THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

Transcription

1 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION If you are in doubt as to any aspect of this circular or as to the action to be taken, you should consult your licensed securities dealer or other registered institution in securities, bank manager, solicitor, professional accountant or other professional adviser for independent advice. If you have sold or transferred all your shares in Shenzhen Neptunus Interlong Bio-technique Company Limited*, you should at once hand this circular to the purchaser(s) or transferee(s) or to the bank, licensed securities dealer or other registered institution in securities or other agent through whom the sale or transfer was effected for transmission to the purchaser(s) or transferee(s). Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular. SHENZHEN NEPTUNUS INTERLONG BIO-TECHNIQUE COMPANY LIMITED* (a joint stock limited company incorporated in the People s Republic of China) (Stock Code: 8329) CONTINUING CONNECTED TRANSACTION IN RELATION TO A DISTRIBUTION AGREEMENT Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders A letter from the Board is set out on pages 5 to 13 of this circular and a letter from Gram Capital Limited is set out on pages 16 to 25 of this circular. A notice convening the EGM to be held at 10:30 a.m. on Monday, 17 December 2018 at Meeting Room, 24th Floor, Neptunus Yinhe Technology Mansion, 1 Keji Middle 3rd Road, Nanshan District, Shenzhen, Guangdong Province, the People s Republic of China (the PRC ) together with the relevant reply slip and form of proxy have been issued to the Shareholders separately and are also published on the website of the GEM website ( Whether or not you are able to attend the EGM, you are requested to complete and return (i) the reply slip in accordance with the instructions printed thereon not later than Monday, 26 November 2018 and (ii) the form of proxy in accordance with the instructions printed thereon not less than 24 hours before the time fixed for holding the EGM (i.e. not later than 10:30 a.m. on Sunday, 16 December 2018) or any adjournment thereof (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting in person if you so wish. This circular will remain on the GEM website at on the Latest Company Announcements page for at least 7 days from the date of its posting and in the Company s website at References to time and dates in this circular are to Hong Kong time and dates. * For identification purpose only 9 November 2018

2 CONTENTS Page CHARACTERISTICS OF THE GEM OF THE STOCK EXCHANGE OF HONG KONG LIMITED... ii DEFINITIONS... 1 LETTER FROM THE BOARD... 5 LETTER FROM THE INDEPENDENT BOARD COMMITTEE LETTER FROM GRAM CAPITAL APPENDIX GENERAL INFORMATION i

3 CHARACTERISTICS OF THE GEM OF THE STOCK EXCHANGE OF HONG KONG LIMITED GEM has been positioned as a market designed to accommodate small and mid-sized companies to which a higher investment risk may be attached than other companies listed on the Stock Exchange. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration. Given that the companies listed on GEM are generally small and mid-sized companies, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities traded on the Main Board of the Stock Exchange and no assurance is given that there will be a liquid market in the securities traded on GEM. ii

4 DEFINITIONS In this circular, the following expressions shall, unless the context otherwise requires, have the following respective meanings: 2015 Distribution Agreement the distribution agreement entered into between Neptunus Changjian and Neptunus Pharmaceutical on 10 December 2015 (and supplemented by a revised distribution agreement dated 11 October 2016) relating to the purchase of various pharmaceutical products manufactured by Neptunus Pharmaceutical for distribution in the PRC; associate Board Company connected person(s) controlling shareholder Director(s) Distribution Agreement Domestic Shares EGM GEM GEM Listing Rules has the meaning ascribed thereto under the GEM Listing Rules; the board of Directors; (Shenzhen Neptunus Interlong Bio-technique Company Limited*), whose H shares are listed on the GEM; has the meaning ascribed thereto under the GEM Listing Rules; has the meaning ascribed thereto under the GEM Listing Rules; the director(s) of the Company; the distribution agreement entered into between Neptunus Changjian and Neptunus Pharmaceutical on 12 October 2018 relating to the purchase of various pharmaceutical products manufactured by Neptunus Pharmaceutical for distribution in the PRC; domestic shares of RMB0.10 each in the issued share capital of the Company; an extraordinary general meeting of the Company to be held to consider and approve by poll, among other things, the Distribution Agreement and the Proposed Purchase Caps; the GEM operated by the Stock Exchange; the Rules Governing the Listing of Securities on GEM; 1

5 DEFINITIONS Gram Capital or Independent Financial Adviser Group HK$ Hong Kong Gram Capital Limited, a licensed corporation to carry out Type 6 (advising on corporate finance) regulated activity under the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) and being the independent financial adviser appointed by the Company to advise the Independent Board Committee and the Independent Shareholders in respect of the Distribution Agreement; the Company and its subsidiaries; Hong Kong dollar(s), the lawful currency of Hong Kong; the Hong Kong Special Administrative Region of the PRC; H Shares ordinary shares of RMB0.10 each in the issued share capital of the Company which are listed and traded on GEM; Independent Board Committee Independent Shareholders Latest Practicable Date the independent board committee of the Company, comprising all the independent non-executive Directors, to advise the Independent Shareholders as to the fairness and reasonableness of the Distribution Agreement and the Proposed Purchase Caps; Shareholder(s) other than Neptunus Bio-engineering and any of its associates; 5 November 2018, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein; Lianjiang Committee (Lianjiang Economic Development District Management Committee*); Lianjiang Land Bureau (the Bureau of Land Resources of Lianjiang*), a local government authority of the PRC; Licences certain licences and certificates held by Neptunus Changjian in relation to sales and distribution of drugs and health supplements and food, including the drugs operation licences, the hygiene certificate for healthcare food operation enterprises, the food hygiene certificate, the medical equipment operation corporate licence and the GSP certificate ; 2

