Sinocare Pharma (06833) Announces VIE-Structured Acquisition of Demei Aesthetic Medical Hospital to Expand into Medical Aesthetics Industry Chain

Sinco Pharmaceuticals(06833) Announcement: On March 22, 2022, Sichuan Xingkerong Biotechnology Co., Ltd. (as the buyer under Equity Transfer Agreement A and the lender under the Loan Agreement), a wholly-owned subsidiary of the Company, entered into relevant equity transfer agreements and loan agreements with Chinese equity owners (namely, Huang Zhijian, son of Huang Xiangbin, the Company's executive director, chairman of the board, and major shareholder, as the buyer under Equity Transfer Agreement B and borrower in the loan transaction) regarding the acquisition. This includes a series of VIE contractual arrangements to be entered into upon completion of the equity transfer agreements, with a total consideration of up to RMB 95 million.

According to the Share Transfer Agreement A entered into by Sichuan Xingkerong Biotechnology Co., Ltd. (i.e., the buyer), guarantors (Jiang Biao and Zhuang Yuanfei), the seller (Guanghan Huojingling E-commerce Co., Ltd.), the target company (Deyang Yisida Biotechnology Co., Ltd.), and Delta Medical (Deyang Delta Medical Cosmetology Hospital Co., Ltd.), Sichuan Xingkerong Biotechnology Co., Ltd. intends to acquire all the equity of the target company from the seller for a maximum consideration of RMB 66.5 million. As of the announcement date, the target company owns and controls 70% of Delta Medical.

According to the Share Transfer Agreement B entered into by the Chinese equity owners (i.e., the buyer), Jiang Biao, Zhang Min, Guanghan Haozheng (as the seller), Renshangren (Deyang Renshangren Pharmaceutical Technology Co., Ltd.), and Delta Medical, the Chinese equity owners intend to acquire all the equity interests in Renshangren held by Guanghan Haozheng for a maximum consideration of RMB 28.5 million. As of the date of this announcement, Renshangren owns and controls 30% of the equity interest in Delta Medical (i.e., OPCO). Pursuant to the loan agreement entered into between Sichuan Xingkerong Biotechnology Co., Ltd. and the Chinese equity owners, Sichuan Xingkerong Biotechnology Co., Ltd. agrees to lend and the Chinese equity owners agree to borrow an aggregate amount of RMB 28.5 million. This loan is solely for the purpose of acquiring all the equity interests in Renshangren (which owns and controls 30% of the equity interest in Delta Medical). Due to China's foreign investment restrictions and licensing requirements, Sichuan Xingkerong Biotechnology will enter into a series of VIE contractual arrangements with Renshangren, OPCO, and/or the Chinese equity owners to prevent the flow of equity and value to the minority shareholders of OPCO and to obtain the maximum economic benefits of OPCO.

Following the execution of the VIE contractual arrangements, all financial performance of RenShangRen and 30% of OPCO's financial performance will be consolidated into the Group’s consolidated financial statements, and RenShangRen will become the Company’s indirect wholly-owned subsidiary. Upon completion of the equity transfer agreement and execution of the proposed VIE contractual arrangements, Delta Medical will become the Company’s wholly-owned subsidiary, and the financial performance, assets, and liabilities of Delta Medical will be consolidated into the Company’s consolidated financial statements.

It is reported that, with the Group's expertise and experience in the supply of imported pharmaceuticals, the Group intends to develop its medical aesthetics industry chain and gradually establish two business segments: pharmaceuticals and medical aesthetic products, as its business development direction. The directors believe that, through the acquisition, the Group can leverage Delta Medical’s medical professionals, equipment, and facilities, as well as its network in the medical aesthetics industry, thereby promoting the research and development work of technical development projects. The Group will expand its business scope and directly enter the downstream sector of the medical aesthetics industry, which will help the Group establish its brand name in the industry, obtain more comprehensive market information, and gain direct and deeper insights into customer demands for medical aesthetic products and services. In addition, Delta Medical and its network can bring synergistic benefits to the subsequent marketing and sales of the Group's pharmaceuticals and medical aesthetic products.