006. Prior to joining us, Mr. Nixon was group senior legal counsel for Hutchison Whampoa Limited (previously a listed company in Hong Kong and after a restructuring, a subsidiary of CK Hutchison) in both Hong Kong and London and prior to that senior legal counsel for Three UK, a mobile phone operator. Mr. Nixon has been with the CK Hutchison Group since 2001. Mr. Nixon received an LLB (Hons) from Middlesex University and is a qualified solicitor in England & Wales with over 30 years of experience. 186 187 Board Diversity Employment Arrangements with our Executive Officers On August 6, 2021, the SEC approved the Nasdaq Stock Market’s proposal to amend its listing standards to encourage greater board diversity and to require board diversity disclosures for Nasdaq-listed companies. Pursuant to the amended listing standards, HUTCHMED, as a foreign private issuer, is required to have at least two diverse board members or explain the reasons for not meeting this objective by 2025. Furthermore, a board diversity matrix is required to be included in the annual report on Form 20-F, containing certain demographic and other information regarding members of our board of directors. HUTCHMED currently complies with the diversity requirement, as we currently have two female and eight male members on our board of directors. The board diversity matrix is set out below. Board Diversity Matrix (As of February 28, 2023) Place of Principal Executive Offices Foreign Private Issuer Disclosure Prohibited under Home Country Law Total Number of Directors Part I: Gender Identity Directors Part II: Demographic Background Underrepresented Individual in Place of Principal Executive Offices LGBTQ+ Did Not Disclose Demographic Background Hong Kong Yes No 10 Female Male Non-Binary Gender Did Not Disclose 2 — — — 8 — — — — — — — — — — — B. Compensation. Summary Compensation Table Executive Officer Compensation The following table sets forth the non-equity compensation paid or accrued during the year ended December 31, 2022 to our chief executive officer and chief scientific officer, chief financial officer and other executive officers on an aggregate basis. Salary and fees ($) Bonus(3) ($) 774,940 (1) 1,126,563 404,415 (2) 443,077 3,748,868 3,082,493 Name and Principal Position Weiguo SU CHENG Chig Fung, Johnny Other Executive Officers in the Aggregate Notes: (1) Amount includes director’s fees of $75,000. (2) Amount includes director’s fees of $75,000. Taxable Non-taxable Pension benefits benefits ($) ($) — 6,548 — 10,577 101,846 contributions ($) 64,217 29,018 183,020 26,646 Total ($) 1,972,268 887,087 7,142,873 (3) In December 2013 and March 2014, we awarded cash retention bonuses to certain of our executive officers in the aggregate amount of $2,977,751. Each such executive officer receives portions of his or her retention bonus upon certain dates in the future depending on when the bonus was granted and, in each case, assuming he or she remains employed by our company on such future dates. In 2022, we awarded $322,188 of such cash retention bonuses. 188 189 Employment Agreements with Executive Officers at HUTCHMED Group (HK) Limited and HUTCHMED Holdings (HK) Limited We have entered into employment agreements with each of our executive officers who are directly employed by HUTCHMED Group (HK) Limited or HUTCHMED Holdings (HK) Limited, namely Mr. Cheng Chig Fung, Johnny, Dr. Karen Jane Atkin, Mr. Mark Kin Hung Lee and Mr. Charles George Rupert Nixon. Under these employment agreements, our executives receive compensation in the form of salaries, discretionary bonuses, participation in the Hutchison Provident Fund retirement scheme, medical coverage under the CK Hutchison Group Medical Scheme, personal accident insurance and annual leave. None of the employment arrangements provide benefits to our executive officers upon termination. We may terminate employment by giving the executive officers three months’ prior written notice. The executive officer may also voluntarily terminate his/her employment with us upon not less than three months’ prior written notice to us. Each executive officer has agreed, for the term of employment with us and thereafter, not to disclose or use for his/her own purposes any of our and our associated companies’ confidential information that the executive officer may develop or learn in the course of employment with us. Moreover, each of our executive officers has agreed, for the term of employment with us and for a period of twelve months thereafter, (i) not to undertake or be employed or interested directly or indirectly anywhere in Hong Kong in any activity which is similar to and competitive with our company or associated companies in which the executive officer had been involved in the period of 12 months prior to such termination and (ii) not to solicit for any employees of our company or our joint ventures or orders from any person, firm or company which was at any time during the 12 months prior to termination of such employment a customer or supplier of our company or associated companies. Employment Agreements with Executive Officers at HUTCHMED Limited We have entered into employment agreements with each of our executive officers who are employed directly by HUTCHMED Limited, namely Dr. Weiguo Su, Dr. Michael Ming Shi, Dr. May Qingmei Wang and Dr. Zhenping Wu. Under these employment agreements, we engage the executive officer on either an open-ended or a fixed term. Our executive officers receive compensation in the form of salaries, discretionary bonuses, annual leave, statutory maternity leave and nursing leave. Under the terms of these agreements, we provide labor protection and work conditions that comply with the safety and sanitation requirements stipulated by the relevant PRC laws. The employment agreements prohibit the executive officers from engaging in any conduct and business activities which may compete with the business or interests of HUTCHMED Limited during the term of the executive officer’s employment. These executive officers also enjoy the Hutchison Provident Fund retirement scheme, medical coverage under the CK Hutchison Group Medical Scheme and personal accident insurance. We may terminate an executive officer’s employment for cause at any time without notice. Termination for cause may include a serious breach of our internal rules and policies, serious negligence in the executive officer’s performance of his or her duties, an accusation or conviction of a criminal offence, acquisition of another job which materially affects the executive officer’s ability to perform his or her duties for our company and other circumstances stipulated by applicable PRC laws. We may terminate an executive officer’s employment with three months’ prior notice if the executive officer is unable to perform his or her duties (after the expiration of the prescribed medical treatment period) because of an illness or non-work-related injury or the executive officer is incompetent and remains incompetent after training or adjustment of his or her position. The executive officer may voluntarily terminate his or her contract without cause with three months’ prior notice. The executive officer may also terminate the employment agreement immediately for cause, which includes a failure by us to provide labor protection and the work conditions as specified under the employment agreement. In case of termination for any reason, we agree to make any mandatory severance payments required by the relevant PRC labor laws. Employment Agreement with Executive Officer at Hutchison Sinopharm We have entered into an employment agreement with Mr. Hong Chen, one of our executive officers, who is directly employed by Hutchison Sinopharm. Under his employment agreement with Hutchison Sinopharm, Mr. Chen’s employment is for a fixed term, and he receives compensation in the form of salaries, discretionary bonuses, annual leave, statutory maternity leave and nursing leave. Board Diversity Employment Arrangements with our Executive Officers On August 6, 2021, the SEC approved the Nasdaq Stock Market’s proposal to amend its listing standards to encourage greater board diversity and to require board diversity disclosures for Nasdaq-listed companies. Pursuant to the amended listing standards, HUTCHMED, as a foreign private issuer, is required to have at least two diverse board members or explain the reasons for not meeting this objective by 2025. Furthermore, a board diversity matrix is required to be included in the annual report on Form 20-F, containing certain demographic and other information regarding members of our board of directors. HUTCHMED currently complies with the diversity requirement, as we currently have two female and eight male members on our board of directors. The board diversity matrix is set out below. Board Diversity Matrix (As of February 28, 2023) Place of Principal Executive Offices Foreign Private Issuer Disclosure Prohibited under Home Country Law Total Number of Directors Part I: Gender Identity Directors Part II: Demographic Background Underrepresented Individual in Place of Principal Executive Offices LGBTQ+ Did Not Disclose Demographic Background B. Compensation. Summary Compensation Table Executive Officer Compensation Hong Kong Yes No 10 Female Male Non-Binary Gender Did Not Disclose 2 — — — 8 — — — — — — — — — — — The following table sets forth the non-equity compensation paid or accrued during the year ended December 31, 2022 to our chief executive officer and chief scientific officer, chief financial officer and other executive officers on an aggregate basis. Salary and fees ($) Bonus(3) ($) 774,940 (1) 1,126,563 404,415 (2) 3,082,493 443,077 3,748,868 Taxable Non-taxable Pension benefits benefits contributions ($) — ($) 6,548 — 10,577 ($) 64,217 29,018 26,646 101,846 183,020 Total ($) 1,972,268 887,087 7,142,873 Name and Principal Position Weiguo SU CHENG Chig Fung, Johnny Other Executive Officers in the Aggregate Notes: (1) Amount includes director’s fees of $75,000. (2) Amount includes director’s fees of $75,000. (3) In December 2013 and March 2014, we awarded cash retention bonuses to certain of our executive officers in the aggregate amount of $2,977,751. Each such executive officer receives portions of his or her retention bonus upon certain dates in the future depending on when the bonus was granted and, in each case, assuming he or she remains employed by our company on such future dates. In 2022, we awarded $322,188 of such cash retention bonuses. Employment Agreements with Executive Officers at HUTCHMED Group (HK) Limited and HUTCHMED Holdings (HK) Limited We have entered into employment agreements with each of our executive officers who are directly employed by HUTCHMED Group (HK) Limited or HUTCHMED Holdings (HK) Limited, namely Mr. Cheng Chig Fung, Johnny, Dr. Karen Jane Atkin, Mr. Mark Kin Hung Lee and Mr. Charles George Rupert Nixon. Under these employment agreements, our executives receive compensation in the form of salaries, discretionary bonuses, participation in the Hutchison Provident Fund retirement scheme, medical coverage under the CK Hutchison Group Medical Scheme, personal accident insurance and annual leave. None of the employment arrangements provide benefits to our executive officers upon termination. We may terminate employment by giving the executive officers three months’ prior written notice. The executive officer may also voluntarily terminate his/her employment with us upon not less than three months’ prior written notice to us. Each executive officer has agreed, for the term of employment with us and thereafter, not to disclose or use for his/her own purposes any of our and our associated companies’ confidential information that the executive officer may develop or learn in the course of employment with us. Moreover, each of our executive officers has agreed, for the term of employment with us and for a period of twelve months thereafter, (i) not to undertake or be employed or interested directly or indirectly anywhere in Hong Kong in any activity which is similar to and competitive with our company or associated companies in which the executive officer had been involved in the period of 12 months prior to such termination and (ii) not to solicit for any employees of our company or our joint ventures or orders from any person, firm or company which was at any time during the 12 months prior to termination of such employment a customer or supplier of our company or associated companies. Employment Agreements with Executive Officers at HUTCHMED Limited We have entered into employment agreements with each of our executive officers who are employed directly by HUTCHMED Limited, namely Dr. Weiguo Su, Dr. Michael Ming Shi, Dr. May Qingmei Wang and Dr. Zhenping Wu. Under these employment agreements, we engage the executive officer on either an open-ended or a fixed term. Our executive officers receive compensation in the form of salaries, discretionary bonuses, annual leave, statutory maternity leave and nursing leave. Under the terms of these agreements, we provide labor protection and work conditions that comply with the safety and sanitation requirements stipulated by the relevant PRC laws. The employment agreements prohibit the executive officers from engaging in any conduct and business activities which may compete with the business or interests of HUTCHMED Limited during the term of the executive officer’s employment. These executive officers also enjoy the Hutchison Provident Fund retirement scheme, medical coverage under the CK Hutchison Group Medical Scheme and personal accident insurance. We may terminate an executive officer’s employment for cause at any time without notice. Termination for cause may include a serious breach of our internal rules and policies, serious negligence in the executive officer’s performance of his or her duties, an accusation or conviction of a criminal offence, acquisition of another job which materially affects the executive officer’s ability to perform his or her duties for our company and other circumstances stipulated by applicable PRC laws. We may terminate an executive officer’s employment with three months’ prior notice if the executive officer is unable to perform his or her duties (after the expiration of the prescribed medical treatment period) because of an illness or non-work-related injury or the executive officer is incompetent and remains incompetent after training or adjustment of his or her position. The executive officer may voluntarily terminate his or her contract without cause with three months’ prior notice. The executive officer may also terminate the employment agreement immediately for cause, which includes a failure by us to provide labor protection and the work conditions as specified under the employment agreement. In case of termination for any reason, we agree to make any mandatory severance payments required by the relevant PRC labor laws. Employment Agreement with Executive Officer at Hutchison Sinopharm We have entered into an employment agreement with Mr. Hong Chen, one of our executive officers, who is directly employed by Hutchison Sinopharm. Under his employment agreement with Hutchison Sinopharm, Mr. Chen’s employment is for a fixed term, and he receives compensation in the form of salaries, discretionary bonuses, annual leave, statutory maternity leave and nursing leave. 188 189 Under the terms of this agreement, we provide labor protection and work conditions that comply with the safety and sanitation requirements stipulated by the relevant PRC laws. The employment agreement prohibits any conduct directly or indirectly which is harmful to Hutchison Sinopharm during the term of the employment. Long-Term Incentive Compensation The following table sets forth information regarding performance based LTIP awards granted to our chief executive officer and chief scientific officer, chief financial officer and other executive officers on an aggregate basis in the year ended December 31, 2022. We may terminate Mr. Chen’s employment for cause at any time without notice. We may also terminate the employment with prior notice and termination compensation if Mr. Chen is unable to perform his duties because of an illness or non-work-related injury or he is incompetent and remains incompetent after training or adjustment of his position. Mr. Chen may voluntarily terminate his employment agreement without cause with one month’s prior notice and immediately for cause. Share Options The following table sets forth information concerning the outstanding equity awards held by our chief executive officer and chief scientific officer, chief financial officer and other executive officers on an aggregate basis as of December 31, 2022. Notes: Name and Principal Position Weiguo SU, Chief Executive Officer and Chief Scientific Officer CHENG Chig Fung, Johnny, Chief Financial Officer Other Executive Officers in the Aggregate Maximum Aggregate Value of LTIP awards(1)(2)(3) $ $ $ 3,232,845 680,242 3,410,498 Jun 15, 2016 2,736,860 — £ 1.970 200,000 — Dec 19, 2023 on September 13, 2023, September 13, 2024, September 13, 2025 and September 13, 2026 respectively. Date of grant of share options(1) Jun 15, 2016 Mar 27, 2017 Mar 19, 2018 Apr 28, 2020 Dec 14, 2020 Mar 26, 2021 Dec 14, 2021 May 23, 2022 Apr 28, 2020 Mar 26, 2021 May 23, 2022 Number of unexercised shares which are vested 3,000,000 1,000,000 1,000,000 394,850 (= 78,970 ADSs) 9,480 (= 1,896 ADSs) 70,600 (= 14,120 ADSs) 6,230 (= 1,246 ADSs) — 200,950 (= 40,190 ADSs) 60,125 (= 12,025 ADSs) — Number of unexercised shares which are unvested Exercise price 1.970 3.105 4.974 22.090 29.000 27.940 35.210 10.750 22.090 27.940 10.750 — £ — £ — £ $ $ $ $ $ $ $ $ 394,850 (= 78,970 ADSs) 9,480 (= 1,896 ADSs) 211,800 (= 42,360 ADSs) 18,700 (= 3,740 ADSs) 861,220 (= 172,244 ADSs) 200,950 (= 40,190 ADSs) 180,375 (= 36,075 ADSs) 446,600 (= 89,320 ADSs) Apr 20, 2018 Aug 6, 2018 Dec 11, 2019 701,100 375,000 300,000 — £ 4.645 — £ 4.860 100,000 Apr 28, 2020 879,200 (= 175,840 ADSs) 879,200 (= 175,840 ADSs) Dec 14, 2020 154,930 (= 30,986 ADSs) 154,960 (= 30,992 ADSs) Mar 26, 2021 257,775 (= 51,555 ADSs) 773,325 (= 154,665 ADSs) Dec 14, 2021 89,225 (= 17,845 ADSs) 267,730 (= 53,546 ADSs) May 23, 2022 — 1,015,800 (= 203,160 ADSs) Sep 13, 2022 — 1,500,000 (= 300,000 ADSs) £ $ $ $ $ $ $ 3.592 22.090 29.000 27.940 35.210 10.750 13.140 Number of Number of shares issued options lapsed/ upon exercise in 2022 cancelled in 2022 Option expiration date — — — — — — — — — — — — Dec 19, 2023 — Mar 26, 2027 — Mar 18, 2028 — Apr 27, 2030 — Dec 13, 2030 — Mar 25, 2031 — Dec 13, 2031 — May 22, 2032 — Apr 27, 2030 — Mar 25, 2031 — May 22, 2032 — — — — — — — — — — Apr 19, 2028 — Aug 5, 2028 — Dec 10, 2029 — Apr 27, 2030 — Dec 13, 2030 — Mar 25, 2031 — Dec 13, 2031 — May 22, 2032 — Sep 12, 2032 Name and Principal Position Weiguo SU Weiguo SU Weiguo SU Weiguo SU Weiguo SU Weiguo SU Weiguo SU Weiguo SU CHENG Chig Fung, Johnny CHENG Chig Fung, Johnny CHENG Chig Fung, Johnny Other Executive Officers in the Aggregate Other Executive Officers in the Aggregate Other Executive Officers in the Aggregate Other Executive Officers in the Aggregate Other Executive Officers in the Aggregate Other Executive Officers in the Aggregate Other Executive Officers in the Aggregate Other Executive Officers in the Aggregate Other Executive Officers in the Aggregate Other Executive Officers in the Aggregate Notes: (1) The share options granted on or after April 28, 2020 were in the form of ADSs and the relevant exercise prices were stated in U.S. dollars per ADS. For purposes of this table, these share options are presented in the form of ordinary shares (with the corresponding number of ADSs where appropriate). Each ADS represents five ordinary shares. Notes: 190 191 (1) The amounts reflected in the table above represent the maximum aggregate value of all LTIP awards outstanding as of December 31, 2022. The LTIP awards are conditional upon the achievement of annual performance targets for the fiscal year 2022. The amounts reflected in the table above assume the maximum amount that may be paid under these contingent LTIP awards. The LTIP awards will be settled in a variable number of shares based on a fixed monetary amount awarded upon achievement of performance targets. An independent third-party trustee who administers the LTIP purchased shares of our company on either the AIM or Nasdaq market which will be used to settle the LTIP awards. See “Outstanding Awards” for more details. (2) Vesting will occur two business days after the date of the announcement of our annual results for the financial year 2024. (3) Excluding performance based LTIP awards abovementioned, a non-performance based LTIP award granted to an Executive Officer in an amount of US$1,500,000, for which 111,731 ADSs were allocated on September 13, 2022. 25% of the shares will be vested The following table sets forth a summary of the compensation we paid to our directors other than Weiguo Su and Cheng Chig Fung, Johnny during 2022. Director Compensation Name of Director TO Chi Keung, Simon Dan ELDAR Edith SHIH Lefei SUN Paul Rutherford CARTER Karen Jean FERRANTE Graeme Allan JACK MOK Shu Kam, Tony Maximum Value of Non- Fees Earned or Performance Based LTIP Paid in Cash Awards Granted $ $ $ $ $ 85,000 (1) — — (2) — 117,000 102,500 111,000 103,000 — — — — — — — — (1) Such director’s fees were paid to Hutchison Whampoa (China) Limited, a wholly owned subsidiary of CK Hutchison. Director’s fees received from our subsidiaries during the period he served as director that were paid to an intermediate holding company of our company are not included in the amounts above. (2) Director’s fees received from our subsidiaries during the period she served as director that were paid to a subsidiary of CK Hutchison are not included. Under the terms of this agreement, we provide labor protection and work conditions that comply with the safety and sanitation Long-Term Incentive Compensation requirements stipulated by the relevant PRC laws. The employment agreement prohibits any conduct directly or indirectly which is The following table sets forth information regarding performance based LTIP awards granted to our chief executive officer and chief scientific officer, chief financial officer and other executive officers on an aggregate basis in the year ended December 31, 2022. The following table sets forth information concerning the outstanding equity awards held by our chief executive officer and chief scientific officer, chief financial officer and other executive officers on an aggregate basis as of December 31, 2022. Notes: Name and Principal Position Weiguo SU, Chief Executive Officer and Chief Scientific Officer CHENG Chig Fung, Johnny, Chief Financial Officer Other Executive Officers in the Aggregate of Maximum Aggregate Value LTIP awards(1)(2)(3) 3,232,845 $ 680,242 $ 3,410,498 $ (1) The amounts reflected in the table above represent the maximum aggregate value of all LTIP awards outstanding as of December 31, 2022. The LTIP awards are conditional upon the achievement of annual performance targets for the fiscal year 2022. The amounts reflected in the table above assume the maximum amount that may be paid under these contingent LTIP awards. The LTIP awards will be settled in a variable number of shares based on a fixed monetary amount awarded upon achievement of performance targets. An independent third-party trustee who administers the LTIP purchased shares of our company on either the AIM or Nasdaq market which will be used to settle the LTIP awards. See “Outstanding Awards” for more details. (2) Vesting will occur two business days after the date of the announcement of our annual results for the financial year 2024. — £ 1.970 200,000 — Dec 19, 2023 (3) Excluding performance based LTIP awards abovementioned, a non-performance based LTIP award granted to an Executive Officer in an amount of US$1,500,000, for which 111,731 ADSs were allocated on September 13, 2022. 25% of the shares will be vested on September 13, 2023, September 13, 2024, September 13, 2025 and September 13, 2026 respectively. The following table sets forth a summary of the compensation we paid to our directors other than Weiguo Su and Cheng Chig Fung, Johnny during 2022. Director Compensation Maximum Value of Non- Fees Earned or Performance Based LTIP harmful to Hutchison Sinopharm during the term of the employment. We may terminate Mr. Chen’s employment for cause at any time without notice. We may also terminate the employment with prior notice and termination compensation if Mr. Chen is unable to perform his duties because of an illness or non-work-related injury or he is incompetent and remains incompetent after training or adjustment of his position. Mr. Chen may voluntarily terminate his employment agreement without cause with one month’s prior notice and immediately for cause. Share Options Weiguo SU Weiguo SU Weiguo SU Weiguo SU Weiguo SU Weiguo SU Weiguo SU Weiguo SU CHENG Chig Fung, Johnny CHENG Chig Fung, Johnny CHENG Chig Fung, Johnny Other Executive Officers in the Other Executive Officers in the Other Executive Officers in the Other Executive Officers in the Other Executive Officers in the Other Executive Officers in the Other Executive Officers in the Other Executive Officers in the Other Executive Officers in the Other Executive Officers in the Aggregate Aggregate Aggregate Aggregate Aggregate Aggregate Aggregate Aggregate Aggregate Aggregate Notes: Name and Principal Position Date of grant of share options(1) which are vested Number of unexercised shares Number of unexercised shares which are unvested Number of Number of shares issued options lapsed/ upon exercise cancelled in Exercise price in 2022 2022 394,850 (= 78,970 ADSs) 9,480 (= 1,896 ADSs) 70,600 (= 14,120 ADSs) 6,230 (= 1,246 ADSs) 394,850 (= 78,970 ADSs) 9,480 (= 1,896 ADSs) 211,800 (= 42,360 ADSs) 18,700 (= 3,740 ADSs) — 861,220 (= 172,244 ADSs) Apr 28, 2020 200,950 (= 40,190 ADSs) 60,125 (= 12,025 ADSs) 200,950 (= 40,190 ADSs) 180,375 (= 36,075 ADSs) 446,600 (= 89,320 ADSs) Jun 15, 2016 Mar 27, 2017 Mar 19, 2018 Apr 28, 2020 Dec 14, 2020 Mar 26, 2021 Dec 14, 2021 May 23, 2022 Mar 26, 2021 May 23, 2022 Jun 15, 2016 Apr 20, 2018 Aug 6, 2018 Dec 11, 2019 3,000,000 1,000,000 1,000,000 — 2,736,860 701,100 375,000 300,000 Apr 28, 2020 879,200 (= 175,840 ADSs) 879,200 (= 175,840 ADSs) 22.090 Dec 14, 2020 154,930 (= 30,986 ADSs) 154,960 (= 30,992 ADSs) 29.000 Mar 26, 2021 257,775 (= 51,555 ADSs) 773,325 (= 154,665 ADSs) 27.940 Dec 14, 2021 89,225 (= 17,845 ADSs) 267,730 (= 53,546 ADSs) 35.210 May 23, 2022 — 1,015,800 (= 203,160 ADSs) 10.750 Sep 13, 2022 — 1,500,000 (= 300,000 ADSs) 13.140 — £ — £ — £ 1.970 3.105 4.974 22.090 29.000 27.940 35.210 10.750 22.090 27.940 10.750 — £ 4.645 — £ 4.860 100,000 3.592 $ $ $ $ $ $ $ $ £ $ $ $ $ $ $ — — — — — — — — — — — — — — — — — — — — Option expiration date — Dec 19, 2023 — Mar 26, 2027 — Mar 18, 2028 — Apr 27, 2030 — Dec 13, 2030 — Mar 25, 2031 — Dec 13, 2031 — May 22, 2032 — Apr 27, 2030 — Mar 25, 2031 — May 22, 2032 — Apr 19, 2028 — Aug 5, 2028 — Dec 10, 2029 — Apr 27, 2030 — Dec 13, 2030 — Mar 25, 2031 — Dec 13, 2031 — May 22, 2032 — Sep 12, 2032 (1) The share options granted on or after April 28, 2020 were in the form of ADSs and the relevant exercise prices were stated in U.S. dollars per ADS. For purposes of this table, these share options are presented in the form of ordinary shares (with the corresponding Notes: number of ADSs where appropriate). Each ADS represents five ordinary shares. Name of Director TO Chi Keung, Simon Dan ELDAR Edith SHIH Lefei SUN Paul Rutherford CARTER Karen Jean FERRANTE Graeme Allan JACK MOK Shu Kam, Tony Awards Granted — — — — — — — — 85,000 (1) — — (2) — 117,000 102,500 111,000 103,000 Paid in Cash $ $ $ $ $ (1) Such director’s fees were paid to Hutchison Whampoa (China) Limited, a wholly owned subsidiary of CK Hutchison. Director’s fees received from our subsidiaries during the period he served as director that were paid to an intermediate holding company of our company are not included in the amounts above. (2) Director’s fees received from our subsidiaries during the period she served as director that were paid to a subsidiary of CK Hutchison are not included. 190 191 Equity Compensation Schemes and Other Benefit Plans We have two share option schemes. We refer to these collectively as the Option Schemes. Our shareholder adopted the first option scheme, or the 2005 Option Scheme, in June 2005, and it was subsequently approved by the shareholders of Hutchison Whampoa Limited, our then majority shareholder, in May 2006 and later amended by our board of directors in March 2007. This share option scheme expired in 2016. In April 2015, our shareholders adopted the second option scheme, or the 2015 Option Scheme, which was later approved by the shareholders of CK Hutchison, the ultimate parent of our then majority shareholder, in May 2016. The 2015 Option Scheme was subsequently amended in April 2020. We also have a long-term incentive scheme which was adopted by our shareholders in April 2015. We refer to this as our LTIP. Our Option Schemes and LTIP each terminates on the tenth anniversary of their adoption. Each may also be terminated by its board of directors at any time. Any termination of a scheme is without prejudice to the awards outstanding at such time. Options are no longer being granted under the 2005 Option Scheme, but outstanding awards under the 2005 Option Scheme continue to be governed by the terms thereof. The following describes the material terms of our Option Schemes and LTIP, or collectively the Schemes. Awards and Eligible Grantees. The Option Schemes provide for the award of share options exercisable for ordinary shares or ADSs of our company to Eligible Employees (as defined in the Option Schemes) or non-executive directors (excluding any independent non- executive directors under the Option Schemes). Under our LTIP, awards in the form of contingent rights to receive either shares purchased from the market by the scheme trustee or cash payments may be granted to the directors of our company, directors of our subsidiaries and employees of our company, subsidiaries, affiliates or such other companies as determined by our board of directors in its absolute discretion. Scheme. Scheme Administration. Our board of directors has delegated its authority for administering our Option Schemes and our LTIP to our remuneration committee. Each such plan administrator has the authority to, among other things, select participants and determine the amount and terms and conditions of the awards under the applicable Schemes as it deems necessary and proper, subject to the restrictions described in “—Restrictions on Grants” below. Restrictions on Grants. Under the Option Schemes, grants may not be made to independent non-executive directors. Furthermore, those grants may not be made to any of our employees or directors if such person is also a director, chief executive or substantial shareholder of any of our direct or indirect parent companies which is listed on a stock exchange or any of its associates without approval by the independent non-executive directors of such parent company (excluding any independent non-executive director who is a proposed grantee). In addition, approval by our shareholders and the shareholders of such listed parent company is required if an option grant under our Option Schemes is to be made to a substantial shareholder or independent non-executive director of a listed parent company or any of its associates and, upon exercise of such grant and any other grants made during the prior 12-month period to that shareholder, that individual would receive an amount of our ordinary shares equal or greater than 0.1% of our total outstanding shares or with an aggregate value in excess of HK$5 million (equivalent to $0.6 million as of December 31, 2022). In addition, options under our Option Schemes may not be granted to any individual if, upon the exercise of such options, the individual would receive an amount of shares when aggregated with all other options granted to such individual under the applicable Scheme in the 12-month period up to and including the grant date, that exceeds 1% of the total shares outstanding of the company granting the award on such date. There are no individual limits under our LTIP. Under our LTIP, no grant to any director, chief executive or substantial shareholder of our company may be made without the prior approval of our independent non-executive directors (excluding an independent non-executive director who is a proposed grantee). Vesting. Vesting conditions of options granted under the Schemes are determined by the respective board of directors at the time of grant. Under our Option Schemes, if a participant has committed any misconduct or any conduct making such participant’s service terminable for cause, all options (whether vested or unvested) lapse unless the respective board of directors otherwise determines in its absolute discretion. Options may be exercised to the extent vested where a participant’s service ceases due to the participant’s death, serious illness, injury, disability, retirement at the applicable retirement age, or earlier if determined by the participant’s employer, or if a participant’s service ceases for any other reason other than for cause. Under our LTIP, if a participant’s employment or service with our company or its subsidiaries is terminated for cause or if the participant breaches certain provisions in our LTIP restricting the transfer of awards by grantees and imposing non-competition obligations on grantees, all unvested awards are automatically cancelled. Where a participant’s employment or service ceases for any reason other than the reasons listed above (including due to the participant’s resignation, retirement, death or disability or upon the non- renewal of such participant’s employment or service agreement other than for cause), our board of directors may determine at its discretion whether unvested awards shall be deemed vested. Exercise Price. The exercise price for each share pursuant to the initial options granted under the 2005 Option Scheme was a price determined by our board of directors at the date of grant, and for grants made thereafter, the exercise price was the Market Value of a share at the date of grant (as defined in our Option Schemes). The exercise price for each share pursuant to the options granted under the 2015 Option Scheme must be the Market Value of a share at the date of grant (as defined in our Option Schemes). Non-transferability of Awards. Awards may not be transferred except in the case of a participant’s death by the terms of each Takeover or Scheme of Arrangement. In the event of a general or partial offer for the shares of our company under our Option Schemes, whether by way of takeover, offer, share repurchase offer, or scheme of arrangement, the affected company is required to use all reasonable endeavors to procure that such offer is extended to all holders of options granted by such company on the same terms as those applying to shareholders. Both vested and unvested options may be exercised up until (i) the closing date of any such offer and (ii) the record date for entitlements under a scheme of arrangement, and will lapse thereafter. Certain options may also be exercised on a voluntary winding up of our company. Under our LTIP, in the event of a general offer for all the shares of our company, whether by way of takeover or scheme of arrangement, or if our company is to be voluntarily wound up, our board of directors shall determine in its discretion whether outstanding unvested awards will vest and the period within which such awards will vest. Amendment. Our Option Schemes require that amendments of a material nature only be made with the approval of our shareholders. Our board of directors may alter the terms of our LTIP, but amendments which are of a material nature cannot take effect without shareholders’ approval, unless the changes take effect automatically under the terms of our LTIP. Authorized Shares. Under our 2015 Option Scheme, our board of directors may “refresh” the scheme limit from time to time provided that the total number of shares which may be issued upon exercise of all options to be granted under our Option Schemes shall not exceed 10% of our total shares outstanding on such date. In addition, the limit on the number of shares which may be issued upon exercise of all outstanding options granted and not yet exercised under the 2015 Option Scheme and any options granted and not yet exercised under any other schemes must not exceed 10% of the outstanding shares of the company in issue from time to time. In April 2020, our shareholders approved a refresh of the 2015 Option Scheme. Following the 2015 Option Scheme refresh discussed above, subject to certain adjustments for share splits, share consolidations and other changes in capitalization, the maximum number of shares that may be issued upon exercise of all options granted may not in the aggregate exceed 5% of our shares outstanding on April 27, 2020. Share awards under our LTIP may not exceed 5% of our shares outstanding on the adoption date of our LTIP. 192 193 Equity Compensation Schemes and Other Benefit Plans We have two share option schemes. We refer to these collectively as the Option Schemes. Our shareholder adopted the first option scheme, or the 2005 Option Scheme, in June 2005, and it was subsequently approved by the shareholders of Hutchison Whampoa Limited, our then majority shareholder, in May 2006 and later amended by our board of directors in March 2007. This share option scheme expired in 2016. In April 2015, our shareholders adopted the second option scheme, or the 2015 Option Scheme, which was later approved by the shareholders of CK Hutchison, the ultimate parent of our then majority shareholder, in May 2016. The 2015 Option Scheme was subsequently amended in April 2020. We also have a long-term incentive scheme which was adopted by our shareholders in April 2015. We refer to this as our LTIP. Our Option Schemes and LTIP each terminates on the tenth anniversary of their adoption. Each may also be terminated by its board of directors at any time. Any termination of a scheme is without prejudice to the awards outstanding at such time. Options are no longer being granted under the 2005 Option Scheme, but outstanding awards under the 2005 Option Scheme continue to be governed by the terms thereof. The following describes the material terms of our Option Schemes and LTIP, or collectively the Schemes. Awards and Eligible Grantees. The Option Schemes provide for the award of share options exercisable for ordinary shares or ADSs of our company to Eligible Employees (as defined in the Option Schemes) or non-executive directors (excluding any independent non- executive directors under the Option Schemes). Under our LTIP, awards in the form of contingent rights to receive either shares purchased from the market by the scheme trustee or cash payments may be granted to the directors of our company, directors of our subsidiaries and employees of our company, subsidiaries, affiliates or such other companies as determined by our board of directors in its absolute discretion. Scheme Administration. Our board of directors has delegated its authority for administering our Option Schemes and our LTIP to our remuneration committee. Each such plan administrator has the authority to, among other things, select participants and determine the amount and terms and conditions of the awards under the applicable Schemes as it deems necessary and proper, subject to the restrictions described in “—Restrictions on Grants” below. Restrictions on Grants. Under the Option Schemes, grants may not be made to independent non-executive directors. Furthermore, those grants may not be made to any of our employees or directors if such person is also a director, chief executive or substantial shareholder of any of our direct or indirect parent companies which is listed on a stock exchange or any of its associates without approval by the independent non-executive directors of such parent company (excluding any independent non-executive director who is a proposed grantee). In addition, approval by our shareholders and the shareholders of such listed parent company is required if an option grant under our Option Schemes is to be made to a substantial shareholder or independent non-executive director of a listed parent company or any of its associates and, upon exercise of such grant and any other grants made during the prior 12-month period to that shareholder, that individual would receive an amount of our ordinary shares equal or greater than 0.1% of our total outstanding shares or with an aggregate value in excess of HK$5 million (equivalent to $0.6 million as of December 31, 2022). In addition, options under our Option Schemes may not be granted to any individual if, upon the exercise of such options, the individual would receive an amount of shares when aggregated with all other options granted to such individual under the applicable Scheme in the 12-month period up to and including the grant date, that exceeds 1% of the total shares outstanding of the company granting the award on such date. There are no individual limits under our LTIP. Under our LTIP, no grant to any director, chief executive or substantial shareholder of our company may be made without the prior approval of our independent non-executive directors (excluding an independent non-executive director who is a proposed grantee). Vesting. Vesting conditions of options granted under the Schemes are determined by the respective board of directors at the time of grant. Under our Option Schemes, if a participant has committed any misconduct or any conduct making such participant’s service terminable for cause, all options (whether vested or unvested) lapse unless the respective board of directors otherwise determines in its absolute discretion. Options may be exercised to the extent vested where a participant’s service ceases due to the participant’s death, serious illness, injury, disability, retirement at the applicable retirement age, or earlier if determined by the participant’s employer, or if a participant’s service ceases for any other reason other than for cause. Under our LTIP, if a participant’s employment or service with our company or its subsidiaries is terminated for cause or if the participant breaches certain provisions in our LTIP restricting the transfer of awards by grantees and imposing non-competition obligations on grantees, all unvested awards are automatically cancelled. Where a participant’s employment or service ceases for any reason other than the reasons listed above (including due to the participant’s resignation, retirement, death or disability or upon the non- renewal of such participant’s employment or service agreement other than for cause), our board of directors may determine at its discretion whether unvested awards shall be deemed vested. Exercise Price. The exercise price for each share pursuant to the initial options granted under the 2005 Option Scheme was a price determined by our board of directors at the date of grant, and for grants made thereafter, the exercise price was the Market Value of a share at the date of grant (as defined in our Option Schemes). The exercise price for each share pursuant to the options granted under the 2015 Option Scheme must be the Market Value of a share at the date of grant (as defined in our Option Schemes). Non-transferability of Awards. Awards may not be transferred except in the case of a participant’s death by the terms of each Scheme. Takeover or Scheme of Arrangement. In the event of a general or partial offer for the shares of our company under our Option Schemes, whether by way of takeover, offer, share repurchase offer, or scheme of arrangement, the affected company is required to use all reasonable endeavors to procure that such offer is extended to all holders of options granted by such company on the same terms as those applying to shareholders. Both vested and unvested options may be exercised up until (i) the closing date of any such offer and (ii) the record date for entitlements under a scheme of arrangement, and will lapse thereafter. Certain options may also be exercised on a voluntary winding up of our company. Under our LTIP, in the event of a general offer for all the shares of our company, whether by way of takeover or scheme of arrangement, or if our company is to be voluntarily wound up, our board of directors shall determine in its discretion whether outstanding unvested awards will vest and the period within which such awards will vest. Amendment. Our Option Schemes require that amendments of a material nature only be made with the approval of our shareholders. Our board of directors may alter the terms of our LTIP, but amendments which are of a material nature cannot take effect without shareholders’ approval, unless the changes take effect automatically under the terms of our LTIP. Authorized Shares. Under our 2015 Option Scheme, our board of directors may “refresh” the scheme limit from time to time provided that the total number of shares which may be issued upon exercise of all options to be granted under our Option Schemes shall not exceed 10% of our total shares outstanding on such date. In addition, the limit on the number of shares which may be issued upon exercise of all outstanding options granted and not yet exercised under the 2015 Option Scheme and any options granted and not yet exercised under any other schemes must not exceed 10% of the outstanding shares of the company in issue from time to time. In April 2020, our shareholders approved a refresh of the 2015 Option Scheme. Following the 2015 Option Scheme refresh discussed above, subject to certain adjustments for share splits, share consolidations and other changes in capitalization, the maximum number of shares that may be issued upon exercise of all options granted may not in the aggregate exceed 5% of our shares outstanding on April 27, 2020. Share awards under our LTIP may not exceed 5% of our shares outstanding on the adoption date of our LTIP. 192 193 Outstanding Awards and Grants of Awards Share options outstanding under the 2005 Option Scheme The 2005 Option Scheme expired in 2016, and no further share options can be granted under it. As of December 31, 2022, options to purchase an aggregate of 660,570 ordinary shares, representing approximately 0.1% of our outstanding share capital, with an exercise price of £0.61 ($0.74) per ordinary share and an expiration date of December 19, 2023 remained outstanding under the 2005 Option Scheme. Our directors are subject to a three-year term of office and hold office until such time as they wish to retire and not offer themselves up for re-election, are not re-elected by the shareholders, or are removed from office by ordinary resolution at an annual general meeting of the shareholders. Under our Articles of Association, a director will be vacated if, among other things, the director (i) becomes bankrupt or has a receiving order made against him or suspends payment or compounds with his creditors; or (ii) becomes of unsound mind. For information regarding the period during which our officers and directors have served in their respective positions, please see Item 6.A. “Directors and Senior Management.” Board Committees Share options outstanding and grants made in 2022 under the 2015 Option Scheme Our board of directors has established an audit committee, remuneration committee, technical committee, nomination committee As of December 31, 2022, options to purchase an aggregate of 38,860,825 ordinary shares, representing approximately 4.5% of our outstanding share capital, at a weighted average exercise price of £3.48 ($4.21) per ordinary share and an expiration date of 10 years from the respective date of grant except for the grant on June 15, 2016 of which the expiration date is December 19, 2023 remained outstanding under the 2015 Option Scheme. In the year ended December 31, 2022, we granted options to purchase an aggregate of 7,680,820 ordinary shares, representing approximately 0.9% of our outstanding share capital, at a weighted average exercise price of £1.87 ($2.26) per share under the 2015 Option Scheme. For the share options granted to Weiguo Su in 2022, the exercise of the share options is conditional upon the fulfilment of certain performance targets relating to the Group over the financial year of 2022 to 2024. Vesting will occur two business days after the date of announcement of the annual results of the Company for the financial year ending December 31, 2024. The other options vest in equal instalments of 25% over a four-year period. Grants and vesting of LTIPs In the year ended December 31, 2022, we granted performance based awards under our LTIP to two of our executive directors and 976 employees, giving them a conditional right to receive ordinary shares to be purchased by the third-party trustee up to an aggregate maximum cash amount of $64,186,839. These awards are related to the achievement of performance targets and will vest two business days after the date of the announcement of our annual results for the financial year 2024. For additional information on LTIP awards held by our executive officers, please see “B. Compensation—Executive Officer Compensation—Long-Term Incentive Compensation.” In the year ended December 31, 2022, we also granted non-performance based awards under our LTIP to two employees, giving them a conditional right to receive ordinary shares to be purchased by the third-party trustee up to an aggregate maximum cash amount of $1,730,000. The LTIP awards vest in equal installments of 25% over four years. For additional information on LTIP awards to our directors, please see “B. Compensation—Director Compensation.” and sustainability committee. Audit Committee Our audit committee consists of Graeme Allan Jack, Paul Rutherford Carter and Karen Jean Ferrante, with Graeme Allan Jack serving as chairman of the committee. Graeme Allan Jack, Paul Rutherford Carter and Karen Jean Ferrante each meets the independence requirements under the rules of the Nasdaq Stock Market and under Rule 10A-3 under the Exchange Act. We have determined that Graeme Allan Jack is an “audit committee financial expert” within the meaning of Item 407 of Regulation S-K. All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the Nasdaq Stock Market. Although we are a foreign private issuer, we are required to comply with Rule 10A-3 of the Exchange Act, relating to audit committee composition and responsibilities. Rule 10A-3 provides that the audit committee must have direct responsibility for the nomination, compensation and choice of our auditor, as well as control over the performance of their duties, management of complaints made, and selection of consultants. Under Rule 10A-3, if the governing law or documents of a listed issuer require that any such matter be approved by the board of directors or the shareholders of the company, the audit committee’s responsibilities or powers with respect to such matter may instead be advisory. Our Articles of Association provide that the appointment of our auditor must be decided by our shareholders at our annual general meeting or at a subsequent extraordinary general meeting in each year. The audit committee formally meets at least twice a year and otherwise as required. The audit committee’s purpose is to oversee our accounting and financial reporting process and the audit of our financial statements. Our audit committee’s primary duties and responsibilities are to: • monitor the integrity of our financial statements, our annual and half-year reports and accounts and our announcements of Vesting of our LTIP awards will also depend upon the award holder’s continued employment or continued service on our board, as interim or final results; the case may be. In the year ended December 31, 2022, an aggregate of 55,904 ADSs were given to award holders upon the vesting of performance based LTIP awards, and 457,349 ADSs were given to award holders upon the vesting of non-performance based LTIP awards. • provide advice, where requested by the board of directors, on whether the annual report and accounts, taken as a whole, are fair, balanced and understandable, and provide the information necessary for shareholders to assess our company’s position and performance, business model and strategy; C. Board Practices. review significant financial reporting issues and the judgments which they contain; Our board of directors consists of ten directors including three executive directors, three non-executive directors and four independent non-executive directors. Pursuant to a relationship agreement dated April 21, 2006, and amended and restated on June 13, 2019, by and between our company and Hutchison Whampoa (China) Limited, a parent company of Hutchison Healthcare Holdings Limited, or the Relationship Agreement, our board of directors must consist of at least one director who is independent of the CK Hutchison group if Hutchison Whampoa (China) Limited is entitled to cast at least 50% votes eligible to be cast on a poll vote at a general meeting of our company. The Relationship Agreement will continue in effect until our ordinary shares cease to be traded on the AIM market or the CK Hutchison group individually or collectively ceases to hold at least 30% of our shares. • • • • review, whenever practicable without being inconsistent with any requirement for prompt reporting under applicable listing rules, other statements containing financial information such as significant financial returns to regulators and release of price sensitive information first where board of director approval is required; and • review and challenge where necessary: the consistency of, and any changes to, accounting policies both on a year-on-year basis and across our company; the methods used to account for significant or unusual transactions where different approaches are possible; • whether our company has followed appropriate accounting standards and made appropriate estimates and judgments, taking into account the views of the external auditor; 194 195 Outstanding Awards and Grants of Awards Share options outstanding under the 2005 Option Scheme The 2005 Option Scheme expired in 2016, and no further share options can be granted under it. As of December 31, 2022, options to purchase an aggregate of 660,570 ordinary shares, representing approximately 0.1% of our outstanding share capital, with an exercise price of £0.61 ($0.74) per ordinary share and an expiration date of December 19, 2023 remained outstanding under the 2005 Option Scheme. Our directors are subject to a three-year term of office and hold office until such time as they wish to retire and not offer themselves up for re-election, are not re-elected by the shareholders, or are removed from office by ordinary resolution at an annual general meeting of the shareholders. Under our Articles of Association, a director will be vacated if, among other things, the director (i) becomes bankrupt or has a receiving order made against him or suspends payment or compounds with his creditors; or (ii) becomes of unsound mind. For information regarding the period during which our officers and directors have served in their respective positions, please see Item 6.A. “Directors and Senior Management.” Board Committees Share options outstanding and grants made in 2022 under the 2015 Option Scheme Our board of directors has established an audit committee, remuneration committee, technical committee, nomination committee As of December 31, 2022, options to purchase an aggregate of 38,860,825 ordinary shares, representing approximately 4.5% of our outstanding share capital, at a weighted average exercise price of £3.48 ($4.21) per ordinary share and an expiration date of 10 years from the respective date of grant except for the grant on June 15, 2016 of which the expiration date is December 19, 2023 remained outstanding under the 2015 Option Scheme. In the year ended December 31, 2022, we granted options to purchase an aggregate of 7,680,820 ordinary shares, representing approximately 0.9% of our outstanding share capital, at a weighted average exercise price of £1.87 ($2.26) per share under the 2015 Option Scheme. For the share options granted to Weiguo Su in 2022, the exercise of the share options is conditional upon the fulfilment of certain performance targets relating to the Group over the financial year of 2022 to 2024. Vesting will occur two business days after the date of announcement of the annual results of the Company for the financial year ending December 31, 2024. The other options vest in equal instalments of 25% over a four-year period. Grants and vesting of LTIPs In the year ended December 31, 2022, we granted performance based awards under our LTIP to two of our executive directors and 976 employees, giving them a conditional right to receive ordinary shares to be purchased by the third-party trustee up to an aggregate maximum cash amount of $64,186,839. These awards are related to the achievement of performance targets and will vest two business days after the date of the announcement of our annual results for the financial year 2024. For additional information on LTIP awards held by our executive officers, please see “B. Compensation—Executive Officer Compensation—Long-Term Incentive Compensation.” and sustainability committee. Audit Committee Our audit committee consists of Graeme Allan Jack, Paul Rutherford Carter and Karen Jean Ferrante, with Graeme Allan Jack serving as chairman of the committee. Graeme Allan Jack, Paul Rutherford Carter and Karen Jean Ferrante each meets the independence requirements under the rules of the Nasdaq Stock Market and under Rule 10A-3 under the Exchange Act. We have determined that Graeme Allan Jack is an “audit committee financial expert” within the meaning of Item 407 of Regulation S-K. All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the Nasdaq Stock Market. Although we are a foreign private issuer, we are required to comply with Rule 10A-3 of the Exchange Act, relating to audit committee composition and responsibilities. Rule 10A-3 provides that the audit committee must have direct responsibility for the nomination, compensation and choice of our auditor, as well as control over the performance of their duties, management of complaints made, and selection of consultants. Under Rule 10A-3, if the governing law or documents of a listed issuer require that any such matter be approved by the board of directors or the shareholders of the company, the audit committee’s responsibilities or powers with respect to such matter may instead be advisory. Our Articles of Association provide that the appointment of our auditor must be decided by our shareholders at our annual general meeting or at a subsequent extraordinary general meeting in each year. In the year ended December 31, 2022, we also granted non-performance based awards under our LTIP to two employees, giving them a conditional right to receive ordinary shares to be purchased by the third-party trustee up to an aggregate maximum cash amount of $1,730,000. The LTIP awards vest in equal installments of 25% over four years. For additional information on LTIP awards to our The audit committee formally meets at least twice a year and otherwise as required. The audit committee’s purpose is to oversee our accounting and financial reporting process and the audit of our financial statements. Our audit committee’s primary duties and responsibilities are to: directors, please see “B. Compensation—Director Compensation.” • monitor the integrity of our financial statements, our annual and half-year reports and accounts and our announcements of Vesting of our LTIP awards will also depend upon the award holder’s continued employment or continued service on our board, as interim or final results; In the year ended December 31, 2022, an aggregate of 55,904 ADSs were given to award holders upon the vesting of performance based LTIP awards, and 457,349 ADSs were given to award holders upon the vesting of non-performance based LTIP awards. the case may be. C. Board Practices. Our board of directors consists of ten directors including three executive directors, three non-executive directors and four independent non-executive directors. Pursuant to a relationship agreement dated April 21, 2006, and amended and restated on June 13, 2019, by and between our company and Hutchison Whampoa (China) Limited, a parent company of Hutchison Healthcare Holdings Limited, or the Relationship Agreement, our board of directors must consist of at least one director who is independent of the CK Hutchison group if Hutchison Whampoa (China) Limited is entitled to cast at least 50% votes eligible to be cast on a poll vote at a general meeting of our company. The Relationship Agreement will continue in effect until our ordinary shares cease to be traded on the AIM market or the CK Hutchison group individually or collectively ceases to hold at least 30% of our shares. • • • provide advice, where requested by the board of directors, on whether the annual report and accounts, taken as a whole, are fair, balanced and understandable, and provide the information necessary for shareholders to assess our company’s position and performance, business model and strategy; review significant financial reporting issues and the judgments which they contain; review, whenever practicable without being inconsistent with any requirement for prompt reporting under applicable listing rules, other statements containing financial information such as significant financial returns to regulators and release of price sensitive information first where board of director approval is required; and • review and challenge where necessary: • • the consistency of, and any changes to, accounting policies both on a year-on-year basis and across our company; the methods used to account for significant or unusual transactions where different approaches are possible; • whether our company has followed appropriate accounting standards and made appropriate estimates and judgments, taking into account the views of the external auditor; 194 195 • • the clarity of the disclosure in our financial reports and the context in which statements are made; and Technical Committee all material information presented with the financial statements, such as any operations and financial review and any corporate governance statements (insofar as it relates to the audit and risk management). In relation to our internal controls and risk management systems, our audit committee, among other things: Our technical committee consists of Karen Jean Ferrante, Paul Rutherford Carter, To Chi Keung, Simon, Weiguo Su, Mok Shu Kam, Tony and Lefei Sun, with Karen Jean Ferrante serving as chairman of the committee. The technical committee’s responsibility is to consider, from time to time, matters relating to the technical aspects of the research and development activities of our Oncology/Immunology operations. It invites such executives as it deems appropriate to participate in meetings from time to time. • • • • • • reviews the effectiveness of our internal control and risk management systems; Nomination Committee reviews the policies and procedures for the identification, assessment and reporting of financial and non-financial risks and our management of those risks in accordance with the requirements of the Sarbanes-Oxley Act and other applicable laws, rules and regulations and the applicable requirements of any stock exchange; approves the appointment and removal of the head of the internal audit function; Our nomination committee consists of Mok Shu Kam, Tony, Graeme Allan Jack and To Chi Keung, Simon, with Mok Shu Kam, Tony serving as chairman of the committee. Our nomination committee reviews the structure, size, diversity profile and skills set of the board against its needs and makes recommendations on the composition of the board to achieve our corporate strategy as well as promote shareholder value. It facilitates the board in the conduct of the selection and nomination of directors, makes recommendations to the board on the appointment or reappointment of directors and succession planning for directors. It also assesses director independence having regard to the criteria under the applicable corporate governance code, SEC or stock exchange rules. ensures our internal audit function has adequate standing and resources and is free from management or other restrictions; Sustainability Committee reviews and monitors our executive management’s responsiveness to the findings and recommendations of the internal audit function; and reviews with management and our independent auditors the adequacy and effectiveness of our internal control over financial reporting and disclosure controls and procedures. Our sustainability committee consists of Edith Shih, Cheng Chig Fung, Johnny and Mok Shu Kam, Tony, with Edith Shih serving as chairman of the committee. The sustainability committee is responsible for strengthening our corporate governance and reporting framework. It advises our board of directors and management on and oversees the development and implementation of our corporate social responsibility and sustainability initiatives, including reviewing related policies and practices as well as assessing and making recommendations on matters pertaining to our sustainability governance, strategies, planning and risk management. In relation to our external auditor, our audit committee, among other things: Hong Kong Corporate Governance Code • • • • • recommends the appointment, reappointment or removal of the external auditor and considers any issues relating to their resignation, dismissal, remuneration or terms of engagement, subject to approval by the shareholders; considers and monitors the external auditor’s independence, objectivity and effectiveness; Code. Following the listing on the SEHK on June 30, 2021, our board of directors has adopted the Corporate Governance Code (“Hong Kong Corporate Governance Code”) contained in Appendix 14 of the Rules Governing the Listing of Securities on SEHK in replacement of the U.K. Corporate Governance Code 2018 and is in compliance with all code provisions of the Hong Kong Corporate Governance reviews and monitors the effectiveness of the audit process, considering relevant ethical or professional requirements; Code of Ethics develops and implements policy on the engagement of the external auditor to provide non-audit services, taking into any relevant ethical guidance; and pre-approves the external auditors’ annual audit fees and the nature and scope of proposed audit coverage, subject to approval by our shareholders. Our board of directors has adopted a code of ethics to set standards for our directors, officers and employees as are reasonably necessary to promote (i) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; (ii) full, fair, accurate, timely and understandable disclosure in the reports and documents that we file or submit to the applicable stock exchanges, and in any other public communications; (iii) compliance with applicable governmental and regulatory laws, rules, codes and regulations; (iv) prompt internal reporting of any violations of the code of ethics; and (v) accountability for adherence to the code of ethics. The audit committee is authorized to obtain, at our company’s expense, reasonable outside legal or other professional advice on any matters within the scope of its responsibilities. Remuneration Committee Our remuneration committee consists of Paul Rutherford Carter, Graeme Allan Jack and To Chi Keung, Simon, with Paul Rutherford Carter serving as chairman of the committee. The remuneration committee is responsible for considering all material elements of remuneration policy and remuneration and incentives of our executive directors and key employees with reference to independent remuneration research and professional advice. The remuneration committee meets formally at least once each year and otherwise as required and make recommendations to our board of directors on the framework for executive remuneration and on proposals for the granting of share options and other equity incentives. Our board of directors is responsible for implementing these recommendations and agreeing the remuneration packages of individual directors. No director is permitted to participate in discussions or decisions concerning his or her own remuneration. Code of Ethics for Business Partners Our board of directors has adopted a code of ethics for our business partners, including our suppliers, vendors, customers, agents, contractors, joint venture partners and representatives. This code of ethics contains general guidelines to promote the standards outlined in our internal code of ethics as described above. Complaints Procedures / Whistleblowing Policy Our board of directors has adopted procedures for the confidential receipt, retention, and treatment of complaints from, or concerns raised by, employees regarding accounting, internal accounting controls and auditing matters as well as illegal or unethical matters. The complaint procedures are reviewed by the audit committee from time to time as warranted to ensure their continuing compliance with applicable laws and listing standards as well as their effectiveness. 