6 DEFINITIONS Neptunus Bio-engineering (Shenzhen Neptunus Bio-engineering Company Limited*), a joint stock limited company established under the laws of the PRC whose shares are listed on the Shenzhen Stock Exchange; Neptunus Changjian (Shenzhen Neptunus Changjian Pharmaceutical Company Limited*), a limited liability company established under the laws of the PRC which is wholly-owned by the Company; Neptunus Fuyao Lianjiang (Neptunus Fuyao Pharmaceutical (Lianjiang) Co., Ltd.*), an indirect non-wholly owned subsidiary of the Company established in the PRC; Neptunus Jinxiang Lianjiang (Neptunus Jinxiang Chinese Pharmaceutical (Lianjiang) Co., Ltd.*), an indirect non-wholly owned subsidiary of the Company established in the PRC; Neptunus Group (Shenzhen Neptunus Group Company Limited*), a joint stock limited company incorporated in the PRC and the controlling shareholder of Neptunus Bio-engineering; Neptunus Pharmaceutical percentage ratio(s) PRC (Shenzhen Neptunus Pharmaceutical Company Limited*), a limited liability company established under the laws of the PRC which is wholly-owned by Neptunus Group; has the meaning ascribed thereto under the GEM Listing Rules; the People s Republic of China; Proposed CCT the continuing connected transaction under the Distribution Agreement; Proposed Purchase Cap(s) Proposed 2019 Purchase Cap each of, or collectively, the Proposed 2019 Purchase Cap, the Proposed 2020 Purchase Cap and the Proposed 2021 Purchase Cap; the estimated maximum aggregate purchase amount under the Distribution Agreement for the period from 1 January 2019 to 31 December 2019; 3

7 DEFINITIONS Proposed 2020 Purchase Cap Proposed 2021 Purchase Cap RMB Shareholders SFO Stock Exchange the estimated maximum aggregate purchase amount under the Distribution Agreement for the period from 1 January 2020 to 31 December 2020; the estimated maximum aggregate purchase amount under the Distribution Agreement for the period from 1 January 2021 to 31 December 2021; Renminbi, the lawful currency of the PRC; the holders of the ordinary shares of RMB0.1 each of the Company; the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), as amended; The Stock Exchange of Hong Kong Limited; and % per cent. Translation of RMB into HK$ in this circular is based on the exchange rate of HK$1 = RMB Such exchange rate is for the purpose of illustration only and does not constitute a representation that any amount has been, could have been or may be converted at such or any other rates or at all. * For identification purpose only 4

8 LETTER FROM THE BOARD SHENZHEN NEPTUNUS INTERLONG BIO-TECHNIQUE COMPANY LIMITED* (a joint stock limited company incorporated in the People s Republic of China) (Stock Code: 8329) Executive Directors: Mr. Zhang Feng (Chairman) Mr. Xu Yan He Non-executive Directors: Mr. Liu Zhan Jun Ms. Yu Lin Mr. Song Ting Jiu Mr. Zhao Wen Liang Independent Non-executive Directors: Mr. Yick Wing Fat, Simon Mr. Poon Ka Yeung Mr. Zhang Jian Zhou Registered Office: Suite 2103, 21st Floor, Neptunus Yinhe Technology Mansion, 1 Keji Middle 3rd Road, Yuehai Sub-district, Nanshan District, Shenzhen, Guandong Province, PRC Principal Place of Business in Hong Kong: 18th Floor United Centre 95 Queensway Admiralty Hong Kong 9 November 2018 To the Shareholders Dear Sir or Madam, INTRODUCTION CONTINUING CONNECTED TRANSACTION IN RELATION TO A DISTRIBUTION AGREEMENT Reference is made to the announcement dated 12 October 2018 issued by the Company in relation to the Distribution Agreement and the Proposed Purchase Caps. The purpose of this circular is to provide, inter alia, (a) the Shareholders with further information relating to the Distribution Agreement; (b) a letter of advice from the independent financial adviser Gram Capital to the Independent Board Committee and the Independent Shareholders relating to the Distribution Agreement; and (c) a letter from the Independent Board Committee to the Independent Shareholders relating to the Distribution Agreement. * For identification purpose only 5

