Exhibit 99.1
CONNECT BIOPHARMA HOLDINGS LIMITED
INDEX TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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Unaudited Interim Condensed Consolidated Statements of Loss for the six months ended June 30, 2020 and 2021 | 2 | |||
Unaudited Interim Condensed Consolidated Statements of Comprehensive Loss for the six months ended June 30, 2020 and 2021 | 3 | |||
Unaudited Interim Condensed Consolidated Balance Sheets as of December 31, 2020 and June 30, 2021 | 4 | |||
Unaudited Interim Condensed Consolidated Statements of Changes in Shareholders’ (Deficit)/Equity for the six months ended June 30, 2020 and 2021 | 5 | |||
Unaudited Interim Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2021 | 7 | |||
Notes to Unaudited Interim Condensed Consolidated Financial Statements | 8 |
1
CONNECT BIOPHARMA HOLDINGS LIMITED
Unaudited Interim Condensed Consolidated Statements of Loss
For Six Months Ended June 30, | ||||||||||||||||
Notes | 2020 | 2021 | 2021 | |||||||||||||
RMB’000 | RMB’000 | USD’000 Note 2 | ||||||||||||||
Research and development expenses | 5 | (59,047 | ) | (217,806 | ) | (33,716 | ) | |||||||||
Administrative expenses | 5 | (7,086 | ) | (47,965 | ) | (7,424 | ) | |||||||||
Other income | 7 | 2,715 | 5,041 | 780 | ||||||||||||
Other gains/(losses) - net | 8 | 878 | (7,640 | ) | (1,183 | ) | ||||||||||
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Operating loss | (62,540 | ) | (268,370 | ) | (41,543 | ) | ||||||||||
Finance income | 569 | 180 | 28 | |||||||||||||
Finance cost | (19 | ) | (22 | ) | (4 | ) | ||||||||||
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Finance income - net | 550 | 158 | 24 | |||||||||||||
Fair value loss of financial instruments with preferred rights | 19 | (13,217 | ) | (674,269 | ) | (104,374 | ) | |||||||||
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Loss before income tax | (75,207 | ) | (942,481 | ) | (145,893 | ) | ||||||||||
Income tax expense | 9 | — | — | — | ||||||||||||
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Net loss | (75,207 | ) | (942,481 | ) | (145,893 | ) | ||||||||||
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Net loss attributable to: | ||||||||||||||||
Owners of the Company | (75,207 | ) | (942,481 | ) | (145,893 | ) | ||||||||||
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RMB | RMB | USD | ||||||||||||||
Net loss attributable to: | ||||||||||||||||
Basic and diluted | 10 | (4.4 | ) | (20.1 | ) | (3.1 | ) | |||||||||
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The accompanying notes are an integral part of these interim condensed consolidated financial statements.
2
CONNECT BIOPHARMA HOLDINGS LIMITED
Unaudited Interim Condensed Consolidated Statements of Comprehensive Loss
For the Six Months Ended June 30, | ||||||||||||||||
Notes | 2020 | 2021 | 2021 | |||||||||||||
RMB’000 | RMB’000 | USD’000 | ||||||||||||||
Note 2 | ||||||||||||||||
Net loss | (75,207 | ) | (942,481 | ) | (145,893 | ) | ||||||||||
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Other comprehensive (loss)/income | ||||||||||||||||
Items that may be reclassified to profit or loss | ||||||||||||||||
Exchange differences on translation of foreign operations | (5,173 | ) | 5,523 | 855 | ||||||||||||
Items that will not be reclassified to profit or loss | ||||||||||||||||
Exchange differences on translation of foreign operations | (672 | ) | (21,846 | ) | (3,382 | ) | ||||||||||
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Other comprehensive loss, net of tax | (5,845 | ) | (16,323 | ) | (2,527 | ) | ||||||||||
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Total comprehensive loss | (81,052 | ) | (958,804 | ) | (148,420 | ) | ||||||||||
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Total comprehensive loss attributable to: | ||||||||||||||||
Owners of the Company | (81,052 | ) | (958,804 | ) | (148,420 | ) | ||||||||||
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The accompanying notes are an integral part of these interim condensed consolidated financial statements.