196 197 • • • • • • • • • • • • • the clarity of the disclosure in our financial reports and the context in which statements are made; and Technical Committee all material information presented with the financial statements, such as any operations and financial review and any corporate governance statements (insofar as it relates to the audit and risk management). In relation to our internal controls and risk management systems, our audit committee, among other things: Our technical committee consists of Karen Jean Ferrante, Paul Rutherford Carter, To Chi Keung, Simon, Weiguo Su, Mok Shu Kam, Tony and Lefei Sun, with Karen Jean Ferrante serving as chairman of the committee. The technical committee’s responsibility is to consider, from time to time, matters relating to the technical aspects of the research and development activities of our Oncology/Immunology operations. It invites such executives as it deems appropriate to participate in meetings from time to time. reviews the effectiveness of our internal control and risk management systems; Nomination Committee reviews the policies and procedures for the identification, assessment and reporting of financial and non-financial risks and our management of those risks in accordance with the requirements of the Sarbanes-Oxley Act and other applicable laws, rules and regulations and the applicable requirements of any stock exchange; approves the appointment and removal of the head of the internal audit function; Our nomination committee consists of Mok Shu Kam, Tony, Graeme Allan Jack and To Chi Keung, Simon, with Mok Shu Kam, Tony serving as chairman of the committee. Our nomination committee reviews the structure, size, diversity profile and skills set of the board against its needs and makes recommendations on the composition of the board to achieve our corporate strategy as well as promote shareholder value. It facilitates the board in the conduct of the selection and nomination of directors, makes recommendations to the board on the appointment or reappointment of directors and succession planning for directors. It also assesses director independence having regard to the criteria under the applicable corporate governance code, SEC or stock exchange rules. ensures our internal audit function has adequate standing and resources and is free from management or other restrictions; Sustainability Committee reviews and monitors our executive management’s responsiveness to the findings and recommendations of the internal audit function; and reviews with management and our independent auditors the adequacy and effectiveness of our internal control over financial reporting and disclosure controls and procedures. Our sustainability committee consists of Edith Shih, Cheng Chig Fung, Johnny and Mok Shu Kam, Tony, with Edith Shih serving as chairman of the committee. The sustainability committee is responsible for strengthening our corporate governance and reporting framework. It advises our board of directors and management on and oversees the development and implementation of our corporate social responsibility and sustainability initiatives, including reviewing related policies and practices as well as assessing and making recommendations on matters pertaining to our sustainability governance, strategies, planning and risk management. In relation to our external auditor, our audit committee, among other things: Hong Kong Corporate Governance Code recommends the appointment, reappointment or removal of the external auditor and considers any issues relating to their resignation, dismissal, remuneration or terms of engagement, subject to approval by the shareholders; considers and monitors the external auditor’s independence, objectivity and effectiveness; Following the listing on the SEHK on June 30, 2021, our board of directors has adopted the Corporate Governance Code (“Hong Kong Corporate Governance Code”) contained in Appendix 14 of the Rules Governing the Listing of Securities on SEHK in replacement of the U.K. Corporate Governance Code 2018 and is in compliance with all code provisions of the Hong Kong Corporate Governance Code. reviews and monitors the effectiveness of the audit process, considering relevant ethical or professional requirements; Code of Ethics develops and implements policy on the engagement of the external auditor to provide non-audit services, taking into any pre-approves the external auditors’ annual audit fees and the nature and scope of proposed audit coverage, subject to approval The audit committee is authorized to obtain, at our company’s expense, reasonable outside legal or other professional advice on relevant ethical guidance; and by our shareholders. any matters within the scope of its responsibilities. Remuneration Committee Our remuneration committee consists of Paul Rutherford Carter, Graeme Allan Jack and To Chi Keung, Simon, with Paul Rutherford Carter serving as chairman of the committee. The remuneration committee is responsible for considering all material elements of remuneration policy and remuneration and incentives of our executive directors and key employees with reference to independent remuneration research and professional advice. The remuneration committee meets formally at least once each year and otherwise as required and make recommendations to our board of directors on the framework for executive remuneration and on proposals for the granting of share options and other equity incentives. Our board of directors is responsible for implementing these recommendations and agreeing the remuneration packages of individual directors. No director is permitted to participate in discussions or decisions concerning his or her own remuneration. Our board of directors has adopted a code of ethics to set standards for our directors, officers and employees as are reasonably necessary to promote (i) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; (ii) full, fair, accurate, timely and understandable disclosure in the reports and documents that we file or submit to the applicable stock exchanges, and in any other public communications; (iii) compliance with applicable governmental and regulatory laws, rules, codes and regulations; (iv) prompt internal reporting of any violations of the code of ethics; and (v) accountability for adherence to the code of ethics. Code of Ethics for Business Partners Our board of directors has adopted a code of ethics for our business partners, including our suppliers, vendors, customers, agents, contractors, joint venture partners and representatives. This code of ethics contains general guidelines to promote the standards outlined in our internal code of ethics as described above. Complaints Procedures / Whistleblowing Policy Our board of directors has adopted procedures for the confidential receipt, retention, and treatment of complaints from, or concerns raised by, employees regarding accounting, internal accounting controls and auditing matters as well as illegal or unethical matters. The complaint procedures are reviewed by the audit committee from time to time as warranted to ensure their continuing compliance with applicable laws and listing standards as well as their effectiveness. 196 197 Policy on Personal Information Governance Our board of directors has adopted a policy on personal information governance which sets out our governance framework for the safeguard of personal information of employees, customers and other relevant personal information subjects. The senior management of each group company is accountable for the effective implementation of this policy. Information Security Policy Our board of directors has adopted an information security policy to define and help communicate the common policies for information confidentiality, integrity and availability to be applied to us and our joint ventures. The purpose of the information security policy is to ensure business continuity by preventing and minimizing the impact of security risks within our company and our joint ventures. Our information security policy applies to all of our and our joint ventures’ business entities across all countries. It applies to the creation, communication, storage, transmission and destruction of all different types of information. It applies to all forms of information, including but not limited to electronic copies, hardcopy, and verbal disclosures whether in person, over the telephone, or by other means. As of December 31, 2022, a total of 149 employees on our Oncology/Immunology research and development team have M.D. or Ph.D. degrees. Additionally, our Other Ventures joint venture Shanghai Hutchison Pharmaceuticals employed a total of 2,986 full time employees as of December 31, 2022, and such employees are represented by labor unions and covered by collective bargaining agreements. To date, we have not experienced any strikes, labor disputes or industrial actions which had or would have a material effect on our business, and consider our relations with the union and employees to be good. We recognize the importance of high-quality human resources in sustaining market leadership. Salary and benefits are kept at competitive levels, while individual performance is rewarded within the general framework of the salary, bonus and incentive system of our company, which is reviewed annually. Employees are provided with a wide range of benefits that include medical coverage, provident funds and retirement plans and long service awards. We stress the importance of staff development and provides training programs on an ongoing basis. Employees are also encouraged to play an active role in community care activities. See Item 6.B. “Compensation” and Item 7 “Major Shareholders and Related Party Transactions.” Code on Dealings in Shares F. Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation. Our board of directors has adopted a policy on the handling of material inside information, consisting of information which is either “inside information” under the EU Market Abuse Regulation (Regulation (EU) 596/2014), or MAR, or “material non-public information” under U.S. law. This policy, among other things, prohibits any employees, directors, other persons discharging managerial responsibilities or their connected persons dealing in our securities or their derivatives, or those of our collaborators, business partners, suppliers and customers, while in possession of material inside information. Certain members of our senior management or staff, including persons discharging managerial responsibilities, and their connected persons are subject to additional compliance requirements which are outlined in the code (including but not limited to obtaining written pre-clearance from designated members of management prior to any dealing in any such securities is allowed). ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS We had 864,775,340 ordinary shares outstanding as of February 15, 2023. The following table and accompanying footnotes set forth information relating to the beneficial ownership of our ordinary shares as of February 15, 2023 by: Board Diversity Policy each person, or group of affiliated persons, known by us to beneficially own more than 5% of our outstanding ordinary shares; Our board of directors has established a board diversity policy as our board of directors recognizes the benefits of a board of directors that possesses a balance of skills, experience, expertise, independence and knowledge and diversity of perspectives appropriate to the requirements of our businesses. We maintain that appointment to our board of directors should be based on merit that complements and expands the skills, experience, expertise, independence and knowledge of the board of directors as a whole, taking into account gender, age, professional experience and qualifications, cultural and educational background, and any other factors that our board of directors might consider relevant and applicable from time to time towards achieving a diverse board of directors. See also”—Directors and Senior Management—Board Diversity.” D. Employees. As of December 31, 2020, 2021 and 2022, we had 1,280, 1,759 and 2,025 full-time employees, respectively. None of our employees are represented by labor unions or covered by collective bargaining agreements. The number of employees by function as of the end of the period for our fiscal years ended December 31, 2020, 2021 and 2022 was as follows: By Function: Oncology/Immunology Other Ventures Corporate Head Office Total 2022 2021 2020 1,022 960 43 2,025 891 820 48 1,759 643 594 43 1,280 198 199 E. Share Ownership. Not applicable. A. Major Shareholders. • • • each of our directors; and each of our named executive officers. Policy on Personal Information Governance Our board of directors has adopted a policy on personal information governance which sets out our governance framework for the safeguard of personal information of employees, customers and other relevant personal information subjects. The senior management of each group company is accountable for the effective implementation of this policy. Information Security Policy Our board of directors has adopted an information security policy to define and help communicate the common policies for information confidentiality, integrity and availability to be applied to us and our joint ventures. The purpose of the information security policy is to ensure business continuity by preventing and minimizing the impact of security risks within our company and our joint ventures. Our information security policy applies to all of our and our joint ventures’ business entities across all countries. It applies to As of December 31, 2022, a total of 149 employees on our Oncology/Immunology research and development team have M.D. or Ph.D. degrees. Additionally, our Other Ventures joint venture Shanghai Hutchison Pharmaceuticals employed a total of 2,986 full time employees as of December 31, 2022, and such employees are represented by labor unions and covered by collective bargaining agreements. To date, we have not experienced any strikes, labor disputes or industrial actions which had or would have a material effect on our business, and consider our relations with the union and employees to be good. We recognize the importance of high-quality human resources in sustaining market leadership. Salary and benefits are kept at competitive levels, while individual performance is rewarded within the general framework of the salary, bonus and incentive system of our company, which is reviewed annually. Employees are provided with a wide range of benefits that include medical coverage, provident funds and retirement plans and long service awards. We stress the importance of staff development and provides training programs on an ongoing basis. Employees are also encouraged to play an active role in community care activities. the creation, communication, storage, transmission and destruction of all different types of information. It applies to all forms of E. Share Ownership. information, including but not limited to electronic copies, hardcopy, and verbal disclosures whether in person, over the telephone, or by other means. See Item 6.B. “Compensation” and Item 7 “Major Shareholders and Related Party Transactions.” Code on Dealings in Shares F. Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation. Our board of directors has adopted a policy on the handling of material inside information, consisting of information which is either Not applicable. “inside information” under the EU Market Abuse Regulation (Regulation (EU) 596/2014), or MAR, or “material non-public information” under U.S. law. This policy, among other things, prohibits any employees, directors, other persons discharging managerial ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS responsibilities or their connected persons dealing in our securities or their derivatives, or those of our collaborators, business partners, suppliers and customers, while in possession of material inside information. Certain members of our senior management or staff, including persons discharging managerial responsibilities, and their connected persons are subject to additional compliance requirements which are outlined in the code (including but not limited to obtaining written pre-clearance from designated members of management prior to any dealing in any such securities is allowed). A. Major Shareholders. We had 864,775,340 ordinary shares outstanding as of February 15, 2023. The following table and accompanying footnotes set forth information relating to the beneficial ownership of our ordinary shares as of February 15, 2023 by: Board Diversity Policy Our board of directors has established a board diversity policy as our board of directors recognizes the benefits of a board of directors that possesses a balance of skills, experience, expertise, independence and knowledge and diversity of perspectives appropriate to the requirements of our businesses. We maintain that appointment to our board of directors should be based on merit that complements and expands the skills, experience, expertise, independence and knowledge of the board of directors as a whole, taking into account gender, age, professional experience and qualifications, cultural and educational background, and any other factors that our board of directors might consider relevant and applicable from time to time towards achieving a diverse board of directors. See also”—Directors and Senior • • • each person, or group of affiliated persons, known by us to beneficially own more than 5% of our outstanding ordinary shares; each of our directors; and each of our named executive officers. Management—Board Diversity.” D. Employees. By Function: Oncology/Immunology Other Ventures Corporate Head Office Total As of December 31, 2020, 2021 and 2022, we had 1,280, 1,759 and 2,025 full-time employees, respectively. None of our employees are represented by labor unions or covered by collective bargaining agreements. The number of employees by function as of the end of the period for our fiscal years ended December 31, 2020, 2021 and 2022 was as follows: 2022 2021 2020 1,022 960 43 891 820 48 643 594 43 2,025 1,759 1,280 198 199 Our major shareholders do not have voting rights that are different from our shareholders in general. Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days of February 15, 2023, including through the exercise of any option, warrant, or other right or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person. B. Related Party Transactions. Letters of awareness with respect to loans Relationship with CK Hutchison Name of beneficial owner Executive Officers and Directors: Weiguo SU CHENG Chig Fung, Johnny TO Chi Keung, Simon Edith SHIH Dan ELDAR Lefei SUN MOK Shu Kam, Tony Michael Ming SHI Paul Rutherford CARTER Karen Jean FERRANTE Graeme Allan JACK Karen Jane ATKIN Zhenping WU Mark Kin Hung LEE May Qingmei WANG Hong CHEN Charles George Rupert NIXON All Executive Officers and Directors as a Group Principal Shareholders: Hutchison Healthcare Holdings Limited(1) Number of Ordinary Share held Number of American Depositary Share held Percent of Issued Share Capital** CK Hutchison has provided letters of awareness to certain of our lenders stating that it is aware that loan facilities have been provided to us and that its current intention is that for so long as amounts are outstanding under such loan facilities, it will not reduce its direct or indirect shareholding as to result in it ceasing to be the single largest indirect shareholder of our company. * * * * * — — — * — — — * * * * * 14,035,014 * * * * * — * * * * * * * * * * * 1,003,390 * * * * * — * * * * * * * * * * * 2.2 % Relationship Agreement with the CK Hutchison group We entered into a relationship agreement dated April 21, 2006, which was amended and restated on June 13, 2019 with effect from June 3, 2015, with Hutchison Whampoa (China) Limited, which is an indirect wholly owned subsidiary of CK Hutchison, with a view to ensuring that our company is capable of carrying on its business independent of the CK Hutchison group. We refer to this agreement as the Relationship Agreement. The Relationship Agreement provides, among other things, that all transactions between any of us or our joint ventures, on the one hand, and the CK Hutchison group, on the other, will be on an arm’s length basis, on normal commercial terms and in a manner consistent with the AIM Rules. The Relationship Agreement further provides that the approval of our board of directors shall be required for any transaction between any of us or our joint ventures, on one hand, and the CK Hutchison group, on the other hand and that in approving any such transaction, our board of directors must consist of at least one director who is independent of CK Hutchison. Our board of directors must consist of at least one director who is independent of the CK Hutchison group if Hutchison Whampoa (China) Limited is entitled to cast at least 50% votes eligible to be cast on a poll vote at a general meeting of our company, see Item 6.C. “Directors, Senior Management and Employees—Board Practices.” Hutchison Whampoa (China) Limited has also agreed to procure that each member of the Hutchison Whampoa (China) Limited group will not exercise its voting rights and powers so as to amend our Memorandum or Articles of Association in a manner which is inconsistent with the Relationship Agreement. The Relationship Agreement will continue to be effective until the first to occur of: (i) our shares ceasing to be traded on the AIM market or; (ii) the CK Hutchison group individually or collectively cease to hold or control the exercise of at least 30% or more of the rights to vote at our general meetings. 332,478,770 — 38.5 % Products sold to group companies of CK Hutchison * Less than 1% of our total outstanding ordinary shares. ** For each person and group included in this table, percentage ownership is calculated by dividing the number of shares beneficially owned by such person or group by the sum of (i) 864,775,340 ordinary shares outstanding as of February 15, 2023, and (ii) the number of ordinary shares or ADSs underlying share options held by such person or group that are exercisable within 60 days of February 15, 2023. (1) Hutchison Healthcare Holdings Limited, a British Virgin Islands company, is an indirect wholly owned subsidiary of CK Hutchison, a company incorporated in the Cayman Islands and listed on The Hong Kong Stock Exchange. The registered address of Hutchison Healthcare Holdings Limited is Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola VG1110, British Virgin Islands. As of February 15, 2023, based on public filings with the SEC, AIM and SEHK, there are no other major shareholders holding 5% or more of our ordinary shares or ADSs representing ordinary shares except as described above. As of February 15, 2023, there were three ordinary shareholders of record with an address in the United States. Deutsche Bank Trust Company America, as depositary of our ADS program, held 158,779,205 ordinary shares as of that date in the name of DB London (Investors Services) Nominees Limited. To our knowledge, except as disclosed above, we are not owned or controlled, directly or indirectly, by another corporation, by any foreign government or by any other natural or legal person or persons, severally or jointly. To our knowledge, there are no arrangements or operations of which may at a subsequent date result in us undergoing a change in control. Our major shareholders do not have different voting rights than any of our other shareholders. We have entered into agreements with members of the CK Hutchison group, including the retail grocery and pharmacy chains PARKnSHOP and Watsons which are owned and operated by the A.S. Watson Group, an indirect subsidiary of CK Hutchison, in respect of the distribution of certain of our consumer health products. For the year ended December 31, 2022, sales of our products to members of the CK Hutchison group amounted to $3.6 million. In addition, for the year ended December 31, 2022, we paid approximately $0.2 million to members of the CK Hutchison group for the provision of marketing services associated with these products. Our sales to CK Hutchison group companies are made pursuant to purchase orders issued by each purchaser periodically, the terms of which are on an arm’s length basis on normal commercial terms. See Item 3.D. “Risk Factors—Risks Relating to Our Dependence on Third Parties—There is no assurance that the benefits currently enjoyed by virtue of our association with CK Hutchison will continue to be available” for more information on the risks associated with our relationship with CK Hutchison’s group companies. Intellectual property licensed by the CK Hutchison group We conduct our business using trademarks with various forms of the “Hutchison”, “Chi-Med”, “Hutchison China MediTech”, “HUTCHMED”, “Elunate” and “Sulanda” brands, the logos used by HUTCHMED Limited, as well as domain names incorporating some or all of these trademarks. We have entered into a brand license agreement dated April 21, 2006 (as amended and restated on June 13, 2019 with effect from June 3, 2015 and as further amended and restated on June 15, 2021 with effect from March 4, 2021) with Hutchison Whampoa Enterprises Limited, which is an indirect wholly owned subsidiary of CK Hutchison, pursuant to which we have been granted a non-exclusive, non-transferrable, royalty-free right to use the “Hutchison,” “Hutchison China MediTech”, “Chi-Med”, “HUTCHMED” trademarks, domain names and other intellectual property rights owned by the CK Hutchison group in connection with the operation of our business worldwide. We refer to this amended and restated agreement as the Brand License Agreement. We are also permitted to sub-license such intellectual property rights to our affiliates. 200 201 Our major shareholders do not have voting rights that are different from our shareholders in general. Beneficial ownership is B. Related Party Transactions. determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days of February 15, 2023, including through the exercise of any option, warrant, or other right or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person. Letters of awareness with respect to loans Relationship with CK Hutchison Number of Ordinary Share held Number of American Depositary Share held Percent of Issued Share Capital** CK Hutchison has provided letters of awareness to certain of our lenders stating that it is aware that loan facilities have been provided to us and that its current intention is that for so long as amounts are outstanding under such loan facilities, it will not reduce its direct or indirect shareholding as to result in it ceasing to be the single largest indirect shareholder of our company. Relationship Agreement with the CK Hutchison group We entered into a relationship agreement dated April 21, 2006, which was amended and restated on June 13, 2019 with effect from June 3, 2015, with Hutchison Whampoa (China) Limited, which is an indirect wholly owned subsidiary of CK Hutchison, with a view to ensuring that our company is capable of carrying on its business independent of the CK Hutchison group. We refer to this agreement as the Relationship Agreement. The Relationship Agreement provides, among other things, that all transactions between any of us or our joint ventures, on the one hand, and the CK Hutchison group, on the other, will be on an arm’s length basis, on normal commercial terms and in a manner consistent with the AIM Rules. The Relationship Agreement further provides that the approval of our board of directors shall be required for any transaction between any of us or our joint ventures, on one hand, and the CK Hutchison group, on the other hand and that in approving any such transaction, our board of directors must consist of at least one director who is independent of CK Hutchison. Our board of directors must consist of at least one director who is independent of the CK Hutchison group if Hutchison Whampoa (China) Limited is entitled to cast at least 50% votes eligible to be cast on a poll vote at a general meeting of our company, see Item 6.C. “Directors, Senior Management and Employees—Board Practices.” Hutchison Whampoa (China) Limited has also agreed to procure that each member of the Hutchison Whampoa (China) Limited group will not exercise its voting rights and powers so as to amend our Memorandum or Articles of Association in a manner which is inconsistent with the Relationship Agreement. The Relationship Agreement will continue to be effective until the first to occur of: (i) our shares ceasing to be traded on the AIM market or; (ii) the CK Hutchison group individually or collectively cease to hold or control the exercise of at least 30% or more of the rights to vote at our general meetings. Products sold to group companies of CK Hutchison We have entered into agreements with members of the CK Hutchison group, including the retail grocery and pharmacy chains PARKnSHOP and Watsons which are owned and operated by the A.S. Watson Group, an indirect subsidiary of CK Hutchison, in respect of the distribution of certain of our consumer health products. For the year ended December 31, 2022, sales of our products to members of the CK Hutchison group amounted to $3.6 million. In addition, for the year ended December 31, 2022, we paid approximately $0.2 million to members of the CK Hutchison group for the provision of marketing services associated with these products. Our sales to CK Hutchison group companies are made pursuant to purchase orders issued by each purchaser periodically, the terms of which are on an arm’s length basis on normal commercial terms. See Item 3.D. “Risk Factors—Risks Relating to Our Dependence on Third Parties—There is no assurance that the benefits currently enjoyed by virtue of our association with CK Hutchison will continue to be available” for more information on the risks associated with our relationship with CK Hutchison’s group companies. Intellectual property licensed by the CK Hutchison group We conduct our business using trademarks with various forms of the “Hutchison”, “Chi-Med”, “Hutchison China MediTech”, “HUTCHMED”, “Elunate” and “Sulanda” brands, the logos used by HUTCHMED Limited, as well as domain names incorporating some or all of these trademarks. We have entered into a brand license agreement dated April 21, 2006 (as amended and restated on June 13, 2019 with effect from June 3, 2015 and as further amended and restated on June 15, 2021 with effect from March 4, 2021) with Hutchison Whampoa Enterprises Limited, which is an indirect wholly owned subsidiary of CK Hutchison, pursuant to which we have been granted a non-exclusive, non-transferrable, royalty-free right to use the “Hutchison,” “Hutchison China MediTech”, “Chi-Med”, “HUTCHMED” trademarks, domain names and other intellectual property rights owned by the CK Hutchison group in connection with the operation of our business worldwide. We refer to this amended and restated agreement as the Brand License Agreement. We are also permitted to sub-license such intellectual property rights to our affiliates. 200 201 Name of beneficial owner Executive Officers and Directors: Weiguo SU CHENG Chig Fung, Johnny TO Chi Keung, Simon Edith SHIH Dan ELDAR Lefei SUN MOK Shu Kam, Tony Michael Ming SHI Paul Rutherford CARTER Karen Jean FERRANTE Graeme Allan JACK Karen Jane ATKIN Zhenping WU Mark Kin Hung LEE May Qingmei WANG Hong CHEN * * * * * — — — * — — — * * * * * — — * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * Charles George Rupert NIXON All Executive Officers and Directors as a Group Principal Shareholders: Hutchison Healthcare Holdings Limited(1) * Less than 1% of our total outstanding ordinary shares. 14,035,014 1,003,390 332,478,770 — 2.2 % 38.5 % ** For each person and group included in this table, percentage ownership is calculated by dividing the number of shares beneficially owned by such person or group by the sum of (i) 864,775,340 ordinary shares outstanding as of February 15, 2023, and (ii) the number of ordinary shares or ADSs underlying share options held by such person or group that are exercisable within 60 days of (1) Hutchison Healthcare Holdings Limited, a British Virgin Islands company, is an indirect wholly owned subsidiary of CK Hutchison, a company incorporated in the Cayman Islands and listed on The Hong Kong Stock Exchange. The registered address of Hutchison Healthcare Holdings Limited is Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola VG1110, British Virgin February 15, 2023. Islands. As of February 15, 2023, based on public filings with the SEC, AIM and SEHK, there are no other major shareholders holding 5% or more of our ordinary shares or ADSs representing ordinary shares except as described above. As of February 15, 2023, there were three ordinary shareholders of record with an address in the United States. Deutsche Bank Trust Company America, as depositary of our ADS program, held 158,779,205 ordinary shares as of that date in the name of DB London (Investors Services) Nominees Limited. To our knowledge, except as disclosed above, we are not owned or controlled, directly or indirectly, by another corporation, by any foreign government or by any other natural or legal person or persons, severally or jointly. To our knowledge, there are no arrangements or operations of which may at a subsequent date result in us undergoing a change in control. Our major shareholders do not have different voting rights than any of our other shareholders. The Brand License Agreement contains provisions on quality control pursuant to which we are obliged to use the brands and related materials in compliance with the brand guidelines, industry best practice and other quality directives issued by Hutchison Whampoa Enterprises Limited from time to time. Under this agreement, we assign all intellectual property rights, including future copyrights in any works incorporating brand-related material or translations thereof, to Hutchison Whampoa Enterprises Limited (subject to any third- party rights). Hutchison Whampoa Enterprises Limited may terminate the Brand License Agreement (or any sub-license) if, among other things, we commit a material breach of the agreement, or within any twelve-month period aggregate direct or indirect shareholding in our company held by CK Hutchison , our indirect shareholder, is reduced to less than 35%, 30% or 20%. On termination of the Brand License Agreement, we (and any sub-licensees) must immediately cease using the brands and are obliged to withdraw from the sale of any products bearing the brands; provided that if the agreement is terminated following a change in CK Hutchison’s aggregate direct or indirect shareholding in our company, we will have a six-month transitional period during which we can continue to use the licensed rights. On June 15, 2021, we entered into a brand license royalty agreement with Hutchison Whampoa Enterprises Limited, pursuant to which we will pay an annual fee of HK$12 million (up to an aggregate royalty payable of no more than HK$120 million) in consideration of the grant of the royalty-free right to use the trademarks owned by Hutchison Whampoa Enterprises Limited to Hutchison Baiyunshan and HBYS JV companies upon the completion of the disposal of shareholding interest in Hutchison Baiyunshan. Sharing of services with the CK Hutchison group A. Consolidated Financial Statements and Other Financial Information. Pursuant to an amended and restated services agreement dated January 1, 2016 between us and Hutchison Whampoa (China) Limited, an indirect wholly owned subsidiary of CK Hutchison, we share certain services with and receive operational support from the CK Hutchison group including, among others, legal and regulatory services, company secretarial support services, tax and internal audit services, shared use of accounting software system and related services, participation in the CK Hutchison group’s pension, medical and insurance plans, participation in the CK Hutchison group’s procurement projects with third-party vendors/suppliers, other staff benefits and staff training services, company functions and activities and operation advisory and support services. We refer to this amended and restated agreement as the Services Agreement. The Services Agreement replaces our prior services agreement with Hutchison Whampoa (China) Limited, dated April 21, 2006, which had substantially similar terms. We pay a management fee to Hutchison Whampoa (China) Limited for the provision of such services. In addition, we make payments under the Services Agreement to Hutchison Whampoa (China) Limited for our executive offices in Hong Kong. Furthermore, pursuant to the terms of the Services Agreement, Hutchison Whampoa (China) Limited charges us management fees and other costs through Hutchison Healthcare Holdings Limited, its wholly owned subsidiary. The Services Agreement may be terminated by either party by giving three months’ written notice. Hutchison Whampoa (China) Limited may also immediately terminate if its shareholding in our company falls below 30%. The services provided under the Services Agreement are provided on an arm’s length basis, on normal commercial terms. Any amount unpaid after 30 days accrues interest at the rate of 1.5% per annum. In the year ended December 31, 2022, we paid a management fee of approximately $1.0 million under the Services Agreement. As of December 31, 2022, we had $0.4 million in unpaid fees outstanding to Hutchison Whampoa (China) Limited. Director and Executive Officer Compensation Agreements with Our Directors and Executive Officers See Item 6.B. “Compensation—Executive Officer Compensation” and “Compensation—Director Compensation” for a discussion of our compensation of directors and executive officers. Equity Compensation See Item 6.B. “Compensation—Equity Compensation Schemes and Other Benefit Plans.” We have entered into employment agreements with our executive officers. For more information regarding these agreements, see Item 6.B. “Compensation—Executive Officer Compensation—Employment Arrangements with our Executive Officers.” No director has a service contract with us not terminable by us within one year without payment of compensation (other than statutory We have entered into indemnification agreements with each of our directors and executive officers. We also maintain a general liability insurance policy which covers certain liabilities of our directors and executive officers arising out of claims based on acts or omissions in their capabilities as directors or officers. Employment Agreements compensation). Indemnification Agreements C. Interests of Experts and Counsel. Not applicable. ITEM 8. FINANCIAL INFORMATION See Item 18 “Financial Statements.” A.7 Legal Proceedings. There are no material legal proceedings pending or, to our knowledge, threatened against us. We are also not aware of any incidents of non-compliance with laws and regulations that may have a significant impact on us which would have a material adverse effect on our financial condition or results of operations. From time to time we become subject to legal proceedings and claims in the ordinary course of our business, including claims of alleged infringement of patents and other intellectual property rights. Such legal proceedings or claims, even if not meritorious, could result in the expenditure of significant financial and management resources. We have never declared or paid dividends on our ordinary shares. We currently expect to retain all future earnings for use in the operation and expansion of our business and do not have any present plan to pay any dividends. The declaration and payment of any dividends in the future will be determined by our board of directors in its discretion, and will depend on a number of factors, including our earnings, capital requirements, overall financial condition, and contractual restrictions. A.8 Dividend Policy. B. Significant Changes. annual report. ITEM 9. THE OFFER AND LISTING Not applicable except for Item 9.A.4 and Item 9.C. We have not experienced any significant changes since the date of our audited consolidated financial statements included in this Our ADSs are listed on the Nasdaq Global Select and our ordinary shares are admitted to trading on the AIM market under the symbol “HCM.” In addition, our ordinary shares are listed on the SEHK under stock code “0013.” 202 203 The Brand License Agreement contains provisions on quality control pursuant to which we are obliged to use the brands and related Employment Agreements materials in compliance with the brand guidelines, industry best practice and other quality directives issued by Hutchison Whampoa Enterprises Limited from time to time. Under this agreement, we assign all intellectual property rights, including future copyrights in any works incorporating brand-related material or translations thereof, to Hutchison Whampoa Enterprises Limited (subject to any third- party rights). rights. Hutchison Whampoa Enterprises Limited may terminate the Brand License Agreement (or any sub-license) if, among other things, we commit a material breach of the agreement, or within any twelve-month period aggregate direct or indirect shareholding in our company held by CK Hutchison , our indirect shareholder, is reduced to less than 35%, 30% or 20%. On termination of the Brand License Agreement, we (and any sub-licensees) must immediately cease using the brands and are obliged to withdraw from the sale of any products bearing the brands; provided that if the agreement is terminated following a change in CK Hutchison’s aggregate direct or indirect shareholding in our company, we will have a six-month transitional period during which we can continue to use the licensed We have entered into employment agreements with our executive officers. For more information regarding these agreements, see Item 6.B. “Compensation—Executive Officer Compensation—Employment Arrangements with our Executive Officers.” No director has a service contract with us not terminable by us within one year without payment of compensation (other than statutory compensation). Indemnification Agreements We have entered into indemnification agreements with each of our directors and executive officers. We also maintain a general liability insurance policy which covers certain liabilities of our directors and executive officers arising out of claims based on acts or omissions in their capabilities as directors or officers. On June 15, 2021, we entered into a brand license royalty agreement with Hutchison Whampoa Enterprises Limited, pursuant to which we will pay an annual fee of HK$12 million (up to an aggregate royalty payable of no more than HK$120 million) in consideration of the grant of the royalty-free right to use the trademarks owned by Hutchison Whampoa Enterprises Limited to Hutchison Baiyunshan and HBYS JV companies upon the completion of the disposal of shareholding interest in Hutchison Baiyunshan. C. Interests of Experts and Counsel. Not applicable. ITEM 8. FINANCIAL INFORMATION Sharing of services with the CK Hutchison group A. Consolidated Financial Statements and Other Financial Information. Pursuant to an amended and restated services agreement dated January 1, 2016 between us and Hutchison Whampoa (China) Limited, an indirect wholly owned subsidiary of CK Hutchison, we share certain services with and receive operational support from the CK Hutchison group including, among others, legal and regulatory services, company secretarial support services, tax and internal audit services, shared use of accounting software system and related services, participation in the CK Hutchison group’s pension, medical and insurance plans, participation in the CK Hutchison group’s procurement projects with third-party vendors/suppliers, other staff benefits and staff training services, company functions and activities and operation advisory and support services. We refer to this amended and restated agreement as the Services Agreement. The Services Agreement replaces our prior services agreement with Hutchison Whampoa (China) Limited, dated April 21, 2006, which had substantially similar terms. We pay a management fee to Hutchison Whampoa (China) Limited for the provision of such services. In addition, we make payments under the Services Agreement to Hutchison Whampoa (China) Limited for our executive offices in Hong Kong. Furthermore, pursuant to the terms of the Services Agreement, Hutchison Whampoa (China) Limited charges us management fees and other costs through Hutchison Healthcare Holdings Limited, its wholly owned subsidiary. The Services Agreement may be terminated by either party by giving three months’ written notice. Hutchison Whampoa (China) Limited may also immediately terminate if its shareholding in our company falls below 30%. The services provided under the Services Agreement are provided on an arm’s length basis, on normal commercial terms. See Item 18 “Financial Statements.” A.7 Legal Proceedings. There are no material legal proceedings pending or, to our knowledge, threatened against us. We are also not aware of any incidents of non-compliance with laws and regulations that may have a significant impact on us which would have a material adverse effect on our financial condition or results of operations. From time to time we become subject to legal proceedings and claims in the ordinary course of our business, including claims of alleged infringement of patents and other intellectual property rights. Such legal proceedings or claims, even if not meritorious, could result in the expenditure of significant financial and management resources. A.8 Dividend Policy. We have never declared or paid dividends on our ordinary shares. We currently expect to retain all future earnings for use in the operation and expansion of our business and do not have any present plan to pay any dividends. The declaration and payment of any dividends in the future will be determined by our board of directors in its discretion, and will depend on a number of factors, including our earnings, capital requirements, overall financial condition, and contractual restrictions. Any amount unpaid after 30 days accrues interest at the rate of 1.5% per annum. In the year ended December 31, 2022, we paid a management fee of approximately $1.0 million under the Services Agreement. As of December 31, 2022, we had $0.4 million in unpaid B. Significant Changes. fees outstanding to Hutchison Whampoa (China) Limited. We have not experienced any significant changes since the date of our audited consolidated financial statements included in this Director and Executive Officer Compensation Agreements with Our Directors and Executive Officers See Item 6.B. “Compensation—Executive Officer Compensation” and “Compensation—Director Compensation” for a discussion of our compensation of directors and executive officers. Equity Compensation See Item 6.B. “Compensation—Equity Compensation Schemes and Other Benefit Plans.” annual report. ITEM 9. THE OFFER AND LISTING Not applicable except for Item 9.A.4 and Item 9.C. Our ADSs are listed on the Nasdaq Global Select and our ordinary shares are admitted to trading on the AIM market under the symbol “HCM.” In addition, our ordinary shares are listed on the SEHK under stock code “0013.” 