9 LETTER FROM THE BOARD BACKGROUND The Board is pleased to announce that Neptunus Changjian, a wholly-owned subsidiary of the Company, entered into the Distribution Agreement with Neptunus Pharmaceutical, a fellow subsidiary and a connected person of the Company on 12 October 2018 (after trading hours) pursuant to which Neptunus Changjian will purchase various pharmaceutical products manufactured by Neptunus Pharmaceutical for distribution in the PRC for the period from 1 January 2019 to 31 December 2021 (both days inclusive). DISTRIBUTION AGREEMENT Date Parties The details of the Distribution Agreement are as follows: 12 October 2018 (1) (Shenzhen Neptunus Changjian Pharmaceutical Company Limited*), a wholly-owned subsidiary of the Company; and (2) (Shenzhen Neptunus Pharmaceutical Company Limited*), a wholly-owned subsidiary of Neptunus Group. Subject matter Pursuant to the Distribution Agreement, among other things, Neptunus Changjian will purchase various pharmaceutical products which mainly include cardiovascular, oncology, respiratory and anti-viral pharmaceutical products manufactured by Neptunus Pharmaceutical and distribute such products within the PRC. Term The term of the Distribution Agreement is from 1 January 2019 to 31 December 2021 (both days inclusive). The Distribution Agreement will become effective on 1 January 2019 upon the approval by the Independent Shareholders at the EGM. Pricing of the products sold under the Distribution Agreement The monthly average unit price of the pharmaceutical products provided by Neptunus Pharmaceutical to Neptunus Changjian shall not be higher than the corresponding monthly average unit price of the same type of products sold to the top five clients of Neptunus Pharmaceutical. 6

10 LETTER FROM THE BOARD Purchase of products and annual cap Pursuant to the Distribution Agreement, Neptunus Changjian will purchase the pharmaceutical products which mainly include cardiovascular, oncology, respiratory and anti-viral pharmaceutical products at the prescribed distribution prices determined by Neptunus Pharmaceutical and the prescribed distribution prices shall not be higher than the average unit prices of such products sold by Neptunus Pharmaceutical to its top five clients. The consideration of the pharmaceutical products purchased by Neptunus Changjian will be settled within forty-five (45) days after the issue date of the invoice or the receipt of the products, whichever is earlier. All the terms of the Distribution Agreement are arrived at after arm s length negotiations between Neptunus Changjian and Neptunus Pharmaceutical. The Proposed 2019 Purchase Cap, the Proposed 2020 Purchase Cap and the Proposed 2021 Purchase Cap are RMB110,000,000 (approximately HK$124,505,000), RMB140,000,000 (approximately HK$158,461,000) and RMB180,000,000 (approximately HK$203,735,000), respectively. Details of the historical transaction amounts and historical purchase caps are set out in the table below: From 1 January to 31 December 2016 (RMB) From 1 January to 31 December 2017 (RMB) From 1 January to 31 December 2018 (RMB) Historical cap Actual transaction amount (audited) Historical cap Actual transaction amount (audited) Historical cap Actual transaction amount from 1 January to 31 August 2018 (unaudited) 91,100,000 79,500, ,000,000 75,170, ,500,000 49,916,000 In arriving at the Proposed Purchase Caps, the Directors have considered the following factors: (i) Actual transaction amount for purchasing medicines from Neptunus Pharmaceutical under the 2015 Distribution Agreement for the years ended 31 December 2016, 2017 and for the eight months ended 31 August 2018; and the expectation that the fourth quarter of 2018 will be the peak season for sales of each type of pharmaceutical products which are the subject matters of the Distribution Agreement, based on the historical sales performance of Neptunus Changjian, in particular, the historical sales amount of Neptunus Changjian for pharmaceutical products manufactured by Neptunus Pharmaceutical in the fourth quarter of 2016 and 2017 represented approximately 41.20% and 36.07% of the total sales amount for the years ended 31 December 2016 and 2017, respectively. The Directors anticipated that the actual transaction amount for the fourth quarter of 2018 would be much higher than the actual transaction amount for each of the first three quarters of 2018; 7

11 LETTER FROM THE BOARD (ii) Relevant provinces in the PRC having successively implemented the one invoice system or the two invoice system since The two invoice system refers to the mechanism where only up to two invoices can be issued in the pharmaceutical product procurement chain, with one invoice issued by the pharmaceutical manufacturer, and the other invoice issued by the distributor of the pharmaceutical product to end users such as medical institutions. However, pursuant to the Opinion on the Implementation of the two invoice system in the Procurement of Pharmaceutical Products by Public Medical Institutions (Trial) (Guoyigaibanfa [2016] No. 4) [2016]4 ( No. 4 Circular ), Neptunus Changjian, together with Neptunus Pharmaceutical, which would be considered as a pharmaceutical group with an integrated research, manufacture and trade function under the No. 4 Circular, can be regarded as a deemed pharmaceutical manufacturer such that the sales of pharmaceutical products from Neptunus Pharmaceutical to Neptunus Changjian would not be regarded as the issuance of one invoice as defined in the two invoice system. At the beginning of the implementation of the two invoice system in 2017, Neptunus Pharmaceutical had supplied its pharmaceutical products to hospitals or the ultimate distributor instead of Neptunus Changjian. Also, certain customers of Neptunus Changjian such as the medical institutions had reduced their purchase of pharmaceutical products from Neptunus Changjian due to their uncertainties in the interpretation of the two invoice system policies that were to be adopted in various provinces. In addition, due to the perceived difference between the one invoice system and the two invoice system in some provinces, a small portion of the distribution business of Neptunus Changjian under the 2015 Distribution Agreement was transformed into a sales management service business. As a result, the actual transaction amount of purchase of pharmaceutical products from Neptunus Pharmaceutical by Neptunus Changjian for the years ended 31 December 2016 and 2017 had been significantly lower than the historical proposed purchase caps that were envisaged for the years ended 31 December 2016 and 2017 under the 2015 Distribution Agreement. However, taken into account that: (a) the implementation of two invoice system in various provinces in the PRC is becoming stabilized and with clarification in the interpretation of the two invoice system policies across various provinces in the PRC, Neptunus Changjian and its customers have become more familiarized with the requirements under the two invoice system, in particular, that Neptunus Changjian would be allowed to purchase pharmaceutical products from Neptunus Pharmaceutical for distribution without being regarded as the issuance of one invoice as defined in the two invoice system in certain provinces in the PRC. As a result, certain customers of Neptunus Changjian have resumed their purchase of pharmaceutical products from Neptunus Changjian; Note: 1. As at the Latest Practicable Date, except for Gansu province, PRC, which has implemented the two invoice system in phases and will be expected to fully implement the two invoice system by the end of 2018, a total of 30 provinces, municipalities and autonomous regions in the PRC have fully implemented the two invoice system. A few provinces in the PRC have implemented the one invoice system for certain pharmaceutical products such as the Fujian province. 8

