Friday, 24 March 2023, 19:16 HKT/SGT

- Revenue Amounted to RMB2,181.2 Million with a Final Dividend of RMB3.2 cents per Share
- Implementing Adjustment to Organizational Structure to Accelerate High-quality Development in the Transformation to Medical Aesthetics and Innovative Drugs, and Pushing Ahead with the Strategic Goal of Becoming a Leading Medical Aesthetics and Biopharmaceutical company in China

HONG KONG, Mar 24, 2023 - (ACN Newswire) - Sihuan Pharmaceutical Holdings Group Ltd. (HKEX: 0460) ("Sihuan Pharmaceutical" or the "Company", together with its subsidiaries, the "Group") announces its annual results for the year ended 31 December 2022 (the Year). In 2022, due to the impact of the continued development of the domestic epidemic and policy changes of the pharmaceutical industry, the Group recorded a revenue from continuing operations of approximately RMB2,181.2 million, representing a year-on-year decrease of 28.2%. The profit for the Year turned into a loss of approximately RMB2,283.3 million, at the same time, the Board declared a final cash dividend of RMB3.2 cents per share.

The revenue from continuing operations in the medical aesthetics segment was approximately RMB149.8 million for the Year, representing a year-on-year decrease of 62.5%, due to the impact of the continued development of the domestic epidemic, channel inventory clearance and sales restructuring. Revenue from continuing operations of the innovative drugs and other pharmaceuticals segment was approximately RMB60.9 million during the Year. Due to the impact of changes in pharmaceutical industry policies and the ongoing development of the domestic epidemic, the revenue from continuing operations for the generic drug segment was RMB1,970.5 million for the Year, representing a year-on-year decrease of 24.2%.

The Group recorded a loss was mainly because multiple drugs in the R&D pipelines of Xuanzhu Biopharm and Huisheng Biopharm have entered Phase II or Phase III clinical trials and the development of the medical aesthetics segment, the R&D expenses for the Year was approximately RMB936.6 million. In addition, due to policy changes in the pharmaceutical industry, which affected the prices and sales volume of products to varying degrees, the Group made provision for asset impairments totaling RMB1,727.1 million.

Although the Group recorded decrease in results during the Year due to the impact of the epidemic and policy changes of the pharmaceutical industry, the Group achieved remarkable results in innovation driving, transformation and upgrading during the Year, with positive developments of high quality in both the medical aesthetics and pharmaceutical segments. During the Year, the Group's innovative pharmaceutical platform, Xuanzhu Biopharm, initiated the process of applying for listing on the STAR Market, and Huisheng Biopharm completed two rounds of equity financing, namely round A and round A+, attracting a total investment of over RMB1.08 billion; MeiYan KongJian, a medical aesthetic platform of the Group, successfully promoted the upgrading and development of 2.0 version for marketing and sales, continued to upgrade its sales structure, while continuously optimized its sales strategy, improved its sales capabilities and enriched its service provision. In addition, the Group has implemented the adjustment to its organizational structure, and gradually commenced the disposal of some of the generic medicine and healthcare businesses whose results did not meet expectations or were not in line with its long-term strategic development objectives; the Group accelerated the upgrading of its pharmaceutical business to innovative drugs by fully implementing its two-wheel drive strategy, and successfully obtained the "Annual Transformation Pioneer Company Award" of Gelonghui Greater China Listed Company Awards held by Gelonghui during the Year, successfully gaining market recognition through strengths and qualification.

At the same time, the Group persevered to maintain strong financial position, and paid approximately RMB1,315.5 million of dividends in aggregate for the Year. Meanwhile, as of 31 December 2022, the Group's cash and cash equivalents plus wealth management products amounted to approximately RMB4,791.9 million, and the debt to equity ratio was 25.1%, which remained low.

Looking forward into 2023, the management of the Group believes that with the relaxation of epidemic control and the recovery of economic activities in China, it is expected that the pent-up demand will show a V-shaped rebound, driving a rapid recovery of the medical aesthetics industry; with the centralized procurement policy of pharmaceutical industry being normalized and the system of negotiation agenda on national drug reimbursement list being improved, together with a specific and moderate price reduction under the policy, market pessimism is receding, and the core assets of pharmaceutical industry are expected to be revalued. The Group will further focus its management and resources on the medical aesthetic sector with higher growth and profit margin, and the biopharmaceutical sector with high value growth, and promote the transformation and development of the medical aesthetics and innovative drug businesses, in order to realize the strategic objective to build the leading medical aesthetics and biopharmaceutical company in China.