202 203 ITEM 10. ADDITIONAL INFORMATION A. Share Capital. Not applicable. B. Memorandum and Articles of Association. On May 29, 2019, we conditionally adopted an amended and restated memorandum and articles of association by special resolution and effective on the date on which our shares are listed on the SEHK (the “Amended and Restated Articles”). On June 30, 2021, the listing date of our shares on the SEHK, the Amended and Restated Articles replaced the then existing articles of association of our company adopted by at the annual general meeting held on April 27, 2020. C. Material Contracts. Except as otherwise disclosed in this annual report (including the exhibits hereto), we are not currently, and have not been in the ADSs and ordinary shares. last two years, party to any material contract, other than contracts entered into in the ordinary course of our business. D. Exchange Controls. Foreign currency exchange in the PRC is primarily governed by the Foreign Exchange Administration Rules issued by the State Council on January 29, 1996 and effective as of April 1, 1996 (and amended on January 14, 1997 and August 5, 2008) and the Regulations of Settlement, Sale and Payment of Foreign Exchange which came into effect on July 1, 1996. Under the Foreign Exchange Administration Rules, renminbi is freely convertible for current account items, including the distribution of dividends payments, interest payments, and trade and service-related foreign exchange transactions. Conversion of renminbi for capital account items, such as direct investment, loans, securities investment and repatriation of investment, however, is still generally subject to the approval or verification of the SAFE. Under the Regulations of Settlement, Sale and Payment of Foreign Exchange, foreign invested enterprises including wholly foreign owned enterprises, may buy, sell or remit foreign currencies only at those banks that are authorized to conduct foreign exchange business after providing such banks with valid commercial supporting documents and, in the case of capital account item transactions, after obtaining approvals from the SAFE. Capital investments by foreign invested enterprises outside the PRC are also subject to limitations, which include approvals by the MOFCOM, the SAFE and the NDRC. In March 2015, the SAFE released the Circular on Reforming the Management Approach regarding the Foreign Exchange Capital Settlement of Foreign-invested Enterprises, or FIEs, or the Foreign Exchange Capital Settlement Circular, which became effective from June 1, 2015. This circular replaced the SAFE’s previous related circulars, including the Circular on Issues Relating to the Improvement of Business Operation with Respect to the Administration of Foreign Exchange Capital Payment and Settlement of Foreign Invested Enterprises. The Foreign Exchange Capital Settlement Circular clarifies that FIEs may settle a specified proportion of their foreign exchange capital in banks at their discretion, and may choose the timing for such settlement. The proportion of foreign exchange capital to be settled at FIEs’ discretion for the time being is 100% and the SAFE may adjust the proportion in due time based on the situation of international balance of payments. The circular also stipulates that FIEs’ usage of capital and settled foreign exchange capital shall comply with relevant provisions concerning foreign exchange control and be subject to the management of a negative list. The Notice of the SAFE on Policies for Reforming and Regulating Control over Foreign Exchange Settlement under the Capital Account, which became effective from June 9, 2016 and supplements the Foreign Exchange Capital Settlement Circular, stipulates that the FIEs’ capital and Renminbi capital gained from the settlement of foreign exchange capital may not be directly or indirectly used for expenditure beyond the business scope of the FIEs or as prohibited by laws and regulations of the PRC. Such capital also may not be directly or indirectly used for granting loans to non-affiliated enterprises except as permitted by the business scope of the FIE or for construction or purchase of real estate other than self-use (exceptions only apply for real estate enterprises). In addition, the payment of dividends by entities established in the PRC is subject to limitations. Regulations in the PRC currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in the PRC. Each of our PRC subsidiaries that is a domestic company is also required to set aside at least 10.0% of its after-tax profit based on PRC accounting standards each year to its general reserves or statutory capital reserve fund until the accumulative amount of such reserves reach 50.0% of its respective registered capital. These restricted reserves are not distributable as cash dividends. In addition, if any of our PRC subsidiaries or joint ventures incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. For more information about foreign exchange control, see Item 3.D. “Risk Factors—Other Risks and Risks Relating to Doing Business in China—Restrictions on currency exchange may limit our ability to receive and use our revenue effectively.” E. Taxation. The following is a general summary of certain PRC, Hong Kong, Cayman Islands and U.S. federal income tax consequences relevant to the acquisition, ownership and disposition of our ADSs. The discussion is not intended to be, nor should it be construed as, legal or tax advice to any particular individual. The discussion is based on laws and relevant interpretations thereof in effect as of February 27, 2023, all of which are subject to change or different interpretations, possibly with retroactive effect. The discussion does not address U.S. state or local tax laws, or tax laws of jurisdictions other than the PRC, Hong Kong, the Cayman Islands and the United States. You should consult your own tax advisors with respect to the consequences of acquisition, ownership and disposition of our PRC Enterprise Income Tax Taxation in the PRC Under the EIT Law, which was promulgated on March 16, 2007 and subsequently amended on February 24, 2017 and December 29, 2018, and its implementation rules which became effective on January 1, 2008 and subsequently amended on April 23, 2019, the standard tax rate of 25% applies to all enterprises (including FIEs) with exceptions in special situations if relevant criteria are met and subject to the approval of the PRC tax authorities. An enterprise incorporated outside of the PRC whose “de facto management bodies” are located in the PRC is considered a “resident enterprise” and will be subject to a uniform EIT rate of 25% on its global income. In April 2009, the SAT, in Circular 82, specified certain criteria for the determination of what constitutes “de facto management bodies.” If all of these criteria are met, the relevant foreign enterprise will be deemed to have its “de facto management bodies” located in the PRC and therefore be considered a resident enterprise in the PRC. These criteria include: (a) the enterprise’s day-to-day operational management is primarily exercised in the PRC; (b) decisions relating to the enterprise’s financial and human resource matters are made or subject to approval by organizations or personnel in the PRC; (c) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholders’ meeting minutes are located or maintained in the PRC; and (d) 50% or more of voting board members or senior executives of the enterprise habitually reside in the PRC. Although Circular 82 only applies to foreign enterprises that are majority-owned and controlled by PRC enterprises, not those owned and controlled by foreign enterprises or individuals, the determining criteria set forth in Circular 82 may be adopted by the PRC tax authorities as the test for determining whether the enterprises are PRC tax residents, regardless of whether they are majority-owned and controlled by PRC enterprises. However, it is not entirely clear how the PRC tax authorities will determine whether a non-PRC entity (that has not already been notified of its status for EIT purposes) will be classified as a “resident enterprise” in practice. Except for our PRC subsidiaries and joint ventures incorporated in China, we believe that none of our entities incorporated outside of China is a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities, and uncertainties remain with respect to the interpretation of the term “de facto management body.” If a non-PRC enterprise is classified as a “resident enterprise” for EIT purposes, any dividends to be distributed by that enterprise to non-PRC resident shareholders or ADS holders or any gains realized by such investors from the transfer of shares or ADSs may be subject to PRC tax. If the PRC tax authorities determine that we should be considered a PRC resident enterprise for EIT purposes, any dividends payable by us to our non-PRC resident enterprise shareholders or ADS holders with no office or premises established in China, or with an office or premises established in China but whose income (i.e. dividends received) has no de facto relationship with said office or premises, as well as gains realized by such investors from the transfer of our shares or ADSs may be subject to a 10% withholding tax. Furthermore, if we are considered a PRC resident enterprise for EIT purposes, it is unclear whether our non-PRC individual shareholders (including our ADS holders) would be subject to any PRC tax on dividends or gains obtained by such non-PRC individual shareholders. If any PRC tax were to apply to dividends realized by non-PRC individuals, it would generally apply at a rate of up to 20% (which in the case of dividends may be withheld at source). The foregoing rates may be reduced by an applicable tax 204 205 ITEM 10. ADDITIONAL INFORMATION A. Share Capital. Not applicable. B. Memorandum and Articles of Association. On May 29, 2019, we conditionally adopted an amended and restated memorandum and articles of association by special resolution and effective on the date on which our shares are listed on the SEHK (the “Amended and Restated Articles”). On June 30, 2021, the listing date of our shares on the SEHK, the Amended and Restated Articles replaced the then existing articles of association of our company adopted by at the annual general meeting held on April 27, 2020. Except as otherwise disclosed in this annual report (including the exhibits hereto), we are not currently, and have not been in the last two years, party to any material contract, other than contracts entered into in the ordinary course of our business. C. Material Contracts. D. Exchange Controls. Foreign currency exchange in the PRC is primarily governed by the Foreign Exchange Administration Rules issued by the State Council on January 29, 1996 and effective as of April 1, 1996 (and amended on January 14, 1997 and August 5, 2008) and the Regulations of Settlement, Sale and Payment of Foreign Exchange which came into effect on July 1, 1996. Under the Foreign Exchange Administration Rules, renminbi is freely convertible for current account items, including the distribution of dividends payments, interest payments, and trade and service-related foreign exchange transactions. Conversion of renminbi for capital account items, such as direct investment, loans, securities investment and repatriation of investment, however, is still generally subject to the approval or verification of the SAFE. Under the Regulations of Settlement, Sale and Payment of Foreign Exchange, foreign invested enterprises including wholly foreign owned enterprises, may buy, sell or remit foreign currencies only at those banks that are authorized to conduct foreign exchange business after providing such banks with valid commercial supporting documents and, in the case of capital account item transactions, after obtaining approvals from the SAFE. Capital investments by foreign invested enterprises outside the PRC are also subject to limitations, which include approvals by the MOFCOM, the SAFE and the NDRC. In March 2015, the SAFE released the Circular on Reforming the Management Approach regarding the Foreign Exchange Capital Settlement of Foreign-invested Enterprises, or FIEs, or the Foreign Exchange Capital Settlement Circular, which became effective from June 1, 2015. This circular replaced the SAFE’s previous related circulars, including the Circular on Issues Relating to the Improvement of Business Operation with Respect to the Administration of Foreign Exchange Capital Payment and Settlement of Foreign Invested Enterprises. The Foreign Exchange Capital Settlement Circular clarifies that FIEs may settle a specified proportion of their foreign exchange capital in banks at their discretion, and may choose the timing for such settlement. The proportion of foreign exchange capital to be settled at FIEs’ discretion for the time being is 100% and the SAFE may adjust the proportion in due time based on the situation of international balance of payments. The circular also stipulates that FIEs’ usage of capital and settled foreign exchange capital shall comply with relevant provisions concerning foreign exchange control and be subject to the management of a negative list. The Notice of the SAFE on Policies for Reforming and Regulating Control over Foreign Exchange Settlement under the Capital Account, which became effective from June 9, 2016 and supplements the Foreign Exchange Capital Settlement Circular, stipulates that the FIEs’ capital and Renminbi capital gained from the settlement of foreign exchange capital may not be directly or indirectly used for expenditure beyond the business scope of the FIEs or as prohibited by laws and regulations of the PRC. Such capital also may not be directly or indirectly used for granting loans to non-affiliated enterprises except as permitted by the business scope of the FIE or for construction or purchase of real estate other than self-use (exceptions only apply for real estate enterprises). In addition, the payment of dividends by entities established in the PRC is subject to limitations. Regulations in the PRC currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in the PRC. Each of our PRC subsidiaries that is a domestic company is also required to set aside at least 10.0% of its after-tax profit based on PRC accounting standards each year to its general reserves or statutory capital reserve fund until the accumulative amount of such reserves reach 50.0% of its respective registered capital. These restricted reserves are not distributable as cash dividends. In addition, if any of our PRC subsidiaries or joint ventures incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. For more information about foreign exchange control, see Item 3.D. “Risk Factors—Other Risks and Risks Relating to Doing Business in China—Restrictions on currency exchange may limit our ability to receive and use our revenue effectively.” E. Taxation. The following is a general summary of certain PRC, Hong Kong, Cayman Islands and U.S. federal income tax consequences relevant to the acquisition, ownership and disposition of our ADSs. The discussion is not intended to be, nor should it be construed as, legal or tax advice to any particular individual. The discussion is based on laws and relevant interpretations thereof in effect as of February 27, 2023, all of which are subject to change or different interpretations, possibly with retroactive effect. The discussion does not address U.S. state or local tax laws, or tax laws of jurisdictions other than the PRC, Hong Kong, the Cayman Islands and the United States. You should consult your own tax advisors with respect to the consequences of acquisition, ownership and disposition of our ADSs and ordinary shares. PRC Enterprise Income Tax Taxation in the PRC Under the EIT Law, which was promulgated on March 16, 2007 and subsequently amended on February 24, 2017 and December 29, 2018, and its implementation rules which became effective on January 1, 2008 and subsequently amended on April 23, 2019, the standard tax rate of 25% applies to all enterprises (including FIEs) with exceptions in special situations if relevant criteria are met and subject to the approval of the PRC tax authorities. An enterprise incorporated outside of the PRC whose “de facto management bodies” are located in the PRC is considered a “resident enterprise” and will be subject to a uniform EIT rate of 25% on its global income. In April 2009, the SAT, in Circular 82, specified certain criteria for the determination of what constitutes “de facto management bodies.” If all of these criteria are met, the relevant foreign enterprise will be deemed to have its “de facto management bodies” located in the PRC and therefore be considered a resident enterprise in the PRC. These criteria include: (a) the enterprise’s day-to-day operational management is primarily exercised in the PRC; (b) decisions relating to the enterprise’s financial and human resource matters are made or subject to approval by organizations or personnel in the PRC; (c) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholders’ meeting minutes are located or maintained in the PRC; and (d) 50% or more of voting board members or senior executives of the enterprise habitually reside in the PRC. Although Circular 82 only applies to foreign enterprises that are majority-owned and controlled by PRC enterprises, not those owned and controlled by foreign enterprises or individuals, the determining criteria set forth in Circular 82 may be adopted by the PRC tax authorities as the test for determining whether the enterprises are PRC tax residents, regardless of whether they are majority-owned and controlled by PRC enterprises. However, it is not entirely clear how the PRC tax authorities will determine whether a non-PRC entity (that has not already been notified of its status for EIT purposes) will be classified as a “resident enterprise” in practice. Except for our PRC subsidiaries and joint ventures incorporated in China, we believe that none of our entities incorporated outside of China is a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities, and uncertainties remain with respect to the interpretation of the term “de facto management body.” If a non-PRC enterprise is classified as a “resident enterprise” for EIT purposes, any dividends to be distributed by that enterprise to non-PRC resident shareholders or ADS holders or any gains realized by such investors from the transfer of shares or ADSs may be subject to PRC tax. If the PRC tax authorities determine that we should be considered a PRC resident enterprise for EIT purposes, any dividends payable by us to our non-PRC resident enterprise shareholders or ADS holders with no office or premises established in China, or with an office or premises established in China but whose income (i.e. dividends received) has no de facto relationship with said office or premises, as well as gains realized by such investors from the transfer of our shares or ADSs may be subject to a 10% withholding tax. Furthermore, if we are considered a PRC resident enterprise for EIT purposes, it is unclear whether our non-PRC individual shareholders (including our ADS holders) would be subject to any PRC tax on dividends or gains obtained by such non-PRC individual shareholders. If any PRC tax were to apply to dividends realized by non-PRC individuals, it would generally apply at a rate of up to 20% (which in the case of dividends may be withheld at source). The foregoing rates may be reduced by an applicable tax 204 205 treaty, but it is unclear if a non-PRC resident shareholder or ADS holder would be able to obtain in practice the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. According to the EIT Law, dividends declared after January 1, 2008 and paid by PRC FIEs to their non-PRC parent companies will be subject to PRC withholding tax at 10% unless there is a tax treaty between the PRC and the jurisdiction in which the overseas parent company is a tax resident and which specifically exempts or reduces such withholding tax, and such tax exemption or reduction is approved by the relevant PRC tax authorities. Pursuant to the Arrangement, if the non-PRC immediate holding company is a Hong Kong tax resident and directly holds a 25% or more equity interest in the PRC enterprise and is considered to be the beneficial owner of dividends paid by the PRC enterprise, such withholding tax rate may be lowered to 5%, subject to approval by the relevant PRC tax authorities in accordance with relevant tax regulations upon the assessment of beneficial ownership. U.S. Taxation Corporate Tax federal corporate tax of 21%. Cayman Islands Taxation Overview of Tax Implications of Various Other Jurisdictions According to our Cayman Islands counsel, Conyers Dill & Pearman, the Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or brought within the jurisdiction of the Cayman Islands. The Cayman Islands is a party to a double tax treaty entered into with the United Kingdom in 2010 but it is otherwise not a party to any double tax treaties that are applicable to any payments made to or by our company. There are no exchange control regulations or currency restrictions in the Cayman Islands. Pursuant to the Tax Concessions Act of the Cayman Islands, HUTCHMED (China) Limited has obtained an undertaking: (a) that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciations shall apply to us or our operations; and (b) that the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall not be payable (i) on its shares, debentures or other obligations or (ii) by way of the withholding in whole or in part of any relevant payment as defined in the Tax Concessions Act. The undertaking is for a period of twenty years from December 31, 2020. Hong Kong Taxation Profits Tax HUTCHMED (China) Limited is a Hong Kong tax resident. Hong Kong tax residents are subject to Hong Kong Profits Tax in respect of profits arising in or derived from Hong Kong at the current rate of 16.5% (except portions eligible for the two-tiered profits tax as discussed above). Dividend income earned by a Hong Kong tax resident is generally not subject to Hong Kong Profits Tax. The Inland Revenue (Amendment) (Taxation on Specified Foreign-sourced Income) Bill 2022 (the Amendment Bill) was gazetted on 28 October 2022 to provide a new framework for Hong Kong’s Foreign Source Income Exemption regime with a view to bringing the regime into force from 1 January 2023. The Amendment Bill aims to amend the Inland Revenue Ordinance (Cap. 112) to regard certain foreign-sourced income as arising in or derived from Hong Kong and to provide for relief against double taxation in respect of certain foreign-sourced income. Covered income includes interest, dividend, disposal gain from the sale of equity interests in an entity and intellectual property income. Hong Kong tax on shareholders and ADS holders No tax is payable in Hong Kong in respect of dividends paid by a Hong Kong tax resident to their shareholders, including our ADS holding our ordinary shares or ADSs, and their partners or shareholders; holders. dealers or electing traders in securities that use a mark-to-market method of tax accounting; Hong Kong Profits Tax will not be payable by our shareholders, including our ADS holders (other than shareholders / ADS holders carrying on a trade, profession or business in Hong Kong and holding the shares / ADSs for trading purposes), on any capital gains made on the sale or other disposal of the shares or ADSs. Shareholders, including our ADS holders, should take advice from their own professional advisors as to their particular tax position. persons whose functional currency is not the U.S. dollar; persons that acquired ordinary shares or ADSs as compensation; 206 207 persons holding ordinary shares or ADSs in connection with a trade or business conducted outside of the United States. Our subsidiaries in the United States, HUTCHMED International Corporation and HUTCHMED US Corporation, are subject to a Material U.S. Federal Income Tax Considerations with Respect to Ordinary Shares and ADSs The following summary, subject to the limitations set forth below, describes the material U.S. federal income tax consequences for a U.S. Holder (as defined below) of the ownership and disposition of ordinary shares and ADSs. It is not a comprehensive description of all tax considerations that may be relevant to a particular person’s ownership of our securities. This discussion is limited to U.S. Holders that hold such ordinary shares or ADSs as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended, or the Code (generally, property held for investment). For the purposes of this summary, a “U.S. Holder” is a person that is, for U.S. federal income tax purposes, a beneficial owner of an ordinary share or ADS and: a citizen or individual resident of the United States; a corporation (or any other entity treated as a corporation for U.S. federal income tax purposes) organized in or under the laws of the United States or any state thereof, or the District of Columbia; an estate the income of which is subject to U.S. federal income taxation regardless of its source; or a trust if (i) it has a valid election in effect to be treated as a U.S. person for U.S. federal income tax purposes or (ii) a U.S. court can exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of its substantial decisions. This summary does not purport to consider all aspects of U.S. federal income taxation that may be relevant to U.S. Holders in light of their particular circumstances, including the possible effect of the special tax accounting rules under Section 451 of the Code, or alternative minimum or Medicare contribution tax consequences. In addition, it does not address aspects of U.S. federal income taxation that may be applicable to U.S. Holders subject to special rules, including: banks or other financial institutions; insurance companies; real estate investment trusts; regulated investment companies; grantor trusts; tax-exempt organizations, “individual retirement accounts or “Roth IRAs”; partnerships (or other entities or ararngments treated as partnerships for U.S. federal income tax purposes) or S corporations • • • • • • • • • • • • • • • treaty, but it is unclear if a non-PRC resident shareholder or ADS holder would be able to obtain in practice the benefits of any tax U.S. Taxation treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Corporate Tax According to the EIT Law, dividends declared after January 1, 2008 and paid by PRC FIEs to their non-PRC parent companies will be subject to PRC withholding tax at 10% unless there is a tax treaty between the PRC and the jurisdiction in which the overseas parent company is a tax resident and which specifically exempts or reduces such withholding tax, and such tax exemption or reduction is approved by the relevant PRC tax authorities. Pursuant to the Arrangement, if the non-PRC immediate holding company is a Hong Kong tax resident and directly holds a 25% or more equity interest in the PRC enterprise and is considered to be the beneficial owner of dividends paid by the PRC enterprise, such withholding tax rate may be lowered to 5%, subject to approval by the relevant PRC tax authorities in accordance with relevant tax regulations upon the assessment of beneficial ownership. Cayman Islands Taxation Overview of Tax Implications of Various Other Jurisdictions Our subsidiaries in the United States, HUTCHMED International Corporation and HUTCHMED US Corporation, are subject to a federal corporate tax of 21%. Material U.S. Federal Income Tax Considerations with Respect to Ordinary Shares and ADSs The following summary, subject to the limitations set forth below, describes the material U.S. federal income tax consequences for a U.S. Holder (as defined below) of the ownership and disposition of ordinary shares and ADSs. It is not a comprehensive description of all tax considerations that may be relevant to a particular person’s ownership of our securities. This discussion is limited to U.S. Holders that hold such ordinary shares or ADSs as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended, or the Code (generally, property held for investment). For the purposes of this summary, a “U.S. Holder” is a person that is, for U.S. federal income tax purposes, a beneficial owner of an ordinary share or ADS and: According to our Cayman Islands counsel, Conyers Dill & Pearman, the Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or brought within the jurisdiction of the Cayman Islands. The Cayman Islands is a party to a double tax treaty entered into with the United Kingdom in 2010 but it is otherwise not a party to any double tax treaties that are applicable to any payments made to or by our company. There are no exchange control regulations or currency restrictions in the Cayman Islands. Pursuant to the Tax Concessions Act of the Cayman Islands, HUTCHMED (China) Limited has obtained an undertaking: (a) that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciations shall apply to us or our operations; and (b) that the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall not be payable (i) on its shares, debentures or other obligations or (ii) by way of the withholding in whole or in part of any relevant payment as defined in the • • • • a citizen or individual resident of the United States; a corporation (or any other entity treated as a corporation for U.S. federal income tax purposes) organized in or under the laws of the United States or any state thereof, or the District of Columbia; an estate the income of which is subject to U.S. federal income taxation regardless of its source; or a trust if (i) it has a valid election in effect to be treated as a U.S. person for U.S. federal income tax purposes or (ii) a U.S. court can exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of its substantial decisions. This summary does not purport to consider all aspects of U.S. federal income taxation that may be relevant to U.S. Holders in light of their particular circumstances, including the possible effect of the special tax accounting rules under Section 451 of the Code, or alternative minimum or Medicare contribution tax consequences. In addition, it does not address aspects of U.S. federal income taxation that may be applicable to U.S. Holders subject to special rules, including: • • • • • • • • • • • banks or other financial institutions; insurance companies; real estate investment trusts; regulated investment companies; grantor trusts; tax-exempt organizations, “individual retirement accounts or “Roth IRAs”; partnerships (or other entities or ararngments treated as partnerships for U.S. federal income tax purposes) or S corporations holding our ordinary shares or ADSs, and their partners or shareholders; dealers or electing traders in securities that use a mark-to-market method of tax accounting; persons whose functional currency is not the U.S. dollar; persons that acquired ordinary shares or ADSs as compensation; persons holding ordinary shares or ADSs in connection with a trade or business conducted outside of the United States. 206 207 The undertaking is for a period of twenty years from December 31, 2020. Tax Concessions Act. Hong Kong Taxation Profits Tax HUTCHMED (China) Limited is a Hong Kong tax resident. Hong Kong tax residents are subject to Hong Kong Profits Tax in respect of profits arising in or derived from Hong Kong at the current rate of 16.5% (except portions eligible for the two-tiered profits tax as discussed above). Dividend income earned by a Hong Kong tax resident is generally not subject to Hong Kong Profits Tax. The Inland Revenue (Amendment) (Taxation on Specified Foreign-sourced Income) Bill 2022 (the Amendment Bill) was gazetted on 28 October 2022 to provide a new framework for Hong Kong’s Foreign Source Income Exemption regime with a view to bringing the regime into force from 1 January 2023. The Amendment Bill aims to amend the Inland Revenue Ordinance (Cap. 112) to regard certain foreign-sourced income as arising in or derived from Hong Kong and to provide for relief against double taxation in respect of certain foreign-sourced income. Covered income includes interest, dividend, disposal gain from the sale of equity interests in an entity and intellectual property income. Hong Kong tax on shareholders and ADS holders No tax is payable in Hong Kong in respect of dividends paid by a Hong Kong tax resident to their shareholders, including our ADS holders. Hong Kong Profits Tax will not be payable by our shareholders, including our ADS holders (other than shareholders / ADS holders carrying on a trade, profession or business in Hong Kong and holding the shares / ADSs for trading purposes), on any capital gains made on the sale or other disposal of the shares or ADSs. Shareholders, including our ADS holders, should take advice from their own professional advisors as to their particular tax position. • • persons holding our ordinary shares or ADSs as part of a straddle, integrated or similar transaction for U.S. federal income tax purposes; or Taxation of Dividends direct, indirect or constructive owners of 10% or more of our equity (by vote or value). If an entity or arrangement treated as a partnership for U.S. federal income tax purposes owns our ordinary shares or ADSs, the tax treatment of the partnership and a partner in such partnership generally will depend on the status of the partner and the activities of the partnership. Such partnerships and partners should consult their tax advisors as to the U.S. federal income tax consequences of acquiring, owning and disposing of our ordinary shares or ADSs. This discussion does not address the effects of any state, local or non-U.S. tax law or any U.S. federal taxes other than income taxes (such as U.S. federal estate or gift tax consequences). We have not received nor do we expect to seek a ruling from the U.S. Internal Revenue Service, or the IRS, regarding any matter discussed herein. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of those set forth below. Each investor should consult its tax advisors with respect to the U.S. federal, state, local and non-U.S. tax consequences of acquiring, owning and disposing of our ordinary shares and ADSs. This discussion is based on the Code, final and proposed U.S. Treasury Regulations promulgated thereunder and administrative and judicial interpretations thereof, and the income tax treaty between the PRC and the United States, or the U.S.- PRC Tax Treaty, each as of the date hereof, all of which are subject to change or differing interpretations, possibly with retroactive effect, which could affect the tax consequences described herein. In addition, this summary assumes that the deposit agreement, and all other related agreements, will be performed in accordance with their terms. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH REGARD TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO THEIR SITUATIONS AS WELL AS THE APPLICATION OF ANY U.S. FEDERAL, STATE, LOCAL, NON-U.S. OR OTHER TAX LAWS, INCLUDING GIFT AND ESTATE TAX LAWS. ADSs A U.S. Holder of ADSs will generally be treated, for U.S. federal income tax purposes, as the owner of the underlying ordinary shares that such ADSs represent. Accordingly, no gain or loss will be recognized if a U.S. Holder exchanges ADSs for the underlying shares represented by those ADSs. The following is subject to the discussion under “—Passive Foreign Investment Company Considerations” below. As described in Item 8. “Financial Information—A.8 Dividend Policy” above, we do not currently anticipate paying any distributions on our ordinary shares or ADSs in the foreseeable future. However, to the extent there are any distributions made with respect to our ordinary shares or ADSs, the gross amount of any such distribution (including withheld taxes, if any) made out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) will generally be taxable to a U.S. Holder as ordinary dividend income on the date such distribution is actually or constructively received. Distributions in excess of our current and accumulated earnings and profits will be treated as a non-taxable return of capital to the extent of the U.S. Holder’s adjusted tax basis in the ordinary shares or ADSs, as applicable, and thereafter as capital gain. However, because we do not maintain calculations of our earnings and profits in accordance with U.S. federal income tax accounting principles, U.S. Holders should expect to treat distributions paid with respect to our ordinary shares and ADSs as dividends. Dividends paid to corporate U.S. Holders will not qualify for the dividends received deduction that may otherwise be allowed under the Code. The amount of income from dividends paid in a non-U.S. currency will be the U.S. dollar amount of the dividend calculated by reference to the exchange rate in effect on the date of receipt, regardless of whether the payment is in fact converted into U.S. dollars. If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holder generally should not be required to recognize foreign currency gain or loss in respect of the dividend income. A U.S. Holder may have foreign currency gain or loss, taxable as ordinary income or loss, if the dividend is converted into U.S. dollars after the date of receipt. Foreign currency gain or loss generally will be treated as U.S.-source gain or loss. Dividends paid to a non-corporate U.S. Holder by a “qualified foreign corporation” may be subject to reduced rates of U.S. federal income taxation if certain holding period and other requirements are met. A qualified foreign corporation generally includes a foreign corporation (other than a PFIC) if (1) its ordinary shares (or ADSs backed by ordinary shares) are readily tradable on an established securities market in the United States or (2) it is eligible for benefits under a comprehensive U.S. income tax treaty that includes an exchange of information program and which the U.S. Treasury Department has determined is satisfactory for these purposes. We are not eligible for the benefits of any U.S. income tax treaty. However, because our ADSs are listed on the Nasdaq, a non-corporate U.S. Holder of ADSs may be eligible for the preferential tax rates on dividends, subject to applicable limitations (including a minimum holding period and other requirements) and provided that we are not a PFIC (and are not treated as a PFIC with respect to the U.S. Holder) for the taxable year of distribution of the precedeing taxable year. For purposes of the foreign tax credit rules, dividends will be treated as foreign-source income. As described in “—Taxation in the PRC” above, if we are deemed to be a “resident enterprise” under PRC tax law, U.S. Holders may be subject to PRC withholding taxes on dividends paid by us. In that case, subject to certain conditions and limitations and the discussion below regarding the impact of certain Treasury regulations, such PRC taxes withheld from dividend payments (at a rate not exceeding the applicable rate provided in the U.S.-PRC Tax Treaty for U.S. Holders eligible for the benefits of the U.S.-PRC Tax Treaty) generally will be eligible for credit against a U.S. Holder’s U.S. federal income tax liability under the U.S. foreign tax credit rules. The U.S. foreign tax credit rules are complex. For example, under Treasury regulations, in the absence of an election to apply the benefits of an applicable income tax treaty, in order to be creditable, non-U.S. income tax rules must be consistent with certain U.S. federal income tax principles, and we have not determined whether the PRC income tax system meets these requirements. A U.S. Holder that is not entitled, or does not elect, to claim a foreign tax credit for PRC tax withheld may instead be eligible to claim a deduction in respect of such withholding, but only for a year in which such U.S. Holder elects to do so for all creditable foreign income taxes and subject to other applicable limitations. U.S. Holders should consult their tax advisors regarding the foreign tax credit and deduction rules in light of their particular circumstances. Taxation of Capital Gains The following is subject to the discussion under “—Passive Foreign Investment Company Considerations” below. Upon the sale, exchange, or other taxable disposition of our ordinary shares or ADSs, a U.S. Holder generally will recognize gain or loss in an amount equal to the difference between the amount realized on such sale or exchange and the U.S. Holder’s adjusted tax basis in such ordinary shares or ADSs, in each case determined in U.S. dollars. A U.S. Holder’s initial tax basis will be the U.S. Holder’s U.S. dollar purchase price for such ordinary shares or ADSs. 208 209 purposes; or • • direct, indirect or constructive owners of 10% or more of our equity (by vote or value). If an entity or arrangement treated as a partnership for U.S. federal income tax purposes owns our ordinary shares or ADSs, the tax treatment of the partnership and a partner in such partnership generally will depend on the status of the partner and the activities of the partnership. Such partnerships and partners should consult their tax advisors as to the U.S. federal income tax consequences of acquiring, owning and disposing of our ordinary shares or ADSs. This discussion does not address the effects of any state, local or non-U.S. tax law or any U.S. federal taxes other than income taxes (such as U.S. federal estate or gift tax consequences). We have not received nor do we expect to seek a ruling from the U.S. Internal Revenue Service, or the IRS, regarding any matter discussed herein. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of those set forth below. Each investor should consult its tax advisors with respect to the U.S. federal, state, local and non-U.S. tax consequences of acquiring, owning and disposing of our ordinary shares and ADSs. This discussion is based on the Code, final and proposed U.S. Treasury Regulations promulgated thereunder and administrative and judicial interpretations thereof, and the income tax treaty between the PRC and the United States, or the U.S.- PRC Tax Treaty, each as of the date hereof, all of which are subject to change or differing interpretations, possibly with retroactive effect, which could affect the tax consequences described herein. In addition, this summary assumes that the deposit agreement, and all other related agreements, will be performed in accordance with their terms. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH REGARD TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO THEIR SITUATIONS AS WELL AS THE APPLICATION OF ANY U.S. FEDERAL, STATE, LOCAL, NON-U.S. OR OTHER TAX LAWS, INCLUDING GIFT AND ESTATE TAX LAWS. ADSs A U.S. Holder of ADSs will generally be treated, for U.S. federal income tax purposes, as the owner of the underlying ordinary shares that such ADSs represent. Accordingly, no gain or loss will be recognized if a U.S. Holder exchanges ADSs for the underlying shares represented by those ADSs. persons holding our ordinary shares or ADSs as part of a straddle, integrated or similar transaction for U.S. federal income tax Taxation of Dividends The following is subject to the discussion under “—Passive Foreign Investment Company Considerations” below. As described in Item 8. “Financial Information—A.8 Dividend Policy” above, we do not currently anticipate paying any distributions on our ordinary shares or ADSs in the foreseeable future. However, to the extent there are any distributions made with respect to our ordinary shares or ADSs, the gross amount of any such distribution (including withheld taxes, if any) made out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) will generally be taxable to a U.S. Holder as ordinary dividend income on the date such distribution is actually or constructively received. Distributions in excess of our current and accumulated earnings and profits will be treated as a non-taxable return of capital to the extent of the U.S. Holder’s adjusted tax basis in the ordinary shares or ADSs, as applicable, and thereafter as capital gain. However, because we do not maintain calculations of our earnings and profits in accordance with U.S. federal income tax accounting principles, U.S. Holders should expect to treat distributions paid with respect to our ordinary shares and ADSs as dividends. Dividends paid to corporate U.S. Holders will not qualify for the dividends received deduction that may otherwise be allowed under the Code. The amount of income from dividends paid in a non-U.S. currency will be the U.S. dollar amount of the dividend calculated by reference to the exchange rate in effect on the date of receipt, regardless of whether the payment is in fact converted into U.S. dollars. If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holder generally should not be required to recognize foreign currency gain or loss in respect of the dividend income. A U.S. Holder may have foreign currency gain or loss, taxable as ordinary income or loss, if the dividend is converted into U.S. dollars after the date of receipt. Foreign currency gain or loss generally will be treated as U.S.-source gain or loss. Dividends paid to a non-corporate U.S. Holder by a “qualified foreign corporation” may be subject to reduced rates of U.S. federal income taxation if certain holding period and other requirements are met. A qualified foreign corporation generally includes a foreign corporation (other than a PFIC) if (1) its ordinary shares (or ADSs backed by ordinary shares) are readily tradable on an established securities market in the United States or (2) it is eligible for benefits under a comprehensive U.S. income tax treaty that includes an exchange of information program and which the U.S. Treasury Department has determined is satisfactory for these purposes. We are not eligible for the benefits of any U.S. income tax treaty. However, because our ADSs are listed on the Nasdaq, a non-corporate U.S. Holder of ADSs may be eligible for the preferential tax rates on dividends, subject to applicable limitations (including a minimum holding period and other requirements) and provided that we are not a PFIC (and are not treated as a PFIC with respect to the U.S. Holder) for the taxable year of distribution of the precedeing taxable year. For purposes of the foreign tax credit rules, dividends will be treated as foreign-source income. As described in “—Taxation in the PRC” above, if we are deemed to be a “resident enterprise” under PRC tax law, U.S. Holders may be subject to PRC withholding taxes on dividends paid by us. In that case, subject to certain conditions and limitations and the discussion below regarding the impact of certain Treasury regulations, such PRC taxes withheld from dividend payments (at a rate not exceeding the applicable rate provided in the U.S.-PRC Tax Treaty for U.S. Holders eligible for the benefits of the U.S.-PRC Tax Treaty) generally will be eligible for credit against a U.S. Holder’s U.S. federal income tax liability under the U.S. foreign tax credit rules. The U.S. foreign tax credit rules are complex. For example, under Treasury regulations, in the absence of an election to apply the benefits of an applicable income tax treaty, in order to be creditable, non-U.S. income tax rules must be consistent with certain U.S. federal income tax principles, and we have not determined whether the PRC income tax system meets these requirements. A U.S. Holder that is not entitled, or does not elect, to claim a foreign tax credit for PRC tax withheld may instead be eligible to claim a deduction in respect of such withholding, but only for a year in which such U.S. Holder elects to do so for all creditable foreign income taxes and subject to other applicable limitations. U.S. Holders should consult their tax advisors regarding the foreign tax credit and deduction rules in light of their particular circumstances. Taxation of Capital Gains The following is subject to the discussion under “—Passive Foreign Investment Company Considerations” below. Upon the sale, exchange, or other taxable disposition of our ordinary shares or ADSs, a U.S. Holder generally will recognize gain or loss in an amount equal to the difference between the amount realized on such sale or exchange and the U.S. Holder’s adjusted tax basis in such ordinary shares or ADSs, in each case determined in U.S. dollars. A U.S. Holder’s initial tax basis will be the U.S. Holder’s U.S. dollar purchase price for such ordinary shares or ADSs. 208 209 Such gain or loss generally will be capital gain or loss, and will be long-term capital gain or loss if a U.S. Holder held the ordinary share or ADS for more than one year. Long-term capital gains of non-corporate U.S. Holders are taxed at a preferential tax rate. The deductibility of capital losses is subject to limitations. As described in “—Taxation in the PRC” above, if we are deemed to be a “resident enterprise” under PRC tax law, any gain on the sale of ordinary shares or ADSs may be subject to PRC taxes. Under the Code, capital gains of U.S. persons generally are treated as U.S.-source income. However, if a U.S. Holder is eligible for the benefits of the U.S.-PRC Tax Treaty, the holder may be able to elect to treat such disposition gain as PRC-source gain under the U.S.-PRC Tax Treaty for U.S. foreign tax credit purposes and claim a foreign tax credit in respect of PRC taxes on such gains. A U.S. Holder will be eligible for U.S.-PRC Tax Treaty benefits if (for the purposes of the treaty) such holder is a resident of the United States and satisfies the “limitations of benefits” requirements specified in the U.S.- PRC Tax Treaty. Because the determination of treaty benefit eligibility is fact-intensive and depends upon a U.S. Holder’s particular circumstances, U.S. Holders should consult their tax advisors regarding their eligibility for the U.S.-PRC Tax Treaty benefits. Treasury regulations generally preclude a U.S. Holder from claiming a foreign tax credit with respect to PRC income taxes on gains from dispositions of ordinary shares or ADSs if a U.S. Holder is not eligible for, or does not elect to apply the benefits of, the U.S.-PRC Tax Treaty. However, non-U.S. taxes on disposition gains may be deductible or reduce the amount realized on the disposition. The rules governing foreign tax credits and the deductibility of non-U.S. taxes are complex. U.S. Holders are also encouraged to consult their tax advisors regarding the tax consequences in the event PRC tax is imposed on a disposition of ordinary shares or ADSs, including the U.S.-PRC Tax Treaty’s resourcing rule, any reporting requirements with respect to a treaty-based return position and the creditability or deductibility of any non-U.S. tax on disposition gains in their particular circumstances (including any applicable limitations). Passive Foreign Investment Company Considerations Status as a PFIC. The rules governing PFICs can result in adverse U.S. federal income tax consequences to U.S. Holders. We generally will be a PFIC for U.S. federal income tax purposes if, for any taxable year, either: (1) 75% or more of our gross income consists of certain types of passive income, or (2) 50% or more of the average value of our assets (generally determined on a quarterly basis) consists of our assets that produce, or are held for the production of, passive income. Passive income generally includes dividends, interest, rents and royalties (other than certain rents and royalties derived in the active conduct of a trade or business), annuities and gains from assets that produce passive income. If a non-U.S. corporation owns at least 25% by value of the stock of another corporation, the non-U.S. corporation is treated for the purposes of the PFIC tests as owning its proportionate share of the assets of the other corporation and as receiving directly its proportionate share of the other corporation’s income. Cash and cash equivalents are generally treated as passive assets. Goodwill is generally treated as an active asset to the extent associated with activities that generate non-passive income. Based on the composition of our income and assets and the estimated average value of our assets (including goodwill), we believe that we were not a PFIC for our taxable year ended December 31, 2022. However, our PFIC status is a factual determination that is made on an annual basis and depends on particular facts and circumstances (such as the value of our assets, including goodwill and other intangible assets). We hold a substantial amount of cash and financial investments and while this continues to be the case, our PFIC status depends primarily on the average value of our goodwill. The value of our goodwill may be determined, in large part, by reference to our market capitalization, which has been, and may continue to be, volatile. Therefore, if our market capitalization declines we may become a PFIC. In addition, there is uncertainty as to how to apply the PFIC rules for purposes of classifying certain of our income and assets as active or passive. In light of the foregoing, no assurance can be provided that we were not, or will not be, a PFIC for any taxable year. U.S. federal income tax treatment of a shareholder of a PFIC generally. If we are a PFIC for any taxable year during which a U.S. Holder owns ordinary shares or ADSs, the U.S. Holder, absent certain elections, generally will be subject to adverse rules (regardless of whether we continue to be a PFIC) with respect to (1) any “excess distributions” (generally, the extent that any distributions received by the U.S. Holder on its ordinary shares or ADSs in a taxable year exceed 125% of the average annual distributions received by the U.S. Holder in the three preceding taxable years or, if shorter, the U.S. Holder’s holding period) and (2) any gain realized on the sale or other disposition, including a pledge, of such ordinary shares or ADSs. Under these rules (a) any gain or excess distribution will be allocated ratably over the U.S. Holder’s holding period, (b) the amount allocated to the current taxable year and any taxable year prior to the first taxable year in which we became a PFIC will be taxed as ordinary income and (c) the amount allocated to each other taxable year during the U.S. Holder’s holding period (i) will be subject to tax at the highest rate of tax in effect for the applicable category of taxpayer for that year and (ii) will be subject to an interest charge at a statutory rate with respect to the resulting tax attributable to each such other taxable year. In addition,a non-corporate U.S. Holder will not be eligible for reduced rates of taxation on any dividends received from us if we are a PFIC (or are treated as a PFIC with respect to the U.S. Holder) in the taxable year in which such dividends are paid or in the preceding taxable year. If we are a PFIC in any taxable year during which a U.S. Holder owns ordinary shares or ADSs, we generally will continue to be treated as a PFIC with respect to that U.S. Holder in all succeeding taxable years, even if we cease to meet the threshold requirements for PFIC status described above, unless the U.S. Holder makes a timely “deemed sale election.” If we are a PFIC for any taxable year and then cease to be a PFIC, a U.S. Holder may make a “deemed sale election” to be treated for U.S. federal income tax purposes as having sold such U.S. Holder’s ordinary shares or ADSs on the last day of our taxable year during which we were a PFIC. A U.S. Holder that makes a deemed sale election would then cease to be treated as owning stock in a PFIC. However, gain recognized as a result of making the deemed sale election would be subject to the adverse rules described above and loss would not be recognized. If we are a PFIC for any taxable year, a U.S. Holder will be treated as owning a proportionate amount (by value) of stock or shares owned by us in any direct or indirect subsidiaries that are also PFICs (any such entity, a “Lower-tier PFIC”) and will be subject to similar adverse rules with respect to any distributions we receive from, and dispositions we make of, the stock or shares of such subsidiaries, in each case as if the U.S. Holder owned its proportionate share of the Lower-tier PFIC directly, even though the U.S. Holder will not receive the proceeds of those distributions or dispositions directly. U.S. Holders are urged to consult their tax advisors about the application of the PFIC rules to any of our subsidiaries. PFIC “mark-to-market” election. In certain circumstances, a holder of “marketable stock” of a PFIC will be subject to tax consequences different that those described above by making a timely mark-to-market election with respect to such stock. For the purposes of these rules “marketable stock” is generally stock which is “regularly traded” (traded in greater than de minimis quantities on at least 15 days during each calendar quarter) on a “qualified exchange.” A U.S. Holder that makes a timely mark-to-market election must include in gross income, as ordinary income, for each taxable year that we are a PFIC an amount equal to the excess, if any, of the fair market value of the U.S. Holder’s ordinary shares or ADSs that are “marketable stock” at the close of the taxable year over the U.S. Holder’s adjusted tax basis in such ordinary shares or ADSs. An electing U.S. Holder may also claim an ordinary loss deduction for the excess, if any, of the U.S. Holder’s adjusted tax basis in such ordinary shares or ADSs over their fair market value at the close of the taxable year, but this deduction is allowable only to the extent of any net mark-to-market gains previously included in income pursuant to the timely mark-to-market election. The adjusted tax basis of a U.S. Holder’s ordinary shares or ADSs with respect to which the timely mark-to-market election applies would be adjusted to reflect amounts included in gross income or allowed as a deduction because of such election. If a U.S. Holder makes an effective mark-to-market election with respect to our ordinary shares or ADSs, gains from an actual sale or other disposition of such ordinary shares or ADSs in a year in which we are a PFIC will be treated as ordinary income, and any losses incurred on such sale or other disposition will be treated as ordinary losses to the extent of any net mark-to-market gains previously included in income (with any excess loss treated as a capital loss). If we are a PFIC for any taxable year in which a U.S. Holder owns ordinary shares or ADSs, but before a timely mark-to-market election is made, the general PFIC rules described above under “—U.S. federal income tax treatment of a shareholder of a PFIC generally” will apply to any mark-to-market gain recognized in the year the election is made. Otherwise, a timely mark-to-market election will be effective for the taxable year for which the election is made and all subsequent taxable years unless the ordinary shares or ADSs are no longer regularly traded on a qualified exchange or the IRS consents to the revocation of the election. There is no law, regulation or administrative guidance that provides for a right to make a mark-to-market election for equity interests in any Lower-tier PFIC the shares of which are not regularly traded on a qualified exchange. As a result, even if a U.S. Holder makes a mark-to-market election with respect to our ordinary shares or ADSs, such U.S. Holder could nevertheless be subject to the PFIC rules described under “—U.S. federal income tax treatment of a shareholder of a PFIC generally” with respect to such U.S. Holder’s indirect interest in any Lower-tier PFIC. U.S. Holders should consult their tax advisors regarding the availability of, and the procedure for, and the effect of making, a mark-to-market election, and whether making the election would be advisable, including in light of their particular circumstances. 210 211 Such gain or loss generally will be capital gain or loss, and will be long-term capital gain or loss if a U.S. Holder held the ordinary share or ADS for more than one year. Long-term capital gains of non-corporate U.S. Holders are taxed at a preferential tax rate. The deductibility of capital losses is subject to limitations. As described in “—Taxation in the PRC” above, if we are deemed to be a “resident enterprise” under PRC tax law, any gain on the sale of ordinary shares or ADSs may be subject to PRC taxes. Under the Code, capital gains of U.S. persons generally are treated as U.S.-source income. However, if a U.S. Holder is eligible for the benefits of the U.S.-PRC Tax Treaty, the holder may be able to elect to treat such disposition gain as PRC-source gain under the U.S.-PRC Tax Treaty for U.S. foreign tax credit purposes and claim a foreign tax credit in respect of PRC taxes on such gains. A U.S. Holder will be eligible for U.S.-PRC Tax Treaty benefits if (for the purposes of the treaty) such holder is a resident of the United States and satisfies the “limitations of benefits” requirements specified in the U.S.- PRC Tax Treaty. Because the determination of treaty benefit eligibility is fact-intensive and depends upon a U.S. Holder’s particular circumstances, U.S. Holders should consult their tax advisors regarding their eligibility for the U.S.-PRC Tax Treaty benefits. Treasury regulations generally preclude a U.S. Holder from claiming a foreign tax credit with respect to PRC income taxes on gains from dispositions of ordinary shares or ADSs if a U.S. Holder is not eligible for, or does not elect to apply the benefits of, the U.S.-PRC Tax Treaty. However, non-U.S. taxes on disposition gains may be deductible or reduce the amount realized on the disposition. The rules governing foreign tax credits and the deductibility of non-U.S. taxes are complex. U.S. Holders are also encouraged to consult their tax advisors regarding the tax consequences in the event PRC tax is imposed on a disposition of ordinary shares or ADSs, including the U.S.