12 LETTER FROM THE BOARD (b) (c) the sales of Neptunus Pharmaceutical s products to the drugstore retailers, which would not be affected by the implementation of the two invoice system, accounted for the majority of Neptunus Changjian s revenue for its sale of Neptunus Pharmaceutical s products for the years ended 31 December 2016 and 2017, and is expected to drive the sales growth in 2019 to 2021; and with Neptunus Changjian s stable cooperation with its long-term customers and the expected trend of an increasing demand from such customers of the pharmaceutical products distributed by Neptunus Changjian, the Directors anticipate that the one invoice system and the two invoice system would not have a material impact on the distribution of the pharmaceutical products under the Distribution Agreement for the period 2019 to 2021 as it had in 2017, provided that there are no further adjustments or changes in the current standard for the definition of an invoice under the one invoice system and two invoice system that are applicable in various provinces in the PRC; (iii) (iv) With reference to the sales growth rate of pharmaceutical wholesalers in the PRC for 2018, the Chinese government policy guidance and the ever-growing sales scale and market shares of Neptunus Changjian since 2016, 2017 and the first half of 2018 and the historical sales performance of Neptunus Changjian. In particular, the sales of Neptunus Changjian represented growth of approximately 23.87%, 10.73% and 37.14% for the years ended 31 December 2016 and 31 December 2017 and the six months ended 30 June 2018, respectively, compared with the corresponding periods for the years ended 31 December 2015 and 31 December 2016 and the six months ended 30 June 2017, respectively. The Company initially expects the annual sales growth rate of the pharmaceutical products to be purchased under the Distribution Agreement to be approximately 20%; and A buffer of 5% to cover unforeseen circumstances, for instances, an unexpected increase in the demand of the pharmaceutical products and other relevant factors, etc. Based on the Proposed Purchase Caps set out above, and having taken into account the above factors, in particular, the anticipated annual growth rate of pharmaceutical products to be purchased under the Distribution Agreement, the reasons attributable to the deviation of the historical proposed purchase caps and the actual transaction amounts under the 2015 Distribution Agreement for the years ended 31 December 2016 and 2017, the Directors (including the independent non-executive Directors) are of the view that the Proposed Purchase Caps are fair and reasonable and in the interests of the Company and the Shareholders as a whole. If the Proposed Purchase Caps are exceeded in the relevant period, the Company will re-comply with the requirements under Chapter 20 of the GEM Listing Rules. INTERNAL CONTROL MEASURES In order to (i) ensure that the terms of the Distribution Agreement are no less favourable to the Group than the terms available from independent suppliers; and (ii) protect the interests of the Company and its Shareholders as a whole, the Company has been adopting the following internal control measures when purchasing products manufactured by Neptunus Pharmaceutical for distribution, and will also adopt the same measures regarding the Proposed CCT: 9

13 LETTER FROM THE BOARD (a) Pricing of the products: (i) The Group will compare the price of the products offered by Neptunus Pharmaceutical with that offered by independent suppliers. In order to obtain the prevailing market prices, the business department of the Group will obtain quotes with same sales terms from at least two independent suppliers which are as established as, and of similar scale with Neptunus Pharmaceutical on a quarterly basis for similar products. The quotes obtained from independent suppliers are usually applicable for purchase made within 30 days from the date of the quotes. However, there will not be substantial price fluctuation within a quarter. The manager of the business department of the Group will compare the quotations and provided that the products to be sold to the Group by the independent suppliers are of similar quality and quantity with the same sale terms, the final purchase price will be determined based on the lowest quotation obtained from the independent suppliers by the general manager of the relevant subsidiary of the Group. (ii) If at any time the business department of the Group find out that the price of a product offered by Neptunus Pharmaceutical is higher than that offered by other independent suppliers and/or the terms of a product offered by Neptunus Pharmaceutical are less favourable than those offered by other independent suppliers, such findings shall be reported to the general manager of the Company or the relevant subsidiary of the Group for review. The relevant general manager shall then discuss with one of the Directors (excluding independent non-executive Directors and Directors who have a material interest in the relevant transaction) who have relevant experience to evaluate whether the Group should continue to purchase such product from Neptunus Pharmaceutical or amend the relevant terms, with reference to factors such as the corporate background of such independent supplier, its reputation and reliability, and its ability to conduct the transaction in accordance with the terms of the agreement provided by it. (b) (c) (d) (e) The Group would monitor the Proposed CCT in accordance with the internal control policies. The manager of the business department of the Group would review on a quarterly basis whether the Proposed CCT are implemented in accordance with the terms of the Distribution Agreement. Shall there be any material change in the market price of the products or services, the parties shall negotiate to adjust the pricing policies to ensure the fairness and reasonableness of the pricing policies. The Group s finance department would collect the data of the Proposed CCT to ensure that each of the Proposed Purchase Caps is not exceeded. The Group will engage the auditors to conduct an annual review of the Proposed CCT to opine whether the Proposed Purchase Caps have been exceeded. The Company s audit committee would review the implementation of the Proposed CCT and review the report in relation to the Proposed CCT prepared by the management of the Group, in order to evaluate comprehensiveness and effectiveness of the Group s internal control measures on the Proposed CCT. 10