Successfully transforming from traditional generic drugs to innovative drug, and building a leading biopharmaceutical company in China at full speed

In order to drive the continuous innovation and transformation of the Group's pharmaceutical business and to build a leading biopharmaceutical company in China, the Group has simultaneously established separate business platform headquarters for the two major biopharmaceutical sectors, Xuanzhu Biopharm and Huisheng Biopharm.

As one of the companies with the most comprehensive layout in the breast cancer track in China, Xuanzhu Biopharm has been incubating the innovative drug segment since 2012. Over ten years of development, Xuanzhu Biopharm has gathered an outstanding team of nearly 400 people led by returnee scientists. The company owns the ability to research and develop innovative drugs independently, forms a complete R&D system, develops continuous capability of innovation and output, and sets up two R&D systems for small- molecule and macro-molecule bio-drugs which has jointly promoted the innovative development of Xuanzhu Biopharm, forming the product pipeline of various types covering small-molecule drugs, monoclonal antibody, bispecific antibody and antibody- drug conjugates.

During the Year, as to Birociclib (XZP-3287 CDK4/6 (cyclin-dependent kinases 4 and 6) inhibitor), the class I new drug candidate of Xuanzhu Biopharm, its phase III clinical trials enrollment of first-line treatment with aromatase inhibitor was in progress, and the phase III clinical trials enrollment of second-line treatment with fulvestrant was completed, and phase II efficacy evaluation of the final-line pivotal clinical trials of monotherapy treatment was in progress. Moreover, because of the novel targeting mechanism of CDK4/6 inhibitor, Birociclib is able to demonstrate clinical benefits and market influence through multiple novel Birociclib-based combination therapies.

During the year, Xuanzhu Biopharm continued to promote the expansion of BD business, and continuously enriched its product pipeline through cooperation with a number of biotechnology companies and the introduction of blockbuster varieties. In particular, in March 2022, the application for the class 1 macro molecules innovative drug XZP-KM257 (recombinant anti-HER2 domain II and domain IV bispecific antibody injection), independently developed by Xuanzhu Biopharm, has been approved successfully by the NMPA to initiate clinical trials for the treatment of advanced solid tumors with intermediate and high expression of HER2+. In May 2022, Xuanzhu Biopharm has successfully received IND approval from NMPA for its application of capsule XZB-0004, a highly potent, highly selective oral small-molecule AXL inhibitor with extremely low side effects, in clinical trials on advanced solid tumors and hematologic malignancies. In June 2022, Xuanzhu Biopharm and Shanghai SPH New Asia Pharmaceutical Co., Ltd. ("New Asia Pharmaceutical") reached an agreement on exclusive license of APIs and formulations of two new anti-infection drugs, Benapenem and Plazomicin in the Greater China Territory (including Mainland China, Hong Kong SAR, Macau SAR and Taiwan). In July 2022, the marketing application for fulvestrant of Xuanzhu Biopharm was also accepted by NMPA.

Jilin Huisheng was incubated in 2014 and after more than eight years of construction and development, it has a world-class research and development team and an extensive product pipeline of diabetes drugs. During the Year, Huisheng Biopharm rapidly advanced the R&D progress of multiple products and launched NDA of several blockbuster products, further moving from R&D to commercialization. During the Year, the NDA of five blockbuster products of Huisheng Biopharm was accepted by NMPA, and one heavyweight product was in the pre-NDA phase, which further accelerated the commercialization of the product pipeline and promoted the development from R&D to commercialization of the company.

The NDA of the insulin degludec injection, the fourth-generation insulin analogue developed by Huisheng Biopharm, was accepted by NMPA. It is the first domestic fourth-generation insulin analogue, the insulin degludec, that has applied for an NDA having been accepted in China after the original drug Tresiba. At the same time, the NDA of Janagliflozin, SGLT-2 inhibitor developed by Huisheng Biopharm has been accepted by the NMPA. It is the second domestic Class 1 innovative SGLT-2 inhibitor that has submitted an NDA in China and with the application having been accepted. Besides, the NDA of insulin aspart injection, insulin aspart 30 injection and insulin aspart 50 injection developed by Huisheng Biopharm also have been accepted by the NMPA .