-PRC Tax Treaty’s resourcing rule, any reporting requirements with respect to a treaty-based return position and the creditability or deductibility of any non-U.S. tax on disposition gains in their particular circumstances (including any applicable limitations). Passive Foreign Investment Company Considerations Status as a PFIC. The rules governing PFICs can result in adverse U.S. federal income tax consequences to U.S. Holders. We generally will be a PFIC for U.S. federal income tax purposes if, for any taxable year, either: (1) 75% or more of our gross income consists of certain types of passive income, or (2) 50% or more of the average value of our assets (generally determined on a quarterly basis) consists of our assets that produce, or are held for the production of, passive income. Passive income generally includes dividends, interest, rents and royalties (other than certain rents and royalties derived in the active conduct of a trade or business), annuities and gains from assets that produce passive income. If a non-U.S. corporation owns at least 25% by value of the stock of another corporation, the non-U.S. corporation is treated for the purposes of the PFIC tests as owning its proportionate share of the assets of the other corporation and as receiving directly its proportionate share of the other corporation’s income. Cash and cash equivalents are generally treated as passive assets. Goodwill is generally treated as an active asset to the extent associated with activities that generate non-passive income. year. Based on the composition of our income and assets and the estimated average value of our assets (including goodwill), we believe that we were not a PFIC for our taxable year ended December 31, 2022. However, our PFIC status is a factual determination that is made on an annual basis and depends on particular facts and circumstances (such as the value of our assets, including goodwill and other intangible assets). We hold a substantial amount of cash and financial investments and while this continues to be the case, our PFIC status depends primarily on the average value of our goodwill. The value of our goodwill may be determined, in large part, by reference to our market capitalization, which has been, and may continue to be, volatile. Therefore, if our market capitalization declines we may become a PFIC. In addition, there is uncertainty as to how to apply the PFIC rules for purposes of classifying certain of our income and assets as active or passive. In light of the foregoing, no assurance can be provided that we were not, or will not be, a PFIC for any taxable U.S. federal income tax treatment of a shareholder of a PFIC generally. If we are a PFIC for any taxable year during which a U.S. Holder owns ordinary shares or ADSs, the U.S. Holder, absent certain elections, generally will be subject to adverse rules (regardless of whether we continue to be a PFIC) with respect to (1) any “excess distributions” (generally, the extent that any distributions received by the U.S. Holder on its ordinary shares or ADSs in a taxable year exceed 125% of the average annual distributions received by the U.S. Holder in the three preceding taxable years or, if shorter, the U.S. Holder’s holding period) and (2) any gain realized on the sale or other disposition, including a pledge, of such ordinary shares or ADSs. Under these rules (a) any gain or excess distribution will be allocated ratably over the U.S. Holder’s holding period, (b) the amount allocated to the current taxable year and any taxable year prior to the first taxable year in which we became a PFIC will be taxed as ordinary income and (c) the amount allocated to each other taxable year during the U.S. Holder’s holding period (i) will be subject to tax at the highest rate of tax in effect for the applicable category of taxpayer for that year and (ii) will be subject to an interest charge at a statutory rate with respect to the resulting tax attributable to each such other taxable year. In addition,a non-corporate U.S. Holder will not be eligible for reduced rates of taxation on any dividends received from us if we are a PFIC (or are treated as a PFIC with respect to the U.S. Holder) in the taxable year in which such dividends are paid or in the preceding taxable year. If we are a PFIC in any taxable year during which a U.S. Holder owns ordinary shares or ADSs, we generally will continue to be treated as a PFIC with respect to that U.S. Holder in all succeeding taxable years, even if we cease to meet the threshold requirements for PFIC status described above, unless the U.S. Holder makes a timely “deemed sale election.” If we are a PFIC for any taxable year and then cease to be a PFIC, a U.S. Holder may make a “deemed sale election” to be treated for U.S. federal income tax purposes as having sold such U.S. Holder’s ordinary shares or ADSs on the last day of our taxable year during which we were a PFIC. A U.S. Holder that makes a deemed sale election would then cease to be treated as owning stock in a PFIC. However, gain recognized as a result of making the deemed sale election would be subject to the adverse rules described above and loss would not be recognized. If we are a PFIC for any taxable year, a U.S. Holder will be treated as owning a proportionate amount (by value) of stock or shares owned by us in any direct or indirect subsidiaries that are also PFICs (any such entity, a “Lower-tier PFIC”) and will be subject to similar adverse rules with respect to any distributions we receive from, and dispositions we make of, the stock or shares of such subsidiaries, in each case as if the U.S. Holder owned its proportionate share of the Lower-tier PFIC directly, even though the U.S. Holder will not receive the proceeds of those distributions or dispositions directly. U.S. Holders are urged to consult their tax advisors about the application of the PFIC rules to any of our subsidiaries. PFIC “mark-to-market” election. In certain circumstances, a holder of “marketable stock” of a PFIC will be subject to tax consequences different that those described above by making a timely mark-to-market election with respect to such stock. For the purposes of these rules “marketable stock” is generally stock which is “regularly traded” (traded in greater than de minimis quantities on at least 15 days during each calendar quarter) on a “qualified exchange.” A U.S. Holder that makes a timely mark-to-market election must include in gross income, as ordinary income, for each taxable year that we are a PFIC an amount equal to the excess, if any, of the fair market value of the U.S. Holder’s ordinary shares or ADSs that are “marketable stock” at the close of the taxable year over the U.S. Holder’s adjusted tax basis in such ordinary shares or ADSs. An electing U.S. Holder may also claim an ordinary loss deduction for the excess, if any, of the U.S. Holder’s adjusted tax basis in such ordinary shares or ADSs over their fair market value at the close of the taxable year, but this deduction is allowable only to the extent of any net mark-to-market gains previously included in income pursuant to the timely mark-to-market election. The adjusted tax basis of a U.S. Holder’s ordinary shares or ADSs with respect to which the timely mark-to-market election applies would be adjusted to reflect amounts included in gross income or allowed as a deduction because of such election. If a U.S. Holder makes an effective mark-to-market election with respect to our ordinary shares or ADSs, gains from an actual sale or other disposition of such ordinary shares or ADSs in a year in which we are a PFIC will be treated as ordinary income, and any losses incurred on such sale or other disposition will be treated as ordinary losses to the extent of any net mark-to-market gains previously included in income (with any excess loss treated as a capital loss). If we are a PFIC for any taxable year in which a U.S. Holder owns ordinary shares or ADSs, but before a timely mark-to-market election is made, the general PFIC rules described above under “—U.S. federal income tax treatment of a shareholder of a PFIC generally” will apply to any mark-to-market gain recognized in the year the election is made. Otherwise, a timely mark-to-market election will be effective for the taxable year for which the election is made and all subsequent taxable years unless the ordinary shares or ADSs are no longer regularly traded on a qualified exchange or the IRS consents to the revocation of the election. There is no law, regulation or administrative guidance that provides for a right to make a mark-to-market election for equity interests in any Lower-tier PFIC the shares of which are not regularly traded on a qualified exchange. As a result, even if a U.S. Holder makes a mark-to-market election with respect to our ordinary shares or ADSs, such U.S. Holder could nevertheless be subject to the PFIC rules described under “—U.S. federal income tax treatment of a shareholder of a PFIC generally” with respect to such U.S. Holder’s indirect interest in any Lower-tier PFIC. U.S. Holders should consult their tax advisors regarding the availability of, and the procedure for, and the effect of making, a mark-to-market election, and whether making the election would be advisable, including in light of their particular circumstances. 210 211 No QEF election. We do not expect to provide the information regarding our income that would be necessary in order for a U.S. Holder to make a timely “qualifying electing fund” election, or QEF election, if we were a PFIC, which, if available, could materially affect the tax consequences of the ownership and disposition of the ordinary shares and ADSs if we are a PFIC for any taxable year. Therefore, U.S. Holders will not be able to make this election. H. Documents on Display. PFIC information reporting requirements. If we are (or are treated with respect to a particular U.S. Holder as) a PFIC for any year in which a U.S. Holder owns ordinary shares or ADSs, such U.S. Holder generally will be required to file an annual information return on IRS Form 8621 with respect to us and any Lower-tier PFIC. We are subject to the informational requirements of the Exchange Act and are required to file reports and other information with the SEC. Shareholders may access our reports and other information filed with the SEC by viewing them on the SEC’s website, at www.sec.gov. We also make available on our website’s investor relations page, free of charge, our annual report and the text of our reports on Form 6-K, including any amendments to these reports, as well as certain other SEC filings, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. The address for our investor relations page is www.hutch-med.com/ shareholder-information. The information contained on our website is not incorporated by reference in this annual report. NO ASSURANCE CAN BE GIVEN THAT WE ARE NOT CURRENTLY A PFIC OR THAT WE WILL NOT BECOME A PFIC IN THE FUTURE. U.S. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE OPERATION OF THE PFIC RULES AND RELATED REPORTING REQUIREMENTS IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, INCLUDING THE ADVISABILITY AND EFFECTS OF MAKING ANY ELECTION THAT MAY BE AVAILABLE. We are a “foreign private issuer” as such term is defined in Rule 405 under the Securities Act, and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the SEC. Under the Exchange Act, we are subject to reporting obligations that, in certain respects, are less detailed and less frequent than those of U.S. domestic reporting companies. As a result, we do not file the same reports that a U.S. domestic issuer would file with the SEC, although we are required to file or furnish to the SEC the continuous disclosure documents that we are required to file on the AIM market. Backup Withholding and Information Reporting and Filing Requirements Backup withholding and information reporting requirements may apply to distributions on, and proceeds from the sale or disposition of, ordinary shares and ADSs that are held by U.S. Holders. The payor will be required to withhold tax (currently at a rate of 24%) on such payments made within the United States, or by a U.S. payor or a U.S. intermediary (and certain subsidiaries thereof) to a U.S. Holder, other than an exempt recipient, if the U.S. Holder is not otherwise exempt and: We will furnish Deutsche Bank Trust Company Americas, the depositary of our ADSs, with our annual reports, which will include a review of operation and annual audited consolidated financial statements prepared in conformity with U.S. GAAP, and all notices of shareholders’ meetings and other reports and communications that are made generally available to our shareholders. The depositary will make such notices, reports and communications available to holders of ADSs and, upon our requests, will mail to all record holders of ADSs the information contained in any notice of a shareholders’ meeting received by the depositary from us. I. Subsidiary information. Not applicable. J. Annual Report to Security Holders. Form 6-K. Foreign Exchange Risk • • • • the holder fails to furnish the holder’s taxpayer identification number, which for an individual is ordinarily his or her social security number; the holder furnishes an incorrect taxpayer identification number; the applicable withholding agent is notified by the IRS that the holder previously failed to properly report payments of interest or dividends; or The Company intends to submit annual report provided to security holders in electronic format as an exhibit to a current report on the holder fails to certify under penalties of perjury that the holder has furnished a correct taxpayer identification number and that the IRS has not notified the holder that the holder is subject to backup withholding. ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a U.S. Holder’s U.S. federal income tax liability (if any) or refunded provided the required information is furnished to the IRS in a timely manner. U.S. Holders should consult their tax advisors regarding their qualification for an exemption from backup withholding and the procedures for obtaining such an exemption. Certain U.S. Holders of specified foreign financial assets with an aggregate value in excess of the applicable dollar threshold may be required to report information relating to their holding of ordinary shares or ADSs, subject to certain exceptions (including an exception for shares held in accounts maintained by certain financial institutions) with their tax returns for each year in which they hold such interests. U.S. Holders should consult their own tax advisors regarding the information reporting obligations that may arise from their acquisition, ownership or disposition of our ordinary shares or ADSs. THE ABOVE DISCUSSION DOES NOT COVER ALL TAX MATTERS THAT MAY BE OF IMPORTANCE TO A PARTICULAR INVESTOR. INVESTORS ARE STRONGLY URGED TO CONSULT THEIR TAX ADVISORS ABOUT THE TAX CONSEQUENCES OF AN INVESTMENT IN OUR ORDINARY SHARES OR ADSs. F. Dividends and Payment Agents. Not applicable. G. Statement by Experts. Not applicable. A substantial portion of our revenue and expenses are denominated in renminbi, and our consolidated financial statements are presented in U.S. dollars. We do not believe that we currently have any significant direct foreign exchange risk and have not used any derivative financial instruments to hedge our exposure to such risk. Although, in general, our exposure to foreign exchange risks should be limited, the value of your investment in our ADSs will be affected by the exchange rate between the U.S. dollar and the renminbi because the value of our business is effectively denominated in renminbi, while the ADSs will be traded in U.S. dollars. The value of the renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions. The conversion of renminbi into foreign currencies, including U.S. dollars, has been based on rates set by the PBOC. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the renminbi to the U.S. dollar. Under the revised policy, the renminbi is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change in policy resulted in a more than 20% appreciation of the renminbi against the U.S. dollar in the following three years. Between July 2008 and June 2010, this appreciation halted, and the exchange rate between the renminbi and U.S. dollar remained within a narrow band. In June 2010, the PBOC announced that the PRC government would increase the flexibility of the exchange rate, and thereafter allowed the renminbi to appreciate slowly against the U.S. dollar within the narrow band fixed by the PBOC. At various times since then, the PBOC has significantly devalued the renminbi against the U.S. dollar. If we decide to convert renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the renminbi would have a negative effect on the U.S. dollar amounts available to us. 212 213 No QEF election. We do not expect to provide the information regarding our income that would be necessary in order for a U.S. H. Documents on Display. Holder to make a timely “qualifying electing fund” election, or QEF election, if we were a PFIC, which, if available, could materially affect the tax consequences of the ownership and disposition of the ordinary shares and ADSs if we are a PFIC for any taxable year. Therefore, U.S. Holders will not be able to make this election. PFIC information reporting requirements. If we are (or are treated with respect to a particular U.S. Holder as) a PFIC for any year in which a U.S. Holder owns ordinary shares or ADSs, such U.S. Holder generally will be required to file an annual information return on IRS Form 8621 with respect to us and any Lower-tier PFIC. NO ASSURANCE CAN BE GIVEN THAT WE ARE NOT CURRENTLY A PFIC OR THAT WE WILL NOT BECOME A PFIC IN THE FUTURE. U.S. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE OPERATION OF THE PFIC RULES AND RELATED REPORTING REQUIREMENTS IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, INCLUDING THE ADVISABILITY AND EFFECTS OF MAKING ANY ELECTION THAT MAY BE AVAILABLE. Backup Withholding and Information Reporting and Filing Requirements Backup withholding and information reporting requirements may apply to distributions on, and proceeds from the sale or disposition of, ordinary shares and ADSs that are held by U.S. Holders. The payor will be required to withhold tax (currently at a rate of 24%) on such payments made within the United States, or by a U.S. payor or a U.S. intermediary (and certain subsidiaries thereof) to a U.S. Holder, other than an exempt recipient, if the U.S. Holder is not otherwise exempt and: We are subject to the informational requirements of the Exchange Act and are required to file reports and other information with the SEC. Shareholders may access our reports and other information filed with the SEC by viewing them on the SEC’s website, at www.sec.gov. We also make available on our website’s investor relations page, free of charge, our annual report and the text of our reports on Form 6-K, including any amendments to these reports, as well as certain other SEC filings, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. The address for our investor relations page is www.hutch-med.com/ shareholder-information. The information contained on our website is not incorporated by reference in this annual report. We are a “foreign private issuer” as such term is defined in Rule 405 under the Securities Act, and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the SEC. Under the Exchange Act, we are subject to reporting obligations that, in certain respects, are less detailed and less frequent than those of U.S. domestic reporting companies. As a result, we do not file the same reports that a U.S. domestic issuer would file with the SEC, although we are required to file or furnish to the SEC the continuous disclosure documents that we are required to file on the AIM market. We will furnish Deutsche Bank Trust Company Americas, the depositary of our ADSs, with our annual reports, which will include a review of operation and annual audited consolidated financial statements prepared in conformity with U.S. GAAP, and all notices of shareholders’ meetings and other reports and communications that are made generally available to our shareholders. The depositary will make such notices, reports and communications available to holders of ADSs and, upon our requests, will mail to all record holders of ADSs the information contained in any notice of a shareholders’ meeting received by the depositary from us. the holder fails to furnish the holder’s taxpayer identification number, which for an individual is ordinarily his or her social I. Subsidiary information. the holder furnishes an incorrect taxpayer identification number; the applicable withholding agent is notified by the IRS that the holder previously failed to properly report payments of interest Not applicable. J. Annual Report to Security Holders. The Company intends to submit annual report provided to security holders in electronic format as an exhibit to a current report on Form 6-K. the holder fails to certify under penalties of perjury that the holder has furnished a correct taxpayer identification number and that the IRS has not notified the holder that the holder is subject to backup withholding. ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK security number; or dividends; or • • • • Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a U.S. Holder’s U.S. federal income tax liability (if any) or refunded provided the required information is furnished to the IRS in a timely manner. U.S. Holders should consult their tax advisors regarding their qualification for an exemption from backup withholding and the procedures for obtaining such an exemption. Certain U.S. Holders of specified foreign financial assets with an aggregate value in excess of the applicable dollar threshold may be required to report information relating to their holding of ordinary shares or ADSs, subject to certain exceptions (including an exception for shares held in accounts maintained by certain financial institutions) with their tax returns for each year in which they hold such interests. U.S. Holders should consult their own tax advisors regarding the information reporting obligations that may arise from their acquisition, ownership or disposition of our ordinary shares or ADSs. THE ABOVE DISCUSSION DOES NOT COVER ALL TAX MATTERS THAT MAY BE OF IMPORTANCE TO A PARTICULAR INVESTOR. INVESTORS ARE STRONGLY URGED TO CONSULT THEIR TAX ADVISORS ABOUT THE TAX CONSEQUENCES OF AN INVESTMENT IN OUR ORDINARY SHARES OR ADSs. F. Dividends and Payment Agents. Not applicable. G. Statement by Experts. Not applicable. Foreign Exchange Risk A substantial portion of our revenue and expenses are denominated in renminbi, and our consolidated financial statements are presented in U.S. dollars. We do not believe that we currently have any significant direct foreign exchange risk and have not used any derivative financial instruments to hedge our exposure to such risk. Although, in general, our exposure to foreign exchange risks should be limited, the value of your investment in our ADSs will be affected by the exchange rate between the U.S. dollar and the renminbi because the value of our business is effectively denominated in renminbi, while the ADSs will be traded in U.S. dollars. The value of the renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions. The conversion of renminbi into foreign currencies, including U.S. dollars, has been based on rates set by the PBOC. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the renminbi to the U.S. dollar. Under the revised policy, the renminbi is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change in policy resulted in a more than 20% appreciation of the renminbi against the U.S. dollar in the following three years. Between July 2008 and June 2010, this appreciation halted, and the exchange rate between the renminbi and U.S. dollar remained within a narrow band. In June 2010, the PBOC announced that the PRC government would increase the flexibility of the exchange rate, and thereafter allowed the renminbi to appreciate slowly against the U.S. dollar within the narrow band fixed by the PBOC. At various times since then, the PBOC has significantly devalued the renminbi against the U.S. dollar. If we decide to convert renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the renminbi would have a negative effect on the U.S. dollar amounts available to us. 212 213 Credit Risk Fees and charges our ADS holders may have to pay Substantially all of our bank deposits are in major financial institutions, which we believe are of high credit quality. We limit the amount of credit exposure to any single financial institution. We make periodic assessments of the recoverability of trade and other receivables and amounts due from related parties. Our historical experience in collection of receivables falls within the recorded allowances, and we believe that we have made adequate provision for uncollectible receivables. Interest Rate Risk We have no significant interest-bearing assets except for bank deposits. Our exposure to changes in interest rates is mainly attributable to our bank borrowings, which bear interest at floating interest rates and expose us to cash flow interest rate risk. We have not used any interest rate swaps to hedge our exposure to interest rate risk. We have performed sensitivity analysis for the effects on our results for the year from changes in interest rates on floating rate borrowings. The sensitivity to interest rates used is based on the market forecasts available at the end of the reporting period and under the economic environments in which we operate, with other variables held constant. According to the analysis, the impact on our net loss of a 1.0% interest rate shift would be a maximum increase/decrease of $0.1 million for the year ended December 31, 2022. ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES A. Debt Securities. Not applicable. B. Warrants and Rights. Not applicable. C. Other Securities. Not applicable. D. American Depositary Shares. Our ADSs representing our ordinary shares are currently traded on Nasdaq. Dealings in our ADSs on Nasdaq are conducted in U.S. dollars. ADSs may be held either: (a) directly: (i) by having an American Depositary Receipt, also referred to as an ADR, which is a certificate evidencing a specific number of ADSs registered in the holder’s name; or (ii) by having uncertificated ADSs registered in the holder’s name; or • Any applicable fees and penalties thereon. (b) indirectly, by holding a security entitlement in ADSs through a broker or other financial institution that is a direct or indirect participant in The Depository Trust Company, also called DTC. The depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary bank by the brokers (on behalf of their clients) receiving the newly issued ADSs from the depositary bank and by the brokers (on behalf of their clients) delivering the ADSs to the depositary bank for cancellation. The brokers in turn charge these fees to their clients. Depositary fees The depositary for our ADSs is Deutsche Bank Trust Company Americas, whose office is located at 1 Columbus Circle, New York, payable in connection with distributions of cash or securities to ADS holders and the depositary services fee are charged by the depositary NY 10019, United States. bank to the holders of record of ADSs as of the applicable ADS record date. ADS holders will be required to pay the following service fees to Deutsche Bank Trust Company America, the depositary of our ADS program, and certain taxes and governmental charges (in addition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented by ADSs): Service Fees • To any person to which ADSs are issued or to any person to which a distribution is made in Up to $0.05 per ADS issued respect of ADS distributions pursuant to stock dividends or other free distributions of stock, bonus distributions, stock splits or other distributions (except where converted to cash) • Cancellation or withdrawal of ADSs, including the case of termination of the deposit agreement Up to $0.05 per ADS cancelled • Distribution of cash dividends • Distribution of cash entitlements (other than cash dividends) and/or cash proceeds from the sale of rights, securities and other entitlements • Distribution of ADSs pursuant to exercise of rights • Depositary services Up to $0.05 per ADS held Up to $0.05 per ADS held Up to $0.05 per ADS held Up to $0.05 per ADS held on the applicable record date(s) established by the depositary bank (an annual fee) ADS holders will also be responsible for paying certain fees and expenses incurred by the depositary bank and certain taxes and governmental charges (in addition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented by any of your ADSs) such as: • Fees for the transfer and registration of ordinary shares charged by the registrar and transfer agent for the ordinary shares in the Cayman Islands (i.e., upon deposit and withdrawal of ordinary shares). • Expenses incurred for converting foreign currency into U.S. dollars. • Expenses for cable, telex and fax transmissions and for delivery of securities. • Taxes and duties upon the transfer of securities, including any applicable stamp duties, any stock transfer charges or withholding taxes (i.e., when ordinary shares are deposited or withdrawn from deposit). • Fees and expenses incurred in connection with the delivery or servicing of ordinary shares on deposit. • Fees and expenses incurred in connection with complying with exchange control regulations and other regulatory requirements applicable to ordinary shares, ordinary shares deposited securities, ADSs and ADRs. The depositary fees payable for cash distributions are generally deducted from the cash being distributed or by selling a portion of distributable property to pay the fees. In the case of distributions other than cash (i.e., share dividends, rights), the depositary bank charges the applicable fee to the ADS record date holders concurrent with the distribution. In the case of ADSs registered in the name of the investor (whether certificated or uncertificated in direct registration), the depositary bank sends invoices to the applicable record date ADS holders. In the case of ADSs held in brokerage and custodian accounts (via DTC), the depositary bank generally collects its fees through the systems provided by DTC (whose nominee is the registered holder of the ADSs held in DTC) from the brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians who hold their clients’ ADSs in DTC accounts in turn charge their clients’ accounts the amount of the fees paid to the depositary banks. 214 215 Credit Risk Interest Rate Risk allowances, and we believe that we have made adequate provision for uncollectible receivables. We have no significant interest-bearing assets except for bank deposits. Our exposure to changes in interest rates is mainly attributable to our bank borrowings, which bear interest at floating interest rates and expose us to cash flow interest rate risk. We have not used any interest rate swaps to hedge our exposure to interest rate risk. We have performed sensitivity analysis for the effects on our results for the year from changes in interest rates on floating rate borrowings. The sensitivity to interest rates used is based on the market forecasts available at the end of the reporting period and under the economic environments in which we operate, with other variables held constant. According to the analysis, the impact on our net loss of a 1.0% interest rate shift would be a maximum increase/decrease of $0.1 million for the year ended December 31, 2022. ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES A. Debt Securities. Not applicable. B. Warrants and Rights. Not applicable. C. Other Securities. Not applicable. D. American Depositary Shares. dollars. ADSs may be held either: Our ADSs representing our ordinary shares are currently traded on Nasdaq. Dealings in our ADSs on Nasdaq are conducted in U.S. Substantially all of our bank deposits are in major financial institutions, which we believe are of high credit quality. We limit the amount of credit exposure to any single financial institution. We make periodic assessments of the recoverability of trade and other receivables and amounts due from related parties. Our historical experience in collection of receivables falls within the recorded ADS holders will be required to pay the following service fees to Deutsche Bank Trust Company America, the depositary of our ADS program, and certain taxes and governmental charges (in addition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented by ADSs): Fees and charges our ADS holders may have to pay Service • To any person to which ADSs are issued or to any person to which a distribution is made in respect of ADS distributions pursuant to stock dividends or other free distributions of stock, bonus distributions, stock splits or other distributions (except where converted to cash) Fees Up to $0.05 per ADS issued • Cancellation or withdrawal of ADSs, including the case of termination of the deposit agreement Up to $0.05 per ADS cancelled • Distribution of cash dividends • Distribution of cash entitlements (other than cash dividends) and/or cash proceeds from the sale Up to $0.05 per ADS held Up to $0.05 per ADS held of rights, securities and other entitlements • Distribution of ADSs pursuant to exercise of rights • Depositary services Up to $0.05 per ADS held Up to $0.05 per ADS held on the applicable record date(s) established by the depositary bank (an annual fee) ADS holders will also be responsible for paying certain fees and expenses incurred by the depositary bank and certain taxes and governmental charges (in addition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented by any of your ADSs) such as: • Fees for the transfer and registration of ordinary shares charged by the registrar and transfer agent for the ordinary shares in the Cayman Islands (i.e., upon deposit and withdrawal of ordinary shares). • Expenses incurred for converting foreign currency into U.S. dollars. • Expenses for cable, telex and fax transmissions and for delivery of securities. • Taxes and duties upon the transfer of securities, including any applicable stamp duties, any stock transfer charges or withholding taxes (i.e., when ordinary shares are deposited or withdrawn from deposit). • Fees and expenses incurred in connection with the delivery or servicing of ordinary shares on deposit. • Fees and expenses incurred in connection with complying with exchange control regulations and other regulatory requirements applicable to ordinary shares, ordinary shares deposited securities, ADSs and ADRs. (a) directly: (i) by having an American Depositary Receipt, also referred to as an ADR, which is a certificate evidencing a specific number of ADSs registered in the holder’s name; or (ii) by having uncertificated ADSs registered in the holder’s name; or • Any applicable fees and penalties thereon. (b) indirectly, by holding a security entitlement in ADSs through a broker or other financial institution that is a direct or indirect participant in The Depository Trust Company, also called DTC. The depositary for our ADSs is Deutsche Bank Trust Company Americas, whose office is located at 1 Columbus Circle, New York, NY 10019, United States. The depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary bank by the brokers (on behalf of their clients) receiving the newly issued ADSs from the depositary bank and by the brokers (on behalf of their clients) delivering the ADSs to the depositary bank for cancellation. The brokers in turn charge these fees to their clients. Depositary fees payable in connection with distributions of cash or securities to ADS holders and the depositary services fee are charged by the depositary bank to the holders of record of ADSs as of the applicable ADS record date. The depositary fees payable for cash distributions are generally deducted from the cash being distributed or by selling a portion of distributable property to pay the fees. In the case of distributions other than cash (i.e., share dividends, rights), the depositary bank charges the applicable fee to the ADS record date holders concurrent with the distribution. In the case of ADSs registered in the name of the investor (whether certificated or uncertificated in direct registration), the depositary bank sends invoices to the applicable record date ADS holders. In the case of ADSs held in brokerage and custodian accounts (via DTC), the depositary bank generally collects its fees through the systems provided by DTC (whose nominee is the registered holder of the ADSs held in DTC) from the brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians who hold their clients’ ADSs in DTC accounts in turn charge their clients’ accounts the amount of the fees paid to the depositary banks. 214 215 In the event of refusal to pay the depositary fees, the depositary bank may, under the terms of the deposit agreement, refuse the requested service until payment is received or may set off the amount of the depositary fees from any distribution to be made to the ADS holder. ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES PART II Fees and other payments made by the depositary to us None. The depositary has agreed to pay certain amounts to us in exchange for its appointment as depositary. We may use these funds towards our expenses relating to the establishment and maintenance of the ADR program, including investor relations expenses, or otherwise as we see fit. In November 2022, we received $630,000 net of taxes from the depositary as part of the consideration for renewing the depositary’s appointment. ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS A-D. Material Modifications to the Rights of Security Holders; Assets Securing Securities; Trustees; Paying Agents. Ordinary Shares and Conversions Our ordinary shares are admitted to trading on AIM and trade on the SEHK. Dealings in our ordinary shares on the AIM and SEHK are conducted in pound sterlings and H.K. dollars, respectively. In connection with the initial public offering of our ordinary shares in Hong Kong in June 2021, we established a branch register of members in Hong Kong, or the Hong Kong share register, which will be maintained by our Hong Kong Share Registrar, Computershare Hong Kong Investor Services Limited. Our principal register of members, or the Cayman share register, will continue to be maintained by our Principal Share Registrar, Computershare Investor Services (Jersey) Limited. All ordinary shares offered in our initial public offering in Hong Kong were registered on the Hong Kong share register in order to be listed and traded on the SEHK. Details on the conversion process between SEHK, Nasdaq and AIM are available at https://www.hutch-med.com/shareholder- information/investor-faqs/. None. E. Use of Proceeds. Not applicable. ITEM 15. CONTROLS AND PROCEDURES A. Evaluation of Disclosure Controls and Procedures. As required by Rule 13a-15 under the Exchange Act, management, including our chief executive officer and our chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding our required disclosure. Based on such evaluation, our management has concluded that, as of December 31, 2022, our disclosure controls and procedures were effective. B. Management’s Annual Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements in accordance with U.S. GAAP and includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of a company’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that a company’s receipts and expenditures are being made only in accordance with authorizations of a company’s management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of a company’s assets that could have a material effect on the consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness of our internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management, with the participation of our chief executive officer and chief financial officer, has assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 Framework). Based on this assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2022. 216 217 renewing the depositary’s appointment. Ordinary Shares and Conversions Our ordinary shares are admitted to trading on AIM and trade on the SEHK. Dealings in our ordinary shares on the AIM and SEHK are conducted in pound sterlings and H.K. dollars, respectively. In connection with the initial public offering of our ordinary shares in Hong Kong in June 2021, we established a branch register of members in Hong Kong, or the Hong Kong share register, which will be maintained by our Hong Kong Share Registrar, Computershare Hong Kong Investor Services Limited. Our principal register of members, or the Cayman share register, will continue to be maintained Details on the conversion process between SEHK, Nasdaq and AIM are available at https://www.hutch-med.com/shareholder- information/investor-faqs/. In the event of refusal to pay the depositary fees, the depositary bank may, under the terms of the deposit agreement, refuse the requested service until payment is received or may set off the amount of the depositary fees from any distribution to be made to the ADS holder. ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES PART II Fees and other payments made by the depositary to us None. The depositary has agreed to pay certain amounts to us in exchange for its appointment as depositary. We may use these funds towards our expenses relating to the establishment and maintenance of the ADR program, including investor relations expenses, or otherwise as we see fit. In November 2022, we received $630,000 net of taxes from the depositary as part of the consideration for ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS A-D. Material Modifications to the Rights of Security Holders; Assets Securing Securities; Trustees; Paying Agents. by our Principal Share Registrar, Computershare Investor Services (Jersey) Limited. All ordinary shares offered in our initial public A. Evaluation of Disclosure Controls and Procedures. offering in Hong Kong were registered on the Hong Kong share register in order to be listed and traded on the SEHK. None. E. Use of Proceeds. Not applicable. ITEM 15. CONTROLS AND PROCEDURES As required by Rule 13a-15 under the Exchange Act, management, including our chief executive officer and our chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding our required disclosure. Based on such evaluation, our management has concluded that, as of December 31, 2022, our disclosure controls and procedures were effective. B. Management’s Annual Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements in accordance with U.S. GAAP and includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of a company’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that a company’s receipts and expenditures are being made only in accordance with authorizations of a company’s management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of a company’s assets that could have a material effect on the consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness of our internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management, with the participation of our chief executive officer and chief financial officer, has assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 Framework). Based on this assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2022. 216 217 C. Attestation Report of the Independent Registered Public Accounting Firm. (3) The fees disclosed are exclusive of out-of-pocket expenses and taxes on the amounts paid, which totaled approximately $117,000 Our independent registered public accounting firm, PricewaterhouseCoopers Zhong Tian LLP (“PricewaterhouseCoopers Zhong Tian”), has audited the effectiveness of our internal control over financial reporting as of December 31, 2022, as stated in its report, which appears in this annual report. (4) On June 15, 2021, we engaged PricewaterhouseCoopers Zhong Tian as our independent registered public accounting firm, and dismissed PricewaterhouseCoopers. The fees for 2021 are fees payable to PricewaterhouseCoopers Zhong Tian. See also “Item D. Changes in Internal Control over Financial Reporting. There were no changes in our internal controls over financial reporting during the fiscal year ended December 31, 2022 that have materially and adversely affected, or are reasonably likely to materially and adversely affect, our internal control over financial reporting. ITEM 16. RESERVED ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERTS Our audit committee consists of Graeme Allan Jack, Paul Rutherford Carter and Karen Jean Ferrante, with Graeme Allan Jack serving as chairman of the committee. Graeme Allan Jack, Paul Rutherford Carter and Karen Jean Ferrante each meet the independence requirements under the rules of the Nasdaq Stock Market and under Rule 10A-3 under the Exchange Act. We have determined that Graeme Allan Jack is an “audit committee financial expert” within the meaning of Item 407 of Regulation S-K. All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the Nasdaq Stock Market. For information relating to qualifications and experience of each audit committee member, see Item 6. “Directors, Senior Management and Employees.” Not applicable. None. ITEM 16B. CODE OF ETHICS Our board of directors has adopted a code of ethics applicable to all of our employees, officers and directors, including our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. This code is intended to qualify as a “code of ethics” within the meaning of the applicable rules of the SEC. Our code of ethics is available on our website at https://www.hutch-med.com/shareholder-information/corporate-governance/code-of-ethics/. Information contained on, or that can be accessed through, our website is not incorporated by reference into this annual report. See Item 6.C. “Board Practices— Code of Ethics” for more information. ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES Principal Accountant Fees and Services The following table summarizes the fees charged by PricewaterhouseCoopers Zhong Tian and PricewaterhouseCoopers for certain services rendered to our company, including some of our subsidiaries and joint ventures, during 2022 and 2021. Audit fees(1) Tax fees(2) Total(3) Notes: For the year ended December 31, 2022 2021 (in thousands) 2,200 337 2,537 4,614 406 5,020 (1) “Audit fees” means the aggregate fees billed in each of the fiscal years for professional services rendered by PricewaterhouseCoopers Zhong Tian for the audit of our annual financial statements and review of our interim financial statements. The fees were also related to the professional services paid by us in connection with initial public offering in Hong Kong and preparation for other capital market transactions and regulatory filings in 2021. (2) “Tax fees” means the aggregate fees billed in each of the fiscal years for professional services rendered by PricewaterhouseCoopers for tax compliance and tax advice. 218 219 and $52,000 in 2021 and 2022, respectively. 16F. Change in Registrant’s Certifying Accountant.” Audit Committee Pre-approval Policies and Procedures Our audit committee reviews and pre-approves the scope and the cost of audit services related to us and permissible non-audit services performed by the independent auditors, other than those for de minimis services which are approved by the audit committee prior to the completion of the audit. All of the services related to our company provided by PricewaterhouseCoopers Zhong Tian and PricewaterhouseCoopers listed above have been approved by the audit committee. ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT On June 15, 2021, we engaged PricewaterhouseCoopers Zhong Tian as our independent registered public accounting firm, and dismissed PricewaterhouseCoopers. The change of our independent registered public accounting firm had been approved by the audit committee of our board of directors, and the decision was not made due to any disagreement between us and PricewaterhouseCoopers. The reports of PricewaterhouseCoopers on our consolidated financial statements for the fiscal year ended December 31, 2020 did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle. During the fiscal year ended December 31, 2020 and the subsequent interim period through June 15, 2021, there have been no (i) disagreements between us and PricewaterhouseCoopers on any matter of accounting principles or practices, financial statement disclosure, or audit scope or procedure, which disagreements if not resolved to the satisfaction of PricewaterhouseCoopers would have caused them to make reference thereto in their reports on the consolidated financial statements for such years, or (ii) reportable events as defined in Item 16F(a)(1)(v) of the instructions to Form 20-F. We have provided PricewaterhouseCoopers with a copy of the disclosures hereunder and required under Item 16F of Form 20-F and requested from PricewaterhouseCoopers a letter addressed to the Securities and Exchange Commission indicating whether it agrees with such disclosures. A copy of PricewaterhouseCooper’s letter dated June 21, 2021 is attached as Exhibit 16.1 to our current report on Form 6-K furnished to the SEC on June 21, 2021. During each of the fiscal year ended December 31, 2020 and the subsequent interim period through June 15, 2021, neither we nor anyone on behalf of us has consulted with PricewaterhouseCoopers Zhong Tian regarding (i) the application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements, and neither a written report nor oral advice was provided to us that PricewaterhouseCoopers Zhong Tian concluded was an important factor considered by us in reaching a decision as to any accounting, audit or financial reporting issue, (ii) any matter that was the subject of a disagreement pursuant to Item 16F(a)(1)(iv) of the instructions to Form 20-F, or (iii) any reportable event pursuant to Item 16F(a)(1)(v) of the instructions to Form 20-F. C. Attestation Report of the Independent Registered Public Accounting Firm. (3) The fees disclosed are exclusive of out-of-pocket expenses and taxes on the amounts paid, which totaled approximately $117,000 Our independent registered public accounting firm, PricewaterhouseCoopers Zhong Tian LLP (“PricewaterhouseCoopers Zhong Tian”), has audited the effectiveness of our internal control over financial reporting as of December 31, 2022, as stated in its report, which appears in this annual report. D. Changes in Internal Control over Financial Reporting. There were no changes in our internal controls over financial reporting during the fiscal year ended December 31, 2022 that have materially and adversely affected, or are reasonably likely to materially and adversely affect, our internal control over financial reporting. ITEM 16. RESERVED ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERTS Our audit committee consists of Graeme Allan Jack, Paul Rutherford Carter and Karen Jean Ferrante, with Graeme Allan Jack serving as chairman of the committee. Graeme Allan Jack, Paul Rutherford Carter and Karen Jean Ferrante each meet the independence requirements under the rules of the Nasdaq Stock Market and under Rule 10A-3 under the Exchange Act. We have determined that Graeme Allan Jack is an “audit committee financial expert” within the meaning of Item 407 of Regulation S-K. All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the Nasdaq Stock Market. For information relating to qualifications and experience of each audit committee member, see Item 6. “Directors, Senior Management and Employees.” ITEM 16B. CODE OF ETHICS Our board of directors has adopted a code of ethics applicable to all of our employees, officers and directors, including our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. This code is intended to qualify as a “code of ethics” within the meaning of the applicable rules of the SEC. Our code of ethics is available on our website at https://www.hutch-med.com/shareholder-information/corporate-governance/code-of-ethics/. Information contained on, or that can be accessed through, our website is not incorporated by reference into this annual report. See Item 6.C. “Board Practices— Code of Ethics” for more information. ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES Principal Accountant Fees and Services The following table summarizes the fees charged by PricewaterhouseCoopers Zhong Tian and PricewaterhouseCoopers for certain services rendered to our company, including some of our subsidiaries and joint ventures, during 2022 and 2021. For the year ended December 31, 2022 2021 (in thousands) 2,200 337 2,537 4,614 406 5,020 Audit fees(1) Tax fees(2) Total(3) Notes: (1) “Audit fees” means the aggregate fees billed in each of the fiscal years for professional services rendered by PricewaterhouseCoopers Zhong Tian for the audit of our annual financial statements and review of our interim financial statements. The fees were also related to the professional services paid by us in connection with initial public offering in Hong Kong and preparation for other capital market transactions and regulatory filings in 2021. (2) “Tax fees” means the aggregate fees billed in each of the fiscal years for professional services rendered by PricewaterhouseCoopers for tax compliance and tax advice. and $52,000 in 2021 and 2022, respectively. (4) On June 15, 2021, we engaged PricewaterhouseCoopers Zhong Tian as our independent registered public accounting firm, and dismissed PricewaterhouseCoopers. The fees for 2021 are fees payable to PricewaterhouseCoopers Zhong Tian. See also “Item 16F. Change in Registrant’s Certifying Accountant.” Audit Committee Pre-approval Policies and Procedures Our audit committee reviews and pre-approves the scope and the cost of audit services related to us and permissible non-audit services performed by the independent auditors, other than those for de minimis services which are approved by the audit committee prior to the completion of the audit. All of the services related to our company provided by PricewaterhouseCoopers Zhong Tian and PricewaterhouseCoopers listed above have been approved by the audit committee. ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES Not applicable. ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS None. ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT On June 15, 2021, we engaged PricewaterhouseCoopers Zhong Tian as our independent registered public accounting firm, and dismissed PricewaterhouseCoopers. The change of our independent registered public accounting firm had been approved by the audit committee of our board of directors, and the decision was not made due to any disagreement between us and PricewaterhouseCoopers. The reports of PricewaterhouseCoopers on our consolidated financial statements for the fiscal year ended December 31, 2020 did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle. During the fiscal year ended December 31, 2020 and the subsequent interim period through June 15, 2021, there have been no (i) disagreements between us and PricewaterhouseCoopers on any matter of accounting principles or practices, financial statement disclosure, or audit scope or procedure, which disagreements if not resolved to the satisfaction of PricewaterhouseCoopers would have caused them to make reference thereto in their reports on the consolidated financial statements for such years, or (ii) reportable events as defined in Item 16F(a)(1)(v) of the instructions to Form 20-F. We have provided PricewaterhouseCoopers with a copy of the disclosures hereunder and required under Item 16F of Form 20-F and requested from PricewaterhouseCoopers a letter addressed to the Securities and Exchange Commission indicating whether it agrees with such disclosures. A copy of PricewaterhouseCooper’s letter dated June 21, 2021 is attached as Exhibit 16.1 to our current report on Form 6-K furnished to the SEC on June 21, 2021. During each of the fiscal year ended December 31, 2020 and the subsequent interim period through June 15, 2021, neither we nor anyone on behalf of us has consulted with PricewaterhouseCoopers Zhong Tian regarding (i) the application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements, and neither a written report nor oral advice was provided to us that PricewaterhouseCoopers Zhong Tian concluded was an important factor considered by us in reaching a decision as to any accounting, audit or financial reporting issue, (ii) any matter that was the subject of a disagreement pursuant to Item 16F(a)(1)(iv) of the instructions to Form 20-F, or (iii) any reportable event pursuant to Item 16F(a)(1)(v) of the instructions to Form 20-F. 218 219 ITEM 16G. CORPORATE GOVERNANCE ITEM 18. FINANCIAL STATEMENTS As permitted by Nasdaq, in lieu of the Nasdaq corporate governance rules, but subject to certain exceptions, we may follow the practices of our home country which for the purpose of such rules is the Cayman Islands. Certain corporate governance practices in the Cayman Islands may differ significantly from corporate governance listing standards as, except for general fiduciary duties and duties of care, Cayman Islands law has no corporate governance regime which prescribes specific corporate governance standards. For example, we follow Cayman Islands corporate governance practices in lieu of the corporate governance requirements of the Nasdaq Global Select Market in respect of the following: report. Our consolidated financial statements and the consolidated financial statements of our non-consolidated joint venture, Shanghai Hutchison Pharmaceuticals, and our former non-consolidated joint venture, Hutchison Baiyunshan, are included at the end of this annual (i) the majority independent director requirement under Section 5605(b)(1) of the Nasdaq listing rules, (ii) the requirement under Section 5605(d) of the Nasdaq listing rules that a remuneration committee comprised solely of independent directors governed by a remuneration committee charter oversee executive compensation, and (iii) the requirement under Section 5605(e) of the Nasdaq listing rules that director nominees be selected or recommended for selection by either a majority of the independent directors or a nominations committee comprised solely of independent directors. Cayman Islands law does not impose a requirement that our board of directors consist of a majority of independent directors, nor does Cayman Islands law impose specific requirements on the establishment of a remuneration committee or nominating committee or nominating process. We voluntarily comply with Hong Kong Corporate Governance Code. See Item 6.C. “Board Practice—Hong Kong Corporate Governance Code” for more details. ITEM 16H. MINE SAFETY DISCLOSURE Not applicable. ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION For the immediately preceding annual financial statement period, our auditor, PricewaterhouseCoopers Zhong Tian LLP (a registered public accounting firm that the PCAOB was unable to inspect or investigate completely) issued an audit report for us. As of the date of this annual report and to our best knowledge: (i) none of our shares or the shares of our consolidated foreign operating entities are owned by governmental entities in the jurisdiction in which we or such consolidated foreign operating entities are incorporated or otherwise organized; (ii) none of the governmental entities in the applicable foreign jurisdiction with respect to our registered public accounting firm have a controlling financial interest in us or any of our consolidated foreign operating entities; (iii) none of the members of our board of directors or the board of directors of our operating entities is an official of the Chinese Communist Party; and (iv) our or our operating entities’ articles of incorporation do not contain any charter of the Chinese Communist Party. ITEM 16J. INSIDER TRADING POLICIES Not Applicable. ITEM 17. FINANCIAL STATEMENTS See Item 18 “Financial Statements.” PART III 220 221 ITEM 16G. CORPORATE GOVERNANCE ITEM 18. FINANCIAL STATEMENTS Our consolidated financial statements and the consolidated financial statements of our non-consolidated joint venture, Shanghai Hutchison Pharmaceuticals, and our former non-consolidated joint venture, Hutchison Baiyunshan, are included at the end of this annual report. 221 As permitted by Nasdaq, in lieu of the Nasdaq corporate governance rules, but subject to certain exceptions, we may follow the practices of our home country which for the purpose of such rules is the Cayman Islands. Certain corporate governance practices in the Cayman Islands may differ significantly from corporate governance listing standards as, except for general fiduciary duties and duties of care, Cayman Islands law has no corporate governance regime which prescribes specific corporate governance standards. For example, we follow Cayman Islands corporate governance practices in lieu of the corporate governance requirements of the Nasdaq Global Select Market in respect of the following: (i) the majority independent director requirement under Section 5605(b)(1) of the Nasdaq listing rules, (ii) the requirement under Section 5605(d) of the Nasdaq listing rules that a remuneration committee comprised solely of independent directors governed by a remuneration committee charter oversee executive compensation, and (iii) the requirement under Section 5605(e) of the Nasdaq listing rules that director nominees be selected or recommended for selection by either a majority of the independent directors or a nominations committee comprised solely of independent directors. Cayman Islands law does not impose a requirement that our board of directors consist of a majority of independent directors, nor does Cayman Islands law impose specific requirements on the establishment of a remuneration committee or nominating committee or nominating process. We voluntarily comply with Hong Kong Corporate Governance Code. See Item 6.C. “Board Practice—Hong Kong Corporate Governance Code” for more details. ITEM 16H. MINE SAFETY DISCLOSURE Not applicable. ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION For the immediately preceding annual financial statement period, our auditor, PricewaterhouseCoopers Zhong Tian LLP (a registered public accounting firm that the PCAOB was unable to inspect or investigate completely) issued an audit report for us. As of the date of this annual report and to our best knowledge: (i) none of our shares or the shares of our consolidated foreign operating entities are owned by governmental entities in the jurisdiction in which we or such consolidated foreign operating entities are incorporated or otherwise organized; (ii) none of the governmental entities in the applicable foreign jurisdiction with respect to our registered public accounting firm have a controlling financial interest in us or any of our consolidated foreign operating entities; (iii) none of the members of our board of directors or the board of directors of our operating entities is an official of the Chinese Communist Party; and (iv) our or our operating entities’ articles of incorporation do not contain any charter of the Chinese Communist Party. ITEM 16J. INSIDER TRADING POLICIES Not Applicable. ITEM 17. FINANCIAL STATEMENTS See Item 18 “Financial Statements.” PART III 220 ITEM 19. EXHIBITS EXHIBIT INDEX 1.1 2.1 2.2 2.3 2.4* 2.5 4.1 4.2+ 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 Amended and Restated Memorandum and Articles of Association of HUTCHMED (China) Limited (incorporated by reference to Exhibit 1.1 to our annual report on Form 20-F filed with the SEC on March 3, 2022) Form of Deposit Agreement and all holders and beneficial owners of ADSs issued thereunder (incorporated by reference to Exhibit 4.1 to Amendment No. 4 to our Registration Statement on Form F-1 (file no. 333-207447) filed with the SEC on March 4, 2016) Form of American Depositary Receipt (incorporated by reference to Exhibit 4.1 to Amendment No. 4 to our Registration Statement on Form F-1 (file no. 333-207447) filed with the SEC on March 4, 2016) Form of Specimen Certificate for Ordinary Shares (incorporated by reference to Exhibit 4.3 to Amendment No. 2 to our Registration Statement on Form F-1 (file no. 333-207447) filed with the SEC on February 11, 2016) Description of Ordinary Shares Description of American Depositary Shares (incorporated by reference to Exhibit 2.5 to our annual report on Form 20- F/A filed with the SEC on April 29, 2020) Amended and Restated License and Collaboration Agreement by and between HUTCHMED Limited (formerly known as Hutchison MediPharma Limited) and AstraZeneca AB (publ) dated as of December 7, 2020 (incorporated by reference to Exhibit 4.1 to our annual report on Form 20-F filed with the SEC on March 4, 2021) Amendment to the Amended and Restated License and Collaboration Agreement by and between HUTCHMED Limited and AstraZeneca AB (publ) dated as of November 29, 2021 (incorporated by reference to Exhibit 4.2 to our annual report on Form 20-F filed with the SEC on March 3, 2022) Amended and Restated Exclusive License and Collaboration Agreement by and HUTCHMED Limited, Eli Lilly Trading (Shanghai) Company Limited and HUTCHMED (China) Limited dated as of October 8, 2013 (incorporated by reference to Exhibit 4.2 to our annual report on Form 20-F/A filed with the SEC on May 30, 2019) First Amendment to the Amended and Restated Exclusive License and Collaboration Agreement by and among Lilly (Shanghai) Management Company Limited, HUTCHMED Limited and HUTCHMED (China) Limited dated as of December 18, 2018 (incorporated by reference to Exhibit 4.16 to our annual report on Form 20-F filed with the SEC on March 11, 2019) English translation of Sino-Foreign Joint Venture Contract by and between Shanghai Traditional Chinese Medicine Co., Ltd. and Shanghai HUTCHMED Investment Limited (formerly Hutchison Chinese Medicine (Shanghai) Investment Limited) dated as of January 6, 2001 (incorporated by reference to Exhibit 4.6 to our annual report on Form 20-F/A filed with the SEC on May 30, 2019) English translation of First Amendment to Sino-Foreign Joint Venture Contract by and between Shanghai Traditional Chinese Medicine Co., Ltd. and Shanghai HUTCHMED Investment Limited dated as of July 12, 2001 (incorporated by reference to Exhibit 10.15 to our Registration Statement on Form F-1 (file no. 333-207447) filed with the SEC on October 16, 2015) English translation of Second Amendment to Sino-Foreign Joint Venture Contract by and between Shanghai Traditional Chinese Medicine Co., Ltd. and Shanghai HUTCHMED Investment (HK) Limited dated as of November 5, 2007 (incorporated by reference to Exhibit 10.16 to our Registration Statement on Form F-1 (file no. 333-207447) filed with the SEC on October 16, 2015) English translation of Third Amendment to Sino-Foreign Joint Venture Contract by and between Shanghai Traditional Chinese Medicine Co., Ltd. and Shanghai HUTCHMED Investment (HK) Limited dated as of June 19, 2012 (incorporated by reference to Exhibit 10.17 to our Registration Statement on Form F-1 (file no. 333-207447) filed with the SEC on October 16, 2015) English translation of Fourth Amendment to Sino-Foreign Joint Venture Contract by and between Shanghai Traditional Chinese Medicine Co., Ltd. and Shanghai HUTCHMED Investment (HK) Limited dated as of March 8, 2013 (incorporated by reference to Exhibit 4.10 to our annual report on Form 20-F/A filed with the SEC on May 30, 2019) English translation of Sino-Foreign Joint Venture Contract by and between Sinopharm Group Co. Ltd. and Hutchison Chinese Medicine GSP (HK) Holdings Limited dated as of December 18, 2013 (incorporated by reference to Exhibit 4.11 to our annual report on Form 20-F/A filed with the SEC on May 30, 2019) 4.11 Form of Executive Employment Agreement for HUTCHMED Group (HK) Limited executive officers (incorporated by reference to Exhibit 10.23 to our Registration Statement on Form F-1 (file no. 333-207447) filed with the SEC on 4.12 English translation of Form of Executive Employment Agreement for HUTCHMED Limited executive officers (incorporated by reference to Exhibit 10.24 to our Registration Statement on Form F-1 (file no. 333-207447) filed with October 16, 2015) the SEC on October 16, 2015) Form of Indemnification Agreement for Directors and Officers (incorporated by reference to Exhibit 10.25 to our Registration Statement on Form F-1 (file no. 333-207447) filed with the SEC on October 16, 2015) Second Amendment to the Amended and Restated Exclusive License and Collaboration Agreement by and among Lilly (Shanghai) Management Company Limited, HUTCHMED Limited and HUTCHMED (China) Limited dated as of July 28, 2020 (incorporated by reference to Exhibit 4.14 to our annual report on Form 20-F filed with the SEC on March 4, 2021) 4.15+ License Agreement by and among Epizyme, Inc. and Hutchison China MediTech Investment Limited (now known as HUTCHMED Group Investment Limited) dated as of August 7, 2021 (incorporated by reference to Exhibit 4.15 to our annual report on Form 20-F filed with the SEC on March 3, 2022) 4.16*+ License Agreement by and among Takeda Pharmaceuticals International AG, HUTCHMED (China) Limited and HUTCHMED Limited dated as of January 23, 2023 List of Significant Subsidiaries of the Company (incorporated by reference to Exhibit 8.1 to our annual report on Form 20-F filed with the SEC on March 3, 2022) Certification of Chief Executive Officer Required by Rule 13a-14(a) Certification of Chief Financial Officer Required by Rule 13a-14(a) Certification of Chief Executive Officer Required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code United States Code Certification of Chief Financial Officer Required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the Consent of PricewaterhouseCoopers Zhong Tian LLP, an independent registered accounting firm, regarding the consolidated financial statements of HUTCHMED (China) Limited Consent of PricewaterhouseCoopers, an independent registered accounting firm, regarding the consolidated financial statements of HUTCHMED (China) Limited Consent of PricewaterhouseCoopers Zhong Tian LLP, independent accountants, regarding the consolidated financial statements of Shanghai Hutchison Pharmaceuticals Limited Consent of PricewaterhouseCoopers Zhong Tian LLP, independent accountants, regarding the consolidated financial statements of Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited Consent of Conyers Dill & Pearman Submission under Item 16I(a) of Form 20-F in relation to the Holding Foreign Companies Accountable Act Letter from PricewaterhouseCoopers to the Securities and Exchange Commission dated June 21, 2021 (incorporated herein by reference to Exhibit 16.1 to the current report on Form 6-K furnished to the SEC on June 21, 2021) 4.13 4.14 8.1 12.1* 12.2* 13.1* 13.2* 15.1* 15.2* 15.3* 15.4* 15.5* 15.6† 16.1 101.INS* XBRL Instance Document 101.SCH* XBRL Taxonomy Extension Schema Document 101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document 101.LAB* XBRL Taxonomy Extension Label Linkbase Document 101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document 101.DEF* XBRL Taxonomy Extension Definitions Linkbase Document 104* Cover Page Interactive Data File (embedded within the Inline XBRL document) * Filed herewith. † Furnished herewith. company if publicly disclosed. + Portions of the exhibit have been omitted because they are both (i) not material and (ii) would likely cause competitive harm to the 222 223 ITEM 19. EXHIBITS EXHIBIT INDEX 1.1 2.1 2.2 2.3 2.4* 2.5 4.1 4.3 4.4 Amended and Restated Memorandum and Articles of Association of HUTCHMED (China) Limited (incorporated by reference to Exhibit 1.1 to our annual report on Form 20-F filed with the SEC on March 3, 2022) Form of Deposit Agreement and all holders and beneficial owners of ADSs issued thereunder (incorporated by reference to Exhibit 4.1 to Amendment No. 4 to our Registration Statement on Form F-1 (file no. 333-207447) filed with the SEC on March 4, 2016) Form of American Depositary Receipt (incorporated by reference to Exhibit 4.1 to Amendment No. 4 to our Registration Statement on Form F-1 (file no. 333-207447) filed with the SEC on March 4, 2016) Form of Specimen Certificate for Ordinary Shares (incorporated by reference to Exhibit 4.3 to Amendment No. 2 to our Registration Statement on Form F-1 (file no. 333-207447) filed with the SEC on February 11, 2016) Description of Ordinary Shares F/A filed with the SEC on April 29, 2020) Description of American Depositary Shares (incorporated by reference to Exhibit 2.5 to our annual report on Form 20- Amended and Restated License and Collaboration Agreement by and between HUTCHMED Limited (formerly known as Hutchison MediPharma Limited) and AstraZeneca AB (publ) dated as of December 7, 2020 (incorporated by reference to Exhibit 4.1 to our annual report on Form 20-F filed with the SEC on March 4, 2021) 4.2+ Amendment to the Amended and Restated License and Collaboration Agreement by and between HUTCHMED Limited and AstraZeneca AB (publ) dated as of November 29, 2021 (incorporated by reference to Exhibit 4.2 to our annual report on Form 20-F filed with the SEC on March 3, 2022) Amended and Restated Exclusive License and Collaboration Agreement by and HUTCHMED Limited, Eli Lilly Trading (Shanghai) Company Limited and HUTCHMED (China) Limited dated as of October 8, 2013 (incorporated by reference to Exhibit 4.2 to our annual report on Form 20-F/A filed with the SEC on May 30, 2019) First Amendment to the Amended and Restated Exclusive License and Collaboration Agreement by and among Lilly (Shanghai) Management Company Limited, HUTCHMED Limited and HUTCHMED (China) Limited dated as of December 18, 2018 (incorporated by reference to Exhibit 4.16 to our annual report on Form 20-F filed with the SEC on March 11, 2019) 4.5 English translation of Sino-Foreign Joint Venture Contract by and between Shanghai Traditional Chinese Medicine Co., Ltd. and Shanghai HUTCHMED Investment Limited (formerly Hutchison Chinese Medicine (Shanghai) Investment Limited) dated as of January 6, 2001 (incorporated by reference to Exhibit 4.6 to our annual report on Form 20-F/A filed with the SEC on May 30, 2019) 4.6 English translation of First Amendment to Sino-Foreign Joint Venture Contract by and between Shanghai Traditional Chinese Medicine Co., Ltd. and Shanghai HUTCHMED Investment Limited dated as of July 12, 2001 (incorporated by reference to Exhibit 10.15 to our Registration Statement on Form F-1 (file no. 333-207447) filed with the SEC on 4.7 English translation of Second Amendment to Sino-Foreign Joint Venture Contract by and between Shanghai Traditional Chinese Medicine Co., Ltd. and Shanghai HUTCHMED Investment (HK) Limited dated as of November 5, 2007 (incorporated by reference to Exhibit 10.16 to our Registration Statement on Form F-1 (file no. 333-207447) filed with 4.8 English translation of Third Amendment to Sino-Foreign Joint Venture Contract by and between Shanghai Traditional Chinese Medicine Co., Ltd. and Shanghai HUTCHMED Investment (HK) Limited dated as of June 19, 2012 (incorporated by reference to Exhibit 10.17 to our Registration Statement on Form F-1 (file no. 333-207447) filed with October 16, 2015) the SEC on October 16, 2015) the SEC on October 16, 2015) 4.9 English translation of Fourth Amendment to Sino-Foreign Joint Venture Contract by and between Shanghai Traditional Chinese Medicine Co., Ltd. and Shanghai HUTCHMED Investment (HK) Limited dated as of March 8, 2013 (incorporated by reference to Exhibit 4.10 to our annual report on Form 20-F/A filed with the SEC on May 30, 2019) 4.10 English translation of Sino-Foreign Joint Venture Contract by and between Sinopharm Group Co. Ltd. and Hutchison Chinese Medicine GSP (HK) Holdings Limited dated as of December 18, 2013 (incorporated by reference to Exhibit 4.11 to our annual report on Form 20-F/A filed with the SEC on May 30, 2019) 4.11 4.12 4.13 4.14 4.15+ 4.16*+ 8.1 12.1* 12.2* 13.1* 13.2* 15.1* 15.2* 15.3* 15.4* 15.5* 15.6† 16.1 101.INS* 101.SCH* 101.CAL* 101.LAB* 101.PRE* 101.DEF* 104* Form of Executive Employment Agreement for HUTCHMED Group (HK) Limited executive officers (incorporated by reference to Exhibit 10.23 to our Registration Statement on Form F-1 (file no. 333-207447) filed with the SEC on October 16, 2015) English translation of Form of Executive Employment Agreement for HUTCHMED Limited executive officers (incorporated by reference to Exhibit 10.24 to our Registration Statement on Form F-1 (file no. 333-207447) filed with the SEC on October 16, 2015) Form of Indemnification Agreement for Directors and Officers (incorporated by reference to Exhibit 10.25 to our Registration Statement on Form F-1 (file no. 333-207447) filed with the SEC on October 16, 2015) Second Amendment to the Amended and Restated Exclusive License and Collaboration Agreement by and among Lilly (Shanghai) Management Company Limited, HUTCHMED Limited and HUTCHMED (China) Limited dated as of July 28, 2020 (incorporated by reference to Exhibit 4.14 to our annual report on Form 20-F filed with the SEC on March 4, 2021) License Agreement by and among Epizyme, Inc. and Hutchison China MediTech Investment Limited (now known as HUTCHMED Group Investment Limited) dated as of August 7, 2021 (incorporated by reference to Exhibit 4.15 to our annual report on Form 20-F filed with the SEC on March 3, 2022) License Agreement by and among Takeda Pharmaceuticals International AG, HUTCHMED (China) Limited and HUTCHMED Limited dated as of January 23, 2023 List of Significant Subsidiaries of the Company (incorporated by reference to Exhibit 8.1 to our annual report on Form 20-F filed with the SEC on March 3, 2022) Certification of Chief Executive Officer Required by Rule 13a-14(a) Certification of Chief Financial Officer Required by Rule 13a-14(a) Certification of Chief Executive Officer Required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code Certification of Chief Financial Officer Required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code Consent of PricewaterhouseCoopers Zhong Tian LLP, an independent registered accounting firm, regarding the consolidated financial statements of HUTCHMED (China) Limited Consent of PricewaterhouseCoopers, an independent registered accounting firm, regarding the consolidated financial statements of HUTCHMED (China) Limited Consent of PricewaterhouseCoopers Zhong Tian LLP, independent accountants, regarding the consolidated financial statements of Shanghai Hutchison Pharmaceuticals Limited Consent of PricewaterhouseCoopers Zhong Tian LLP, independent accountants, regarding the consolidated financial statements of Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited Consent of Conyers Dill & Pearman Submission under Item 16I(a) of Form 20-F in relation to the Holding Foreign Companies Accountable Act Letter from PricewaterhouseCoopers to the Securities and Exchange Commission dated June 21, 2021 (incorporated herein by reference to Exhibit 16.1 to the current report on Form 6-K furnished to the SEC on June 21, 2021) XBRL Instance Document XBRL Taxonomy Extension Schema Document XBRL Taxonomy Extension Calculation Linkbase Document XBRL Taxonomy Extension Label Linkbase Document XBRL Taxonomy Extension Presentation Linkbase Document XBRL Taxonomy Extension Definitions Linkbase Document Cover Page Interactive Data File (embedded within the Inline XBRL document) * Filed herewith. † Furnished herewith. + Portions of the exhibit have been omitted because they are both (i) not material and (ii) would likely cause competitive harm to the company if publicly disclosed. 222 223 The registrant hereby certifies that it meets all of the requirements for filing on annual report on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf. Audited Consolidated Financial Statements of HUTCHMED (China) Limited Reports of Independent Registered Public Accounting Firm (PCAOB ID 1424 and 1389) SIGNATURES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Date: February 28, 2023 HUTCHMED (China) Limited By: /s/ Weiguo Su Name: Weiguo Su Title: Chief Executive Officer Audited Consolidated Financial Statements of Shanghai Hutchison Pharmaceuticals Limited As at December 31, 2022 and December 31, 2021: Consolidated Balance Sheets For the Years Ended December 31, 2022, 2021 and 2020: Consolidated Statements of Operations Consolidated Statements of Comprehensive Loss Consolidated Statements of Changes in Shareholders’ Equity Consolidated Statements of Cash Flows Notes to the Consolidated Financial Statements Report of Independent Auditors For the Years Ended December 31, 2022, 2021 and 2020: Consolidated Income Statements Consolidated Statements of Comprehensive Income As at December 31, 2022 and December 31, 2021: Consolidated Statements of Financial Position For the Years Ended December 31, 2022, 2021 and 2020: Consolidated Statements of Changes in Equity Consolidated Statements of Cash Flows Notes to the Consolidated Financial Statements Limited Report of Independent Auditors Consolidated Income Statements Consolidated Statements of Comprehensive Income As at September 28, 2021: Consolidated Statements of Financial Position Consolidated Statements of Changes in Equity Consolidated Statements of Cash Flows Notes to the Consolidated Financial Statements Audited Consolidated Financial Statements of Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company For the Period from January 1, 2021 to September 28, 2021 and the Year Ended December 31, 2020: For the Period from January 1, 2021 to September 28, 2021 and the Year Ended December 31, 2020: F-2 F-5 F-6 F-7 F-8 F-9 F-10 F-48 F-50 F-51 F-52 F-53 F-54 F-55 F-75 F-76 F-77 F-78 F-79 F-80 F-81 224 F-1 The registrant hereby certifies that it meets all of the requirements for filing on annual report on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf. Date: February 28, 2023 HUTCHMED (China) Limited By: /s/ Weiguo Su Name: Weiguo Su Title: Chief Executive Officer SIGNATURES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Audited Consolidated Financial Statements of HUTCHMED (China) Limited Reports of Independent Registered Public Accounting Firm (PCAOB ID 1424 and 1389) As at December 31, 2022 and December 31, 2021: Consolidated Balance Sheets For the Years Ended December 31, 2022, 2021 and 2020: Consolidated Statements of Operations Consolidated Statements of Comprehensive Loss Consolidated Statements of Changes in Shareholders’ Equity Consolidated Statements of Cash Flows Notes to the Consolidated Financial Statements Audited Consolidated Financial Statements of Shanghai Hutchison Pharmaceuticals Limited Report of Independent Auditors For the Years Ended December 31, 2022, 2021 and 2020: Consolidated Income Statements Consolidated Statements of Comprehensive Income As at December 31, 2022 and December 31, 2021: Consolidated Statements of Financial Position For the Years Ended December 31, 2022, 2021 and 2020: Consolidated Statements of Changes in Equity Consolidated Statements of Cash Flows Notes to the Consolidated Financial Statements Audited Consolidated Financial Statements of Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited Report of Independent Auditors For the Period from January 1, 2021 to September 28, 2021 and the Year Ended December 31, 2020: Consolidated Income Statements Consolidated Statements of Comprehensive Income As at September 28, 2021: Consolidated Statements of Financial Position For the Period from January 1, 2021 to September 28, 2021 and the Year Ended December 31, 2020: Consolidated Statements of Changes in Equity Consolidated Statements of Cash Flows Notes to the Consolidated Financial Statements F-2 F-5 F-6 F-7 F-8 F-9 F-10 F-48 F-50 F-51 F-52 F-53 F-54 F-55 F-75 F-76 F-77 F-78 F-79 F-80 F-81 224 F-1 Refer to pages 100 to 152 in this annual report for the independent auditor’s report and the audited consolidated financial statements of HUTCHMED (China) Limited. SHANGHAI HUTCHISON PHARMACEUTICALS LIMITED F-2 to F-46 F-47 Refer to pages 100 to 152 in this annual report for the independent auditor’s report and the audited consolidated financial statements of HUTCHMED (China) Limited. SHANGHAI HUTCHISON PHARMACEUTICALS LIMITED F-2 to F-46 F-47 To the Board of Directors of Shanghai Hutchison Pharmaceuticals Limited Accordingly, no such opinion is expressed. Report of Independent Auditors • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Opinion We have audited the accompanying consolidated financial statements of Shanghai Hutchison Pharmaceuticals Limited and its subsidiaries (the “Company”), which comprise the consolidated statements of financial position as of December 31, 2022 and 2021, and the related consolidated income statements, consolidated statements of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”). • • Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the consolidated financial statements. Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. /s/ PricewaterhouseCoopers Zhong Tian LLP Shanghai, the People’s Republic of China February 28, 2023 Basis for Opinion We conducted our audit in accordance with auditing standards generally accepted in the United States of America (US GAAS). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Responsibilities of Management for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern for at least, but not limited to, twelve months from the end of the reporting period, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with US GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the consolidated financial statement • • In performing an audit in accordance with US GAAS, we: Exercise professional judgment and maintain professional skepticism throughout the audit. Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. F-48 F-49 • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, no such opinion is expressed. • • Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the consolidated financial statements. Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit. /s/ PricewaterhouseCoopers Zhong Tian LLP Shanghai, the People’s Republic of China February 28, 2023 Report of Independent Auditors To the Board of Directors of Shanghai Hutchison Pharmaceuticals Limited Opinion We have audited the accompanying consolidated financial statements of Shanghai Hutchison Pharmaceuticals Limited and its subsidiaries (the “Company”), which comprise the consolidated statements of financial position as of December 31, 2022 and 2021, and the related consolidated income statements, consolidated statements of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. Basis for Opinion We conducted our audit in accordance with auditing standards generally accepted in the United States of America (US GAAS). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Responsibilities of Management for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern for at least, but not limited to, twelve months from the end of the reporting period, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with US GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the consolidated financial statement In performing an audit in accordance with US GAAS, we: Exercise professional judgment and maintain professional skepticism throughout the audit. • • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. F-48 F-49 Shanghai Hutchison Pharmaceuticals Limited Consolidated Income Statements (in US$’000) Shanghai Hutchison Pharmaceuticals Limited Consolidated Statements of Comprehensive Income (in US$’000) Revenue Cost of sales Gross profit Selling expenses Administrative expenses Other net operating income Operating profit Finance costs Profit before taxation Taxation charge Profit for the year Note 5 6 7 15 8 Year Ended December 31, 2021 332,648 (77,559) 255,089 (131,821) (22,627) 4,759 105,400 (116) 2022 370,600 (89,487) 281,113 (144,979) (21,727) 2,126 116,533 (112) 116,421 (16,738) 99,683 2020 276,354 (72,163) 204,191 (111,892) (17,907) 3,473 77,865 (12) 77,853 (10,833) 67,020 105,284 (15,896) 89,388 Other comprehensive (loss)/income that has been or may be reclassified subsequently Profit for the year to profit or loss: Exchange translation differences Total comprehensive income Year Ended December 31, 2022 99,683 2021 89,388 2020 67,020 (16,581) 83,102 3,341 92,729 11,129 78,149 The accompanying notes are an integral part of these consolidated financial statements. The accompanying notes are an integral part of these consolidated financial statements. F-50 F-51 Shanghai Hutchison Pharmaceuticals Limited Consolidated Income Statements (in US$’000) Shanghai Hutchison Pharmaceuticals Limited Consolidated Statements of Comprehensive Income (in US$’000) Revenue Cost of sales Gross profit Selling expenses Administrative expenses Other net operating income Operating profit Finance costs Profit before taxation Taxation charge Profit for the year Note 5 6 7 15 8 Year Ended December 31, 2022 370,600 (89,487) 281,113 2021 332,648 (77,559) 255,089 (144,979) (131,821) (21,727) (22,627) 2,126 4,759 116,533 105,400 (112) (116) 116,421 (16,738) 105,284 (15,896) 99,683 89,388 2020 276,354 (72,163) 204,191 (111,892) (17,907) 3,473 77,865 (12) 77,853 (10,833) 67,020 Profit for the year Other comprehensive (loss)/income that has been or may be reclassified subsequently to profit or loss: Exchange translation differences Total comprehensive income Year Ended December 31, 2021 89,388 2022 99,683 2020 67,020 (16,581) 83,102 3,341 92,729 11,129 78,149 The accompanying notes are an integral part of these consolidated financial statements. The accompanying notes are an integral part of these consolidated financial statements. F-50 F-51 Shanghai Hutchison Pharmaceuticals Limited Consolidated Statements of Financial Position (in US$’000) Shanghai Hutchison Pharmaceuticals Limited Consolidated Statements of Changes in Equity (in US$’000) Assets Current assets Cash and cash equivalents Trade and bills receivables Other receivables, prepayments and deposits Inventories Total current assets Property, plant and equipment Right-of-use assets Leasehold land Other intangible assets Deferred tax assets Total assets Liabilities and shareholders’ equity Current liabilities Trade payables Other payables, accruals and advance receipts Current tax liabilities Lease liabilities Total current liabilities Deferred income Lease liabilities Total liabilities Shareholders’ equity Share capital Reserves Total shareholders’ equity Total liabilities and shareholders’ equity Note 2022 2021 December 31, 10 11 12 13 14 15 16 17 18 19 15 15 33,923 21,856 3,672 154,816 214,267 62,831 1,717 6,291 823 8,327 294,256 23,095 121,354 2,791 712 147,952 3,585 1,360 152,897 33,382 107,977 141,359 294,256 50,038 17,482 3,350 119,390 190,260 73,650 2,445 7,025 722 7,715 281,817 12,411 111,793 4,089 700 128,993 4,983 2,148 136,124 33,382 112,311 145,693 281,817 As at January 1, 2020 Profit for the year Other comprehensive income Exchange translation differences Total comprehensive income Transfer between reserves Dividends declared to shareholders As at December 31, 2020 Profit for the year Other comprehensive income Exchange translation differences Total comprehensive income Transfer between reserves Dividends declared to shareholders As at December 31, 2021 Profit for the year Other comprehensive loss Exchange translation differences Total comprehensive (loss)/income Transfer between reserves Dividends declared to shareholders As at December 31, 2022 Share capital Exchange General Retained reserve reserves earnings Total equity 33,382 (8,524) — 984 120,896 146,738 — 67,020 67,020 — — — — — — — — — — — 33,382 2,605 998 115,723 152,708 — 11,129 — 11,129 — — — 3,341 3,341 — — — — 14 — — 67,020 (14) 11,129 78,149 — (72,179) (72,179) — 89,388 89,388 — — 31 — — 89,388 (31) 3,341 92,729 — (99,744) (99,744) 33,382 5,946 1,029 105,336 145,693 — — 99,683 99,683 — (16,581) — (16,581) — — — — 14 — — (16,581) 99,683 83,102 (14) — (87,436) (87,436) 33,382 (10,635) 1,043 117,569 141,359 The accompanying notes are an integral part of these consolidated financial statements. The accompanying notes are an integral part of these consolidated financial statements. F-52 F-53 Assets Current assets Cash and cash equivalents Trade and bills receivables Inventories Total current assets Property, plant and equipment Other receivables, prepayments and deposits Liabilities and shareholders’ equity Other payables, accruals and advance receipts Right-of-use assets Leasehold land Other intangible assets Deferred tax assets Total assets Current liabilities Trade payables Current tax liabilities Lease liabilities Total current liabilities Deferred income Lease liabilities Total liabilities Shareholders’ equity Share capital Reserves Total shareholders’ equity Total liabilities and shareholders’ equity Note 2022 2021 December 31, 10 11 12 13 14 15 16 17 18 19 15 15 33,923 21,856 3,672 154,816 214,267 62,831 1,717 6,291 823 8,327 23,095 121,354 2,791 712 3,585 1,360 33,382 107,977 141,359 294,256 294,256 281,817 147,952 128,993 152,897 136,124 50,038 17,482 3,350 119,390 190,260 73,650 2,445 7,025 722 7,715 12,411 111,793 4,089 700 4,983 2,148 33,382 112,311 145,693 281,817 Shanghai Hutchison Pharmaceuticals Limited Consolidated Statements of Financial Position (in US$’000) Shanghai Hutchison Pharmaceuticals Limited Consolidated Statements of Changes in Equity (in US$’000) As at January 1, 2020 Profit for the year Other comprehensive income Exchange translation differences Total comprehensive income Transfer between reserves Dividends declared to shareholders As at December 31, 2020 Profit for the year Other comprehensive income Exchange translation differences Total comprehensive income Transfer between reserves Dividends declared to shareholders As at December 31, 2021 Profit for the year Other comprehensive loss Exchange translation differences Total comprehensive (loss)/income Transfer between reserves Dividends declared to shareholders As at December 31, 2022 Share capital 33,382 — Exchange General Retained reserves reserve (8,524) — earnings 120,896 67,020 984 — Total equity 146,738 67,020 — 11,129 — 11,129 — — — — 2,605 — — 33,382 — — 14 — — 67,020 (14) (72,179) 11,129 78,149 — (72,179) 998 115,723 152,708 89,388 89,388 — — — — — 33,382 — 3,341 3,341 — — 5,946 — — — 31 — 1,029 — — 89,388 (31) (99,744) 105,336 99,683 3,341 92,729 — (99,744) 145,693 99,683 — (16,581) — (16,581) — — — — (10,635) 33,382 — — 14 — — (16,581) 83,102 99,683 — (14) (87,436) (87,436) 1,043 117,569 141,359 The accompanying notes are an integral part of these consolidated financial statements. The accompanying notes are an integral part of these consolidated financial statements. F-52 F-53 Shanghai Hutchison Pharmaceuticals Limited Consolidated Statements of Cash Flows (in US$’000) Shanghai Hutchison Pharmaceuticals Limited Notes to the Consolidated Financial Statements 1. General Information Operating activities Net cash generated from operations Interest received Income tax paid Net cash generated from operating activities Investing activities Purchase of property, plant and equipment Purchase of intangible asset Proceeds from disposal of property, plant and equipment Net cash used in investing activities Financing activities Dividends paid to shareholders Lease payments Net cash used in financing activities Net (decrease)/increase in cash and cash equivalents Effect of exchange rate changes on cash and cash equivalents Cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Note 20 19 15 Year Ended December 31, 2021 2020 2022 96,270 1,219 (19,003) 78,486 93,970 1,116 (15,976) 79,110 (1,865) (410) 20 (2,255) (3,362) — 32 (3,330) (87,436) (809) (88,245) (12,014) (4,101) (16,115) (99,744) (303) (100,047) (24,267) 1,827 (22,440) 112,609 912 (10,232) 103,289 (2,437) — 63 (2,374) (72,179) (474) (72,653) 28,262 2,972 31,234 50,038 33,923 72,478 50,038 41,244 72,478 The accompanying notes are an integral part of these consolidated financial statements. F-54 F-55 Shanghai Hutchison Pharmaceuticals Limited (the “Company”) and its subsidiaries (together the “Group”) are principally engaged in manufacturing, selling and distribution of prescription drug products. The Group has manufacturing plants in the People’s Republic of China (the “PRC”) and sells mainly in the PRC. The Company was incorporated in the PRC on April 30, 2001 as a Chinese-Foreign Equity joint venture. The Company is jointly controlled by Shanghai HUTCHMED Investment (HK) Limited (“SHHCMI(HK)L”) and Shanghai Traditional Chinese Medicine Co., Ltd (“SHTCML”). These consolidated financial statements are presented in United States dollars (“US$”), unless otherwise stated and have been approved for issue by the Company’s Board of Directors on February 28, 2023. 2. Summary of Significant Accounting Policies The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and interpretations issued by the IFRS Interpretations Committee applicable to companies reporting under IFRS. The consolidated financial statements comply with IFRS as issued by the International Accounting Standards Board (“IASB”). These consolidated financial statements have been prepared under the historical cost convention. During the year, the Group has adopted all of the new and revised standards, amendments and interpretations issued by the IASB that are relevant to the Group’s operations and mandatory for annual periods beginning January 1, 2022. The adoption of these new and revised standards, amendments and interpretations did not have any material effects on the Group’s results of operations or financial position. The following standards, amendments and interpretations were issued but not yet effective for the financial year ended December 31, 2022 and have not been early adopted by the Group: Amendments to IAS 1 and IFRS Practice Statement 2(1) IAS 8 (Amendments)(1) IAS 12 (Amendments)(1) IFRS 17(1) IAS 1 (Amendments)(2) IAS 1 (Amendments)(2) IFRS 16(2) IFRS 10 and IAS 28 (Amendments)(3) Disclosure Initiative—Accounting Policies Definition of Accounting Estimates Deferred Tax related to Assets and Liabilities arising from a Single Transaction Insurance Contracts Classification of Liabilities as Current or Non-current Non-current Liabilities with Covenants Lease Liability in a Sale and Leaseback Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (1) Effective for the Group for annual periods beginning on or after January 1, 2023. (2) Effective for the Group for annual periods beginning on or after January 1, 2024. (3) Effective date to be determined by the IASB. The adoption of standards, amendments and interpretations listed above in future periods is not expected to have any material effects on the Group’s results of operations or financial position. Shanghai Hutchison Pharmaceuticals Limited Consolidated Statements of Cash Flows (in US$’000) Shanghai Hutchison Pharmaceuticals Limited Notes to the Consolidated Financial Statements 1. General Information Operating activities Net cash generated from operations Interest received Income tax paid Net cash generated from operating activities Investing activities Purchase of property, plant and equipment Purchase of intangible asset Net cash used in investing activities Financing activities Dividends paid to shareholders Lease payments Net cash used in financing activities Proceeds from disposal of property, plant and equipment Net (decrease)/increase in cash and cash equivalents Effect of exchange rate changes on cash and cash equivalents Cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Note 2022 2021 2020 Year Ended December 31, 20 19 15 96,270 1,219 93,970 1,116 (19,003) (15,976) 78,486 79,110 112,609 912 (10,232) 103,289 (1,865) (3,362) (2,437) (410) 20 — 32 — 63 (2,255) (3,330) (2,374) (87,436) (99,744) (809) (303) (88,245) (100,047) (12,014) (24,267) (4,101) 1,827 (16,115) (22,440) (72,179) (474) (72,653) 28,262 2,972 31,234 50,038 33,923 72,478 50,038 41,244 72,478 The accompanying notes are an integral part of these consolidated financial statements. Shanghai Hutchison Pharmaceuticals Limited (the “Company”) and its subsidiaries (together the “Group”) are principally engaged in manufacturing, selling and distribution of prescription drug products. The Group has manufacturing plants in the People’s Republic of China (the “PRC”) and sells mainly in the PRC. The Company was incorporated in the PRC on April 30, 2001 as a Chinese-Foreign Equity joint venture. The Company is jointly controlled by Shanghai HUTCHMED Investment (HK) Limited (“SHHCMI(HK)L”) and Shanghai Traditional Chinese Medicine Co., Ltd (“SHTCML”). These consolidated financial statements are presented in United States dollars (“US$”), unless otherwise stated and have been approved for issue by the Company’s Board of Directors on February 28, 2023. 2. Summary of Significant Accounting Policies The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and interpretations issued by the IFRS Interpretations Committee applicable to companies reporting under IFRS. The consolidated financial statements comply with IFRS as issued by the International Accounting Standards Board (“IASB”). These consolidated financial statements have been prepared under the historical cost convention. During the year, the Group has adopted all of the new and revised standards, amendments and interpretations issued by the IASB that are relevant to the Group’s operations and mandatory for annual periods beginning January 1, 2022. The adoption of these new and revised standards, amendments and interpretations did not have any material effects on the Group’s results of operations or financial position. The following standards, amendments and interpretations were issued but not yet effective for the financial year ended December 31, 2022 and have not been early adopted by the Group: Amendments to IAS 1 and IFRS Practice Statement 2(1) IAS 8 (Amendments)(1) IAS 12 (Amendments)(1) IFRS 17(1) IAS 1 (Amendments)(2) IAS 1 (Amendments)(2) IFRS 16(2) IFRS 10 and IAS 28 (Amendments)(3) Disclosure Initiative—Accounting Policies Definition of Accounting Estimates Deferred Tax related to Assets and Liabilities arising from a Single Transaction Insurance Contracts Classification of Liabilities as Current or Non-current Non-current Liabilities with Covenants Lease Liability in a Sale and Leaseback Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (1) Effective for the Group for annual periods beginning on or after January 1, 2023. (2) Effective for the Group for annual periods beginning on or after January 1, 2024. (3) Effective date to be determined by the IASB. The adoption of standards, amendments and interpretations listed above in future periods is not expected to have any material effects on the Group’s results of operations or financial position. F-54 F-55 (a) Basis of Consolidation The consolidated financial statements of the Group include the financial statements of the Company and its subsidiaries. The assets’ useful lives are reviewed and adjusted, if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing net sales proceeds with the carrying amount of the relevant assets and The accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by are recognized in the consolidated income statements. the Group. (e) Construction in Progress Intercompany transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. (b) Subsidiaries Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. In the consolidated financial statements, subsidiaries are accounted for as described in Note 2(a) above. in accordance with the policy as stated in Note 2(d). (f) Other Intangible Assets Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the Construction in progress represents buildings, plant and machinery under construction and pending installation and is stated at cost less accumulated impairment losses, if any. Cost includes the costs of construction of buildings and the costs of plant and machinery. No provision for depreciation is made on construction in progress until such time as the relevant assets are completed and ready for its intended use. When the assets concerned are brought into use, the costs are transferred to property, plant and equipment and depreciated date that control ceases. (c) Foreign Currency Translation Items included in the financial statements of each of the Group’s companies are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The functional currency of the Company and its subsidiaries is Renminbi (“RMB”) whereas the consolidated financial statements are presented in US$, which is the Company’s presentation currency. Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign currency gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognized in the consolidated income statements. The financial statements of the Company and its subsidiaries are translated into the Company’s presentation currency using the year end rates of exchange for the statements of financial position items and the average rates of exchange for the year for the income statement items. Exchange translation differences are recognized directly in other comprehensive income. (d) Property, Plant and Equipment Property, plant and equipment other than construction in progress are stated at historical cost less accumulated depreciation and any accumulated impairment losses. Historical cost includes the purchase price of the asset and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the consolidated income statements during the financial period in which they are incurred. Depreciation is calculated using the straight-line method to allocate asset costs less accumulated impairment losses over their estimated useful lives. The principal estimated useful lives are as follows: Buildings Leasehold improvements 20 years Over the unexpired period of the lease or 5 years, whichever is shorter Plant and equipment Furniture and fixtures, other equipment and motor vehicles 10 years 5 years F-56 F-57 The Group’s other intangible asset represents promotion and marketing rights. Other intangible asset has a definite useful life and is carried at historical cost less accumulated amortization and accumulated impairment losses, if any. Amortization is calculated using the straight-line method to allocate its cost over its estimated useful life of five to ten years. (g) Research and Development Research expenditure is recognized as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognized as intangible assets when it is probable that the project will generate future economic benefits by considering its commercial and technological feasibility, and costs can be measured reliably. Other development expenditures are recognized as an expense as incurred. Development costs previously recognized as an expense are not recognized as an asset in a subsequent period. Development costs with a finite useful life that have been capitalized, if any, are amortized on a straight-line basis over the period of expected benefit not exceeding five years. The capitalized development costs are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset exceeds its recoverable amount. Where the research phase and the development phase of an internal project cannot be clearly distinguished, all expenditure incurred on the project is charged to the consolidated income statements. (h) Impairment of Non-Financial Assets Assets are reviewed for impairment to determine whether there is any indication that the carrying value of these assets may not be recoverable and have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. Such impairment loss is recognized in the consolidated income statements. Assets that have an indefinite useful life such as goodwill or intangible assets not ready to use are not subject to amortization and are tested for impairment annually and when there are indications that the carrying value may not be recoverable. (i) Inventories expenses. Inventories are stated at the lower of cost or net realizable value. Cost is determined using the weighted average cost method. The cost of finished goods comprises raw materials, direct labor, other direct costs and related production overheads (based on normal operating capacity). Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling The consolidated financial statements of the Group include the financial statements of the Company and its subsidiaries. The assets’ useful lives are reviewed and adjusted, if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing net sales proceeds with the carrying amount of the relevant assets and The accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by are recognized in the consolidated income statements. (e) Construction in Progress Construction in progress represents buildings, plant and machinery under construction and pending installation and is stated at cost less accumulated impairment losses, if any. Cost includes the costs of construction of buildings and the costs of plant and machinery. No provision for depreciation is made on construction in progress until such time as the relevant assets are completed and ready for its intended use. When the assets concerned are brought into use, the costs are transferred to property, plant and equipment and depreciated in accordance with the policy as stated in Note 2(d). activities of the entity. In the consolidated financial statements, subsidiaries are accounted for as described in Note 2(a) above. (f) Other Intangible Assets The Group’s other intangible asset represents promotion and marketing rights. Other intangible asset has a definite useful life and is carried at historical cost less accumulated amortization and accumulated impairment losses, if any. Amortization is calculated using the straight-line method to allocate its cost over its estimated useful life of five to ten years. (g) Research and Development Research expenditure is recognized as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognized as intangible assets when it is probable that the project will generate future economic benefits by considering its commercial and technological feasibility, and costs can be measured reliably. Other development expenditures are recognized as an expense as incurred. Development costs previously recognized as an expense are not recognized as an asset in a subsequent period. Development costs with a finite useful life that have been capitalized, if any, are amortized on a straight-line basis over the period of expected benefit not exceeding five years. The capitalized development costs are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset exceeds its recoverable amount. Where the research phase and the development phase of an internal project cannot be clearly distinguished, all expenditure incurred on the project is charged to the consolidated income statements. (h) Impairment of Non-Financial Assets Assets are reviewed for impairment to determine whether there is any indication that the carrying value of these assets may not be recoverable and have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. Such impairment loss is recognized in the consolidated income statements. Assets that have an indefinite useful life such as goodwill or intangible assets not ready to use are not subject to amortization and are tested for impairment annually and when there are indications that the carrying value may not be recoverable. (i) Inventories Inventories are stated at the lower of cost or net realizable value. Cost is determined using the weighted average cost method. The cost of finished goods comprises raw materials, direct labor, other direct costs and related production overheads (based on normal operating capacity). Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. F-57 (a) Basis of Consolidation the Group. (b) Subsidiaries Intercompany transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. (c) Foreign Currency Translation Items included in the financial statements of each of the Group’s companies are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The functional currency of the Company and its subsidiaries is Renminbi (“RMB”) whereas the consolidated financial statements are presented in US$, which is the Company’s presentation currency. Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign currency gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognized in the consolidated income statements. The financial statements of the Company and its subsidiaries are translated into the Company’s presentation currency using the year end rates of exchange for the statements of financial position items and the average rates of exchange for the year for the income statement items. Exchange translation differences are recognized directly in other comprehensive income. (d) Property, Plant and Equipment Property, plant and equipment other than construction in progress are stated at historical cost less accumulated depreciation and any accumulated impairment losses. Historical cost includes the purchase price of the asset and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the consolidated income statements during the financial period in which they are incurred. Depreciation is calculated using the straight-line method to allocate asset costs less accumulated impairment losses over their estimated useful lives. The principal estimated useful lives are as follows: Buildings Leasehold improvements Plant and equipment Furniture and fixtures, other equipment and motor vehicles Over the unexpired period of the lease or 5 years, whichever is shorter 20 years 10 years 5 years F-56 (j) Trade and Other Receivables Outside basis differences Trade and other receivables are recognized initially at the amount of consideration, which is unconditional. Trade and other receivables solely represent payments of principal and interest, if any, and the Group holds such financial assets with the objective to collect its contractual cash flows. Therefore, the Group measures them subsequently at amortized cost using the effective interest method, less any loss allowance. The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. All other receivables at amortized cost are considered to have low credit risk, and the loss allowance recognized during the period was therefore limited to 12 months expected losses. The amount of the provision is recognized in the consolidated income statements. (k) Cash and Cash Equivalents In the consolidated statements of cash flows, cash and cash equivalents include cash on hand, bank deposits and other short-term highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, if any. Deferred income tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries, except for deferred income tax liabilities where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets are recognized on deductible temporary differences arising from investments in subsidiaries, only to the extent that it is probable the temporary difference will reverse in the future and there is sufficient taxable profit available against which the temporary difference can be utilized. (n) Employee Benefits The employees of the Group participate in defined contribution retirement benefit plans managed by the relevant municipal and provincial governments in the PRC. The assets of these plans are held separately from the Group. The Group is required to make monthly contributions to the plans calculated as a percentage of the employees’ salaries. The municipal and provincial governments undertake to assume the retirement benefit obligations to all existing and future retired employees under the plans described above. Other than the monthly contributions, the Group has no further obligations for the payment of the retirement and other post-retirement benefits of (l) Financial Liabilities and Equity Instruments Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. Financial liabilities (including trade and other payables) are initially measured at fair value, and are subsequently measured at amortized cost, using the effective interest method. An equity instrument is any contract that does not meet the definition of a financial liability and evidences a residual interest in the assets of the Group after deducting all of its liabilities. its employees. (o) Provisions Ordinary shares are classified as equity. Incremental costs, net of tax, directly attributable to the issue of new shares are shown in (p) Leases equity as a deduction from the proceeds. (m) Current and Deferred Income Tax (i) Current income tax The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the country where the Group operates and generates taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. (ii) Deferred income tax Inside basis differences Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognized if they arise from the initial recognition of goodwill and deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated. Provisions are not recognized for future operating losses. A lease is recognized as a right-of-use asset with a corresponding liability at the date which the leased asset is available for use by the Group. The Group recognizes an obligation to make lease payments equal to the present value of the lease payments over the lease term. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Group will exercise that option. Lease liabilities include the net present value of the following lease payments: (i) fixed payments; (ii) variable lease payments that depend on an index or a rate; and (iii) payments of penalties for terminating the lease if the lease term reflects the lessee exercising that option, if any. Lease liabilities exclude the following payments that are generally accounted for separately: (i) non-lease components, such as maintenance and security service fees and value added tax, and (ii) any payments that a lessee makes before the lease commencement date. The lease payments are discounted using the interest rate implicit in the lease or if that rate cannot be determined, the lessee’s incremental borrowing rate being the rate that the lessee would have to pay to borrow the funds in its currency and jurisdiction necessary to obtain an asset of similar value, economic environment and terms and conditions. An asset representing the right to use the underlying asset during the lease term is recognized that consists of the initial measurement of the lease liability, any lease payments made to the lessor at or before the commencement date less any lease incentives received, any initial direct cost incurred by the Group and any restoration costs. After commencement of the lease, each lease payment is allocated between lease liability and finance costs. The finance costs are recognized over the lease term so as to produce a constant periodic rate of interest on the remaining balance of the lease liability for each period. The right-of-use asset is depreciated on a straight-line basis over the period of the lease. Payments associated with short-term leases are recognized as lease expenses on a straight-line basis over the period of the leases. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred income tax assets and deferred income tax liabilities are offset when there is a legally enforceable right to set off and when the deferred income taxes related to the same fiscal authority. Leasehold land is accounted under IFRS 16. F-58 F-59 (j) Trade and Other Receivables Outside basis differences Trade and other receivables are recognized initially at the amount of consideration, which is unconditional. Trade and other receivables solely represent payments of principal and interest, if any, and the Group holds such financial assets with the objective to collect its contractual cash flows. Therefore, the Group measures them subsequently at amortized cost using the effective interest method, less any loss allowance. The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. All other receivables at amortized cost are considered to have low credit risk, and the loss allowance recognized during the period was therefore limited to 12 months expected losses. The amount of the provision is Deferred income tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries, except for deferred income tax liabilities where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets are recognized on deductible temporary differences arising from investments in subsidiaries, only to the extent that it is probable the temporary difference will reverse in the future and there is sufficient taxable profit available against which the temporary difference can be utilized. recognized in the consolidated income statements. (k) Cash and Cash Equivalents (n) Employee Benefits In the consolidated statements of cash flows, cash and cash equivalents include cash on hand, bank deposits and other short-term highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, if any. (l) Financial Liabilities and Equity Instruments The employees of the Group participate in defined contribution retirement benefit plans managed by the relevant municipal and provincial governments in the PRC. The assets of these plans are held separately from the Group. The Group is required to make monthly contributions to the plans calculated as a percentage of the employees’ salaries. The municipal and provincial governments undertake to assume the retirement benefit obligations to all existing and future retired employees under the plans described above. Other than the monthly contributions, the Group has no further obligations for the payment of the retirement and other post-retirement benefits of its employees. Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual (o) Provisions arrangements entered into and the definitions of a financial liability and an equity instrument. Financial liabilities (including trade and other payables) are initially measured at fair value, and are subsequently measured at amortized cost, using the effective interest method. An equity instrument is any contract that does not meet the definition of a financial liability and evidences a residual interest in the assets of the Group after deducting all of its liabilities. Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated. Provisions are not recognized for future operating losses. Ordinary shares are classified as equity. Incremental costs, net of tax, directly attributable to the issue of new shares are shown in (p) Leases equity as a deduction from the proceeds. (m) Current and Deferred Income Tax (i) Current income tax (ii) Deferred income tax Inside basis differences The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the country where the Group operates and generates taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognized if they arise from the initial recognition of goodwill and deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. A lease is recognized as a right-of-use asset with a corresponding liability at the date which the leased asset is available for use by the Group. The Group recognizes an obligation to make lease payments equal to the present value of the lease payments over the lease term. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Group will exercise that option. Lease liabilities include the net present value of the following lease payments: (i) fixed payments; (ii) variable lease payments that depend on an index or a rate; and (iii) payments of penalties for terminating the lease if the lease term reflects the lessee exercising that option, if any. Lease liabilities exclude the following payments that are generally accounted for separately: (i) non-lease components, such as maintenance and security service fees and value added tax, and (ii) any payments that a lessee makes before the lease commencement date. The lease payments are discounted using the interest rate implicit in the lease or if that rate cannot be determined, the lessee’s incremental borrowing rate being the rate that the lessee would have to pay to borrow the funds in its currency and jurisdiction necessary to obtain an asset of similar value, economic environment and terms and conditions. An asset representing the right to use the underlying asset during the lease term is recognized that consists of the initial measurement of the lease liability, any lease payments made to the lessor at or before the commencement date less any lease incentives received, any initial direct cost incurred by the Group and any restoration costs. After commencement of the lease, each lease payment is allocated between lease liability and finance costs. The finance costs are recognized over the lease term so as to produce a constant periodic rate of interest on the remaining balance of the lease liability for each period. The right-of-use asset is depreciated on a straight-line basis over the period of the lease. Payments associated with short-term leases are recognized as lease expenses on a straight-line basis over the period of the leases. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred income tax assets and deferred income tax liabilities are offset when there is Leasehold land is accounted under IFRS 16. a legally enforceable right to set off and when the deferred income taxes related to the same fiscal authority. F-58 F-59 (q) Government Incentives 3. Financial Risk Management Incentives from government are recognized at their fair values where there is a reasonable assurance that the incentives will be (a) Financial risk factors received and all attached conditions will be complied with. Government incentives relating to costs are deferred and recognized in the consolidated income statements over the period necessary derivative financial instruments for speculative purposes. to match them with the costs that they are intended to compensate. The Group’s activities expose it to a variety of financial risks, including credit risk and liquidity risk. The Group does not use any Government grants relating to property, plant and equipment are included in other payables, accruals and advance receipts and non-current liabilities as deferred income and credited to the consolidated income statements on a straight-line basis over the expected lives of the related assets. The carrying amounts of cash and cash equivalents, trade and bills receivables and other receivables included in the consolidated statements of financial position represent the Group’s maximum exposure to credit risk of the counterparty in relation to its financial (r) Revenue and Income Recognition Revenue is measured based on consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Group from a customer, are also excluded from revenue. The Group recognizes revenue when it satisfies a performance obligation by transferring control over a good to a customer. The Group principally generates revenue from sales of goods. Revenue from sales of goods is recognized when the customer takes possession of the goods. This usually occurs upon completed delivery of the goods to the customer site. The amount of revenue recognized is adjusted for expected sales incentives as stipulated in the contract, which are generally issued to customers as direct discounts at the point-of-sale or indirectly in the form of rebates. Sales incentives are estimated using the expected value method. Additionally, sales are generally made with a limited right of return under certain conditions. Revenues are recorded net of provisions for sales discounts and returns. Substantially all of the Group’s cash and cash equivalents are deposited in major financial institutions, which management believes are of high credit quality. The Group has a practice to limit the amount of credit exposure to any financial institution. Bills receivables are mostly settled by state-owned banks or other reputable banks and therefore the management considers that they will not expose the Group to any significant credit risk. The Group has no significant concentrations of credit risk. The Group has policies in place to ensure that the sales of products are made to customers with appropriate credit history and the Group performs periodic credit evaluations of its customers. Management periodically assesses the recoverability of trade and bills receivables and other receivables. The Group’s historical loss rates are adjusted to reflect current and forward-looking information on specific factors affecting the ability of the customers to settle the receivables, and historical experience collecting receivables falls within the recorded allowances. (i) Credit risk assets. Revenue from provision of services is recognized when the benefits of the services transfer to the customer over time, which is based on the proportionate value of services rendered as determined under the terms of the relevant contract. Additionally, when the amounts that can be invoiced correspond directly with the value to the customer for performance completed to date, the Group recognizes revenue from provision of services based on amounts that can be invoiced to the customer. (ii) Liquidity risk Payments in advance from customers are deferred if consideration is received in advance of transferring control of the goods or rendering of services. Accounts receivable is recognized if the Group has an unconditional right to bill the customer, which is generally when the customer takes possession of the goods or services are rendered. Payment terms differ by subsidiary and customer, but generally range from 45 to 180 days from the invoice date. (s) Interest Income Interest income is recognized on a time-proportion basis using the effective interest method. (t) Segment Reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision makers. The Company’s Board of Directors, which is responsible for allocating resources and assessing performance of the operating segments, has been identified as the steering committee that makes strategic decisions. (u) General Reserves In accordance with the laws applicable to Foreign Investment Enterprises established in the PRC, the Company makes appropriations to certain non-distributable reserve funds including the general reserve fund, the enterprise expansion fund and the staff bonus and welfare fund. The amount of appropriations to these funds are made at the discretion of the Company’s Board of Directors. F-60 F-61 Prudent liquidity management implies maintaining sufficient cash and cash equivalents and the availability of funding when necessary. The Group’s policy is to regularly monitor current and expected liquidity requirements to ensure that it maintains sufficient cash balances and adequate credit facilities to meet its liquidity requirements in the short and long term. As at December 31, 2022 and 2021, the Group’s current financial liabilities were mainly due for settlement within twelve months and the Group expects to meet all liquidity requirements. (b) Capital risk management The Group’s objectives when managing capital are to safeguard the Group’s ability to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Group regularly reviews and manages its capital structure to ensure an optimal balance between higher shareholders’ return that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position, and makes adjustments to the capital structure in light of changes in economic conditions. The Group monitors capital on the basis of the liabilities to assets ratio. This ratio is calculated as total liabilities divided by total assets as shown on the consolidated statements of financial position. (q) Government Incentives 3. Financial Risk Management Incentives from government are recognized at their fair values where there is a reasonable assurance that the incentives will be (a) Financial risk factors received and all attached conditions will be complied with. Government incentives relating to costs are deferred and recognized in the consolidated income statements over the period necessary derivative financial instruments for speculative purposes. to match them with the costs that they are intended to compensate. (i) Credit risk The Group’s activities expose it to a variety of financial risks, including credit risk and liquidity risk. The Group does not use any Revenue is measured based on consideration specified in a contract with a customer, and excludes any sales incentives and amounts are of high credit quality. The Group has a practice to limit the amount of credit exposure to any financial institution. The carrying amounts of cash and cash equivalents, trade and bills receivables and other receivables included in the consolidated statements of financial position represent the Group’s maximum exposure to credit risk of the counterparty in relation to its financial assets. Substantially all of the Group’s cash and cash equivalents are deposited in major financial institutions, which management believes Bills receivables are mostly settled by state-owned banks or other reputable banks and therefore the management considers that they will not expose the Group to any significant credit risk. The Group has no significant concentrations of credit risk. The Group has policies in place to ensure that the sales of products are made to customers with appropriate credit history and the Group performs periodic credit evaluations of its customers. Management periodically assesses the recoverability of trade and bills receivables and other receivables. The Group’s historical loss rates are adjusted to reflect current and forward-looking information on specific factors affecting the ability of the customers to settle the receivables, and historical experience collecting receivables falls within the recorded allowances. (ii) Liquidity risk Prudent liquidity management implies maintaining sufficient cash and cash equivalents and the availability of funding when necessary. The Group’s policy is to regularly monitor current and expected liquidity requirements to ensure that it maintains sufficient cash balances and adequate credit facilities to meet its liquidity requirements in the short and long term. As at December 31, 2022 and 2021, the Group’s current financial liabilities were mainly due for settlement within twelve months and the Group expects to meet all liquidity requirements. (b) Capital risk management The Group’s objectives when managing capital are to safeguard the Group’s ability to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Group regularly reviews and manages its capital structure to ensure an optimal balance between higher shareholders’ return that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position, and makes adjustments to the capital structure in light of changes in economic conditions. The Group monitors capital on the basis of the liabilities to assets ratio. This ratio is calculated as total liabilities divided by total assets as shown on the consolidated statements of financial position. Government grants relating to property, plant and equipment are included in other payables, accruals and advance receipts and non-current liabilities as deferred income and credited to the consolidated income statements on a straight-line basis over the expected lives of the related assets. (r) Revenue and Income Recognition collected on behalf of third parties. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Group from a customer, are also excluded from revenue. The Group recognizes revenue when it satisfies a performance obligation by transferring control over a good to a customer. The Group principally generates revenue from sales of goods. Revenue from sales of goods is recognized when the customer takes possession of the goods. This usually occurs upon completed delivery of the goods to the customer site. The amount of revenue recognized is adjusted for expected sales incentives as stipulated in the contract, which are generally issued to customers as direct discounts at the point-of-sale or indirectly in the form of rebates. Sales incentives are estimated using the expected value method. Additionally, sales are generally made with a limited right of return under certain conditions. Revenues are recorded net of provisions for sales discounts and returns. Revenue from provision of services is recognized when the benefits of the services transfer to the customer over time, which is based on the proportionate value of services rendered as determined under the terms of the relevant contract. Additionally, when the amounts that can be invoiced correspond directly with the value to the customer for performance completed to date, the Group recognizes revenue from provision of services based on amounts that can be invoiced to the customer. Payments in advance from customers are deferred if consideration is received in advance of transferring control of the goods or rendering of services. Accounts receivable is recognized if the Group has an unconditional right to bill the customer, which is generally when the customer takes possession of the goods or services are rendered. Payment terms differ by subsidiary and customer, but generally range from 45 to 180 days from the invoice date. (s) Interest Income (t) Segment Reporting (u) General Reserves Interest income is recognized on a time-proportion basis using the effective interest method. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision makers. The Company’s Board of Directors, which is responsible for allocating resources and assessing performance of the operating segments, has been identified as the steering committee that makes strategic decisions. In accordance with the laws applicable to Foreign Investment Enterprises established in the PRC, the Company makes appropriations to certain non-distributable reserve funds including the general reserve fund, the enterprise expansion fund and the staff bonus and welfare fund. The amount of appropriations to these funds are made at the discretion of the Company’s Board of Directors. F-60 F-61 Currently, it is the Group’s strategy to maintain a reasonable liabilities to assets ratio. The liabilities to assets ratio as at 5. Revenue and Segment Information December 31, 2022 and 2021 was as follows: Total liabilities Total assets Liabilities to assets ratio (c) Fair value estimation December 31, 2022 2021 (in US$’000) 152,897 136,124 281,817 294,256 52.0 % 48.3 % The Group does not have any financial assets or liabilities which are carried at fair value. The carrying amounts of the Group’s current financial assets, including cash and cash equivalents, trade and bills receivables and other receivables, and current financial liabilities, including trade payables and other payables and accruals, approximate their fair values due to their short-term maturities. The carrying amounts of the Group’s financial instruments carried at cost or amortized cost are not materially different from their fair values. The face values less any estimated credit adjustments for financial assets and liabilities with a maturity of less than one year are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. 4. Critical Accounting Estimates and Judgements Note 2 includes a summary of the significant accounting policies used in the preparation of the consolidated financial statements. The preparation of consolidated financial statements often requires the use of judgements to select specific accounting methods and policies from several acceptable alternatives. Furthermore, significant estimates and assumptions concerning the future may be required in selecting and applying those methods and policies in the consolidated financial statements. The Group bases its estimates and judgements on historical experience and various other assumptions that it believes are reasonable under the circumstances. Actual results may differ from these estimates and judgements under different assumptions or conditions. The following is a review of the more significant assumptions and estimates, as well as the accounting policies and methods used in the preparation of the consolidated financial statements. (a) Sales rebates Total segment assets Certain sales rebates are provided to customers when their business performance for an agreed period within the year and the whole year meets certain criteria as stipulated in the contracts. Sales rebates are considered variable consideration and the estimate of sales rebates during the year is based on estimated sales transactions for the entire period stipulated and is subject to change based on actual performance and collection status. (b) Useful lives of property, plant and equipment The Group has made substantial investments in property, plant and equipment. Changes in technology or changes in the intended use of these assets may cause the estimated period of use or value of these assets to change. (c) Deferred income tax Deferred tax is recognized using the liability method on temporary differences arising between the tax bases of assets and liabilities against which the deductible temporary differences and the carry forward of unused tax losses and tax credits can be utilized. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Where the final outcomes are different from the estimations, such differences will impact the carrying amount of deferred tax in the period in which such determination is made. Management has reviewed the Group’s internal reporting in order to assess performance and allocate resources, and has determined that the Group has two reportable operating segments as follows: —Manufacturing business—manufacture and distribution of drug products —Distribution business—provision of sales, distribution and marketing services to pharmaceutical manufacturers The operating segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing approaches. The performance of each of the reportable segments is assessed based on a measure of operating profit/(loss). The segment information is as follows: Revenue from external customers Interest income Operating profit/(loss) Finance costs Depreciation/amortization and deferred tax assets) Additions to non‑current assets (other than financial instruments Revenue from external customers Interest income Operating profit/(loss) Finance costs Depreciation/amortization and deferred tax assets) Additions to non‑current assets (other than financial instruments Total segment assets Year Ended December 31, 2022 Manufacturing Distribution business Total business PRC (in US$’000) 367,512 501 117,210 110 9,151 3,088 370,600 479 (677) 2 89 980 116,533 112 9,240 3,636 532 4,168 December 31, 2022 Manufacturing Distribution business Total business PRC (in US$’000) 291,877 2,379 294,256 Year Ended December 31, 2021 Manufacturing Distribution business Total business PRC (in US$’000) 331,097 629 107,361 114 9,118 1,551 332,648 587 1,216 (1,961) 105,400 2 50 116 9,168 5,867 82 5,949 December 31, 2021 Manufacturing Distribution business Total business PRC (in US$’000) 280,632 1,185 281,817 F-62 F-63 Total liabilities Total assets Liabilities to assets ratio (c) Fair value estimation The Group does not have any financial assets or liabilities which are carried at fair value. The carrying amounts of the Group’s current financial assets, including cash and cash equivalents, trade and bills receivables and other receivables, and current financial liabilities, including trade payables and other payables and accruals, approximate their fair values due to their short-term maturities. The carrying amounts of the Group’s financial instruments carried at cost or amortized cost are not materially different from their fair values. The face values less any estimated credit adjustments for financial assets and liabilities with a maturity of less than one year are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. 4. Critical Accounting Estimates and Judgements Note 2 includes a summary of the significant accounting policies used in the preparation of the consolidated financial statements. The preparation of consolidated financial statements often requires the use of judgements to select specific accounting methods and policies from several acceptable alternatives. Furthermore, significant estimates and assumptions concerning the future may be required in selecting and applying those methods and policies in the consolidated financial statements. The Group bases its estimates and judgements on historical experience and various other assumptions that it believes are reasonable under the circumstances. Actual results may differ from these estimates and judgements under different assumptions or conditions. The following is a review of the more significant assumptions and estimates, as well as the accounting policies and methods used in the preparation of the consolidated financial statements. Certain sales rebates are provided to customers when their business performance for an agreed period within the year and the whole year meets certain criteria as stipulated in the contracts. Sales rebates are considered variable consideration and the estimate of sales rebates during the year is based on estimated sales transactions for the entire period stipulated and is subject to change based on actual performance and collection status. (b) Useful lives of property, plant and equipment The Group has made substantial investments in property, plant and equipment. Changes in technology or changes in the intended use of these assets may cause the estimated period of use or value of these assets to change. Currently, it is the Group’s strategy to maintain a reasonable liabilities to assets ratio. The liabilities to assets ratio as at 5. Revenue and Segment Information December 31, 2022 and 2021 was as follows: December 31, 2022 2021 (in US$’000) 152,897 136,124 294,256 281,817 52.0 % 48.3 % Management has reviewed the Group’s internal reporting in order to assess performance and allocate resources, and has determined that the Group has two reportable operating segments as follows: —Manufacturing business—manufacture and distribution of drug products —Distribution business—provision of sales, distribution and marketing services to pharmaceutical manufacturers The operating segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing approaches. The performance of each of the reportable segments is assessed based on a measure of operating profit/(loss). The segment information is as follows: Revenue from external customers Interest income Operating profit/(loss) Finance costs Depreciation/amortization Additions to non‑current assets (other than financial instruments Year Ended December 31, 2022 Manufacturing Distribution business business PRC (in US$’000) Total 367,512 501 117,210 110 9,151 3,088 479 (677) 2 89 370,600 980 116,533 112 9,240 and deferred tax assets) 3,636 532 4,168 (a) Sales rebates Total segment assets Revenue from external customers Interest income Operating profit/(loss) Finance costs Depreciation/amortization Additions to non‑current assets (other than financial instruments December 31, 2022 Manufacturing Distribution business business PRC (in US$’000) Total 291,877 2,379 294,256 Year Ended December 31, 2021 Manufacturing Distribution business business PRC (in US$’000) Total 331,097 629 107,361 114 9,118 1,551 587 (1,961) 2 50 332,648 1,216 105,400 116 9,168 (c) Deferred income tax and deferred tax assets) 5,867 82 5,949 Deferred tax is recognized using the liability method on temporary differences arising between the tax bases of assets and liabilities against which the deductible temporary differences and the carry forward of unused tax losses and tax credits can be utilized. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Where the final outcomes are different from the estimations, such differences will impact the carrying amount of deferred tax in the period in which such determination is made. Total segment assets December 31, 2021 Manufacturing Distribution business business PRC (in US$’000) Total 280,632 1,185 281,817 F-62 F-63 Revenue from external customers Interest income Operating profit/(loss) Finance costs Depreciation/amortization Additions to non‑current assets (other than financial instruments and deferred tax assets) Year Ended December 31, 2020 Manufacturing business 270,954 396 78,069 11 8,670 Distribution business PRC (in US$’000) Total 5,400 579 (204) 1 65 276,354 975 77,865 12 8,735 3,037 57 3,094 8. Taxation Charge Current tax Deferred income tax (Note 16) Taxation charge Revenue from external customers is after elimination of inter-segment sales. The amount eliminated was US$87.3 million for 2022 (2021: US$77.8 million; 2020: US$62.2 million). Sales between segments are carried out at mutually agreed terms. Revenue from external customers from the manufacturing business is for sales of goods which are recognized at a point in time. Revenue from external customers from the distribution business is for provision of services which are recognized over time. 6. Other Net Operating Income Interest income Net foreign exchange (loss)/gain Government incentives Other operating (loss)/income 7. Operating Profit Operating profit Operating profit is stated after charging/(crediting) the following: Cost of inventories recognized as expense Research and development expense Depreciation of property, plant and equipment Loss/(gain) on disposal of property, plant and equipment Amortization of leasehold land Amortization of other intangible assets Depreciation charge of right-of-use assets and lease expenses Movement on the provision for trade receivables Movement on the provision for excess and obsolete inventories Auditor’s remuneration Employee benefit expenses (Note 9) Year Ended December 31, 2021 2022 2020 980 (83) 2,198 (969) 2,126 (in US$’000) 1,216 25 2,999 519 4,759 975 70 2,601 (173) 3,473 Year Ended December 31, 2021 2022 2020 116,533 (in US$’000) 105,400 77,865 Year Ended December 31, 2021 2020 2022 (in US$’000) 63,079 7,169 8,148 449 166 245 917 — (65) 227 111,200 50,637 9,350 8,100 60 172 233 1,171 — (141) 223 100,311 47,299 6,301 7,878 (2) 160 217 725 (9) 2,447 198 80,728 Year Ended December 31, 2022 2021 2020 18,082 (1,344) 16,738 (in US$’000) 15,082 814 15,896 12,520 (1,687) 10,833 Year Ended December 31, 2022 2021 2020 116,421 29,105 (in US$’000) 105,284 26,321 1,397 (898) 1,946 (55) (13,000) (12,420) 134 16,738 104 15,896 77,853 19,463 1,137 (938) (8,753) (76) 10,833 Year Ended December 31, 2022 2021 2020 86,330 9,701 15,169 (in US$’000) 77,335 8,713 14,263 111,200 100,311 68,226 995 11,507 80,728 December 31, 2022 2021 (in US$’000) 33,923 50,038 The taxation charge on the Group’s profit before taxation differs from the theoretical amount that would arise using the Group’s weighted average tax rate as follows: Profit before taxation Tax effects of: Tax calculated at the statutory tax rates of respective companies Expenses not deductible for tax purposes Utilization of unrecognized temporary differences Tax concession (note) Under/(over) provision in prior years Taxation charge Note: The Company has been granted the High and New Technology Enterprise (“HNTE”) status. Accordingly, the Company is subject to a preferential income tax rate of 15% in 2022 and renew the HNTE status in 2023 (2021: 15%; 2020: 15%). Certain research and development expenses are also eligible for super-deduction such that 200% of qualified expenses incurred are deductible against taxable profits for tax purposes (2021: 200%; 2020: 175%). The weighted average tax rate calculated at the statutory tax rates of respective companies was 25%. The effective tax rate for the year ended December 31, 2022 was 14.4% (2021: 15.1%; 2020: 13.9%). 9. Employee Benefit Expenses Wages, salaries and bonuses Pension costs—defined contribution plans Staff welfare 2020: US$16.4 million) are included in cost of sales. 10. Cash and Cash Equivalents Cash and cash equivalents Employee benefit expenses of approximately US$19.8 million for the year ended December 31, 2022 (2021: US$20.1 million; The cash and cash equivalents denominated in RMB were deposited with banks in the PRC. The conversion of these RMB denominated balances into foreign currencies is subject to the rules and regulations of foreign exchange control promulgated by the PRC government. F-64 F-65 Revenue from external customers Interest income Operating profit/(loss) Finance costs Depreciation/amortization Additions to non‑current assets (other than financial instruments and deferred tax assets) Year Ended December 31, 2020 Manufacturing Distribution business Total business PRC (in US$’000) 270,954 396 78,069 11 8,670 5,400 276,354 579 (204) 1 65 975 77,865 12 8,735 3,037 57 3,094 8. Taxation Charge Current tax Deferred income tax (Note 16) Taxation charge Year Ended December 31, 2021 2022 2020 18,082 (1,344) 16,738 (in US$’000) 15,082 814 15,896 12,520 (1,687) 10,833 The taxation charge on the Group’s profit before taxation differs from the theoretical amount that would arise using the Group’s weighted average tax rate as follows: Revenue from external customers is after elimination of inter-segment sales. The amount eliminated was US$87.3 million for 2022 (2021: US$77.8 million; 2020: US$62.2 million). Sales between segments are carried out at mutually agreed terms. Revenue from external customers from the manufacturing business is for sales of goods which are recognized at a point in time. Revenue from external customers from the distribution business is for provision of services which are recognized over time. 6. Other Net Operating Income Interest income Net foreign exchange (loss)/gain Government incentives Other operating (loss)/income 7. Operating Profit Operating profit Operating profit is stated after charging/(crediting) the following: Year Ended December 31, 2022 2021 2020 980 (83) 2,198 (969) 2,126 (in US$’000) 1,216 25 2,999 519 4,759 975 70 2,601 (173) 3,473 Year Ended December 31, 2022 2021 2020 116,533 (in US$’000) 105,400 77,865 Year Ended December 31, 2022 2021 2020 (in US$’000) 63,079 7,169 8,148 449 166 245 917 — (65) 227 50,637 9,350 8,100 60 172 233 1,171 — (141) 223 47,299 6,301 7,878 (2) 160 217 725 (9) 2,447 198 80,728 Cost of inventories recognized as expense Research and development expense Depreciation of property, plant and equipment Loss/(gain) on disposal of property, plant and equipment Amortization of leasehold land Amortization of other intangible assets Depreciation charge of right-of-use assets and lease expenses Movement on the provision for trade receivables Movement on the provision for excess and obsolete inventories Auditor’s remuneration Employee benefit expenses (Note 9) 111,200 100,311 Profit before taxation Tax calculated at the statutory tax rates of respective companies Tax effects of: Expenses not deductible for tax purposes Utilization of unrecognized temporary differences Tax concession (note) Under/(over) provision in prior years Taxation charge Year Ended December 31, 2021 2022 2020 116,421 29,105 1,397 (898) (13,000) 134 16,738 (in US$’000) 105,284 26,321 1,946 (55) (12,420) 104 15,896 77,853 19,463 1,137 (938) (8,753) (76) 10,833 Note: The Company has been granted the High and New Technology Enterprise (“HNTE”) status. Accordingly, the Company is subject to a preferential income tax rate of 15% in 2022 and renew the HNTE status in 2023 (2021: 15%; 2020: 15%). Certain research and development expenses are also eligible for super-deduction such that 200% of qualified expenses incurred are deductible against taxable profits for tax purposes (2021: 200%; 2020: 175%). The weighted average tax rate calculated at the statutory tax rates of respective companies was 25%. The effective tax rate for the year ended December 31, 2022 was 14.4% (2021: 15.1%; 2020: 13.9%). 9. Employee Benefit Expenses Wages, salaries and bonuses Pension costs—defined contribution plans Staff welfare Year Ended December 31, 2021 2022 2020 86,330 9,701 15,169 111,200 (in US$’000) 77,335 8,713 14,263 100,311 68,226 995 11,507 80,728 Employee benefit expenses of approximately US$19.8 million for the year ended December 31, 2022 (2021: US$20.1 million; 2020: US$16.4 million) are included in cost of sales. 10. Cash and Cash Equivalents Cash and cash equivalents December 31, 2022 2021 (in US$’000) 33,923 50,038 The cash and cash equivalents denominated in RMB were deposited with banks in the PRC. The conversion of these RMB denominated balances into foreign currencies is subject to the rules and regulations of foreign exchange control promulgated by the PRC government. F-64 F-65 11. Trade and Bills Receivables 14. Property, Plant and Equipment Trade receivables—third parties Trade receivables—related parties (Note 22(b)) Bills receivables December 31, 2022 2021 (in US$’000) 12,845 3,695 5,316 21,856 9,555 649 7,278 17,482 All trade and bills receivables are denominated in RMB and are due within one year from the end of the reporting period. The carrying values of trade and bills receivables approximate their fair values due to their short-term maturities. Movements on the provision for trade receivables are as follows: As at January 1 Increase in provision for trade receivables Decrease in provision due to subsequent collection As at December 31 12. Other Receivables, Prepayments and Deposits 2022 2021 2020 — — — — (in US$’000) — — — — 9 — (9) — Prepayments to suppliers Interest receivables Deposits Others 13. Inventories Raw materials Work in progress Finished goods December 31, 2022 2021 (in US$’000) 2,624 25 778 245 3,672 1,929 283 877 261 3,350 December 31, 2022 2021 (in US$’000) 22,804 108,168 23,844 154,816 54,585 39,668 25,137 119,390 Buildings situated in the PRC Leasehold and motor Construction improvements equipment vehicles in progress Total Furniture and fixtures, other equipment (in US$’000) 26,438 15,033 Plant and 117 (227) 974 (2,204) 25,098 14,817 2,830 (205) (1,326) 16,116 516 (178) 478 (1,267) 14,582 9,498 1,474 (178) (833) 9,961 136 2,924 — (2,510) (29) 521 — — — — — 118,042 3,622 (1,291) — (9,775) 110,598 44,392 8,148 (822) (3,951) 47,767 8,982 4,621 521 62,831 Furniture and fixtures, other equipment and motor (in US$’000) 25,173 12,273 26,438 15,033 535 (207) 298 639 12,288 2,347 (145) — 327 14,817 929 (481) 1,982 330 7,570 1,890 (464) 297 205 9,498 2,685 1,453 (1,230) (2,818) 46 136 1,196 (1,217) — — 21 — 114,189 3,013 (2,046) — 2,886 118,042 37,257 8,100 (1,954) — 989 44,392 848 38 — — (71) 815 94 238 — (18) 314 501 578 68 (128) 314 16 848 504 100 (128) (390) 8 94 754 11,621 5,535 136 73,650 75,587 27 (886) 1,058 (6,204) 69,582 19,983 3,606 (439) (1,774) 21,376 48,206 73,480 28 — 224 1,855 75,587 15,699 3,763 — 93 428 19,983 55,604 Buildings situated in the PRC Leasehold Plant and improvements equipment vehicles in progress Total Construction Cost As at January 1, 2022 Additions Disposals Transfers Exchange differences As at December 31, 2022 Accumulated depreciation As at January 1, 2022 Depreciation Disposals Exchange differences As at December 31, 2022 Net book value As at December 31, 2022 Cost As at January 1, 2021 Additions Disposals Transfers Exchange differences As at December 31, 2021 Accumulated depreciation As at January 1, 2021 Depreciation Disposals Transfers Exchange differences As at December 31, 2021 Net book value As at December 31, 2021 F-66 F-67 11. Trade and Bills Receivables 14. Property, Plant and Equipment Trade receivables—third parties Trade receivables—related parties (Note 22(b)) Bills receivables December 31, 2022 2021 (in US$’000) 12,845 3,695 5,316 21,856 9,555 649 7,278 17,482 All trade and bills receivables are denominated in RMB and are due within one year from the end of the reporting period. The carrying values of trade and bills receivables approximate their fair values due to their short-term maturities. Movements on the provision for trade receivables are as follows: As at January 1 Increase in provision for trade receivables Decrease in provision due to subsequent collection As at December 31 12. Other Receivables, Prepayments and Deposits 2022 2021 2020 — — — — (in US$’000) — — — — 9 — (9) — Prepayments to suppliers Interest receivables Deposits Others 13. Inventories Raw materials Work in progress Finished goods December 31, 2022 2021 (in US$’000) 2,624 25 778 245 3,672 1,929 283 877 261 3,350 December 31, 2022 2021 (in US$’000) 22,804 108,168 23,844 154,816 54,585 39,668 25,137 119,390 Cost As at January 1, 2022 Additions Disposals Transfers Exchange differences As at December 31, 2022 Accumulated depreciation As at January 1, 2022 Depreciation Disposals Exchange differences As at December 31, 2022 Net book value As at December 31, 2022 Cost As at January 1, 2021 Additions Disposals Transfers Exchange differences As at December 31, 2021 Accumulated depreciation As at January 1, 2021 Depreciation Disposals Transfers Exchange differences As at December 31, 2021 Net book value As at December 31, 2021 Buildings situated in the PRC Leasehold improvements Plant and equipment Furniture and fixtures, other equipment and motor Construction in progress vehicles 75,587 27 (886) 1,058 (6,204) 69,582 19,983 3,606 (439) (1,774) 21,376 48,206 848 38 — — (71) 815 94 238 — (18) 314 501 (in US$’000) 26,438 117 (227) 974 (2,204) 25,098 14,817 2,830 (205) (1,326) 16,116 15,033 516 (178) 478 (1,267) 14,582 9,498 1,474 (178) (833) 9,961 136 2,924 — (2,510) (29) 521 — — — — — Total 118,042 3,622 (1,291) — (9,775) 110,598 44,392 8,148 (822) (3,951) 47,767 8,982 4,621 521 62,831 Buildings situated in the PRC Leasehold improvements Plant and equipment Furniture and fixtures, other equipment and motor vehicles Construction in progress Total 73,480 28 — 224 1,855 75,587 15,699 3,763 — 93 428 19,983 55,604 (in US$’000) 578 68 (128) 314 16 848 504 100 (128) (390) 8 94 25,173 535 (207) 298 639 26,438 12,288 2,347 (145) — 327 14,817 12,273 929 (481) 1,982 330 15,033 7,570 1,890 (464) 297 205 9,498 2,685 1,453 (1,230) (2,818) 46 136 1,196 — (1,217) — 21 — 114,189 3,013 (2,046) — 2,886 118,042 37,257 8,100 (1,954) — 989 44,392 754 11,621 5,535 136 73,650 F-66 F-67 Buildings situated in the PRC Leasehold improvements Plant and equipment Furniture and fixtures, other equipment and motor Construction in progress vehicles (in US$’000) 22,606 581 (53) 361 1,678 25,173 8,760 2,786 (35) 777 12,288 9,526 935 (134) 1,155 791 12,273 5,665 1,511 (91) 485 7,570 2,828 1,519 — (1,850) 188 2,685 1,116 — — 80 1,196 12,885 4,703 1,489 76,932 68,213 — — 334 4,933 73,480 11,212 3,493 — 994 15,699 57,781 539 — — — 39 578 383 88 — 33 504 74 Cost As at January 1, 2020 Additions Disposals Transfers Exchange differences As at December 31, 2020 Accumulated depreciation As at January 1, 2020 Depreciation Disposals Exchange differences As at December 31, 2020 Net book value As at December 31, 2020 15. Leases Leases consisted of the following: Right-of-use assets: Offices Lease liabilities—current Lease liabilities—non-current Lease activities are summarized as follows: December 31, 2022 2021 (in US$’000) 1,717 712 1,360 2,072 2,445 700 2,148 2,848 Year Ended December 31, 2022 2021 (in US$’000) 236 681 112 809 135 508 663 116 303 2,936 Lease expenses: Short-term leases with lease terms equal or less than 12 months Depreciation charge of right-of-use assets Interest expense (included in finance costs) Cash paid on lease liabilities Non-cash: Lease liabilities recognized from obtaining right-of-use assets Future lease payments are as follows: Lease payments: Not later than 1 year Between 1 to 2 years Between 2 to 3 years Between 3 to 4 years Total lease payments Less: Discount factor Total lease liabilities 16. Deferred Tax Assets The movements in deferred tax assets are as follows: Total 103,712 3,035 (187) — 7,629 114,189 27,136 7,878 (126) 2,369 37,257 December 31, 2022 2021 (in US$’000) 791 755 660 — 2,206 (134) 2,072 814 784 793 713 3,104 (256) 2,848 December 31, 2022 2021 (in US$’000) — — 76 7 6 5 94 7 — 83 7 6 — 103 December 31, 2022 2021 (in US$’000) 19,737 3,358 23,095 12,030 381 12,411 As at January 1 statements Credited/(debited) to the consolidated income —Accrued expenses, provisions, deferred income, accelerated depreciation and other temporary differences Exchange differences As at December 31 2022 2020 2021 (in US$’000) 7,715 8,315 6,147 1,344 (732) 8,327 (814) 214 7,715 1,687 481 8,315 The Group’s deferred tax assets are mainly temporary differences including accrued expenses, provisions, deferred income, accelerated depreciation and other temporary differences. The potential deferred tax assets in respect of tax losses which have not been recognized in the consolidated financial statements were approximately US$24,000 as at December 31, 2022 (2021: US$26,000). These unrecognized tax losses can be carried forward against future taxable income and will expire in the following years: 2022 2023 2024 2025 2026 2027 17. Trade Payables Trade payables—third parties Trade payables—related parties (Note 22(b)) Lease contracts are typically within a period of 1 to 5 years. The weighted average remaining lease term and weighted average discount rate as at December 31, 2022 was 2.7 years (2021: 3.7 years) and 4.70% (2021: 4.75%) respectively. F-68 F-69 Buildings situated in the PRC Leasehold and motor Construction improvements equipment vehicles in progress Total Furniture and fixtures, other equipment (in US$’000) Plant and 22,606 581 (53) 361 1,678 25,173 8,760 2,786 (35) 777 12,288 9,526 935 (134) 1,155 791 12,273 5,665 1,511 (91) 485 7,570 2,828 1,519 — (1,850) 188 2,685 1,116 — — 80 1,196 103,712 3,035 (187) — 7,629 114,189 27,136 7,878 (126) 2,369 37,257 12,885 4,703 1,489 76,932 68,213 — — 334 4,933 73,480 11,212 3,493 — 994 15,699 57,781 539 — — — 39 578 383 88 — 33 504 74 Cost As at January 1, 2020 Additions Disposals Transfers Exchange differences As at December 31, 2020 Accumulated depreciation As at January 1, 2020 Depreciation Disposals Exchange differences As at December 31, 2020 Net book value As at December 31, 2020 15. Leases Leases consisted of the following: Right-of-use assets: Offices Lease liabilities—current Lease liabilities—non-current Lease activities are summarized as follows: December 31, 2022 2021 (in US$’000) 1,717 712 1,360 2,072 2,445 700 2,148 2,848 Year Ended December 31, 2022 2021 (in US$’000) 236 681 112 809 135 508 663 116 303 2,936 Lease expenses: Short-term leases with lease terms equal or less than 12 months Depreciation charge of right-of-use assets Interest expense (included in finance costs) Cash paid on lease liabilities Non-cash: Lease liabilities recognized from obtaining right-of-use assets Lease contracts are typically within a period of 1 to 5 years. The weighted average remaining lease term and weighted average discount rate as at December 31, 2022 was 2.7 years (2021: 3.7 years) and 4.70% (2021: 4.75%) respectively. Future lease payments are as follows: Lease payments: Not later than 1 year Between 1 to 2 years Between 2 to 3 years Between 3 to 4 years Total lease payments Less: Discount factor Total lease liabilities 16. Deferred Tax Assets The movements in deferred tax assets are as follows: December 31, 2022 2021 (in US$’000) 791 755 660 — 2,206 (134) 2,072 814 784 793 713 3,104 (256) 2,848 As at January 1 Credited/(debited) to the consolidated income statements —Accrued expenses, provisions, deferred income, accelerated depreciation and other temporary differences Exchange differences As at December 31 2022 2021 (in US$’000) 2020 7,715 8,315 6,147 1,344 (732) 8,327 (814) 214 7,715 1,687 481 8,315 The Group’s deferred tax assets are mainly temporary differences including accrued expenses, provisions, deferred income, accelerated depreciation and other temporary differences. The potential deferred tax assets in respect of tax losses which have not been recognized in the consolidated financial statements were approximately US$24,000 as at December 31, 2022 (2021: US$26,000). These unrecognized tax losses can be carried forward against future taxable income and will expire in the following years: 2022 2023 2024 2025 2026 2027 17. Trade Payables Trade payables—third parties Trade payables—related parties (Note 22(b)) December 31, 2022 2021 (in US$’000) — — 76 7 6 5 94 7 — 83 7 6 — 103 December 31, 2022 2021 (in US$’000) 19,737 3,358 23,095 12,030 381 12,411 F-68 F-69 All trade payables are denominated in RMB and due within one year from the end of the reporting period. The carrying value of 20. Notes to the Consolidated Statements of Cash Flows trade payables approximates their fair values due to their short-term maturities. 18. Other Payables, Accruals and Advance Receipts (a) Reconciliation of profit for the year to net cash generated from operations: Accrued salaries and benefits Accrued selling and marketing expenses Value‑added tax and tax surcharge payables Payments in advance from customers (note) Others December 31, 2022 2021 (in US$’000) 21,100 73,721 5,204 14,004 7,325 121,354 17,796 68,217 9,693 11,858 4,229 111,793 Note: Substantially all customer balances as at December 31, 2021 were recognized to revenue during the year ended December 31, 2022. Additionally, substantially all customer balances as at December 31, 2022 are expected to be recognized to revenue within one year upon transfer of goods or services as the contracts have an expected duration of one year or less. 19. Current Tax Liabilities As at January 1 Current tax (Note 8) Tax paid Exchange difference Transfer (from)/to other receivables As at December 31 2022 2021 2020 4,089 18,082 (19,003) (377) — 2,791 (in US$’000) 5,032 15,082 (15,976) 108 (157) 4,089 2,395 12,520 (10,232) 192 157 5,032 Adjustments to reconcile profit for the year to net cash generated from operations Profit for the year Taxation charge Finance costs Interest income Depreciation on property, plant and equipment Loss/(gain) on disposal of property, plant and equipment Amortization of leasehold land Amortization of other intangible assets Depreciation charge of right-of-use assets Provision for excess and obsolete inventories Movement on the provision for trade receivables Exchange differences Changes in working capital: Trade and bills receivables Other receivables, prepayments and deposits Inventories Trade payables Deferred income Other payables, accruals and advance receipts Total changes in operating assets and liabilities Net cash generated from operations 2022 2021 2020 (in US$’000) 99,683 89,388 67,020 16,738 15,896 10,833 112 (980) 8,148 116 (1,216) 8,100 449 166 245 681 (65) — (5,682) (4,374) (580) 60 172 233 663 (141) — (693) 939 (80) 12 (975) 7,878 (2) 160 217 480 2,447 (9) 2,057 6,360 (227) (35,361) (37,575) (11,804) 10,684 1,237 7,804 18,608 (1,398) (1,737) 905 26,511 746 (23,225) (18,608) 22,491 96,270 93,970 112,609 December 31, 2022 (in US$’000) 1,307 (b) Supplemental disclosure for non-cash activities During the years ended December 31, 2022, there was an increase in accruals made for purchases of property, plant and equipment of US$1.8 million (2021 and 2020: a decrease of US$0.3 million and an increase of US$0.6 million respectively). 21. Capital Commitments The Group had the following capital commitments: Property, plant and equipment Contracted but not provided for Capital commitments for property, plant and equipment are mainly for improvements to the Group’s plant. F-70 F-71 All trade payables are denominated in RMB and due within one year from the end of the reporting period. The carrying value of 20. Notes to the Consolidated Statements of Cash Flows trade payables approximates their fair values due to their short-term maturities. 18. Other Payables, Accruals and Advance Receipts Accrued salaries and benefits Accrued selling and marketing expenses Value‑added tax and tax surcharge payables Payments in advance from customers (note) Others December 31, 2022 2021 (in US$’000) 21,100 73,721 5,204 14,004 7,325 17,796 68,217 9,693 11,858 4,229 121,354 111,793 Note: Substantially all customer balances as at December 31, 2021 were recognized to revenue during the year ended December 31, 2022. Additionally, substantially all customer balances as at December 31, 2022 are expected to be recognized to revenue within one year upon transfer of goods or services as the contracts have an expected duration of one year or less. 19. Current Tax Liabilities As at January 1 Current tax (Note 8) Tax paid Exchange difference Transfer (from)/to other receivables As at December 31 2022 2021 2020 4,089 18,082 (19,003) (377) — 2,791 (in US$’000) 5,032 15,082 (15,976) 108 (157) 4,089 2,395 12,520 (10,232) 192 157 5,032 (a) Reconciliation of profit for the year to net cash generated from operations: Profit for the year Adjustments to reconcile profit for the year to net cash generated from operations Taxation charge Finance costs Interest income Depreciation on property, plant and equipment Loss/(gain) on disposal of property, plant and equipment Amortization of leasehold land Amortization of other intangible assets Depreciation charge of right-of-use assets Provision for excess and obsolete inventories Movement on the provision for trade receivables Exchange differences Changes in working capital: Trade and bills receivables Other receivables, prepayments and deposits Inventories Trade payables Other payables, accruals and advance receipts Deferred income Total changes in operating assets and liabilities Net cash generated from operations 2022 2021 2020 99,683 (in US$’000) 89,388 16,738 112 (980) 8,148 449 166 245 681 (65) — (5,682) 15,896 116 (1,216) 8,100 60 172 233 663 (141) — (693) 67,020 10,833 12 (975) 7,878 (2) 160 217 480 2,447 (9) 2,057 (4,374) (580) 939 (80) (35,361) (37,575) 1,237 10,684 18,608 7,804 (1,737) (1,398) (23,225) (18,608) 93,970 96,270 6,360 (227) (11,804) 905 26,511 746 22,491 112,609 (b) Supplemental disclosure for non-cash activities During the years ended December 31, 2022, there was an increase in accruals made for purchases of property, plant and equipment of US$1.8 million (2021 and 2020: a decrease of US$0.3 million and an increase of US$0.6 million respectively). 21. Capital Commitments The Group had the following capital commitments: Property, plant and equipment Contracted but not provided for December 31, 2022 (in US$’000) 1,307 Capital commitments for property, plant and equipment are mainly for improvements to the Group’s plant. F-70 F-71 Place of establishment and Equity interest attributable to the Group Nominal value of registered capital (in RMB’000) December 31, 2021 2022 Name operation 2022 2021 Type of legal entity Principal activity PRC 20,000 20,000 100 % 100 % company Limited liability Distribution of Limited liability drug products Agriculture and sales of Chinese Technology Co., Limited PRC 1,500 1,500 100 % 100 % company herbs The Group evaluated subsequent events through February 28, 2023, which is the date when the consolidated financial statements On January 31, 2023, the Company’s Board of Directors declared a dividend of RMB988.3 million (US$147.0 million), of which RMB500.0 million (US$74.4 million) and RMB488.3 million (US$72.6 million) are payable by and after December 31, 2023 Shanghai Shangyao Hutchison Whampoa GSP Company Limited Hutchison Heze Bio Resources & 24. Subsequent Events were issued. respectively. 22. Significant Related Party Transactions The Group has the following significant transactions with related parties which were carried out in the normal course of business 23. Particulars of Principal Subsidiaries at terms determined and agreed by the relevant parties: (a) Transactions with related parties: Sales of goods to: —A fellow subsidiary of SHTCML —A fellow subsidiary of SHHCMI(HK)L Purchase of goods from: —SHTCML —Fellow subsidiaries of SHTCML —A fellow subsidiary of SHHCMI(HK)L Rendering of research and development services from: —A fellow subsidiary of SHHCMI(HK)L Provision of marketing services to: —A fellow subsidiary of SHTCML —A fellow subsidiary of SHHCMI(HK)L Purchase of intangible asset from: —A fellow subsidiary of SHHCMI(HK)L Leasing office from: —SHTCML Year Ended December 31, 2021 2022 2020 (in US$’000) 13,861 4,231 18,092 11,072 683 1,683 13,438 12,181 3,492 15,673 10,002 1,311 — 11,313 10,465 2,854 13,319 7,922 1,016 — 8,938 507 525 491 952 127 1,079 410 — 1,146 — 1,146 — 247 2,781 — 2,781 — 337 No transactions have been entered into with the directors of the Company (being the key management personnel) during the year ended December 31, 2022 (2021 and 2020: nil). (b) Balances with related parties included in: Trade and bills receivables —A fellow subsidiary of SHTCML —A fellow subsidiary of SHHCMI(HK)L Other receivables, prepayments and deposits —A fellow subsidiary of SHTCML Trade payables —SHTCML — Fellow subsidiaries of SHTCML —A fellow subsidiary of SHHCMI(HK)L Other payables, accruals and advance receipts —Fellow subsidiaries of SHHCMI(HK)L December 31, 2022 2021 (in US$’000) 3,622 73 3,695 402 1,266 152 1,940 3,358 649 — 649 547 — 381 — 381 1,256 1,149 Balances with related parties are unsecured, interest-free and repayable on demand. The carrying values of balances with related parties approximate their fair values due to their short-term maturities. F-72 F-73 The Group has the following significant transactions with related parties which were carried out in the normal course of business 23. Particulars of Principal Subsidiaries Place of establishment and operation Nominal value of registered capital Equity interest attributable to the Group December 31, 2022 2021 2022 2021 Type of legal entity Principal activity (in RMB’000) PRC 20,000 20,000 100 % 100 % PRC 1,500 1,500 100 % 100 % Limited liability company Limited liability company Distribution of drug products Agriculture and sales of Chinese herbs Name Shanghai Shangyao Hutchison Whampoa GSP Company Limited Hutchison Heze Bio Resources & Technology Co., Limited 24. Subsequent Events 507 525 491 were issued. The Group evaluated subsequent events through February 28, 2023, which is the date when the consolidated financial statements On January 31, 2023, the Company’s Board of Directors declared a dividend of RMB988.3 million (US$147.0 million), of which RMB500.0 million (US$74.4 million) and RMB488.3 million (US$72.6 million) are payable by and after December 31, 2023 respectively. 22. Significant Related Party Transactions at terms determined and agreed by the relevant parties: (a) Transactions with related parties: Rendering of research and development services from: Sales of goods to: —A fellow subsidiary of SHTCML —A fellow subsidiary of SHHCMI(HK)L Purchase of goods from: —SHTCML —Fellow subsidiaries of SHTCML —A fellow subsidiary of SHHCMI(HK)L —A fellow subsidiary of SHHCMI(HK)L Provision of marketing services to: —A fellow subsidiary of SHTCML —A fellow subsidiary of SHHCMI(HK)L Purchase of intangible asset from: —A fellow subsidiary of SHHCMI(HK)L Leasing office from: —SHTCML Trade and bills receivables —A fellow subsidiary of SHTCML —A fellow subsidiary of SHHCMI(HK)L Other receivables, prepayments and deposits —A fellow subsidiary of SHTCML Trade payables —SHTCML — Fellow subsidiaries of SHTCML —A fellow subsidiary of SHHCMI(HK)L Other payables, accruals and advance receipts —Fellow subsidiaries of SHHCMI(HK)L Year Ended December 31, 2022 2021 2020 (in US$’000) 13,861 4,231 18,092 11,072 683 1,683 13,438 952 127 1,079 410 — 12,181 3,492 15,673 10,002 1,311 — 11,313 10,465 2,854 13,319 7,922 1,016 — 8,938 1,146 — 1,146 — 247 2,781 — 2,781 — 337 December 31, 2022 2021 (in US$’000) 3,622 73 3,695 402 1,266 152 1,940 3,358 649 — 649 547 — 381 — 381 1,256 1,149 No transactions have been entered into with the directors of the Company (being the key management personnel) during the year ended December 31, 2022 (2021 and 2020: nil). (b) Balances with related parties included in: Balances with related parties are unsecured, interest-free and repayable on demand. The carrying values of balances with related parties approximate their fair values due to their short-term maturities. F-72 F-73 HUTCHISON WHAMPOA GUANGZHOU BAIYUNSHAN CHINESE MEDICINE COMPANY LIMITED Report of Independent Auditors To the Board of Directors and Shareholders of Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited We have audited the accompanying consolidated financial statements of Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited and its subsidiaries (the “Company”), which comprise the consolidated statements of financial position as of September 28, 2021, and the related consolidated income statements, consolidated statements of comprehensive income, of changes in equity and of cash flows for the period from January 1, 2021 to September 28, 2021 and the year ended December 31, 2020. Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the basis of preparation mentioned in Note 2(1) to the accompanying consolidated financial statements; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on the consolidated financial statements based on our audits.We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion statements. Emphasis of Matter In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited and its subsidiaries as of September 28, 2021, and the results of their operations and their cash flows for the period from January 1, 2021 to September 28 2021, and the year ended December 31, 2020 in accordance with the basis of preparation mentioned in Note 2(1) to the accompanying consolidated financial We draw attention to Note 2(1) to the accompanying consolidated financial statements, which describes the basis of preparation. On September 28, 2021, an intermediate holding company under HUTCHMED (China) Limited which wholly-owned Guangzhou Hutchison Chinese Medicine (HK) Investment Limited (“GZHCMHK”), sold its entire shareholding in GZHCMHK which jointly controls Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited, to a third party. Our opinion is not modified with respect of this matter. /s/ PricewaterhouseCoopers Zhong Tian LLP Guangzhou, the People’s Republic of China December 7, 2021 F-74 F-75 HUTCHISON WHAMPOA GUANGZHOU BAIYUNSHAN CHINESE MEDICINE COMPANY LIMITED Report of Independent Auditors To the Board of Directors and Shareholders of Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited We have audited the accompanying consolidated financial statements of Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited and its subsidiaries (the “Company”), which comprise the consolidated statements of financial position as of September 28, 2021, and the related consolidated income statements, consolidated statements of comprehensive income, of changes in equity and of cash flows for the period from January 1, 2021 to September 28, 2021 and the year ended December 31, 2020. Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the basis of preparation mentioned in Note 2(1) to the accompanying consolidated financial statements; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on the consolidated financial statements based on our audits.We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited and its subsidiaries as of September 28, 2021, and the results of their operations and their cash flows for the period from January 1, 2021 to September 28 2021, and the year ended December 31, 2020 in accordance with the basis of preparation mentioned in Note 2(1) to the accompanying consolidated financial statements. Emphasis of Matter We draw attention to Note 2(1) to the accompanying consolidated financial statements, which describes the basis of preparation. On September 28, 2021, an intermediate holding company under HUTCHMED (China) Limited which wholly-owned Guangzhou Hutchison Chinese Medicine (HK) Investment Limited (“GZHCMHK”), sold its entire shareholding in GZHCMHK which jointly controls Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited, to a third party. Our opinion is not modified with respect of this matter. /s/ PricewaterhouseCoopers Zhong Tian LLP Guangzhou, the People’s Republic of China December 7, 2021 F-74 F-75 Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited Consolidated Income Statements (in US$’000) Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited Consolidated Statements of Comprehensive Income (in US$’000) Revenue Cost of sales Gross profit Selling expenses Administrative expenses Other net operating income Operating profit Share of profits/(losses) of a joint venture and associated companies, net of tax Finance costs Gain on return of land Gain on divestment of a subsidiary Profit before taxation Taxation charge Profit for the period/year Attributable to: Shareholders of the Company Non-controlling interests Note 5 6 7 8 9 Period from January 1, 2021 to September 28, 2021 209,528 (98,462) 111,066 (74,425) (21,659) 5,306 20,288 29 (24) 16,433 — 36,726 (4,840) 31,886 31,850 36 31,886 Year Ended December 31, 2020 232,368 (115,564) 116,804 (74,066) (25,664) 6,071 23,145 (84) (57) 84,667 37 107,708 (16,494) 91,214 91,276 (62) 91,214 The accompanying notes are an integral part of these consolidated financial statements. Other comprehensive income that has been or may be reclassified subsequently to profit or Profit for the period/year loss: Exchange translation differences Total comprehensive income Attributable to: Shareholders of the Company Non‑controlling interests The accompanying notes are an integral part of these consolidated financial statements. Period from January 1, 2021 to September 28, 2021 31,886 Year Ended December 31, 2020 91,214 1,393 33,279 33,237 42 33,279 4,728 95,942 95,976 (34) 95,942 F-76 F-77 Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited Consolidated Income Statements (in US$’000) Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited Consolidated Statements of Comprehensive Income (in US$’000) Share of profits/(losses) of a joint venture and associated companies, net of tax Revenue Cost of sales Gross profit Selling expenses Administrative expenses Other net operating income Operating profit Finance costs Gain on return of land Gain on divestment of a subsidiary Profit before taxation Taxation charge Profit for the period/year Attributable to: Shareholders of the Company Non-controlling interests Note 5 6 7 8 9 Period from January 1, 2021 to September 28, 2021 Year Ended December 31, 2020 209,528 (98,462) 111,066 (74,425) (21,659) 5,306 20,288 29 (24) 16,433 — 36,726 (4,840) 31,886 31,850 36 31,886 232,368 (115,564) 116,804 (74,066) (25,664) 6,071 23,145 (84) (57) 84,667 37 107,708 (16,494) 91,214 91,276 (62) 91,214 The accompanying notes are an integral part of these consolidated financial statements. Profit for the period/year Other comprehensive income that has been or may be reclassified subsequently to profit or loss: Exchange translation differences Total comprehensive income Attributable to: Shareholders of the Company Non‑controlling interests Period from January 1, 2021 to September 28, 2021 Year Ended December 31, 2020 31,886 91,214 1,393 33,279 33,237 42 33,279 4,728 95,942 95,976 (34) 95,942 The accompanying notes are an integral part of these consolidated financial statements. F-76 F-77 Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited Consolidated Statements of Financial Position (in US$’000) Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited Consolidated Statements of Changes in Equity (in US$’000) Assets Current assets Cash and cash equivalents Trade and bills receivables Other receivables, prepayments and deposits Inventories Total current assets Property, plant and equipment Right-of-use assets Leasehold land Goodwill Other intangible assets Investments in a joint venture and associated companies Deferred tax assets Other non-current assets Total assets Liabilities and shareholders’ equity Current liabilities Trade payables Other payables, accruals and advance receipts Dividend payable Lease liabilities Current tax liabilities Total current liabilities Deferred income Total liabilities Company’s shareholders’ equity Share capital Reserves Total Company’s shareholders’ equity Non-controlling interests Total shareholders’ equity Total liabilities and shareholder’s equity September 28, Note 2021 11 12 13 14 15 16 17 18 19 23(b) 16 20 73,616 27,874 26,547 62,400 190,437 58,619 420 19,657 8,825 1,798 618 4,420 46 284,840 19,048 80,484 105,774 452 16,681 222,439 14,913 237,352 24,103 22,361 46,464 1,024 47,488 284,840 The accompanying notes are an integral part of these consolidated financial statements. Acquisition of additional interest in a subsidiary Divestment of a subsidiary to non-controlling interest As at January 1, 2020 Profit/(loss) for the year Other comprehensive income Exchange translation differences Total comprehensive income/ (loss) Dividends declared to shareholders As at December 31, 2020 Profit for the period Other comprehensive income Exchange translation differences Total comprehensive income Dividends declared to shareholders As at September 28, 2021 — — — — — — — — — — — 4,700 4,700 — (9) — — 1,387 1,387 — 4,035 Attributable to shareholders of the Company Share capital Exchange reserve General reserves 24,103 (2,043) 131 Retained earnings 22,322 91,276 Non‑ controlling interests 2,518 (62) Total 44,513 91,276 Total equity 47,031 91,214 — — — — — — — 91,276 4,700 95,976 — (20,756) (20,756) (131) — (207) — (347) — 31,850 31,850 — 31,850 1,387 33,237 28 (34) 4,728 95,942 — (20,756) (1,537) (1,884) 35 982 36 6 42 35 120,368 31,886 1,393 33,279 24,103 2,648 — 92,635 119,386 24,103 — (106,159) (106,159) — (106,159) — 18,326 46,464 1,024 47,488 The accompanying notes are an integral part of these consolidated financial statements. F-78 F-79 Investments in a joint venture and associated companies Other receivables, prepayments and deposits Assets Current assets Cash and cash equivalents Trade and bills receivables Inventories Total current assets Property, plant and equipment Right-of-use assets Leasehold land Goodwill Other intangible assets Liabilities and shareholders’ equity Other payables, accruals and advance receipts Deferred tax assets Other non-current assets Total assets Current liabilities Trade payables Dividend payable Lease liabilities Current tax liabilities Total current liabilities Deferred income Total liabilities Company’s shareholders’ equity Share capital Reserves Total Company’s shareholders’ equity Non-controlling interests Total shareholders’ equity Total liabilities and shareholder’s equity 11 12 13 14 15 16 17 18 19 16 20 23(b) 73,616 27,874 26,547 62,400 190,437 58,619 420 19,657 8,825 1,798 618 4,420 46 284,840 19,048 80,484 105,774 452 16,681 222,439 14,913 237,352 24,103 22,361 46,464 1,024 47,488 284,840 The accompanying notes are an integral part of these consolidated financial statements. Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited Consolidated Statements of Financial Position (in US$’000) Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited Consolidated Statements of Changes in Equity (in US$’000) September 28, Note 2021 Attributable to shareholders of the Company Non‑ As at January 1, 2020 Profit/(loss) for the year Other comprehensive income Exchange translation differences Total comprehensive income/ (loss) Dividends declared to shareholders Acquisition of additional interest in a subsidiary Divestment of a subsidiary to non-controlling interest As at December 31, 2020 Profit for the period Other comprehensive income Exchange translation differences Total comprehensive income Dividends declared to shareholders As at September 28, 2021 Share capital 24,103 Exchange reserve (2,043) — — General reserves 131 — Retained earnings 22,322 91,276 Total 44,513 91,276 controlling interests 2,518 (62) Total equity 47,031 91,214 — — — — — 24,103 — — — — 24,103 4,700 4,700 — (9) — 2,648 — 1,387 1,387 — 4,035 — — 91,276 — — (20,756) (207) (131) — — — 92,635 31,850 — 4,700 95,976 (20,756) (347) — 119,386 31,850 28 4,728 95,942 (34) — (20,756) (1,884) 35 120,368 31,886 (1,537) 35 982 36 — — 31,850 — — (106,159) — 18,326 1,387 33,237 (106,159) 46,464 1,393 6 33,279 42 — (106,159) 47,488 1,024 The accompanying notes are an integral part of these consolidated financial statements. F-78 F-79 Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited Consolidated Statements of Cash Flows (in US$’000) Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited Notes to the Consolidated Financial Statements Operating activities Net cash generated from operations Interest received Finance costs paid Income tax paid Net cash generated from operating activities Investing activities Purchase of property, plant and equipment Purchase of intangible assets Proceeds from return of land Proceeds from disposal of leasehold land Proceeds from disposal of property, plant and equipment Government grants received relating to property, plant and equipment Net cash generated from investing activities Financing activities Dividends paid to shareholders Acquisition of additional interest in a subsidiary Lease payments Net cash used in financing activities Net increase/(decrease) in cash and cash equivalents Effect of exchange rate changes on cash and cash equivalents Cash and cash equivalents Cash and cash equivalents at beginning of period/year Cash and cash equivalents at end of period/year Note 21(a) 8 16 Period from January 1, 2021 to September 28, 2021 Year Ended December 31, 2020 1. General Information 17,785 205 (24) (4,825) 13,141 (1,998) (4) 46,154 — — 10 44,162 — — (427) (427) 56,876 138 57,014 16,602 73,616 60,756 271 (57) (4,013) 56,957 (2,342) — 40,422 231 730 963 40,004 (100,842) (1,884) (609) (103,335) (6,374) 1,555 (4,819) 21,421 16,602 The accompanying notes are an integral part of these consolidated financial statements. Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited (the “Company”) and its subsidiaries (together the “Group”) are principally engaged in manufacturing, selling and distribution of over-the-counter drug products. The Group has manufacturing plants in the People’s Republic of China (the “PRC”) and sells mainly in the PRC. The Company was incorporated in the PRC on April 12, 2005 as a Chinese-Foreign Equity joint venture. The Company is jointly controlled by Guangzhou Hutchison Chinese Medicine (HK) Investment Limited (“GZHCMHK”) and Guangzhou Baiyunshan Pharmaceutical Holdings Company Limited (“GBPHCL”). On September 28, 2021, an intermediate holding company under HUTCHMED (China) Limited (“HUTCHMED”) which wholly-owned GZHCMHK, sold its entire shareholding in GZHCMHK to a third party. These consolidated financial statements are presented in United States dollars (“US$”), unless otherwise stated and have been approved for issue by the Company’s Board of Directors on September 28, 2021. 2. Summary of Significant Accounting Policies (1) Basis of Preparation Except for the comparative periods which have been prepared in accordance with the Regulation S-X Rule 3-09 issued by the United States Securities and Exchange Commission (“SEC”), the consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and interpretations issued by the IFRS Interpretations Committee applicable to companies reporting under IFRS. The consolidated financial statements comply with IFRS as issued by the International Accounting Standards Board (“IASB”). These consolidated financial statements have been prepared under the historical cost convention. As at September 28, 2021, the Group was in a net current liabilities position of US$32.0 million, primarily due to the dividend declaration on May 13, 2021 and September 23, 2021 of US$46.5 million and US$59.7 million respectively. Based on the Group’s operating plan, the existing cash and cash equivalents along with the expected net cash to be generated from operating activities are considered to be sufficient to meet the cash requirements to fund planned operations and other commitments for at least the next twelve months (the look-forward period used) from the report issue date, and it is appropriate for the Group to prepare the consolidated financial statements on a going concern basis. F-80 F-81 Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited Consolidated Statements of Cash Flows (in US$’000) Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited Notes to the Consolidated Financial Statements 1. General Information Operating activities Net cash generated from operations Interest received Finance costs paid Income tax paid Net cash generated from operating activities Investing activities Purchase of property, plant and equipment Purchase of intangible assets Proceeds from return of land Proceeds from disposal of leasehold land Proceeds from disposal of property, plant and equipment Government grants received relating to property, plant and equipment Net cash generated from investing activities Financing activities Dividends paid to shareholders Acquisition of additional interest in a subsidiary Lease payments Net cash used in financing activities Net increase/(decrease) in cash and cash equivalents Effect of exchange rate changes on cash and cash equivalents Cash and cash equivalents Cash and cash equivalents at beginning of period/year Cash and cash equivalents at end of period/year Note 21(a) 8 16 Period from January 1, 2021 to September 28, 2021 Year Ended December 31, 2020 17,785 205 (24) (4,825) 13,141 (1,998) (4) 46,154 — — 10 44,162 — — (427) (427) 56,876 138 57,014 16,602 73,616 60,756 271 (57) (4,013) 56,957 (2,342) — 40,422 231 730 963 40,004 (100,842) (1,884) (609) (103,335) (6,374) 1,555 (4,819) 21,421 16,602 Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited (the “Company”) and its subsidiaries (together the “Group”) are principally engaged in manufacturing, selling and distribution of over-the-counter drug products. The Group has manufacturing plants in the People’s Republic of China (the “PRC”) and sells mainly in the PRC. The Company was incorporated in the PRC on April 12, 2005 as a Chinese-Foreign Equity joint venture. The Company is jointly controlled by Guangzhou Hutchison Chinese Medicine (HK) Investment Limited (“GZHCMHK”) and Guangzhou Baiyunshan Pharmaceutical Holdings Company Limited (“GBPHCL”). On September 28, 2021, an intermediate holding company under HUTCHMED (China) Limited (“HUTCHMED”) which wholly-owned GZHCMHK, sold its entire shareholding in GZHCMHK to a third party. These consolidated financial statements are presented in United States dollars (“US$”), unless otherwise stated and have been approved for issue by the Company’s Board of Directors on September 28, 2021. 2. Summary of Significant Accounting Policies (1) Basis of Preparation Except for the comparative periods which have been prepared in accordance with the Regulation S-X Rule 3-09 issued by the United States Securities and Exchange Commission (“SEC”), the consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and interpretations issued by the IFRS Interpretations Committee applicable to companies reporting under IFRS. The consolidated financial statements comply with IFRS as issued by the International Accounting Standards Board (“IASB”). These consolidated financial statements have been prepared under the historical cost convention. As at September 28, 2021, the Group was in a net current liabilities position of US$32.0 million, primarily due to the dividend declaration on May 13, 2021 and September 23, 2021 of US$46.5 million and US$59.7 million respectively. Based on the Group’s operating plan, the existing cash and cash equivalents along with the expected net cash to be generated from operating activities are considered to be sufficient to meet the cash requirements to fund planned operations and other commitments for at least the next twelve months (the look-forward period used) from the report issue date, and it is appropriate for the Group to prepare the consolidated financial statements on a going concern basis. The accompanying notes are an integral part of these consolidated financial statements. F-80 F-81 (2) Summary of Significant Accounting Policies (c) Transactions with Non-controlling Interests During the period, the Group has adopted all of the new and revised standards, amendments and interpretations issued by the IASB that are relevant to the Group’s operations and mandatory for annual periods beginning January 1, 2021. The adoption of these new and revised standards, amendments and interpretations did not have any material effects on the Group’s results of operations or financial position. Transactions with non-controlling interests that do not result in a loss of control are accounted for as transactions with equity owners of the Group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. The following standards, amendments and interpretations were issued but not yet effective for the financial period from January 1, (d) Joint Arrangements 2021 to September 28, 2021 and have not been early adopted by the Group: IFRS 3 (Amendments)(1) IAS 16 (Amendments)(1) IAS 37 (Amendments)(1) Annual improvement 2018-2020(1) IAS 1(2) IAS 1 (Amendments)(2) IAS 8 (Amendments)(2) IAS 12 (Amendments)(2) IFRS 17(2) IFRS 10 and IAS 28 (Amendments)(3) Reference to the Conceptual Framework Property, Plant and Equipment: Proceeds before Intended Use Onerous Contracts – Costs of Fulfilling a Contract Improvements to IFRSs Disclosure Initiative – Accounting Policies Classification of Liabilities as Current or Non-current Definition of Accounting Estimates Investments in joint arrangements are classified either as joint operations or joint ventures depending on the contractual rights and obligations of each investor. The Group has assessed the nature of its joint arrangement and determined it to be a joint venture. The joint venture is accounted for using the equity method. Under the equity method of accounting, the interest in joint venture is initially recognized at cost and adjusted thereafter to recognize the Group’s share of the post-acquisition profits or losses and movements in other comprehensive income. The Group determines at each reporting date whether there is any objective evidence that the investment in the joint venture is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the joint venture and its carrying value Deferred Tax related to Assets and Liabilities arising from a and recognizes the amount in the consolidated income statements. Single Transaction Insurance Contracts Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (e) Associated Companies An associate is an entity, other than a subsidiary or a joint venture, in which the Group has a long-term equity interest and over which the Group is in position to exercise significant influence over its management, including participation in the financial and (1) Effective for the Group for annual periods beginning on or after January 1, 2022. operating policy decisions. (2) Effective for the Group for annual periods beginning on or after January 1, 2023. (3) Effective date to be determined by the IASB. The results and net assets of associates are incorporated in these financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for under IFRS 5, Non-current assets held for sale and discontinued operations. The total carrying amount of such investments is reduced to recognize any identified impairment loss in the The adoption of standards, amendments and interpretations listed above in future periods is not expected to have any material effects on the Group’s results of operations or financial position. (a) Basis of Consolidation The consolidated financial statements of the Group include the financial statements of the Company and its subsidiaries, and also include the Group’s interests in a joint venture and associated companies on the basis set out in Notes 2(d) and 2(e) below. in US$, which is the Company’s presentation currency. The accounting policies of subsidiaries, the joint venture and associated companies have been changed where necessary to ensure consistency with the policies adopted by the Group. Intercompany transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Non-controlling interests represent the interests of outside shareholders in the operating results and net assets of subsidiaries. Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign currency gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognized in the consolidated income statements. The financial statements of the Company, subsidiaries, joint venture and associated companies are translated into the Company’s presentation currency using the year end rates of exchange for the statements of financial position items and the average rates of exchange for the year for the income statement items. Exchange translation differences are recognized directly in other comprehensive value of individual investments. (f) Foreign Currency Translation Items included in the financial statements of each of the Group’s companies are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The functional currency of the Company and its subsidiaries, joint venture and associated companies is Renminbi (“RMB”) whereas the consolidated financial statements are presented (b) Subsidiaries Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. In the consolidated financial statements, subsidiaries are accounted for as described in Note 2(a) above. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. income. (g) Property, Plant and Equipment Property, plant and equipment other than construction in progress are stated at historical cost less accumulated depreciation and any accumulated impairment losses. Historical cost includes the purchase price of the asset and any directly attributable costs of bringing the asset to its working condition and location for its intended use. F-82 F-83 (2) Summary of Significant Accounting Policies (c) Transactions with Non-controlling Interests During the period, the Group has adopted all of the new and revised standards, amendments and interpretations issued by the IASB that are relevant to the Group’s operations and mandatory for annual periods beginning January 1, 2021. The adoption of these new and revised standards, amendments and interpretations did not have any material effects on the Group’s results of operations or financial position. Transactions with non-controlling interests that do not result in a loss of control are accounted for as transactions with equity owners of the Group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. The following standards, amendments and interpretations were issued but not yet effective for the financial period from January 1, (d) Joint Arrangements 2021 to September 28, 2021 and have not been early adopted by the Group: Annual improvement 2018-2020(1) IFRS 3 (Amendments)(1) IAS 16 (Amendments)(1) IAS 37 (Amendments)(1) IAS 1(2) IAS 1 (Amendments)(2) IAS 8 (Amendments)(2) IAS 12 (Amendments)(2) IFRS 17(2) IFRS 10 and IAS 28 (Amendments)(3) Reference to the Conceptual Framework Property, Plant and Equipment: Proceeds before Intended Use Onerous Contracts – Costs of Fulfilling a Contract Improvements to IFRSs Disclosure Initiative – Accounting Policies Classification of Liabilities as Current or Non-current Definition of Accounting Estimates Deferred Tax related to Assets and Liabilities arising from a Single Transaction Insurance Contracts Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (1) Effective for the Group for annual periods beginning on or after January 1, 2022. (2) Effective for the Group for annual periods beginning on or after January 1, 2023. (3) Effective date to be determined by the IASB. Investments in joint arrangements are classified either as joint operations or joint ventures depending on the contractual rights and obligations of each investor. The Group has assessed the nature of its joint arrangement and determined it to be a joint venture. The joint venture is accounted for using the equity method. Under the equity method of accounting, the interest in joint venture is initially recognized at cost and adjusted thereafter to recognize the Group’s share of the post-acquisition profits or losses and movements in other comprehensive income. The Group determines at each reporting date whether there is any objective evidence that the investment in the joint venture is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the joint venture and its carrying value and recognizes the amount in the consolidated income statements. (e) Associated Companies An associate is an entity, other than a subsidiary or a joint venture, in which the Group has a long-term equity interest and over which the Group is in position to exercise significant influence over its management, including participation in the financial and operating policy decisions. The results and net assets of associates are incorporated in these financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for under IFRS 5, Non-current assets held for sale and discontinued operations. The total carrying amount of such investments is reduced to recognize any identified impairment loss in the value of individual investments. The adoption of standards, amendments and interpretations listed above in future periods is not expected to have any material effects on the Group’s results of operations or financial position. (f) Foreign Currency Translation (a) Basis of Consolidation The consolidated financial statements of the Group include the financial statements of the Company and its subsidiaries, and also include the Group’s interests in a joint venture and associated companies on the basis set out in Notes 2(d) and 2(e) below. The accounting policies of subsidiaries, the joint venture and associated companies have been changed where necessary to ensure consistency with the policies adopted by the Group. Intercompany transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Non-controlling interests represent the interests of outside shareholders in the operating results and net assets of subsidiaries. (b) Subsidiaries Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. In the consolidated financial statements, subsidiaries are accounted for as described in Note 2(a) above. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. Items included in the financial statements of each of the Group’s companies are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The functional currency of the Company and its subsidiaries, joint venture and associated companies is Renminbi (“RMB”) whereas the consolidated financial statements are presented in US$, which is the Company’s presentation currency. Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign currency gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognized in the consolidated income statements. The financial statements of the Company, subsidiaries, joint venture and associated companies are translated into the Company’s presentation currency using the year end rates of exchange for the statements of financial position items and the average rates of exchange for the year for the income statement items. Exchange translation differences are recognized directly in other comprehensive income. (g) Property, Plant and Equipment Property, plant and equipment other than construction in progress are stated at historical cost less accumulated depreciation and any accumulated impairment losses. Historical cost includes the purchase price of the asset and any directly attributable costs of bringing the asset to its working condition and location for its intended use. F-82 F-83 Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the consolidated income statements during the financial period in which they are incurred. Depreciation is calculated using the straight-line method to allocate asset costs less accumulated impairment losses over their estimated useful lives. The principal estimated useful lives are as follows: Buildings and facilities Plant and equipment Furniture and fixtures, other equipment and motor vehicles 10-30 years 10 years 5 years Where the research phase and the development phase of an internal project cannot be clearly distinguished, all expenditure incurred on the project is charged to the consolidated income statements. (l) Impairment of Non-Financial Assets Assets are reviewed for impairment to determine whether there is any indication that the carrying value of these assets may not be recoverable and have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. Such impairment loss is recognized in the consolidated income statements. Assets that have an indefinite useful life such as goodwill or intangible assets not ready to use are not subject to amortization and are tested for impairment annually and when there are indications that the carrying value may not be recoverable. The assets’ useful lives are reviewed and adjusted, if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. (m) Inventories Gains and losses on disposals are determined by comparing net sales proceeds with the carrying amount of the relevant assets and are recognized in the consolidated income statements. (h) Construction in Progress Construction in progress represents buildings, plant and machinery under construction and pending installation and is stated at cost less accumulated impairment losses, if any. Cost includes the costs of construction of buildings and the costs of plant and machinery. No provision for depreciation is made on construction in progress until such time as the relevant assets are completed and ready for its intended use. When the assets concerned are brought into use, the costs are transferred to property, plant and equipment and depreciated in accordance with the policy as stated in Note 2(g). (i) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary/business at the date of acquisition, or the excess of fair value of business over its fair value of the net identifiable assets injected into the Company upon its formation. If the cost of acquisition is less than the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary, the difference is recognized directly in the consolidated income statements. (o) Cash and Cash Equivalents Goodwill is retained at the carrying amount as a separate asset, and subject to impairment test annually and when there are indications that the carrying value may not be recoverable. In the consolidated statements of cash flows, cash and cash equivalents include cash on hand, bank deposits and other short-term highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, if any. The profit or loss on disposal of a subsidiary is calculated by reference to the net assets at the date of disposal including the (p) Financial Liabilities and Equity Instruments attributable amount of goodwill. (j) Other Intangible Assets The Group’s other intangible assets mainly include distribution network and drugs licenses contributed from non-controlling shareholders. Other intangible assets have a definite useful life and are carried at historical cost less accumulated amortization and accumulated impairment losses, if any. Amortization is calculated using the straight-line method to allocate costs over the estimated useful lives of ten years. (k) Research and Development Research expenditure is recognized as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognized as intangible assets when it is probable that the project will generate future economic benefits by considering its commercial and technological feasibility, and costs can be measured reliably. Other development expenditures are recognized as an expense as incurred. Development costs previously recognized as an expense are not recognized as an asset in a subsequent period. Development costs with a finite useful life that have been capitalized, if any, are amortized on a straight-line basis over the period of expected benefit not exceeding five years. The capitalized development costs are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset exceeds its recoverable amount. Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. Financial liabilities (including trade and other payables) are initially measured at fair value, and are subsequently measured at amortized cost, using the effective interest method. An equity instrument is any contract that does not meet the definition of financial liability and evidences a residual interest in the assets of the Group after deducting all of its liabilities. Ordinary shares are classified as equity. Incremental costs, net of tax, directly attributable to the issue of new shares are shown in equity as a deduction from the proceeds. (q) Current and Deferred Income Tax (i) Current income tax The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the country where the Group operates and generates taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. F-84 F-85 Inventories are stated at the lower of cost or net realizable value. Cost is determined using the weighted average cost method. The cost of finished goods comprises raw materials, direct labor, other direct costs and related production overheads (based on normal operating capacity). Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. (n) Trade and Other Receivables Trade and other receivables are recognized initially at fair value, which is the amount of consideration that is unconditional. Trade and other receivables solely represent payments of principal and interest, if any, and the Group holds such financial assets with the objective to collect its contractual cash flows. Therefore, the Group measures them subsequently at amortized cost using the effective interest method, less any loss allowance. The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. All other receivables at amortized cost are considered to have low credit risk, and the loss allowance recognized during the period was therefore limited to 12 months expected losses. The amount of the provision is recognized in the consolidated income statements. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is Where the research phase and the development phase of an internal project cannot be clearly distinguished, all expenditure incurred probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. on the project is charged to the consolidated income statements. All other repairs and maintenance are charged to the consolidated income statements during the financial period in which they are incurred. (l) Impairment of Non-Financial Assets Depreciation is calculated using the straight-line method to allocate asset costs less accumulated impairment losses over their estimated useful lives. The principal estimated useful lives are as follows: Buildings and facilities Plant and equipment Furniture and fixtures, other equipment and motor vehicles 10-30 years 10 years 5 years Assets are reviewed for impairment to determine whether there is any indication that the carrying value of these assets may not be recoverable and have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. Such impairment loss is recognized in the consolidated income statements. Assets that have an indefinite useful life such as goodwill or intangible assets not ready to use are not subject to amortization and are tested for impairment annually and when there are indications that the carrying value may not be recoverable. The assets’ useful lives are reviewed and adjusted, if appropriate, at the end of each reporting period. An asset’s carrying amount (m) Inventories is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing net sales proceeds with the carrying amount of the relevant assets and are recognized in the consolidated income statements. (h) Construction in Progress Construction in progress represents buildings, plant and machinery under construction and pending installation and is stated at cost less accumulated impairment losses, if any. Cost includes the costs of construction of buildings and the costs of plant and machinery. No provision for depreciation is made on construction in progress until such time as the relevant assets are completed and ready for its intended use. When the assets concerned are brought into use, the costs are transferred to property, plant and equipment and depreciated in accordance with the policy as stated in Note 2(g). (i) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary/business at the date of acquisition, or the excess of fair value of business over its fair value of the net identifiable assets injected into the Company upon its formation. If the cost of acquisition is less than the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary, the difference is recognized directly in the consolidated income statements. Goodwill is retained at the carrying amount as a separate asset, and subject to impairment test annually and when there are indications that the carrying value may not be recoverable. Inventories are stated at the lower of cost or net realizable value. Cost is determined using the weighted average cost method. The cost of finished goods comprises raw materials, direct labor, other direct costs and related production overheads (based on normal operating capacity). Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. (n) Trade and Other Receivables Trade and other receivables are recognized initially at fair value, which is the amount of consideration that is unconditional. Trade and other receivables solely represent payments of principal and interest, if any, and the Group holds such financial assets with the objective to collect its contractual cash flows. Therefore, the Group measures them subsequently at amortized cost using the effective interest method, less any loss allowance. The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. All other receivables at amortized cost are considered to have low credit risk, and the loss allowance recognized during the period was therefore limited to 12 months expected losses. The amount of the provision is recognized in the consolidated income statements. (o) Cash and Cash Equivalents In the consolidated statements of cash flows, cash and cash equivalents include cash on hand, bank deposits and other short-term highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, if any. The profit or loss on disposal of a subsidiary is calculated by reference to the net assets at the date of disposal including the (p) Financial Liabilities and Equity Instruments attributable amount of goodwill. (j) Other Intangible Assets useful lives of ten years. (k) Research and Development The Group’s other intangible assets mainly include distribution network and drugs licenses contributed from non-controlling shareholders. Other intangible assets have a definite useful life and are carried at historical cost less accumulated amortization and accumulated impairment losses, if any. Amortization is calculated using the straight-line method to allocate costs over the estimated Research expenditure is recognized as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognized as intangible assets when it is probable that the project will generate future economic benefits by considering its commercial and technological feasibility, and costs can be measured reliably. Other development expenditures are recognized as an expense as incurred. Development costs previously recognized as an expense are not recognized as an asset in a subsequent period. Development costs with a finite useful life that have been capitalized, if any, are amortized on a straight-line basis over the period of expected benefit not exceeding five years. The capitalized development costs are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset exceeds its recoverable amount. Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. Financial liabilities (including trade and other payables) are initially measured at fair value, and are subsequently measured at amortized cost, using the effective interest method. An equity instrument is any contract that does not meet the definition of financial liability and evidences a residual interest in the assets of the Group after deducting all of its liabilities. Ordinary shares are classified as equity. Incremental costs, net of tax, directly attributable to the issue of new shares are shown in equity as a deduction from the proceeds. (q) Current and Deferred Income Tax (i) Current income tax The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the country where the Group operates and generates taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. F-84 F-85 (ii) Deferred income tax Inside basis differences Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognized if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that, at the time of the transaction, affects neither accounting nor taxable profit or loss and does not give rise to equal taxable and deductible temporary differences. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Lease liabilities include the net present value of the following lease payments: (i) fixed payments; (ii) variable lease payments that depend on an index or a rate; and (iii) payments of penalties for terminating the lease if the lease term reflects the lessee exercising that option, if any. Lease liabilities exclude the following payments that are generally accounted for separately: (i) non-lease components, such as maintenance and security service fees and value added tax, and (ii) any payments that a lessee makes before the lease commencement date. The lease payments are discounted using the interest rate implicit in the lease or if that rate cannot be determined, the lessee’s incremental borrowing rate being the rate that the lessee would have to pay to borrow the funds in its currency and jurisdiction necessary to obtain an asset of similar value, economic environment and terms and conditions. An asset representing the right to use the underlying asset during the lease term is recognized that consists of the initial measurement of the lease liability, any lease payments made to the lessor at or before the commencement date less any lease incentives received, any initial direct cost incurred by the Group and any restoration costs. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred income tax assets and deferred income tax liabilities are offset when there is a legally enforceable right to set off and when the deferred income taxes related to the same fiscal authority. After commencement of the lease, each lease payment is allocated between lease liability and finance costs. The finance costs are recognized over the lease term so as to produce a constant periodic rate of interest on the remaining balance of the lease liability for each period. The right-of-use asset is depreciated on a straight-line basis over the period of the lease. Outside basis differences Payments associated with short-term leases are recognized as lease expenses on a straight-line basis over the period of the leases. Deferred income tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries, associates and joint arrangements, except for deferred income tax liabilities where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Generally the Group is unable to control the reversal of the temporary difference for associates. Only when there is an agreement in place that gives the Group the ability to control the reversal of the temporary difference in the foreseeable future, deferred tax liability in relation to taxable temporary differences arising from the associate’s undistributed profits is not recognized. Deferred income tax assets are recognized on deductible temporary differences arising from investments in subsidiaries, associates and joint arrangements only to the extent that it is probable the temporary difference will reverse in the future and there is sufficient taxable profit available against which the temporary difference can be utilized. (r) Employee Benefits The employees of the Group participate in defined contribution retirement benefit plans managed by the relevant municipal and provincial governments in the PRC. The assets of these plans are held separately from the Group. The Group is required to make monthly contributions to the plans, calculated as a percentage of the employees’ salaries. The municipal and provincial governments undertake to assume the retirement benefit obligations to all existing and future retired employees under the plans described above. Other than the monthly contributions, the Group has no further obligations for the payment of the retirement and other post-retirement benefits of its employees. (s) Provisions Leasehold land is accounted under IFRS 16. (u) Government Incentives Incentives from government are recognized at their fair values where there is a reasonable assurance that the incentives will be received and all attached conditions will be complied with. Government incentives relating to costs are deferred and recognized in the consolidated income statements over the period necessary to match them with the costs that they are intended to compensate. Government grants relating to property, plant and equipment are included in non-current liabilities as deferred income and credited to the consolidated income statements on a straight-line basis over the expected lives of the related assets. (v) Revenue and Income Recognition The Group principally generates revenue from sales of goods. Revenue from sales of goods is recognized when the customer takes possession of the goods. This usually occurs upon completed delivery of the goods to the customer site. The amount of revenue recognized is adjusted for expected sales incentives as stipulated in the contract, which are generally issued to customers as direct discounts at the point-of-sale or indirectly in the form of rebates. Sales incentives are estimated using the expected value method. Additionally, sales are generally made with a limited right of return under certain conditions. Revenues are recorded net of provisions for sales discounts and returns. Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated. Provisions are not recognized for future operating losses. Revenue from provision of services is recognized when the benefits of the services transfer to the customer over time, which is based on the proportionate value of services rendered as determined under the terms of the relevant contract. Additionally, when the amounts that can be invoiced correspond directly with the value to the customer for performance completed to date, the Group recognizes (t) Leases A lease is recognized as a right-of-use asset with a corresponding liability at the date which the leased asset is available for use by the Group. The Group recognizes an obligation to make lease payments equal to the present value of the lease payments over the lease term. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Group will exercise that option. revenue from provision of services based on amounts that can be invoiced to the customer. Payments in advance from customers are deferred if consideration is received in advance of transferring control of the goods or rendering of services. Accounts receivable is recognized if the Group has an unconditional right to bill the customer, which is generally when the customer takes possession of the goods or services are rendered. Payment terms differ by subsidiary and customer, but generally range from 45 to 180 days from the invoice date. (w) Interest income Interest income is recognized on a time-proportion basis using the effective interest method. F-86 F-87 (ii) Deferred income tax Inside basis differences Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognized if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that, at the time of the transaction, affects neither accounting nor taxable profit or loss and does not give rise to equal taxable and deductible temporary differences. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Lease liabilities include the net present value of the following lease payments: (i) fixed payments; (ii) variable lease payments that depend on an index or a rate; and (iii) payments of penalties for terminating the lease if the lease term reflects the lessee exercising that option, if any. Lease liabilities exclude the following payments that are generally accounted for separately: (i) non-lease components, such as maintenance and security service fees and value added tax, and (ii) any payments that a lessee makes before the lease commencement date. The lease payments are discounted using the interest rate implicit in the lease or if that rate cannot be determined, the lessee’s incremental borrowing rate being the rate that the lessee would have to pay to borrow the funds in its currency and jurisdiction necessary to obtain an asset of similar value, economic environment and terms and conditions. An asset representing the right to use the underlying asset during the lease term is recognized that consists of the initial measurement of the lease liability, any lease payments made to the lessor at or before the commencement date less any lease incentives received, any initial direct cost incurred by the Group and any restoration costs. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred income tax assets and deferred income tax liabilities are offset when there is a legally enforceable right to set off and when the deferred income taxes related to the same fiscal authority. After commencement of the lease, each lease payment is allocated between lease liability and finance costs. The finance costs are recognized over the lease term so as to produce a constant periodic rate of interest on the remaining balance of the lease liability for each period. The right-of-use asset is depreciated on a straight-line basis over the period of the lease. Outside basis differences Payments associated with short-term leases are recognized as lease expenses on a straight-line basis over the period of the leases. Deferred income tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries, associates and joint arrangements, except for deferred income tax liabilities where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Generally the Group is unable to control the reversal of the temporary difference for associates. Only when there is an agreement in place that gives the Group the ability to control the reversal of the temporary difference in the foreseeable future, deferred tax liability in relation to taxable temporary differences arising from the associate’s undistributed profits is not recognized. Deferred income tax assets are recognized on deductible temporary differences arising from investments in subsidiaries, associates and joint arrangements only to the extent that it is probable the temporary difference will reverse in the future and there is sufficient taxable profit available against which the temporary difference can be utilized. The employees of the Group participate in defined contribution retirement benefit plans managed by the relevant municipal and provincial governments in the PRC. The assets of these plans are held separately from the Group. The Group is required to make monthly contributions to the plans, calculated as a percentage of the employees’ salaries. The municipal and provincial governments undertake to assume the retirement benefit obligations to all existing and future retired employees under the plans described above. Other than the monthly contributions, the Group has no further obligations for the payment of the retirement and other post-retirement benefits of Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated. Provisions are not recognized A lease is recognized as a right-of-use asset with a corresponding liability at the date which the leased asset is available for use by the Group. The Group recognizes an obligation to make lease payments equal to the present value of the lease payments over the lease term. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Group will exercise that option. (r) Employee Benefits its employees. (s) Provisions for future operating losses. (t) Leases Leasehold land is accounted under IFRS 16. (u) Government Incentives Incentives from government are recognized at their fair values where there is a reasonable assurance that the incentives will be received and all attached conditions will be complied with. Government incentives relating to costs are deferred and recognized in the consolidated income statements over the period necessary to match them with the costs that they are intended to compensate. Government grants relating to property, plant and equipment are included in non-current liabilities as deferred income and credited to the consolidated income statements on a straight-line basis over the expected lives of the related assets. (v) Revenue and Income Recognition The Group principally generates revenue from sales of goods. Revenue from sales of goods is recognized when the customer takes possession of the goods. This usually occurs upon completed delivery of the goods to the customer site. The amount of revenue recognized is adjusted for expected sales incentives as stipulated in the contract, which are generally issued to customers as direct discounts at the point-of-sale or indirectly in the form of rebates. Sales incentives are estimated using the expected value method. Additionally, sales are generally made with a limited right of return under certain conditions. Revenues are recorded net of provisions for sales discounts and returns. Revenue from provision of services is recognized when the benefits of the services transfer to the customer over time, which is based on the proportionate value of services rendered as determined under the terms of the relevant contract. Additionally, when the amounts that can be invoiced correspond directly with the value to the customer for performance completed to date, the Group recognizes revenue from provision of services based on amounts that can be invoiced to the customer. Payments in advance from customers are deferred if consideration is received in advance of transferring control of the goods or rendering of services. Accounts receivable is recognized if the Group has an unconditional right to bill the customer, which is generally when the customer takes possession of the goods or services are rendered. Payment terms differ by subsidiary and customer, but generally range from 45 to 180 days from the invoice date. (w) Interest income Interest income is recognized on a time-proportion basis using the effective interest method. F-86 F-87 (x) Segment Reporting (b) Capital risk management Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-makers. The Company’s Board of Directors, which is responsible for allocating resources and assessing performance of the operating segments, has been identified as the steering committee that makes strategic decisions. (y) General Reserves In accordance with the laws applicable to Foreign Investment Enterprises established in the PRC, the Company makes appropriations to certain non-distributable reserve funds including the general reserve fund, the enterprise expansion fund and the staff bonus and welfare fund. The amount of appropriations to these funds are made at the discretion of the Company’s Board of Directors. 3. Financial Risk Management (a) Financial risk factors The Group’s objectives when managing capital are to safeguard the Group’s ability to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Group regularly reviews and manages its capital structure to ensure an optimal balance between higher shareholders’ return that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position, and makes adjustments to the capital structure in light of changes in economic conditions. The Group monitors capital on the basis of the liabilities to assets ratio. This ratio is calculated as total liabilities divided by total assets as shown on the consolidated statements of financial position. Currently, it is the Group’s strategy to maintain a reasonable liabilities to assets ratio. The liabilities to assets ratio as at September 28, 2021 was as follows: The Group’s activities expose it to a variety of financial risks, including credit risk and liquidity risk. The Group does not use any derivative financial instruments for speculative purposes. (i) Credit risk Total liabilities (note) Total assets Liabilities to assets ratio September 28, 2021 (in US$’000) 237,352 284,840 83.3 % The carrying amounts of cash and cash equivalents, trade receivables (including bills receivables) and other receivables included in the consolidated statements of financial position represent the Group’s maximum exposure to credit risk of the counterparty in relation to its financial assets. Note: On May 13, 2021 and September 23, 2021, the Company declared dividends to shareholders of US$46.5 million and US$59.7 million respectively, which were not settled as at September 28, 2021. Substantially all of the Group’s cash and cash equivalents are deposited in major financial institutions, which management believes (c) Fair value estimation are of high credit quality. Bills receivables are mostly settled by state-owned banks or other reputable banks and therefore the management considers that they will not expose the Group to any significant credit risk. The Group has no significant concentrations of credit risk. The Group has policies in place to ensure that the sales of products are made to customers with appropriate credit history and the Group performs periodic credit evaluations of its customers. Management periodically assesses the recoverability of trade receivables and other receivables. The Group’s historical loss rates are adjusted to reflect current and forward-looking information on specific factors affecting the ability of the customers to settle the receivables, and historical experience collecting receivables falls within the recorded allowances. (ii) Liquidity risk Prudent liquidity management implies maintaining sufficient cash and cash equivalents and the availability of funding when necessary. The Group’s policy is to regularly monitor current and expected liquidity requirements to ensure that it maintains sufficient cash balances and adequate credit facilities to meet its liquidity requirements in the short and long term. As at September 28, 2021, the Group’s current financial liabilities were mainly due for settlement within twelve months and the Group expects to meet all liquidity requirements. As at September 28, 2021, the Group’s consolidated current liabilities exceed the consolidated current assets by US$32.0 million, which was mainly attributable to current dividends payable to shareholders (refer to Note 23(b)), for which settlement will occur when sufficient cash and cash equivalents are available. In assessing the Group’s liquidity, management prepared a cash flow forecast up to December 31, 2022 taking into consideration of ongoing operations and the settlement of the current dividends payable, which indicates that the Group will have sufficient cash resources to fund planned operations and other commitments for at least the next twelve months (the look-forward period used). F-88 F-89 The Group does not have any financial assets or liabilities which are carried at fair value. The carrying amounts of the Group’s current financial assets, including cash and cash equivalents, trade and bills receivables and other receivables, and current financial liabilities, including trade payables, and other payables and accruals and dividend payable, approximate their fair values due to their short-term maturities. The carrying amounts of the Group’s financial instruments carried at cost or amortized cost are not materially different from their fair values. The face values less any estimated credit adjustments for financial assets and liabilities with a maturity of less than one year are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. 