Words from Chairman

The year 2018 ended with globally downside volatility brought by the uncertainties from ongoing trade dispute between China and the United States, pending outcome of Brexit negotiations and future direction of monetary policy, which cloud over the global economic outlook for 2019, dampening trade and investment flows.

China’s economy grew 6.6% in 2018, down from a growth of 6.8% in 2017 and at its slowest pace in 28 years. While China’s economic growth rate is decelerating, it had a steady start to 2019, with a slightly better-than-expected growth of 6.4% in the first quarter of 2019, which was supported by strong industrial production and greater domestic consumption, and the Chinese government’s stimulus measures to stabilise the economy including tax cuts for businesses, infrastructure spending and easing monetary policy.

After three years’ efforts in adapting to a new normal in economic development since the implementation of the Thirteenth Five-Year Plan (2016–2020), China has been reshaping the regulatory landscape and intensifying the structural reform to the pharmaceutical industry which has maintained a steady growth in the midst of constantly changing regulatory environment. In 2018, the institutional reshuffle reform was initiated by the State Council, sweeping overhaul of various government bodies through merging and restructuring, with the aim of aligning the nation’s policy goals by enhancing efficiency of market controls, facilitating greater surveillance and promoting accessibility and affordability of quality drugs and national health services in pursuit of a ‘Healthy China’ by year 2030. The drug regulator, China Food and Drug Administration was merged into a new regulatory structure, renamed as National Medical Products Administration (“NMPA”) and under the direct supervision of a newly formed market regulator, State Administration for Market Regulation. The National Health and Family Planning Commission was dissolved, its functions were integrated into the new establishment National Health Commission, and together with the set up of a new state medical insurance administration National Health Security Administration, serve to help the government to offer comprehensive, lifecycle health services to the nation, optimise the national health insurance system, and promote the healthcare reforms. And since June 2018, NMPA has become a management committee member of International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use, this milestone reflects that NMPA will gradually converge and implement the international highest technical standards and guidelines into the drug regulatory process in China. On the other hand, with the reform of the review and approval system, NMPA has demonstrated an improved efficiency in accelerating the pace of approval for registration of innovative drugs which are urgently required to serve China’s unmet medical needs especially for chronic and rare diseases.

China’s pharmaceutical industry has experienced waves of challenges brought by the institutional reshuffle reform and the restructured regulatory framework but improved market accessibility for self developed innovative drugs, which create both challenges and opportunities to pharmaceutical enterprises. The continued deepening of the healthcare reforms as to full swing of the two-invoice system nationwide, ongoing consistency evaluation on generic drugs, tightening environmental regulations, intensifying overseas inspection for imported drugs, and the launch of various policies followed by the institutional reshuffle reform, including the centralised procurement with pre-determined quantities tendering mechanism in 11 selected cities and the adjustments to the national essential drug list, have influenced market sentiment and added pressures to drug prices and costs, whilst accelerating consolidation within the industry and facilitating new drug development.

During the year under review, the ever-increasingly competitive landscape has further impacted significantly the performance of the Group’s trading segment of imported pharmaceutical products due to increasing regulatory scrutiny on imported products which resulted in temporary sales suspension of the Group’s major revenue contributor to the segment. Nonetheless, the Group’s manufactured segment was able to achieve revenue growth and exhibited continuous improvement in performance through management’s intensive efforts in expanding market coverage and strengthening credit control.

The Group’s profit for the year attributable to owners of the Company amounted to about HK$64.0 million as compared to a profit of about HK$29.9 million of last financial year, representing an increase of about HK$34.1 million, primarily attributable to non-cash items.

While China’s pharmaceutical market will continue to face various challenges against the backdrop of frequent policy changes brought by the ongoing healthcare reforms, the Group believes that the upside potential bolstered by China’s large and aging population, growing per capita income, and the government’s long term commitment to build up a ‘Healthy China’, embraces business and development opportunities. The Group will endeavor to enhance the manufacturing capability of its plants in Changchun to develop quality products to capture market demand, improve cost efficiency by resource allocation and maintain a sound financial fundamental, so as to improve the Group’s performance and strengthen its foundation for sustainable development.

On behalf of the Board, I would like to express its appreciation to all those in the Group for their dedicated efforts and contribution to the Group during the past year, and to the shareholders and business partners for their continuous support.

Dr. Xie Yi

Chairman