Sihuan Pharmaceutical Introduced Investors for Capital Increase to Accelerate Solid-liquid Double Chamber Infusion Soft Bag Industry

HONG KONG,Aug. 20,2020 -- Sihuan Pharmaceutical Holdings Group Ltd. (HKEX: 0460 "Sihuan Pharmaceutical" or the "Company",together with its subsidiaries,the "Group") is pleased to announce that Beijing Ruiye Drugs Manufacture Co.,Ltd. ("Beijing Ruiye"),an associate of the Group,has introduced Guangdong Guanrun Equity Investment Partnership and Nanjing Huiji Equity Investment Partnership as investors for capital injection.According to the agreement,the two investors invested in Beijing Ruiye by way of cash injection. After the capital injection,the overall valuation of Beijing Ruiye is RMB2.9 billion. After the investment,the two investors hold an aggregate of 6.896% equity interest in Beijing Ruiye.

Solid-liquid double chamber infusion soft bag:The most advanced infusion products in the world,with high R&D barriers

Since the reform and opening-up policy,the development of China's infusion industry has accelerated with an annual growth rate of nearly 20%. Since 2017,China's consumption of large infusion products has remained above 10 billion bottles (bags). From the perspective of infusion packaging,it is constantly being updated. The latest solid-liquid double-chamber bag large infusion that appeared on the market is currently the most advanced infusion product in the world and is recognized as the safest,reliable and most convenient infusion product. It is one of the most promising new dosage forms in the pharmaceutical industry.

Although the solid-liquid double chamber infusion soft bag packaging has the advantages such as fast,convenient,and suitable for clinical applications in harsh environments,due to its high technical barriers and difficulty in R&D,currently there are only pharmaceutical companies in the United States and Japan in the world can manufacturing this formulation. Although the product principle seems simple,there are too many factors that can affect product quality in actual production,and it is difficult to produce stable and reliable products before sufficient investment. In the R&D process,R&D personnel need to deal with many delicate technical issues,and thus the technology R&D barriers are high.

Obtained the first domestic exclusive approval for the solid-liquid double chamber infusion soft bag,with three significant advantages in policy,market and cost

Beijing Ruiye has the first domestic approval for solid-liquid double chamber infusion soft bag,and it is also the only domestic company equipped with this technology. Compared with many peer companies that are still exploring for solid-liquid double chamber infusion soft bag packaging materials and packaging forms,as well as some large domestic infusion companies,Beijing Ruiye is leading the way for at least 2 to 5 years.

According to China's current market,where the utilization rate of non-PVC soft bag infusion products only accounts for 20% of the market,Beijing Ruiye has great policies in the future to promotes the use of non-PVC products from the environmental protection aspect or initiates mass procurement from the perspective of drug stability. The foreseeable policy advantages will be stable for a long period of time.

From the market perspective of double-chamber bag technology,non-PVC soft bag infusion products have become the mainstream market in Europe,America,Japan and other countries. The consumption of the US's large infusion market is about 1 billion bags (bottles),and non-PVC soft bag infusion products account for 90% of the market. However,the utilization rate of non-PVC soft bag infusion products in China only accounts for 20%,which shows that this formulation is still in its early stage. With the huge consumption in China's large infusion market of more than 10 billion bags (bottles) all year round,even its usage rate is only half of the non-PVC soft bag infusion products in the United States are used,the converted absolute value is several times higher than that of the entire US market. It can be predicted that the market sales prospect of this dosage form is broad in the future,and it has huge market potential.

According to publicly available market information,none of domestic infusion suppliers has antibiotic production lines,and none of domestic antibiotic manufacturers currently has production workshops equipped with that technique for double-chamber bags. Since the production line cannot span to other fields,other companies need time to deploy the solid-liquid double chamber infusion soft bag field,and it will take at least three years to start producing similar products. Prior to this,Beijing Ruiye's market share completely depended on the company's marketing capabilities,and the realizable sales revenue depended on the conversion rate of new non-PVC soft bag infusion products. Beijing Ruiye will focus on market education.in the future. No matter how the subsequent market develops,companies that occupy a very high market position and brand effects will enjoy brand premiums.

