Luye Pharma : ANNUAL REPORT 2016

(incorporated in Bermuda with limited liability)

Stock Code: 2186

Annual Report 2016

Contents

Company Overview 2

Corporate Information 3

Financial Highlights 5

Chairman's Statement 6

Management Discussion and Analysis 9

Directors and Senior Management 19

Report of Directors 26

Corporate Governance Report 42

Independent Auditor's Report 52

Consolidated Statement of Profit or Loss 57

Consolidated Statement of Comprehensive Income 58

Consolidated Statement of Financial Position 59

Consolidated Statement of Changes in Equity 61

Consolidated Statement of Cash Flows 62

Notes to the Consolidated Financial Statements 64

2 Luye Pharma Group Ltd.

Company Overview

The Group focuses on developing, producing, marketing and selling innovative pharmaceutical products in four of the largest and fast growing therapeutic areas in the People's Republic of China (the "PRC" or "China"), the United States (the "U.S."), Europe and other countries or districts, namely oncology, cardiovascular system, alimentary tract and metabolism and central nervous system ("CNS"). The Group's product portfolio consists of 34 products and centers around 6 key products, 5 of which have patent protection and are indicated for the treatment or prevention of high prevalence medical conditions, including cancer, cardiovascular diseases, diabetes and CNS.

The Group has established an extensive nationwide sales and distribution network and sold its products to 30 provinces, autonomous regions and municipalities throughout the PRC in 2016. The Group's sales, marketing and distribution functions are conducted through over 60 sales support offices, over 1,300 sales and marketing personnel, a network of approximately 1,000 distributors that collectively enabled the Group to sell its products to over 11,500 hospitals. For overseas, the Group has established in-house sales teams in both Singapore and Malaysia. The Group has strong sales partnerships with more than 20 partners throughout the world, covering more than 20 countries including the U.S., Europe and other countries or districts.

The Group's research and development ("R&D") activities are organised around four platforms - long-acting and extended release technology, liposome and targeted drug delivery, transdermal drug delivery systems and new compounds. As at 31 December 2016, the Group's R&D team consisted of approximately 320 employees, including approximately 54 Ph.D. degree holders and approximately 155 Master's degree holders in medical, pharmaceutical and other related areas. As at 31 December 2016, the Group had been granted over 250 patents and had over 40 pending patent applications in the PRC, as well as over 150 patents and over 50 pending patent applications overseas. The Group had a pipeline of 27 PRC product candidates in various stages of development. These candidates included 15 oncology products, 3 cardiovascular and metabolism products, as well as 9 CNS products.

Also, the Group had a pipeline of 6 candidate products in the U.S. or Europe in various stages of development.

Annual Report 2016 3

Corporate Information

Board of Directors

Executive Directors

Mr. LIU Dian Bo

(Executive Chairman and Chief Executive Officer) Mr. YANG Rong Bing (Vice Executive Chairman) Mr. YUAN Hui Xian

Ms. ZHU Yuan Yuan

Non-Executive Directors

Mr. PAN Jian (Retired on 8 June 2016) Mr. LIU Dong (Retired on 8 June 2016) Ms. WANG Xin (Retired on 8 June 2016)

Mr. SONG Rui Lin (Appointed on 29 March 2017)

Independent Non-executive Directors

Mr. ZHANG Hua Qiao Professor LO Yuk Lam Mr. LEUNG Man Kit

Mr. CHOY Sze Chung Jojo

Company Secretary

Ms. LAI Siu Kuen

Authorized Representatives

Mr. YANG Rong Bing Ms. ZHU Yuan Yuan

Audit Committee

Mr. LEUNG Man Kit (Chairman) Mr. ZHANG Hua Qiao Professor LO Yuk Lam

Remuneration Committee

Mr. CHOY Sze Chung Jojo (Chairman)

Mr. ZHANG Hua Qiao Professor LO Yuk Lam

Nomination Committee

Professor LO Yuk Lam (Chairman)

Mr. ZHANG Hua Qiao

Mr. CHOY Sze Chung Jojo

Registered Office

Clarendon House 2 Church Street

Hamilton HM 11 Bermuda

Head Office and Principal Place of Business in the People's Republic of China

No. 15 Chuang Ye Road

High-tech Industrial Development Zone Yantai, Shandong

264003

People's Republic of China

Building 12

Shanghai Business Park III No. 1036 Tianlin Road Shanghai

People's Republic of China

Principal Place of Business in Hong Kong

Unit 3207, 32/F, Champion Tower 3 Garden Road

Central Hong Kong