14 LETTER FROM THE BOARD (f) The independent non-executive Directors would review the implementation of the Proposed CCT annually. The Directors consider that the above methods and procedures can ensure that the Proposed CCT will be conducted on normal commercial terms and will not be prejudicial to the interests of the Company and its minority Shareholders. REASONS FOR AND BENEFITS OF ENTERING INTO OF THE DISTRIBUTION AGREEMENT On 4 January 2013, the Company acquired the entire equity interests in Neptunus Changjian with a view to expanding its business in marketing, sales and distribution of drugs and health supplements and food. The Board considers that the entering into of the Distribution Agreement will (i) bring to the Group higher operating revenues by the distribution and sale of pharmaceutical products which will have a positive impact on the profitability of the Group; and (ii) assist the Group to expand its marketing team and retail network and strengthen its connections with distributors and retailers. To the best of the Directors knowledge, information and belief and having made all reasonable enquiries, no Director has a material interest in the transactions contemplated under the Distribution Agreement, save and except that the chairman of the Board and executive Director, Mr. Zhang Feng, who is also a chairman of the board of directors of Neptunus Pharmaceutical. In this connection, Mr. Zhang Feng had abstained from voting on the written resolutions of the Board for approving the Distribution Agreement. Having considered the above factors set out in the letter from the Board, the remaining Directors (including the independent non-executive Directors) take the view that the Distribution Agreement has been: (i) entered into in the Group s ordinary and usual course of business; and (ii) on normal commercial terms determined on an arm s length basis and on terms that are fair and reasonable and in the interests of the Company and its Shareholders as a whole. INFORMATION ON THE GROUP, NEPTUNUS CHANGJIAN, AND NEPTUNUS PHARMACEUTICAL The Group was principally engaged in the research and development, manufacturing and selling of medicines, and the purchase and sales of medicines and healthcare food products in the PRC. The medicines being sold by the Group mainly cover four therapeutic areas which are oncology, cardiovascular system, respiratory system and digestive system. Neptunus Changjian is a limited liability company established under the laws of the PRC and is a wholly-owned subsidiary of the Company. Neptunus Changjian is principally engaged in the business of sales and distribution of drugs, health supplements and food and is the holder of the Licences. Neptunus Pharmaceutical is a limited liability company established under the laws of the PRC. Neptunus Pharmaceutical is principally engaged in the business of production and manufacturing of pharmaceutical products. 11

15 LETTER FROM THE BOARD IMPLICATIONS OF THE GEM LISTING RULES As at the Latest Practicable Date, Neptunus Pharmaceutical is wholly-owned by Neptunus Group which in turn is the controlling shareholder of Neptunus Bio-engineering. Neptunus Bio-engineering is the controlling shareholder of the Company under the GEM Listing Rules. Therefore, Neptunus Pharmaceutical is an associate of Neptunus Bio-engineering and thus a connected person of the Company under Rule of the GEM Listing Rules. Accordingly, the transactions under the Distribution Agreement constitute continuing connected transactions for the Company as defined under Rules of the GEM Listing Rules. As all the applicable percentage ratios for the Proposed Purchase Caps exceed 5% on an annual basis, the Distribution Agreement will be subject to reporting, announcement and independent shareholders approval requirements pursuant to Chapter 20 of the GEM Listing Rules. Neptunus Bio-engineering and its associates will abstain from voting at the EGM. EGM The EGM will be convened for the Independent Shareholders to consider, and if thought fit, to pass an ordinary resolution to approve by poll the Distribution Agreement and the Proposed Purchase Caps. Notice of the EGM together with the relevant reply slip and form of proxy have been issued to Shareholders separately and are also published on the GEM website ( Whether or not you are able to attend the EGM in person, you are requested to complete and return (i) the reply slip in accordance with the instructions printed thereon not later than Monday, 26 November 2018 and (ii) the form of proxy in accordance with the instructions printed thereon not less than 24 hours before the time fixed for holding the EGM (i.e. not later than 10:30 a.m. on Sunday, 16 December 2018). Completion and return of the form of proxy will not preclude you from attending and voting in person if you so wish. RECOMMENDATION The Company has established an Independent Board Committee comprising three independent non-executive Directors, namely Mr. Yick Wing Fat, Simon, Mr. Poon Ka Yeung and Mr. Zhang Jian Zhou, to consider the Distribution Agreement and the Proposed Purchase Caps and to recommend to the Independent Shareholders how to vote in the EGM. Gram Capital has been appointed as the Independent Financial Adviser for the purpose of advising the Independent Board Committee and the Independent Shareholders in relation to the Distribution Agreement and the Proposed Purchase Caps. Gram Capital considers that the terms and conditions of the Distribution Agreement and the Proposed Purchase Caps are fair and reasonable and the entering into of each of the Distribution Agreement is in the interests of the Company and the Shareholders as a whole. The text of the letter of advice from Gram Capital containing its recommendation is set out on pages 16 to 25 of this circular. The Independent Board Committee, having taken into account and based on the recommendation of Gram Capital, considers that the Distribution Agreement and the Proposed Purchase Caps are in the interests of the Company and the Shareholders as a whole and are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the resolution to be proposed at the EGM to approve the Distribution Agreement and the Proposed Purchase Caps. 12