Backed by the Group, and with full-coverage and multi-level product layout, leading and blockbuster R&D pipelines, and strong and comprehensive strategic resources, Huisheng Biopharm is gradually becoming a biopharmaceutical leader providing comprehensive solutions for diabetes and complications. This is also the characteristic that has fully appealed to the forward-thinking and exceptional investors in the market. During the Year, Huisheng Biopharm successfully completed its Round A and Round A+ financing, raising RMB1.08 billion in total, with a post-investment valuation of RMB5.58 billion.

Many products achieved new progress in 2022, and MeiYan KongJian will become a new engine of growth

Based on China's medical aesthetic market with high growth and low penetration rate, Sihuan Pharmaceutical is committed to building the medical aesthetic platform MeiYan KongJian under the Group as a leading medical aesthetic company with full product matrix with the rigor a pharmaceutical company. In 2022, MeiYan KongJian launched several projects, including the embarking project, medical research project, authentic product verification activities, etc., not only to increasingly empower the sales channels, reach strategic cooperation agreements with the leading institutions in respect of further deepen cooperation, but also cover a number of consumers through the cooperation with institutions, thereby enhancing the product strengths and brand promotion.

In 2022, Sihuan Pharmaceutical remained steadfast in the execution of its strategy of optimising sales solutions of medical aesthetics, insisting on reducing channel inventories to a healthy and reasonable level as one of its priorities, making timely adjustments to its own sales team and agent team, and strengthening strategic cooperation with large customers of downstream end-users. Through a variety of measures, the medical aesthetics business has been able to shed its burden and go forward with a lighter footprint. With the complete easing of the control on epidemic, the launch of more products of MeiYan KongJian as well as the upgrading and implementation of the sales strategy by the team, MeiYan KongJian is expected to become a new engine of the Groups business growth in 2023.

As of 15 March 2023, the Group has cooperated with 14 distribution agents, covering more than 310 cities and more than 3,500 medical aesthetic institutions nationwide. The leading 500 medical aesthetic institutions is fully covered.

In January 2022, MeiYan KongJian entered into an exclusive distribution agreement with VIOL from South Korea in respect of the SYLFIRM XTM golden microneedle product and obtained the exclusive distribution right of the product in Mainland China, Hong Kong and Macau. In March 2022, MeiYan KongJian has recently reached an exclusive distribution agreement in relation to Cellbooster series products with Suisselle SA from Switzerland, and obtained the exclusive distribution rights for the products in mainland China, Hong Kong, Macau and Taiwan. At the same time, the Group also further expanded its product portfolio and entered into core areas. It signed an agreement with Bluepha, whereby the two parties have established a joint venture to jointly develop PHA microspheres and bio-manufacturing-based regenerative medical materials, and the two parties will jointly complete the R&D, compliance declaration and subsequent commercial promotion of the products.

In addition, the modified sodium hyaluronate gel for injection (product name: PersnicaTM), which is exclusively distributed by the MeiYan KongJian and produced by Hugel from South Korea, obtained Class III medical device certificate from the NMPA in April 2022. Nearly 20 skin dressing patch products independently developed by the Group obtained the Class II medical device registration certificate issued by the NMPA.

With the further expansion of the Group's product matrix, the rapid advancement of product in R&D, clinical and registration stages, and the upgrading and optimization of sales services, the Groups medical aesthetics business has successfully completed the business upgrade and development of the 2.0 marketing and sales version, and has taken a step further towards its strategic goal of becoming a leading medical aesthetics company in China that achieves full product coverage for the whole life cycle needs of beauty lovers.

Disposal of some generic drug businesses to focus on the development of innovative drugs and medical aesthetic business

As the Group's innovative drug and medical aesthetics businesses gradually matured with products beginning to generate revenues, and each platform starting to operate separately and gaining independent financing capabilities, the Group's generic medicine business has completed its "historical mission". Sihuan CDMO business further integrates and divests assets and resources. The business gradually transferred the control over CDMO and API while ensuring API supply inside the Group, further adjusted the organization structure and accelerated the strategic transformation.

The Group's important strategic initiatives are in fact fully in line with the past developing trends and layout of leading international pharmaceutical giants. Through the reorganization and integration of key businesses and the separation of non-core businesses, the Group is able to focus more on two major strategic segments, the medical aesthetics and biopharmaceuticals and enhance the efficiency of resource allocation. In addition, these initiatives also bring more clarity to the Group's valuation system and fully demonstrate the long-term value that the innovative drugs and medical aesthetics business system can bring to the Group after the disposal of part of the generics business, thus helping to maximize shareholders value.