4. Critical Accounting Estimates and Judgements Note 2 includes a summary of the significant accounting policies used in the preparation of the consolidated financial statements. The preparation of consolidated financial statements often requires the use of judgements to select specific accounting methods and policies from several acceptable alternatives. Furthermore, significant estimates and assumptions concerning the future may be required in selecting and applying those methods and policies in the consolidated financial statements. The Group bases its estimates and judgements on historical experience and various other assumptions that it believes are reasonable under the circumstances. Actual results may differ from these estimates and judgements under different assumptions or conditions. The following is a review of the more significant assumptions and estimates, as well as the accounting policies and methods used in the preparation of the consolidated financial statements. (a) Sales rebates Certain sales rebates are provided to customers when their business performance for the whole year meets certain criteria as stipulated in the contracts. Sales rebates are considered variable consideration and the estimate of sales rebates during the year is based on estimated sales transactions for the entire period stipulated and is subject to change based on actual performance and collection status. (x) Segment Reporting (b) Capital risk management Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-makers. The Group’s objectives when managing capital are to safeguard the Group’s ability to provide returns for shareholders and benefits The Company’s Board of Directors, which is responsible for allocating resources and assessing performance of the operating segments, for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. has been identified as the steering committee that makes strategic decisions. (y) General Reserves In accordance with the laws applicable to Foreign Investment Enterprises established in the PRC, the Company makes appropriations to certain non-distributable reserve funds including the general reserve fund, the enterprise expansion fund and the staff The Group monitors capital on the basis of the liabilities to assets ratio. This ratio is calculated as total liabilities divided by total bonus and welfare fund. The amount of appropriations to these funds are made at the discretion of the Company’s Board of Directors. assets as shown on the consolidated statements of financial position. The Group regularly reviews and manages its capital structure to ensure an optimal balance between higher shareholders’ return that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position, and makes adjustments to the capital structure in light of changes in economic conditions. 3. Financial Risk Management (a) Financial risk factors (i) Credit risk to its financial assets. are of high credit quality. The Group’s activities expose it to a variety of financial risks, including credit risk and liquidity risk. The Group does not use any derivative financial instruments for speculative purposes. Currently, it is the Group’s strategy to maintain a reasonable liabilities to assets ratio. The liabilities to assets ratio as at September 28, 2021 was as follows: Total liabilities (note) Total assets Liabilities to assets ratio September 28, 2021 (in US$’000) 237,352 284,840 83.3 % The carrying amounts of cash and cash equivalents, trade receivables (including bills receivables) and other receivables included in the consolidated statements of financial position represent the Group’s maximum exposure to credit risk of the counterparty in relation Note: On May 13, 2021 and September 23, 2021, the Company declared dividends to shareholders of US$46.5 million and US$59.7 million respectively, which were not settled as at September 28, 2021. Substantially all of the Group’s cash and cash equivalents are deposited in major financial institutions, which management believes (c) Fair value estimation Bills receivables are mostly settled by state-owned banks or other reputable banks and therefore the management considers that they will not expose the Group to any significant credit risk. The Group has no significant concentrations of credit risk. The Group has policies in place to ensure that the sales of products are made to customers with appropriate credit history and the Group performs periodic credit evaluations of its customers. Management periodically assesses the recoverability of trade receivables and other receivables. The Group’s historical loss rates are adjusted to reflect current and forward-looking information on specific factors affecting the ability of the customers to settle the receivables, and historical experience collecting receivables falls within the recorded allowances. (ii) Liquidity risk Prudent liquidity management implies maintaining sufficient cash and cash equivalents and the availability of funding when necessary. The Group’s policy is to regularly monitor current and expected liquidity requirements to ensure that it maintains sufficient cash balances and adequate credit facilities to meet its liquidity requirements in the short and long term. As at September 28, 2021, the Group’s current financial liabilities were mainly due for settlement within twelve months and the Group expects to meet all liquidity requirements. As at September 28, 2021, the Group’s consolidated current liabilities exceed the consolidated current assets by US$32.0 million, which was mainly attributable to current dividends payable to shareholders (refer to Note 23(b)), for which settlement will occur when sufficient cash and cash equivalents are available. In assessing the Group’s liquidity, management prepared a cash flow forecast up to December 31, 2022 taking into consideration of ongoing operations and the settlement of the current dividends payable, which indicates that the Group will have sufficient cash resources to fund planned operations and other commitments for at least the next twelve months (the look-forward period used). The Group does not have any financial assets or liabilities which are carried at fair value. The carrying amounts of the Group’s current financial assets, including cash and cash equivalents, trade and bills receivables and other receivables, and current financial liabilities, including trade payables, and other payables and accruals and dividend payable, approximate their fair values due to their short-term maturities. The carrying amounts of the Group’s financial instruments carried at cost or amortized cost are not materially different from their fair values. The face values less any estimated credit adjustments for financial assets and liabilities with a maturity of less than one year are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. 4. Critical Accounting Estimates and Judgements Note 2 includes a summary of the significant accounting policies used in the preparation of the consolidated financial statements. The preparation of consolidated financial statements often requires the use of judgements to select specific accounting methods and policies from several acceptable alternatives. Furthermore, significant estimates and assumptions concerning the future may be required in selecting and applying those methods and policies in the consolidated financial statements. The Group bases its estimates and judgements on historical experience and various other assumptions that it believes are reasonable under the circumstances. Actual results may differ from these estimates and judgements under different assumptions or conditions. The following is a review of the more significant assumptions and estimates, as well as the accounting policies and methods used in the preparation of the consolidated financial statements. (a) Sales rebates Certain sales rebates are provided to customers when their business performance for the whole year meets certain criteria as stipulated in the contracts. Sales rebates are considered variable consideration and the estimate of sales rebates during the year is based on estimated sales transactions for the entire period stipulated and is subject to change based on actual performance and collection status. F-88 F-89 (b) Useful lives of property, plant and equipment The Group has made substantial investments in property, plant and equipment. Changes in technology or changes in the intended use of these assets may cause the estimated period of use or value of these assets to change. (c) Impairment of non-financial assets The Group tests at least annually whether goodwill has suffered any impairment. Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset exceeds its recoverable amount in accordance with the accounting policy stated in Note 2(l). The recoverable amount of an asset or a cash-generating unit is determined based on the higher of the asset’s or the cash-generating unit’s fair value less costs to disposal and value-in-use. The value-in-use calculation requires the entity to estimate the future cash flows expected to arise from the asset and a suitable discount rate in order to calculate present value, and the growth rate assumptions in the cash flow projections which has been prepared on the basis of management’s assumptions and estimates. (d) Deferred income tax Deferred tax is recognized using the liability method on temporary differences arising between the tax bases of assets and liabilities against which the deductible temporary differences and the carry forward of unused tax losses and tax credits can be utilized. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Where the final outcomes are different from the estimations, such differences will impact the carrying amount of deferred tax in the period in which such determination is made. 5. Revenue and Segment Information Management has reviewed the Group’s internal reporting in order to assess performance and allocate resources, and has determined that the Group has two reportable operating segments as follows: segment. —Manufacturing business—manufacture and distribution of drug products 6. Other Net Operating Income —Distribution business—provision of sales, distribution and marketing services to pharmaceutical manufacturers The operating segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing approaches. The performance of each of the reportable segments is assessed based on operating profit. The segment information is as follows: Manufacturing business Period from January 1, 2021 to September 28, 2021 Distribution business PRC Total Revenue from external customers Interest income Operating profit Share of profits of a joint venture and associated companies, net of tax Finance costs Depreciation/amortization Additions to non‑current assets (other than financial instruments and deferred tax assets) 190,619 141 18,212 29 18 5,515 2,405 (in US$’000) 18,909 64 2,076 — 6 98 — 209,528 205 20,288 29 24 5,613 2,405 7. Operating Profit Operating profit F-90 F-91 Total segment assets 251,178 33,662 284,840 As at September 28, 2021 Manufacturing business Year Ended December 31, 2020 Manufacturing business Distribution business PRC (in US$’000) Distribution business PRC (in US$’000) 16,941 83 2,312 — 6 123 1 215,427 188 20,833 84 51 6,361 2,432 Total Total 232,368 271 23,145 84 57 6,484 2,433 Revenue from external customers Interest income Operating profit of tax Finance costs Depreciation/amortization and deferred tax assets) Share of losses of a joint venture and associated companies, net Additions to non‑current assets (other than financial instruments Revenue from external customers is after elimination of inter-segment sales. The amount eliminated was US$0.2 million for the period from January 1, 2021 to September 28, 2021 (for the year ended December 31, 2020: US$0.1 million). Sales between segments are carried out at mutually agreed terms. Revenue from external customers is primarily for sales of goods which are recognized at a point in time, except for provision of services which are recognized over time of US$1.2 million for the period from January 1, 2021 to September 28, 2021 (for the year ended December 31, 2020: US$3.7 million) and included in the manufacturing business operating Interest income Gain on disposal of leasehold land Loss on disposal of property, plant and equipment Other operating income Other operating expenses Period from January 1, 2021 to September 28, 2021 Year Ended December 31, 2020 (in US$’000) 205 — (47) 5,631 (483) 5,306 271 166 (643) 6,734 (457) 6,071 Period from January 1, 2021 to September 28, 2021 Year Ended December 31, 2020 (in US$’000) 20,288 23,145 (b) Useful lives of property, plant and equipment The Group has made substantial investments in property, plant and equipment. Changes in technology or changes in the intended use of these assets may cause the estimated period of use or value of these assets to change. (c) Impairment of non-financial assets The Group tests at least annually whether goodwill has suffered any impairment. Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset exceeds its recoverable amount in accordance with the accounting policy stated in Note 2(l). The recoverable amount of an asset or a cash-generating unit is determined based on the higher of the asset’s or the cash-generating unit’s fair value less costs to disposal and value-in-use. The value-in-use calculation requires the entity to estimate the future cash flows expected to arise from the asset and a suitable discount rate in order to calculate present value, and the growth rate assumptions in the cash flow projections which has been prepared on the basis of management’s assumptions and estimates. (d) Deferred income tax Deferred tax is recognized using the liability method on temporary differences arising between the tax bases of assets and liabilities against which the deductible temporary differences and the carry forward of unused tax losses and tax credits can be utilized. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Where the final outcomes are different from the estimations, such differences will impact the carrying amount of deferred tax in the period in which such determination is made. 5. Revenue and Segment Information Management has reviewed the Group’s internal reporting in order to assess performance and allocate resources, and has determined that the Group has two reportable operating segments as follows: —Distribution business—provision of sales, distribution and marketing services to pharmaceutical manufacturers The operating segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing approaches. The performance of each of the reportable segments is assessed based on operating profit. The segment information is as follows: Revenue from external customers Interest income Operating profit of tax Finance costs Depreciation/amortization and deferred tax assets) Share of profits of a joint venture and associated companies, net Additions to non‑current assets (other than financial instruments Period from January 1, 2021 to September 28, 2021 Manufacturing business Distribution business PRC (in US$’000) 18,909 64 2,076 — 6 98 — 190,619 141 18,212 29 18 5,515 2,405 Total 209,528 205 20,288 29 24 5,613 2,405 Total segment assets Revenue from external customers Interest income Operating profit Share of losses of a joint venture and associated companies, net of tax Finance costs Depreciation/amortization Additions to non‑current assets (other than financial instruments and deferred tax assets) Manufacturing business As at September 28, 2021 Distribution business PRC (in US$’000) Total 251,178 33,662 284,840 Manufacturing business Year Ended December 31, 2020 Distribution business PRC (in US$’000) Total 215,427 188 20,833 84 51 6,361 2,432 16,941 83 2,312 — 6 123 1 232,368 271 23,145 84 57 6,484 2,433 Revenue from external customers is after elimination of inter-segment sales. The amount eliminated was US$0.2 million for the period from January 1, 2021 to September 28, 2021 (for the year ended December 31, 2020: US$0.1 million). Sales between segments are carried out at mutually agreed terms. Revenue from external customers is primarily for sales of goods which are recognized at a point in time, except for provision of services which are recognized over time of US$1.2 million for the period from January 1, 2021 to September 28, 2021 (for the year ended December 31, 2020: US$3.7 million) and included in the manufacturing business operating segment. —Manufacturing business—manufacture and distribution of drug products 6. Other Net Operating Income Interest income Gain on disposal of leasehold land Loss on disposal of property, plant and equipment Other operating income Other operating expenses 7. Operating Profit Operating profit Period from January 1, 2021 to September 28, 2021 Year Ended December 31, 2020 (in US$’000) 205 — (47) 5,631 (483) 5,306 271 166 (643) 6,734 (457) 6,071 Period from January 1, 2021 to September 28, 2021 Year Ended December 31, 2020 (in US$’000) 20,288 23,145 F-90 F-91 Operating profit is stated after charging/(crediting) the following: The taxation charge on the Group’s profit before taxation differs from the theoretical amount that would arise using the Group’s weighted average tax rate as follows: Cost of inventories recognized as expense Depreciation of property, plant and equipment Loss on disposal of property, plant and equipment Gain on disposal of leasehold land Amortization of leasehold land Amortization of other intangible assets Depreciation charge of right-of-use assets and lease expenses Movements on the provision for trade receivables Movements on the provision for excess and obsolete inventories Research and development expense Auditor’s remuneration Employee benefit expenses (Note 10) Period from January 1, 2021 to September 28, 2021 Year Ended December 31, 2020 (in US$’000) 87,941 4,425 47 — 450 331 1,360 38 41 2,057 43 31,605 100,906 5,283 643 (166) 236 414 1,438 (20) 474 1,670 88 36,822 8. Gain On Return of Land In June 2020, the Group entered into an agreement with the government to return the land use right for a plot of land in Guangzhou to the government (the “Land Compensation Agreement”) for cash consideration which aggregated to RMB679.5 million (approximately US$103.1 million). In November 2020, the Group completed all material obligations as stipulated in the Land Compensation Agreement and recognized land compensation of RMB569.2 million (approximately US$86.1 million), resulting in a gain of RMB559.7 million (approximately US$84.7 million). In June 2021, the Group received a completion confirmation from the government and recognized an additional land compensation bonus of RMB110.3 million (approximately US$17.0 million), resulting in a gain of RMB106.8 million (approximately US$16.4 million), after deducting costs of RMB3.5 million (approximately US$0.6 million). As at September 28, 2021, the Group has received RMB584.6 million (approximately US$86.6 million) and has recorded RMB94.9 million (approximately US$14.6 million) in other receivables, prepayments and deposits. 9. Taxation Charge Current tax Deferred income tax (Note 17) Taxation charge Period from January 1, 2021 to September 28, 2021 Year Ended December 31, 2020 (in US$’000) 6,093 (1,253) 4,840 17,108 (614) 16,494 Profit before taxation Tax calculated at the statutory tax rates of respective companies Tax effects of: Expenses not deductible for tax purposes Tax concession (note) Tax losses for which no deferred tax assets were recognized Under provision in prior years Utilization of tax losses for which no deferred tax assets were recognized previously Taxation charge Period from January 1, 2021 to September 28, 2021 Year Ended December 31, 2020 (in US$’000) 36,726 9,181 45 (3,781) 192 6 (803) 4,840 107,708 26,927 (10,834) 66 339 44 (48) 16,494 Period from January 1, 2021 to September 28, 2021 Year Ended December 31, 2020 (in US$’000) 23,705 6,679 1,221 31,605 28,380 6,954 1,488 36,822 September 28, 2021 (in US$’000) 73,616 Note: The Company has been granted the High and New Technology Enterprise status. Accordingly, the Company is subject to a preferential income tax rate of 15% and renewed the status in 2021. Certain research and development expenses are also eligible for super-deduction such that 200% of qualified expenses incurred are deductible for tax purposes. The weighted average tax rate calculated at the statutory tax rates of respective companies was 25%. The effective tax rate for the period from January 1, 2021 to September 28, 2021 was 13.2% (for the year ended December 31, 2020: 15.3%). 10. Employee Benefit Expenses Employee benefit expenses of approximately US$9.1 million for the period from January 1, 2021 to September 28, 2021 (for the year ended December 31, 2020: US$11.1 million) are included in cost of sales. Wages, salaries and bonuses Pension costs—defined contribution plans Staff welfare 11. Cash and Cash Equivalents Cash and cash equivalents The cash and cash equivalents denominated in RMB were deposited with banks in the PRC. The conversion of these RMB denominated balances into foreign currencies is subject to the rules and regulations of foreign exchange control promulgated by the PRC government. F-92 F-93 Operating profit is stated after charging/(crediting) the following: The taxation charge on the Group’s profit before taxation differs from the theoretical amount that would arise using the Group’s weighted average tax rate as follows: Cost of inventories recognized as expense Depreciation of property, plant and equipment Loss on disposal of property, plant and equipment Gain on disposal of leasehold land Amortization of leasehold land Amortization of other intangible assets Depreciation charge of right-of-use assets and lease expenses Movements on the provision for trade receivables Movements on the provision for excess and obsolete inventories Research and development expense Auditor’s remuneration Employee benefit expenses (Note 10) Period from January 1, 2021 to September 28, 2021 Year Ended December 31, 2020 100,906 (in US$’000) 87,941 4,425 47 — 450 331 1,360 38 41 2,057 43 31,605 5,283 643 (166) 236 414 1,438 (20) 474 1,670 88 36,822 8. Gain On Return of Land In June 2020, the Group entered into an agreement with the government to return the land use right for a plot of land in Guangzhou to the government (the “Land Compensation Agreement”) for cash consideration which aggregated to RMB679.5 million (approximately US$103.1 million). In November 2020, the Group completed all material obligations as stipulated in the Land Compensation Agreement and recognized land compensation of RMB569.2 million (approximately US$86.1 million), resulting in a gain of RMB559.7 million (approximately US$84.7 million). In June 2021, the Group received a completion confirmation from the government and recognized an additional land compensation bonus of RMB110.3 million (approximately US$17.0 million), resulting in a gain of RMB106.8 million (approximately US$16.4 million), after deducting costs of RMB3.5 million (approximately US$0.6 million). As at September 28, 2021, the Group has received RMB584.6 million (approximately US$86.6 million) and has recorded RMB94.9 million (approximately US$14.6 million) in other receivables, prepayments and deposits. 9. Taxation Charge Current tax Deferred income tax (Note 17) Taxation charge Period from January 1, 2021 to September 28, 2021 Year Ended December 31, 2020 (in US$’000) 6,093 (1,253) 4,840 17,108 (614) 16,494 Profit before taxation Tax calculated at the statutory tax rates of respective companies Tax effects of: Expenses not deductible for tax purposes Tax concession (note) Tax losses for which no deferred tax assets were recognized Under provision in prior years Utilization of tax losses for which no deferred tax assets were recognized previously Taxation charge Period from January 1, 2021 to September 28, 2021 Year Ended December 31, 2020 (in US$’000) 36,726 9,181 45 (3,781) 192 6 (803) 4,840 107,708 26,927 66 (10,834) 339 44 (48) 16,494 Note: The Company has been granted the High and New Technology Enterprise status. Accordingly, the Company is subject to a preferential income tax rate of 15% and renewed the status in 2021. Certain research and development expenses are also eligible for super-deduction such that 200% of qualified expenses incurred are deductible for tax purposes. The weighted average tax rate calculated at the statutory tax rates of respective companies was 25%. The effective tax rate for the period from January 1, 2021 to September 28, 2021 was 13.2% (for the year ended December 31, 2020: 15.3%). 10. Employee Benefit Expenses Wages, salaries and bonuses Pension costs—defined contribution plans Staff welfare Period from January 1, 2021 to September 28, 2021 Year Ended December 31, 2020 (in US$’000) 23,705 6,679 1,221 31,605 28,380 6,954 1,488 36,822 Employee benefit expenses of approximately US$9.1 million for the period from January 1, 2021 to September 28, 2021 (for the year ended December 31, 2020: US$11.1 million) are included in cost of sales. 11. Cash and Cash Equivalents Cash and cash equivalents September 28, 2021 (in US$’000) 73,616 The cash and cash equivalents denominated in RMB were deposited with banks in the PRC. The conversion of these RMB denominated balances into foreign currencies is subject to the rules and regulations of foreign exchange control promulgated by the PRC government. F-92 F-93 12. Trade and Bills Receivables 15. Property, Plant and Equipment Trade receivables—third parties Trade receivables—related parties (Note 23(b)) Bills receivables September 28, 2021 (in US$’000) 4,290 1,975 21,609 27,874 All trade and bills receivables are denominated in RMB and are due within one year from the end of the reporting period. The carrying values of trade and bills receivables approximate their fair values due to their short-term maturities. Movements on the provision for trade receivables are as follows: As at January 1 Increase in provision for trade receivables Decrease in provision due to subsequent collection Exchange differences As at September 28/December 31 2021 2020 (in US$’000) — 38 — — 38 19 — (20) 1 — The impaired and provided receivables as at September 28, 2021 were aged over 1 year. 13. Other Receivables, Prepayments and Deposits Prepayments to suppliers Value‑added tax receivables Land compensation receivable Others 14. Inventories Raw materials Work in progress Finished goods September 28, 2021 (in US$’000) 9,671 780 14,592 1,504 26,547 September 28, 2021 (in US$’000) 23,126 17,816 21,458 62,400 Cost As at January 1, 2021 Additions Disposals Transfers Exchange differences As at September 28, 2021 Accumulated depreciation As at January 1, 2021 Depreciation Disposals Exchange differences As at September 28, 2021 Net book value As at September 28, 2021 Cost As at January 1, 2020 Additions Disposals Transfers Disposal of a subsidiary Exchange differences As at December 31, 2020 Accumulated depreciation As at January 1, 2020 Depreciation Disposals Disposal of a subsidiary Exchange differences As at December 31, 2020 Net book value As at December 31, 2020 Buildings and facilities Plant and equipment and motor Construction vehicles in progress Total Furniture and fixtures, other equipment (in US$’000) 61,267 27,769 12,615 62,176 28,704 14,171 396 (3) — 516 440 (97) 358 234 16,368 1,763 (1) 137 16,559 1,278 (61) 138 18,267 17,914 623 (78) 906 105 10,522 1,384 (69) 89 11,926 1,979 943 — (1,264) 17 1,675 — — — — — 103,630 2,402 (178) — 872 106,726 43,449 4,425 (131) 364 48,107 43,909 10,790 2,245 1,675 58,619 Buildings and facilities Plant and equipment and motor Construction vehicles in progress Total Furniture and fixtures, other equipment (in US$’000) 25,426 11,353 168 (187) — 502 1,860 27,769 14,096 1,520 (150) — 1,093 16,559 651 (522) (27) 318 842 12,615 8,755 1,562 (464) (23) 692 10,522 59,099 224 (2,204) (28) 28 4,148 61,267 14,021 2,201 (926) (10) 1,082 16,368 1,311 1,390 — — (848) 126 1,979 — — — — — — 97,189 2,433 (2,913) (55) — 6,976 103,630 36,872 5,283 (1,540) (33) 2,867 43,449 44,899 11,210 2,093 1,979 60,181 F-94 F-95 12. Trade and Bills Receivables 15. Property, Plant and Equipment Trade receivables—third parties Trade receivables—related parties (Note 23(b)) Bills receivables All trade and bills receivables are denominated in RMB and are due within one year from the end of the reporting period. The carrying values of trade and bills receivables approximate their fair values due to their short-term maturities. Movements on the provision for trade receivables are as follows: As at January 1 Increase in provision for trade receivables Decrease in provision due to subsequent collection Exchange differences As at September 28/December 31 2021 2020 (in US$’000) — 38 — — 38 (20) 19 — 1 — The impaired and provided receivables as at September 28, 2021 were aged over 1 year. 13. Other Receivables, Prepayments and Deposits Prepayments to suppliers Value‑added tax receivables Land compensation receivable Others 14. Inventories Raw materials Work in progress Finished goods September 28, 2021 (in US$’000) 4,290 1,975 21,609 27,874 September 28, 2021 (in US$’000) 9,671 780 14,592 1,504 26,547 September 28, 2021 (in US$’000) 23,126 17,816 21,458 62,400 Cost As at January 1, 2021 Additions Disposals Transfers Exchange differences As at September 28, 2021 Accumulated depreciation As at January 1, 2021 Depreciation Disposals Exchange differences As at September 28, 2021 Net book value As at September 28, 2021 Cost As at January 1, 2020 Additions Disposals Disposal of a subsidiary Transfers Exchange differences As at December 31, 2020 Accumulated depreciation As at January 1, 2020 Depreciation Disposals Disposal of a subsidiary Exchange differences As at December 31, 2020 Net book value As at December 31, 2020 Buildings and facilities 61,267 396 (3) — 516 62,176 16,368 1,763 (1) 137 18,267 Furniture and fixtures, other equipment and motor vehicles (in US$’000) Plant and equipment Construction in progress 27,769 440 (97) 358 234 28,704 16,559 1,278 (61) 138 17,914 12,615 623 (78) 906 105 14,171 10,522 1,384 (69) 89 11,926 1,979 943 — (1,264) 17 1,675 — — — — — Total 103,630 2,402 (178) — 872 106,726 43,449 4,425 (131) 364 48,107 43,909 10,790 2,245 1,675 58,619 Buildings and facilities 59,099 224 (2,204) (28) 28 4,148 61,267 14,021 2,201 (926) (10) 1,082 16,368 Furniture and fixtures, other equipment and motor vehicles (in US$’000) Plant and equipment Construction in progress 25,426 168 (187) — 502 1,860 27,769 14,096 1,520 (150) — 1,093 16,559 11,353 651 (522) (27) 318 842 12,615 8,755 1,562 (464) (23) 692 10,522 1,311 1,390 — — (848) 126 1,979 — — — — — — Total 97,189 2,433 (2,913) (55) — 6,976 103,630 36,872 5,283 (1,540) (33) 2,867 43,449 44,899 11,210 2,093 1,979 60,181 F-94 F-95 16. Leases Leases consisted of the following: Right-of-use assets: Warehouses Lease liabilities—current Lease activities are summarized as follows: Lease expenses: Short-term leases with lease terms equal or less than 12 months Depreciation charge of right-of-use assets Interest expense (included in finance costs) Cash paid on lease liabilities September 28, 2021 (in US$’000) 420 452 Period from January 1, 2021 to September 28, 2021 Year Ended December 31, 2020 (in US$’000) 953 407 24 427 887 551 57 609 Lease contracts are typically within a period of 1 to 6 years. The weighted average remaining lease term and weighted average discount rate as at September 28, 2021 was 0.83 year (as at December 31, 2020: 1.56 years) and 4.75% (as at December 31, 2020: 4.75%) respectively. Future lease payments are as follows: Lease payments: Not later than 1 year Total lease payments Less: Discount factor Total lease liabilities 17. Deferred Tax Assets and Liabilities Deferred tax assets Net deferred tax assets September 28, 2021 (in US$’000) 462 462 (10) 452 September 28, 2021 (in US$’000) 4,420 4,420 2021 2022 2023 2024 2025 2026 18. Trade Payables The movements in net deferred tax assets are as follows: At January 1 —Tax losses Credited/(debited) to the consolidated income statements —Accrued expenses, provisions, depreciation allowances Exchange differences At September 28/December 31 2021 2020 (in US$’000) 3,027 326 927 140 4,420 2,217 (396) 1,010 196 3,027 The Group’s deferred tax assets and liabilities are temporary differences including tax losses, accrued expenses, provisions and depreciation allowances. The potential deferred tax assets in respect of tax losses which have not been recognized in the consolidated financial statements were approximately US$1.6 million as at September 28, 2021. These unrecognized tax losses can be carried forward against future taxable income and will expire in the following years: September 28, 2021 (in US$’000) 928 1,450 856 1,239 1,074 669 6,216 September 28, 2021 (in US$’000) 15,519 3,529 19,048 Trade payables—third parties Trade payables—related parties (Note 23(b)) All trade payables are denominated in RMB and due within one year from the end of the reporting period. The carrying value of trade payables approximates their fair values due to their short-term maturities. F-96 F-97 Period from January 1, 2021 to September 28, 2021 Year Ended December 31, 2020 (in US$’000) Lease expenses: Short-term leases with lease terms equal or less than 12 months Depreciation charge of right-of-use assets Interest expense (included in finance costs) Cash paid on lease liabilities 953 407 24 427 Lease contracts are typically within a period of 1 to 6 years. The weighted average remaining lease term and weighted average discount rate as at September 28, 2021 was 0.83 year (as at December 31, 2020: 1.56 years) and 4.75% (as at December 31, 2020: 16. Leases Leases consisted of the following: Right-of-use assets: Warehouses Lease liabilities—current Lease activities are summarized as follows: 4.75%) respectively. Future lease payments are as follows: 17. Deferred Tax Assets and Liabilities Lease payments: Not later than 1 year Total lease payments Less: Discount factor Total lease liabilities Deferred tax assets Net deferred tax assets September 28, 2021 (in US$’000) 420 452 887 551 57 609 462 462 (10) 452 September 28, 2021 (in US$’000) September 28, 2021 (in US$’000) 4,420 4,420 The movements in net deferred tax assets are as follows: At January 1 Credited/(debited) to the consolidated income statements —Tax losses —Accrued expenses, provisions, depreciation allowances Exchange differences At September 28/December 31 2021 2020 (in US$’000) 3,027 326 927 140 4,420 2,217 (396) 1,010 196 3,027 The Group’s deferred tax assets and liabilities are temporary differences including tax losses, accrued expenses, provisions and depreciation allowances. The potential deferred tax assets in respect of tax losses which have not been recognized in the consolidated financial statements were approximately US$1.6 million as at September 28, 2021. These unrecognized tax losses can be carried forward against future taxable income and will expire in the following years: 2021 2022 2023 2024 2025 2026 18. Trade Payables Trade payables—third parties Trade payables—related parties (Note 23(b)) September 28, 2021 (in US$’000) 928 1,450 856 1,239 1,074 669 6,216 September 28, 2021 (in US$’000) 15,519 3,529 19,048 All trade payables are denominated in RMB and due within one year from the end of the reporting period. The carrying value of trade payables approximates their fair values due to their short-term maturities. F-96 F-97 19. Other Payables, Accruals and Advance Receipts 21. Notes to the Consolidated Statements of Cash Flows Other payables and accruals Accrued salaries and benefits Accrued selling and administrative expenses Value‑added tax and tax surcharge payables Deposits received Other payables to manufacturers Others Advance receipts Payments in advance from customers (note) Deferred government incentives September 28, 2021 (in US$’000) 5,384 35,266 2,588 4,748 8,794 5,934 62,714 16,310 1,460 17,770 80,484 Note: Substantially all customer balances as at September 28, 2021 are expected to be recognized to revenue within one year upon transfer of goods or services as the contracts have an expected duration of one year or less. (16,433) (84,667) 20. Deferred Income Deferred government incentives: Buildings and other non‑current assets Others September 28, 2021 (in US$’000) 11,272 3,641 14,913 (a) Reconciliation of profit for the period/year to net cash generated from operations: Profit for the period/year Adjustments to reconcile profit for the period/year to net cash generated from operations Taxation charge Finance costs Interest income Share of (profits)/losses of a joint venture and associated companies, net of tax Depreciation on property, plant and equipment Depreciation charge of right-of-use assets Loss on disposal of property, plant and equipment Gain on return of land Gain on disposal of leasehold land Amortization of leasehold land Amortization of other intangible assets Movement on the provision for trade receivables Movement on the provision for excess and obsolete inventories Amortization of deferred income Gain on divestment of a subsidiary Exchange differences Changes in working capital: Trade and bills receivables Other receivables, prepayments and deposits Inventories Other non-current assets Trade payables Other payables, accruals and advance receipts Total changes in working capital Net cash generated from operations Period from January 1, 2021 to September 28, 2021 Year Ended December 31, 2020 (in US$’000) 31,886 91,214 4,840 24 (205) (29) 4,425 407 47 — 450 331 38 41 (845) — (470) 39,505 (5,248) (18,693) (139) (3,531) (18,616) (6,722) 17,785 16,494 57 (271) 84 5,283 551 643 (166) 236 414 (20) 474 (1,689) (37) 794 (19,124) 1,902 2,195 — 9,880 36,509 31,362 60,756 September 28, 2021 (in US$’000) 1,290 (b) Supplemental disclosure for non-cash activities During the period from January 1, 2021 to September 28, 2021, there was an increase of US$0.4 million in accruals made for purchases of property, plant and equipment (for the year ended December 31, 2020: an increase of US$0.1 million). 22. Capital Commitments The Group had the following capital commitments: Property, plant and equipment Contracted but not provided for Capital commitments for property, plant and equipment are mainly for improvements to the Group’s plant. F-98 F-99 Other payables and accruals Accrued salaries and benefits Accrued selling and administrative expenses Value‑added tax and tax surcharge payables Deposits received Other payables to manufacturers Others Advance receipts Payments in advance from customers (note) Deferred government incentives 20. Deferred Income Deferred government incentives: Buildings and other non‑current assets Others September 28, 2021 (in US$’000) 5,384 35,266 2,588 4,748 8,794 5,934 62,714 16,310 1,460 17,770 80,484 September 28, 2021 (in US$’000) 11,272 3,641 14,913 Note: Substantially all customer balances as at September 28, 2021 are expected to be recognized to revenue within one year upon transfer of goods or services as the contracts have an expected duration of one year or less. 19. Other Payables, Accruals and Advance Receipts 21. Notes to the Consolidated Statements of Cash Flows (a) Reconciliation of profit for the period/year to net cash generated from operations: Profit for the period/year Adjustments to reconcile profit for the period/year to net cash generated from operations Taxation charge Finance costs Interest income Share of (profits)/losses of a joint venture and associated companies, net of tax Depreciation on property, plant and equipment Depreciation charge of right-of-use assets Loss on disposal of property, plant and equipment Gain on return of land Gain on disposal of leasehold land Amortization of leasehold land Amortization of other intangible assets Movement on the provision for trade receivables Movement on the provision for excess and obsolete inventories Amortization of deferred income Gain on divestment of a subsidiary Exchange differences Changes in working capital: Trade and bills receivables Other receivables, prepayments and deposits Inventories Other non-current assets Trade payables Other payables, accruals and advance receipts Total changes in working capital Net cash generated from operations Period from January 1, 2021 to September 28, 2021 Year Ended December 31, 2020 (in US$’000) 31,886 91,214 4,840 24 (205) (29) 4,425 407 47 (16,433) — 450 331 38 41 (845) — (470) 39,505 (5,248) (18,693) (139) (3,531) (18,616) (6,722) 17,785 16,494 57 (271) 84 5,283 551 643 (84,667) (166) 236 414 (20) 474 (1,689) (37) 794 (19,124) 1,902 2,195 — 9,880 36,509 31,362 60,756 (b) Supplemental disclosure for non-cash activities During the period from January 1, 2021 to September 28, 2021, there was an increase of US$0.4 million in accruals made for purchases of property, plant and equipment (for the year ended December 31, 2020: an increase of US$0.1 million). 22. Capital Commitments The Group had the following capital commitments: Property, plant and equipment Contracted but not provided for September 28, 2021 (in US$’000) 1,290 Capital commitments for property, plant and equipment are mainly for improvements to the Group’s plant. F-98 F-99 23. Significant Related Party Transactions (b) Balances with related parties included in: The Group has the following significant transactions with related parties which were carried out in the normal course of business at terms determined and agreed by the relevant parties: (a) Transactions with related parties: Sales of goods to: —Fellow subsidiaries of GBPHCL —A fellow subsidiary of GZHCMHK Other services income from: —An equity investee —Fellow subsidiaries of GBPHCL Purchase of goods from: —An equity investee —Fellow subsidiaries of GBPHCL Advertising expenses to: —A fellow subsidiary of GBPHCL Interest paid to: —A non-controlling shareholder of a subsidiary Period from January 1, 2021 to September 28, 2021 Year Ended December 31, 2020 (in US$’000) 25,043 278 25,321 — 3,576 3,576 2,145 24,222 26,367 4,805 — — 33,535 493 34,028 273 6,166 6,439 2,317 29,594 31,911 5,733 5 5 No transactions have been entered into with the directors of the Company (being the key management personnel) during the period from January 1, 2021 to September 28, 2021 (for the year ended December 31, 2020: nil). All of the Group’s principal subsidiaries, joint venture and associated companies had a place of establishment and operation in the F-100 Trade and bills receivables —Fellow subsidiaries of GBPHCL (note (i)) Trade payables —Fellow subsidiaries of GBPHCL (note (i)) Other receivables and prepayments—related parties —Fellow subsidiaries of GBPHCL (note (i)) —An equity investee (note (i)) Other payables, accruals and advance receipts —Fellow subsidiaries of GBPHCL (note (i)) Dividend payable (Note 3(b)) —GZHCMHK —GBPHCL Notes: September 28, 2021 (in US$’000) 1,975 1,975 3,529 3,529 1,129 156 1,285 2,691 2,691 52,887 52,887 105,774 (i) Balances are unsecured, interest-free and repayable on demand. The carrying values of balances with related parties approximate their fair values due to their short-term maturities. 24. Particulars of Principal Subsidiaries, Joint Venture and Associated Companies PRC. Name Ltd Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine (Bozhou) Co. Hutchison Whampoa Guangzhou Baiyunshan Pharmaceuticals Limited Hutchison Whampoa Guangzhou Baiyunshan Health & Wellness Co. Ltd Hutchison Whampoa Baiyunshan Lai Da Pharmaceuticals (Shan Tou) Fuyang Baiyunshan Hutchison Whampoa Chinese Medicine Technology Wenshan Baiyunshan Hutchison Whampoa Sanqi Co. Ltd. Daqing Baiyunshan Hutchison Whampoa Banlangen Technology Company Company Limited Company Limited Limited Shen Nong Garden Traditional Chinese Medicine Museum Guangzhou Hulu Cultural Communications Company Limited Shen Nong Garden Pharmacy Company Limited Qing Yuan Hutchison Whampoa Baiyunshan Chinese Medicine Company Joint Venture Limited Associated companies Linyi Shenghe Jiuzhou Pharmaceuticals Company Limited Tibet Linzhi Guangzhou Pharmaceutical Development Co. Ltd. 2021 Type of legal entity Principal activity 100 % Limited liability company drug products 100 % Limited liability company Sales and marketing of drug products 100 % Limited liability company Health supplemented food distribution Manufacture, sales and distribution of Manufacture, sales and distribution of 100 % Limited liability company drug products 75 % Limited liability company Agriculture and sales of Chinese herbs 51 % Limited liability company Agriculture and sales of Chinese herbs 51 % Limited liability company Agriculture and sales of Chinese herbs Non-profit making 100 % organization 100 % Limited liability company Promote awareness of Chinese herbs Promote awareness of Chinese herbs Retail of drug products, health foods and 100 % Limited liability company souvenirs 50 % Limited liability company Agriculture and sales of Chinese herbs 30 % Limited liability company Agriculture and sales of Chinese herbs 20 % Limited liability company Trading of Chinese herbs Nominal value Equity interest of registered attributable capital to the Group September 28, September 28, 2021 (in RMB’000) 100,000 10,000 10,000 10,000 3,650 2,000 1,020 1,000 1,000 200 1,000 3,000 2,000 F-101 23. Significant Related Party Transactions (b) Balances with related parties included in: The Group has the following significant transactions with related parties which were carried out in the normal course of business at terms determined and agreed by the relevant parties: (a) Transactions with related parties: Sales of goods to: —Fellow subsidiaries of GBPHCL —A fellow subsidiary of GZHCMHK Other services income from: —An equity investee —Fellow subsidiaries of GBPHCL Purchase of goods from: —An equity investee —Fellow subsidiaries of GBPHCL Advertising expenses to: —A fellow subsidiary of GBPHCL Interest paid to: —A non-controlling shareholder of a subsidiary Period from January 1, 2021 to September 28, 2021 Year Ended December 31, 2020 (in US$’000) 25,043 278 25,321 — 3,576 3,576 2,145 24,222 26,367 4,805 — — 33,535 493 34,028 273 6,166 6,439 2,317 29,594 31,911 5,733 5 5 No transactions have been entered into with the directors of the Company (being the key management personnel) during the period from January 1, 2021 to September 28, 2021 (for the year ended December 31, 2020: nil). F-100 Trade and bills receivables —Fellow subsidiaries of GBPHCL (note (i)) Trade payables —Fellow subsidiaries of GBPHCL (note (i)) Other receivables and prepayments—related parties —Fellow subsidiaries of GBPHCL (note (i)) —An equity investee (note (i)) Other payables, accruals and advance receipts —Fellow subsidiaries of GBPHCL (note (i)) Dividend payable (Note 3(b)) —GZHCMHK —GBPHCL Notes: September 28, 2021 (in US$’000) 1,975 1,975 3,529 3,529 1,129 156 1,285 2,691 2,691 52,887 52,887 105,774 (i) Balances are unsecured, interest-free and repayable on demand. The carrying values of balances with related parties approximate their fair values due to their short-term maturities. 24. Particulars of Principal Subsidiaries, Joint Venture and Associated Companies All of the Group’s principal subsidiaries, joint venture and associated companies had a place of establishment and operation in the PRC. Name Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine (Bozhou) Co. Ltd Hutchison Whampoa Guangzhou Baiyunshan Pharmaceuticals Limited Hutchison Whampoa Guangzhou Baiyunshan Health & Wellness Co. Ltd Hutchison Whampoa Baiyunshan Lai Da Pharmaceuticals (Shan Tou) Company Limited Fuyang Baiyunshan Hutchison Whampoa Chinese Medicine Technology Company Limited Wenshan Baiyunshan Hutchison Whampoa Sanqi Co. Ltd. Daqing Baiyunshan Hutchison Whampoa Banlangen Technology Company Limited Shen Nong Garden Traditional Chinese Medicine Museum Guangzhou Hulu Cultural Communications Company Limited Shen Nong Garden Pharmacy Company Limited Joint Venture Qing Yuan Hutchison Whampoa Baiyunshan Chinese Medicine Company Limited Associated companies Linyi Shenghe Jiuzhou Pharmaceuticals Company Limited Tibet Linzhi Guangzhou Pharmaceutical Development Co. Ltd. Nominal value Equity interest of registered capital September 28, 2021 (in RMB’000) attributable to the Group September 28, 2021 Type of legal entity Principal activity 100 % Limited liability company 100 % Limited liability company 100 % Limited liability company 100 % Limited liability company Manufacture, sales and distribution of drug products Sales and marketing of drug products Health supplemented food distribution Manufacture, sales and distribution of drug products 75 % Limited liability company 51 % Limited liability company Agriculture and sales of Chinese herbs Agriculture and sales of Chinese herbs 51 % Limited liability company Agriculture and sales of Chinese herbs Non-profit making organization 100 % 100 % Limited liability company 100 % Limited liability company Promote awareness of Chinese herbs Promote awareness of Chinese herbs Retail of drug products, health foods and souvenirs 50 % Limited liability company Agriculture and sales of Chinese herbs 30 % Limited liability company 20 % Limited liability company Agriculture and sales of Chinese herbs Trading of Chinese herbs 100,000 10,000 10,000 10,000 3,650 2,000 1,020 1,000 1,000 200 1,000 3,000 2,000 F-101 9 10 11 1 2 3 4 5 6 7 8 MRCT = Multi-regional clinical trial. CRC = Colorectal cancer. NDA = New Drug Application. FDA = Food and Drug Administration. PFS = Progression-free survival. MET = Mesenchymal epithelial transition factor. NRDL = National Reimbursement Drug List. We also report changes in performance at constant exchange rate (“CER”) which is a non-GAAP measure. Please refer to “Use of Non-GAAP Financial Measures and Reconciliation” below for further information relevant to the interpretation of these financial measures and reconciliations of these financial measures to the most comparable GAAP measures. In-market sales = total sales to third parties provided by Eli Lilly (ELUNATE®), AstraZeneca (ORPATHYS®) and HUTCHMED (ELUNATE®, SULANDA® and TAZVERIK®). Takeda = Takeda Pharmaceuticals International AG. AstraZeneca = AstraZeneca AB (publ), a wholly-owned subsidiary of AstraZeneca PLC. R&D = Research and development. 12 Lilly = Eli Lilly and Company. 13 ITP = Immune thrombocytopenia purpura. 14 NMPA = National Medical Products Administration. 15 EMA = European Medicines Agency. 16 PMDA = Pharmaceuticals and Medical Devices Agency. 17 18 NSCLC = Non-small cell lung cancer. 19 MAA = Marketing Authorization Application. PRCC = Papillary renal cell carcinoma. 20 EGFR = Epidermal growth factor receptor. 21 22 WCLC = World Conference on Lung Cancer. 23 24 25 26 27 28 29 ORR = Objective response rate. DoR = Duration of response. OS = Overall survival. ELCC = European Lung Cancer Congress. VEGFR = Vascular endothelial growth factor receptor. ESMO = European Society for Medical Oncology. ASCO GI = ASCO (American Society of Clinical Oncology) Gastrointestinal Cancers Symposium. DCR = Disease control rate. PD-1 = Programmed cell death protein-1. RCC = Renal cell carcinoma. FGFR = Fibroblast growth factor receptor. CSF-1R = Colony-stimulating factor 1 receptor. ASCO = American Society of Clinical Oncology. NANETS = North American Neuroendocrine Tumor Society Medical Symposium. NET = Neuroendocrine tumor. Syk = Spleen tyrosine kinase. AIHA = autoimmune hemolytic anemia. PI3Kδ = Phosphoinositide 3-kinase delta. Ipsen = Ipsen SA, parent of Epizyme Inc. 30 31 32 33 34 35 36 37 38 39 40 41 434 Epizyme = Epizyme Inc., a wholly owned subsidiary of Ipsen SA. ASH = American Society of Hematology. IDH = Isocitrate dehydrogenase. BTK = Bruton’s tyrosine kinase. ERK = Extracellular signal-regulated kinase. 42 43 44 45 46 47 MAPK pathway = RAS-RAF-MEK-ERK signaling cascade. 48 49 50 51 CDE = Center for Drug Evaluation IHCC = Intrahepatic cholangiocarcinoma. SHPL = Shanghai Hutchison Pharmaceuticals Limited. HBYS = Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited. GAAP = Generally Accepted Accounting Principles. HKEX = The Main Board of The Stock Exchange of Hong Kong Limited. ADS = American depositary share. SG&A Expenses = selling, general and administrative expenses. NHSA = China National Healthcare Security Administration. pNET= pancreatic neuroendocrine tumor. CSCO = Chinese Society of Clinical Oncology. EGFRm+ = Epidermal growth factor receptor mutated. TKI = Tyrosine kinase inhibitor. FISH5+ = MET amplification as detected by FISH with MET copy number ≥ 5 and/or MET: CEP signal ratio ≥ 2. IHC50+ = MET overexpression as detected by IHC with 3+ in ≥ 50% tumor cells. FISH10+ = MET amplification as detected by FISH with MET copy number ≥ 10. IHC90+ = MET overexpression as detected by IHC with 3+ in ≥ 90% tumor cells. TN = Triple negative. HR+ = Hormone receptor positive. Her2- = Human epidermal growth factor receptor 2 negative. 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 MSS = Microsatellite Stable. 69 70 71 72 73 74 75 76 77 78 epNET = extra-pancreatic neuroendocrine tumor. NEC = Neuroendocrine carcinoma. NEN = Neuroendocrine neoplasms. IO = Immuno-oncology. SCLC = Small cell lung cancer. NHL = Non-Hodgkin’s Lymphoma. CLL = Chronic lymphocytic leukemia. SLL = Small lymphocytic lymphoma. API = Active pharmaceutical ingredient. Hutchison Sinopharm = Hutchison Whampoa Sinopharm Pharmaceuticals (Shanghai) Company Limited. Luye = Luye Pharma Hong Kong Ltd. SXBX = She Xiang Bao Xin. HSBC = The Hongkong and Shanghai Banking Corporation Limited. HIBOR = Hong Kong Interbank Offered Rate. Deutsche Bank AG = Deutsche Bank AG, Hong Kong Branch. PBOC = People’s Bank of China. 79 80 81 82 83 84 REFERENCES AND ABBREVIATIONSINFORMATION FOR SHAREHOLDERS LISTING The ordinary shares of the Company are listed on The Stock Exchange of Hong Kong Limited (“HKEX”), the AIM market of the London Stock Exchange and in the form of American depositary shares (“ADSs”) on the NASDAQ Global Select Market. Each ADS represents ownership of five ordinary shares of the Company. Additional information and specific enquiries concerning the ADSs should be directed to the ADS Depositary at the address given on this page. STOCK CODES HKEX: 13 Nasdaq/AIM: HCM PUBLIC FLOAT CAPITALIZATION As at December 31, 2022: Approximately US$1.5 billion (approximately 60.67% of the issued share capital of the Company) FINANCIAL CALENDAR Closure of Register of Members May 9, 2023 to May 12, 2023 Annual General Meeting May 12, 2023 Interim Results Announcement August 2023 REGISTERED OFFICE P.O. Box 309, Ugland House Grand Cayman, KY1-1104 Cayman Islands Telephone: Facsimile: +1 345 949 8066 +1 345 949 8080 PRINCIPAL PLACE OF BUSINESS 48th Floor, Cheung Kong Center 2 Queen’s Road Central Hong Kong Telephone: Facsimile: +852 2128 1188 +852 2128 1778 PRINCIPAL EXECUTIVE OFFICE Level 18, The Metropolis Tower 10 Metropolis Drive Hunghom, Kowloon Hong Kong Telephone: Facsimile: +852 2121 8200 +852 2121 8281 PRINCIPAL SHARE REGISTRAR Computershare Investor Services (Jersey) Limited 13 Castle Street, St. Helier Jersey, Channel Islands JE1 1ES Telephone: Facsimile: +44 (0)370 707 4040 +44 (0)370 873 5851 HONG KONG BRANCH SHARE REGISTRAR Computershare Hong Kong Investor Services Limited Shops 1712-1716, 17th Floor Hopewell Centre, 183 Queen’s Road East Wan Chai, Hong Kong Telephone: Facsimile: +852 2862 8628 +852 2865 0990 CREST DEPOSITARY Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS99 6ZY United Kingdom Telephone: Facsimile: +44 (0)370 702 0000 +44 (0)370 703 6114 ADS DEPOSITARY Deutsche Bank Trust Company Americas 1 Columbus Circle New York, NY 10019 United States of America Telephone: Facsimile: +001 212 250 9100 +001 732 544 6346 SHAREHOLDERS CONTACT Please direct enquiries to: 48th Floor, Cheung Kong Center 2 Queen’s Road Central Hong Kong Attn: Edith Shih Non-executive Director & Company Secretary ediths@ckh.com.hk +852 2128 1778 E-mail: Facsimile: INVESTOR INFORMATION Corporate press releases, financial reports and other investor information on the Company are available online at the Company’s website. INVESTOR RELATIONS CONTACT Please direct enquiries to: E-mail: Telephone: Facsimile: ir@hutch-med.com +852 2121 8200 +852 2121 8281 WEBSITE ADDRESS www.hutch-med.com REFERENCES Unless the context requires otherwise, references in this Annual Report to the “Group,” the “Company,” “HUTCHMED,” “HUTCHMED Group,” “we,” “us,” and “our,” mean HUTCHMED (China) Limited and its consolidated subsidiaries and joint ventures unless otherwise stated or indicated by context. PAST PERFORMANCE AND FORWARD-LOOKING STATEMENTS The performance and results of operations of the Group contained within this Annual Report are historical in nature, and past performance is no guarantee of future results of the Group. This Annual Report contains forward-looking statements within the meaning of the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by words like “will,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “pipeline,” “could,” “potential,” “first-in-class,” “best-in-class,” “designed to,” “objective,” “guidance,” “pursue,” or similar terms, or by express or implied discussions regarding potential drug candidates, potential indications for drug candidates or by discussions of strategy, plans, expectations or intentions. You should not place undue reliance on these statements. Such forward-looking statements are based on the current beliefs and expectations of management regarding future events, and are subject to significant known and unknown risks and uncertainties. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those set forth in the forward-looking statements. There can be no guarantee that any of our drug candidates will be approved for sale in any market, that any approvals which are obtained will be obtained at any particular time, or that the sales of products marketed or otherwise commercialized by HUTCHMED and/or its collaboration partners (collectively, “HUTCHMED’s Products”) will achieve any particular revenue or net income levels. In particular, management’s expectations could be affected by, among other things: unexpected regulatory actions or delays or government regulation generally, including, among others, the risk that HUTCHMED’s ADSs could be barred from trading in the United States as a result of the Holding Foreign Companies Accountable Act and the rules promulgated thereunder; the uncertainties inherent in research and development, including the inability to meet our key study assumptions regarding enrollment rates, timing and availability of subjects meeting a study’s inclusion and exclusion criteria and funding requirements, changes to clinical protocols, unexpected adverse events or safety, quality or manufacturing issues; the inability of a drug candidate to meet the primary or secondary endpoint of a study; the inability of a drug candidate to obtain regulatory approval in different jurisdictions or the utilization, market acceptance and commercial success of HUTCHMED’s Products after obtaining regulatory approval; competing products and drug candidates that may be superior to, or more cost effective than, HUTCHMED’s Products and drug candidates; the impact of studies (whether conducted by HUTCHMED or others and whether mandated or voluntary) or recommendations and guidelines from governmental authorities and other third parties on the commercial success of HUTCHMED’s Products and drug candidates in development; the ability of HUTCHMED to manufacture and manage supply chains for multiple products and drug candidates; the availability and extent of reimbursement of HUTCHMED’s Products from third-party payers, including private payer healthcare and insurance programs and government insurance programs; the costs of developing, producing and selling HUTCHMED's Products; the ability of HUTCHMED to meet any of its financial projections or guidance and changes to the assumptions underlying those projections or guidance; global trends toward health care cost containment, including ongoing pricing pressures; uncertainties regarding actual or potential legal proceedings, including, among others, actual or potential product liability litigation, litigation and investigations regarding sales and marketing practices, intellectual property disputes, and government investigations generally; and general economic and industry conditions, including uncertainties regarding the effects of the persistently weak economic and financial environment in many countries, uncertainties regarding future global exchange rates and uncertainties regarding the impact of the COVID-19 pandemic. For further discussion of these and other risks, see HUTCHMED’s filings with the U.S. Securities and Exchange Commission, on AIM and on HKEX. HUTCHMED is providing the information in this Annual Report as of this date and does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise. In addition, this Annual Report contains statistical data and estimates that HUTCHMED obtained from industry publications and reports generated by third-party market research firms. Although HUTCHMED believes that the publications, reports and surveys are reliable, HUTCHMED has not independently verified the data and cannot guarantee the accuracy or completeness of such data. You are cautioned not to give undue weight to this data. Such data involves risks and uncertainties and are subject to change based on various factors, including those discussed above. 

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