16 LETTER FROM THE BOARD ADDITIONAL INFORMATION Your attention is also drawn to (a) the letter from the Independent Board Committee to the Independent Shareholders; (b) the letter from Gram Capital to the Independent Board Committee and the Independent Shareholders; and (c) the additional information set out in appendix to this circular. * For identification purpose only Yours faithfully, By order of the Board Shenzhen Neptunus Interlong Bio-technique Company Limited* Zhang Feng Chairman 13

17 LETTER FROM THE INDEPENDENT BOARD COMMITTEE SHENZHEN NEPTUNUS INTERLONG BIO-TECHNIQUE COMPANY LIMITED* (a joint stock limited company incorporated in the People s Republic of China) (Stock Code: 8329) To the Independent Shareholders Dear Sir or Madam, 9 November 2018 CONTINUING CONNECTED TRANSACTION IN RELATION TO A DISTRIBUTION AGREEMENT We refer to the circular dated 9 November 2018 issued by the Company (the Circular ) of which this letter forms part. Terms defined in the Circular shall have the same meanings when used herein, unless the context otherwise requires. We have been appointed as the members of the Independent Board Committee to consider the Distribution Agreement and the Proposed Purchase Caps and to advise you as to the fairness and reasonableness of the same. The Independent Financial Adviser, Gram Capital, has been appointed to advise the Independent Board Committee and the Independent Shareholders in this regard. We wish to draw your attention to the letter from the Board, as set out on pages 5 to 13 of the Circular, and the letter from Gram Capital to the Independent Board Committee and the Independent Shareholders which contains its opinion in respect of the Distribution Agreement and the Proposed Purchase Caps as set out on pages 16 to 25 of the Circular. After taking into consideration the advice from Gram Capital, we concur with the views of Gram Capital and consider that the Distribution Agreement has been entered into in the Group s ordinary and usual course of business, and the Distribution Agreement and the Proposed Purchase Caps are on normal commercial terms or better determined on an arm s length basis and in the interests of the Company and the Shareholders as a whole and are fair and reasonable so far as the Independent Shareholders are concerned. 14

18 LETTER FROM THE INDEPENDENT BOARD COMMITTEE Accordingly, we recommend the Independent Shareholders to vote in favour of the resolution to be proposed at the EGM to approve the Distribution Agreement and the Proposed Purchase Caps. Yours faithfully Independent Board Committee Mr. Yick Wing Fat, Simon Independent Non-executive Director Mr. Poon Ka Yeung Independent Non-executive Director Mr. Zhang Jian Zhou Independent Non-executive Director * For identification purpose only 15

19 LETTER FROM GRAM CAPITAL Set out below is the text of a letter received from Gram Capital, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Proposed CCT for the purpose of inclusion in this circular. To: The Independent Board Committee and the Independent Shareholders of Shenzhen Neptunus Interlong Bio-Technique Company Limited Dear Sir/Madam, INTRODUCTION CONTINUING CONNECTED TRANSACTION IN RELATION TO A DISTRIBUTION AGREEMENT Room 1209, 12/F. Nan Fung Tower 88 Connaught Road Central/ 173 Des Voeux Road Central Hong Kong 9 November 2018 We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Proposed CCT, details of which are set out in the letter from the Board (the Board Letter ) contained in the circular dated 9 November 2018 issued by the Company to the Shareholders (the Circular ), of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise. On 12 October 2018 (after trading hours), Neptunus Changjian, a wholly-owned subsidiary of the Company, entered into the Distribution Agreement with Neptunus Pharmaceutical pursuant to which Neptunus Changjian will purchase various pharmaceutical products manufactured by Neptunus Pharmaceutical for distribution in the PRC for the period from 1 January 2019 to 31 December 2021 (both days inclusive). With reference to the Board Letter, the Proposed CCT constitutes continuing connected transaction of the Company and will be subject to reporting, announcement and independent shareholders approval requirements under Chapter 20 of the GEM Listing Rules. The Independent Board Committee comprising Mr. Yick Wing Fat, Simon, Mr. Poon Ka Yeung and Mr. Zhang Jian Zhou (all being independent non-executive Directors) has been established to advise the Independent Shareholders on (i) whether the terms of the Proposed CCT are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; (ii) whether the Proposed CCT is in the interests of the Company and the Shareholders as a whole and are conducted in the ordinary and usual course of business of the Group; and (iii) how the Independent Shareholders should vote in respect of the resolution(s) to approve the Proposed CCT at the EGM. We, Gram Capital Limited, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this respect. 16

