Annual Report 2020

MANAGEMENT DISCUSSION AND ANALYSIS 11 The United Laboratories International Holdings Limited Annual Report 2020 The PRC government intensified efforts in promoting the reform of medical and health system, gradually launching centralised procurement of drugs, optimising the national medical insurance catalog, and improving the security mechanism of outpatient medications for diabetes for urban and rural residents. Although a series of policies, which aimed at reducing the burden of drug use by residents and strengthening drug security, may have a certain impact on the industry in the short term, those companies with comprehensive competitiveness have the ability to continue to accommodate to policy requirements. In the long run, industry concentration will be further improved, which is conducive to the long-term and healthy development of the industry. The Group will continue to pay attention to the trend of pharmaceutical policies and explore opportunities amidst reforms. Research and Development The Group has been committed to drug research and development, and steadily promotes the pipeline product. The expenditure on R&D for current year amounted to approximately RMB339.6 million. The Group currently has 26 new products under development which including 10 Class 1 new drugs. In terms of biological R&D, the Group focuses on the development of diabetes drugs, with projects covering insulin aspart injection, insulin degludec injection, liraglutide injection, insulin degludec-insulin aspart mixed injection, and insulin degludec- liraglutide injection. Based on the increasingly perfect biological R&D platform, the Group will continue to expand its development of relevant products in the fields of internal secretion and autoimmune disease. In addition, the monoclonal antibody laboratory was officially put into use during the year, marking the key progress in the construction of the Group’s biological macromolecular drug platform. With regard to the research and development of chemical pharmaceuticals, drugs for ophthalmology and dermatology are being promoted, and the consistency evaluation of injections is also being carried out simultaneously. In terms of innovative drug development, the Class 1 new drug WXSH0150 which is for the treatment of moderate to severe active rheumatoid arthritis was approved for clinical trial during the year. In the future, the Group will continue to expand into new drugs. Marketing During the year, the Group continued to simultaneously carry out the “Double Excellence Action– Grassroots Diabetes Prevention and Treatment Management Training Course” project online and offline, attracting more than 13,000 participants. Since the launch of the “Double Excellence Action” project in 2019, a total of nearly 40 sessions were carried out across the country, attracting more than 21,000 participants, making positive contributions to building an interactive platform for academic communication, improving academic research and clinical standards in diabetes, and facilitating the standardisation of grassroots diabetes diagnosis and treatment. Optimising Financing Structure During the year, the convertible bonds with a total principal amount of US$120,951,000 (equivalent to approximately RMB792,324,000) have been fully converted into ordinary shares of the Company. The Group reduced its finance costs by adjusting the borrowings mix between onshore and offshore borrowings and reducing the amount of borrowings, and continued to optimise the financial structure and improve liquidity. As at 31 December 2020, the Group’s net cash and bank balances (after deducting borrowings, bills payables and convertible bonds payable) amounted to RMB20,264,000 (2019: net liability of RMB2,429.3 million), which realised a positive turnaround from the net debt in 2019 to the net cash for the current year.