Beijing Ruiye has introduced Guangdong Guanrun Equity Investment Partnership and Nanjing Huiji Equity Investment Partnership as investors to increase capital. After the capital increase,Beijing Ruiye's overall valuation is RMB2.9 billion,which will provide further support for subsequent expansion of production capacity,reduction of production costs,and subsequent R&D investment and business expansion.

In terms of production scale,Sihuan Pharmaceutical is using its rich resources to expand its existing production plants and has begun to build a new therapeutic solid-liquid double chamber infusion soft bag production base to meet future national demand. The scale effect is expected with further decline in manufacturing costs. Compared with the potential competitors that has huge fixed cost for building production lines,Beijing Ruiye,which has a large-scale effect,has a lighter and lower cost. With full competitive advantage in the economy of scale,Beijing Ruiye can better meet the demand from the market and patients.

Combine technology and demand to build a corporate moat

Sihuan Pharmaceuticalhas bound the double-chamber bag technology with antibiotics products from the beginning of its strategic plan,and independently produces antibiotics and double-chamber bags,standing with common and simple medical needs from the beginning. Sihuan Pharmaceutical has obtained approvals for non-PVC solid-liquid double chamber infusion soft bag of ceftazidime/sodium chloride injection,cefuroxime/sodium chloride injection,and cefodizime/sodium chloride injection,and subsequent products will be submitted for review and listing.

At present,all the approved products are the first-line drugs of mainstream antibiotics,and the medical demand has been stable and large in quantity for a long time

In terms of the scale of cephalosporin products,the sales amount of systemic antibacterial drugs in 2019 was RMB127.696 billion,of which the sales amount of cephalosporin drugs was RMB49.562 billion,accounting for 40% of the systemic antibacterial drug market,according to the IQVIA CHPA database. At present,the domestic approved production of ceftazidime,cefuroxime and cefodizime are all solid injections. The total sales amount is RMB10.111 billion,accounting for 7.9% of the cephalosporin drug market.

In Sihuan Pharmaceutical's future drug marketing plan,it still focuses on the main first-line drugs of mainstream antibiotics,which have huge market demand. In the face of stable demand,better technology means better or safer results,which can attract stock demand and to be transferred to new products. This strategic focus on the combination of technology and demand can pave the way for sufficient market demand for products,the own product can gain opportunity to participate in market competition and build a corporate moat by virtue of technological advantages.

Regarding the capital increase,Dr. Che Fengsheng,the Chairman and Executive Director of the Group,mentioned: "This reflects the investors' recognition of Beijing Ruiye and the development of the solid-liquid double chamber infusion soft bag business and the market prospects. This round of financing will expand production capacity accordingly,also reduce production costs,and provide support for subsequent R&D investment and business development,further promote the listing of 4 varieties and 6 specifications including ceftazidime and cefuroxime,and further consolidate and strengthen Sihuan Pharmaceutical Group's leading position in the field of antibiotic double-chamber bags industry. The group believes that Beijing Ruiye will become a leading enterprise in the therapeutic solid-liquid double chamber infusion soft bag industry in China. We are looking forward to the bright future."

About Sihuan Pharmaceutical Holdings Group Ltd.

Founded in 2001,Sihuan Pharmaceutical is a pharmaceutical group with 21 subsidiaries and integrated R&D,production and marketing and sales capabilities. Because of the continuing efforts over the past decade,Sihuan Pharmaceutical has formed a R&D platform with over 1,000 researchers conducting more than 110 pharmaceutical research projects currently. More than 300 patents on innovative drugs were granted in China and over 80 are PCT patents,covering pipeline projects including important areas of diabetes,oncology,anti-infectives and non-alcoholic steatohepatitis etc.

For more information about Sihuanpharm,please visit the company website https://www.sihuanpharm.com/.