20 LETTER FROM GRAM CAPITAL BASIS OF OUR OPINION In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have relied on the statements, information, opinions and representations contained or referred to in the Circular and the information and representations as provided to us by the Directors. We have assumed that all information and representations that have been provided by the Directors, for which they are solely and wholly responsible, are true and accurate at the time when they were made and continue to be so as at the Latest Practicable Date. We have also assumed that all statements of belief, opinion, expectation and intention made by the Directors in the Circular were reasonably made after due enquiry and careful consideration. We have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy and completeness of the information and facts contained in the Circular, or the reasonableness of the opinions expressed by the Company, its advisers and/or the Directors, which have been provided to us. Our opinion is based on the Directors representation and confirmation that there are no undisclosed private agreements/ arrangements or implied understanding with anyone concerning the Proposed CCT. We consider that we have taken sufficient and necessary steps on which to form a reasonable basis and an informed view for our opinion in compliance with Rule of the GEM Listing Rules. The Circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the GEM Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that, to the best of their knowledge and belief: the information contained in the Circular is accurate and complete in all material respects and not misleading or deceptive; and there are no other matters the omission of which would make any statement in the Circular or the Circular misleading. We, as the Independent Financial Adviser, take no responsibility for the contents of any part of the Circular, save and except for this letter of advice. We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, conducted any independent in-depth investigation into the business and affairs of the Company, Neptunus Changjian, Neptunus Pharmaceutical or their respective subsidiaries or associates, nor have we considered the taxation implication on the Group or the Shareholders as a result of the Proposed CCT. Our opinion is necessarily based on the financial, economic, market and other conditions in effect and the information made available to us as at the Latest Practicable Date. Shareholders should note that subsequent developments (including any material change in market and economic conditions) may affect and/or change our opinion and we have no obligation to update this opinion to take into account events occurring after the Latest Practicable Date or to update, revise or reaffirm our opinion. In addition, nothing contained in this letter should be construed as a recommendation to hold, sell or buy any Shares or any other securities of the Company. 17

21 LETTER FROM GRAM CAPITAL Lastly, where information in this letter has been extracted from published or otherwise publicly available sources, it is the responsibility of Gram Capital to ensure that such information has been correctly extracted from the relevant sources while we are not obligated to conduct any independent in-depth investigation into the accuracy and completeness of those information. PRINCIPAL FACTORS AND REASONS CONSIDERED In arriving at our opinion in respect of the Proposed CCT, we have taken into consideration the following principal factors and reasons: 1. Background of and reasons for the Proposed CCT Information on the Group With reference to the Board Letter, the Group was principally engaged in the research and development, manufacturing and selling of medicines, and the purchase and sales of medicines and healthcare food products in the PRC. The medicines being sold by the Group mainly cover four therapeutic areas which are oncology, cardiovascular system, respiratory system and digestive system. Set out below are the consolidated financial information of the Group for the six months ended 30 June 2018 ( HY2018 ) and the two years ended 31 December 2017 as extracted from the interim report of the Company for the six months ended 30 June 2018 (the 2018 Interim Report ) and the annual report of the Company for the year ended 31 December 2017 (the 2017 Annual Report ): For the six months ended 30 June 2018 For the year ended 31 December 2017 For the year ended 31 December 2016 Change from 2016 to 2017 (unaudited) (audited) (audited) RMB 000 RMB 000 RMB 000 % Revenue 405, , , Manufacturing and selling of medicines 213, , ,856 (0.89) Sales and distribution of medicines and healthcare products 192, , , Research & development services income Nil Nil 189 (100.00) Gross profit 229, , , Profit for the period/ year 17,712 55,429 72,817 (23.88) 18

22 LETTER FROM GRAM CAPITAL As illustrated in the above table, the revenue and profit of the Group amounted to approximately RMB million and RMB55.43 million respectively for the year ended 31 December 2017 ( FY2017 ), representing an increase of approximately 4.11% and a decrease of approximately 23.88% respectively as compared to those for the year ended 31 December 2016 ( FY2016 ). Revenue from the sales and distribution of medicines and healthcare products amounted to approximately RMB million for FY2017, representing an increase of approximately 10.73% as compared to that for FY2016 and contributed approximately 45.97% to the Group s total revenue for FY2017. Information on Neptunus Changjian With reference to the Board Letter, Neptunus Changjian is a limited liability company established under the laws of the PRC and is a wholly-owned subsidiary of the Company. Neptunus Changjian is principally engaged in the business of sales and distribution of drugs, health supplements and food and is the holder of the Licences. Information on Neptunus Pharmaceutical With reference to the Board Letter, Neptunus Pharmaceutical is a limited liability company established under the laws of the PRC. Neptunus Pharmaceutical is principally engaged in the business of production and manufacturing of pharmaceutical products. Reasons for and benefits of the Proposed CCT With reference to the Board Letter, on 4 January 2013, the Company acquired the entire equity interests in Neptunus Changjian with a view to expanding its business in marketing, sales and distribution of drugs and health supplements and food. The Board considers that the entering into of the Distribution Agreement will (i) bring to the Group higher operating revenues by the distribution and sale of pharmaceutical products, food products and products which will have a positive impact on the profitability of the Group; and (ii) assist the Group to expand its marketing team and retail network and strengthen its connections with distributors and retailers. With reference to the 2017 Annual Report and 2018 Interim Report, the purchase and sales of medicines and healthcare food products business continued to grow during FY2017 and HY2018. Among which, the sales volume through large and medium-sized chain drugstores continued to grow due to reasons such as the increase in demands in domestic pharmaceutical retail market and healthcare food products market, the increase in the number of products and categories distributed by the Group, adoption of a flexible and diversified sales policy, in-depth optimization of the sales force etc.. The overall sales revenue of the purchase and sales of medicines and healthcare food products business recorded a sustained growth. For our due diligence purpose, we searched over the internet to understand the prospect of the healthcare and pharmaceutical industry. With reference to the 2030 as published by the State Council of the PRC, the average human 19