Future prospects

Dr. Che Fengsheng, Chairman and Executive Director of Sihuan Pharmaceutical Holdings Group said, "Looking forward into 2023, with the relaxation of epidemic control and the recovery of economic activities in China, it is expected that the pent-up demand will show a V-shaped rebound, driving a rapid recovery of the medical aesthetics industry with a strong rebound in corporate performance. The Group will also continuously implement the two-wheel drive strategy of "medical aesthetics + biopharmaceuticals" with high efficiency, and build China's leading medical aesthetic and biopharmaceutical company.

The Group will adhere to its innovative drug business driven by independent R&D and innovation, accelerate the expansion and strengthening of its high-growth medical aesthetics business, always maintain the original spirit of innovation and entrepreneurship, and strive to build a leading medical aesthetics and biopharmaceutical company in China with the rigor and innovation of a pharmaceutical company, carefully "carve" our product pipeline with the spirit of craftsmanship, and strive to move towards a new version 3.0 of Sihuan Pharmaceutical Groups innovation and transformation company development."

In terms of medical aesthetic sector, the Group will continue to expand its layout in the medical aesthetic field, merger and acquire outstanding objects, introduce products, promote the R&D, registration and launch of new products, rapidly enhance the upgrading and development of the medical aesthetic business, and speed up the simultaneous upgrading of both scale and quality. It will create new engine for cash flow, and further ensure the high growth of revenue, profit, team and network coverage by focusing on the development of the medical aesthetic business. In terms of the pharmaceutical sector, the Group will strictly implement the dual organizational structure comprising the Group headquarters and business platform headquarters.

As for the two innovative drug business platforms, namely Xuanzhu Biopharm and Huisheng Biopharm, the Group will promote the further development of two main businesses through shareholding management, ensure the rapid promotion of R&D pipelines and product registration and launch, gradually implement the spin-off and listing, and guarantee the rapid business development and the realization of high valuation; in terms of the generic drugs and APIs, the Group will continue to make adjustments, gradually dispose of some of the generic drugs, APIs and other non-core healthcare businesses while ensuring the internal demands of the Group, convert them into cash and then use them for the future business operation, mergers and acquisition or dividend distribution of the Group. However, for products and businesses that still have high growth or have key growth potential, they will continue to remain within the Group's system and serve as a stable source of cash income together with the medical aesthetics business.

The Group will continuously implement the two-wheel drive strategy of "medical aesthetics + biopharmaceuticals" with high efficiency in 2023, focus the management on the medical aesthetic sector with higher growth and the innovative drug and the biopharmaceutical sector with high value growth, further focus on the management and expand the business of the medical aesthetics businesses, motivate and encourage the development, growth and independent financing of the biopharmaceutical sector, and continue to consolidate the transformation of the Group to the leading medical aesthetics and biopharmaceutical company in China. Meanwhile, the Group will continue with the optimization and integration of generic medicine business, dispose of some generic drugs and other non-core pharmaceutical or healthcare businesses and assets that do not meet performance expectations or do not meet long-term strategic development objectives. The Group will strive to achieve the strategic goal of building China's leading medical aesthetic and biopharmaceutical company, maintain and strengthen the cash flow contribution capability of cash cow, generic drugs, and still maintain a high-dividend payout strategy for the Company where permitted, so that shareholders and investors can enjoy the cash dividends of owning a traditional generic drug business while enduring the "money-burning" model of the Company's transformation into an innovative biopharmaceutical company, and actively bring better investment returns to the shareholders and investors who have been believing in and supporting the Group.

Sihuan Pharmaceutical Holdings Group Ltd
Founded in 2001 and listed on the Main Board of The Stock Exchange of Hong Kong Limited in 2010, Sihuan Pharmaceutical Holdings Group Ltd. ("Sihuan Pharmaceutical" or the "Company", together with its subsidiaries, the "Group") (HKEX: 0460) is an international medical aesthetic and biopharmaceutical company led and driven by innovation, with a leading independent production, and R&D technology platform, a rich global product pipeline and a mature and excellent sales system. Focusing on high-growth therapeutic areas such as medical aesthetics, oncology, metabolism, diabetes, cardiovascular and cerebrovascular, modern Chinese medicine and industrial hemp, it adheres to its overall strategic objective of "Adhering to the full-speed promotion of a two-wheeled strategy of Sihuan medical aesthetics and biopharmaceuticals" to build a leading medical aesthetics and biopharmaceutical company in China.

For more information about Sihuan Pharmaceutical, please visit the Company's website at https://www.sihuanpharm.com/

Topic: Press release summary Sectors: BioTech, Healthcare & Pharm
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