23 LETTER FROM GRAM CAPITAL lifespan in PRC is targeted to reach 79 years old in 2020 as compared to an average human lifespan of years old in 2015 and the targeted market size of the healthcare industry is expected to grow from more than 8 trillion in 2020 to 16 trillion in Apart from the 2030, we also noted the and published by the State Council of the PRC. We noted from the above documents, which outlined the healthcare markets in the PRC, that the PRC government will, among others, (i) promote the unique advantage of Chinese medicine, (ii) ameliorate the healthcare and medicine services system, (iii) build an efficient medical insurance system, and (iv) ensure effective supply of medicine. With reference to the 2017 published by Ministry of Commerce of the PRC in June 2018, the pharmaceutical circulation industry recorded (i) an increase in total sale of approximately 8.4% in 2016 as compared to that for the previous year and (ii) an average annual growth rate of approximately 12.2% from 2013 to At the end of 2017, there are approximately 13,146 pharmaceutical wholesalers and approximately 5,409 drug retail chain enterprises in PRC, while the number of retail drug stores has reached approximately 0.45 million. Accordingly, we consider that there will be a positive demand for pharmaceutical and healthcare food products in the near future ( Our Findings on the Industry ). Having considered (i) the increase in the Group s revenue (in particular revenue from sales and distribution of medicines and healthcare products) during FY2017 as compared to FY2016; (ii) that revenue from sales and distribution of medicines and healthcare products represents 45.97% of the total revenue of the Group for FY2017 and is one the major sources of revenue of the Group; (iii) the reasons for and benefits of the Proposed CCT as mentioned; and (iv) Our Findings on the Industry, we concur with the Directors that the Proposed CCT is conducted in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole. 2. Principal terms of the Proposed CCT Date Parties 12 October 2018 Neptunus Changjian and Neptunus Pharmaceutical Subject matter Pursuant to the Distribution Agreement, among other things, Neptunus Changjian will purchase various pharmaceutical products which mainly include cardiovascular, oncology, respiratory and anti-viral pharmaceutical products manufactured by Neptunus Pharmaceutical and distribute such products within the PRC. 20

24 LETTER FROM GRAM CAPITAL Term The term of the Distribution Agreement is from 1 January 2019 to 31 December 2021 (both days inclusive). The Distribution Agreement will become effective on 1 January 2019 upon the approval by the Independent Shareholders at the EGM. Pricing basis and payment terms The monthly average unit price of the pharmaceutical products provided by Neptunus Pharmaceutical to Neptunus Changjian shall not be higher than the corresponding monthly average unit price of the same type of products sold to the top five clients of Neptunus Pharmaceutical. Neptunus Changjian will purchase the pharmaceutical products which mainly include cardiovascular, oncology, respiratory and anti-viral pharmaceutical products at the prescribed distribution prices determined by Neptunus Pharmaceutical and the prescribed distribution price shall not be higher than the average unit prices of such products sold by Neptunus Pharmaceutical to its top five clients. The consideration of the pharmaceutical products purchased by Neptunus Changjian will be settled within forty-five (45) days after the issue date of the invoice or the receipt of the products, whichever is earlier. All the terms of the Distribution Agreement are arrived at after arm s length negotiations between Neptunus Changjian and Neptunus Pharmaceutical. For our due diligence purpose, we obtained (i) invoices for the sale and purchase of pharmaceutical products between Neptunus Pharmaceutical (as supplier) and Neptunus Changjian (as purchaser); (ii) quotations for similar pharmaceutical products as provided by independent third parties (as suppliers) to Neptunus Changjian (as purchaser); and (iii) information of average monthly unit price for sale of pharmaceutical products by Neptunus Pharmaceutical to its top five clients during 2016 to We noted from such documents that (i) the prices for pharmaceutical products offered to Neptunus Changjian by Neptunus Pharmaceutical were lower than those offered to Neptunus Changjian by independent third parties; and (ii) the prices for pharmaceutical products provided by Neptunus Pharmaceutical to Neptunus Changjian were lower than those offered by Neptunus Pharmaceutical to its top five clients. With reference to the Board Letter, the Group will adopt certain internal control procedures in relation to the Proposed CCT, details of which are set out in the sub-sections headed Internal control measures of the Board Letter. Having considered, in particular, that (i) the business department of the Group will obtain quotes with same sales terms from at least two independent suppliers which are as established as, and of similar scale with Neptunus Pharmaceutical on a quarterly basis for similar products; and the manager of the business department of the Group will compare the quotations and provided that the products to be sold to the Group by the independent suppliers are of similar quality and quantity with 21