3
CONNECT BIOPHARMA HOLDINGS LIMITED
Unaudited Interim Condensed Consolidated Balance Sheets
December 31, | June 30, | June 30, | ||||||||||||
Notes | 2020 | 2021 | 2021 | |||||||||||
RMB’000 | RMB’000 | USD’000 | ||||||||||||
Note 2 | ||||||||||||||
ASSETS | ||||||||||||||
Non-current assets | ||||||||||||||
Property, plant and equipment | 11 | 6,939 | 24,524 | 3,796 | ||||||||||
Right-of-use assets | 12 | 929 | 23,358 | 3,616 | ||||||||||
Intangible assets | 342 | 284 | 43 | |||||||||||
Other non-current assets | 13 | 19,860 | 27,614 | 4,275 | ||||||||||
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Total non-current assets | 28,070 | 75,780 | 11,730 | |||||||||||
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Current assets | ||||||||||||||
Cash and cash equivalents | 15 | 1,010,076 | 2,025,046 | 313,470 | ||||||||||
Other receivable and prepayments | 14 | 33,655 | 72,900 | 11,285 | ||||||||||
Financial assets at fair value through profit or loss | 3 | 13,068 | — | — | ||||||||||
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Total current assets | 1,056,799 | 2,097,946 | 324,755 | |||||||||||
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Total assets | 1,084,869 | 2,173,726 | 336,485 | |||||||||||
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LIABILITIES | ||||||||||||||
Non-current liabilities | ||||||||||||||
Lease liabilities | 12 | 309 | 482 | 75 | ||||||||||
Financial instruments with preferred rights | 3, 19 | 2,071,508 | — | — | ||||||||||
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Total non-current liabilities | 2,071,817 | 482 | 75 | |||||||||||
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Current liabilities | ||||||||||||||
Lease liabilities | 604 | 615 | 95 | |||||||||||
Trade payables | 24,638 | 65,628 | 10,159 | |||||||||||
Other payables and accruals | 18 | 12,755 | 24,383 | 3,774 | ||||||||||
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Total current liabilities | 37,997 | 90,626 | 14,028 | |||||||||||
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Total liabilities | 2,109,814 | 91,108 | 14,103 | |||||||||||
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Net (liabilities)/assets | (1,024,945 | ) | 2,082,618 | 322,382 | ||||||||||
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SHAREHOLDERS’ (DEFICIT)/EQUITY | ||||||||||||||
Share capital | 16 | 24 | 66 | 10 | ||||||||||
Share premium | 16 | 41,466 | 4,092,298 | 633,473 | ||||||||||
Treasury shares | (3 | ) | (3 | ) | — | |||||||||
Share-based compensation reserve | 6,602 | 24,608 | 3,809 | |||||||||||
Other reserves | (1,693 | ) | (20,529 | ) | (3,178 | ) | ||||||||
Accumulated losses | (1,071,341 | ) | (2,013,822 | ) | (311,732 | ) | ||||||||
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Total shareholders’ (deficit)/equity | (1,024,945 | ) | 2,082,618 | 322,382 | ||||||||||
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Total liabilities and shareholders’ (deficit)/equity | 1,084,869 | 2,173,726 | 336,485 | |||||||||||
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The accompanying notes are an integral part of these interim condensed consolidated financial statements.
4
CONNECT BIOPHARMA HOLDINGS LIMITED
Unaudited Interim Condensed Consolidated Statements of Changes in Shareholders’ (Deficit)/Equity
Notes | Share capital | Share premium | Treasury shares | Share-based compensation reserves | Other reserves | Accumulated losses | Total shareholders’ deficit | |||||||||||||||||||||||
RMB’000 | RMB’000 | RMB’000 | RMB’000 | RMB’000 | RMB’000 | RMB’000 | ||||||||||||||||||||||||
Balance at December 31, 2019 | 21 | 38,123 | (1 | ) | 4,411 | (48,725 | ) | (292,116 | ) | (298,287 | ) | |||||||||||||||||||
Comprehensive loss | ||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | (75,207 | ) | (75,207 | ) | |||||||||||||||||||||
Exchange differences | — | — | — | — | (5,845 | ) | — | (5,845 | ) | |||||||||||||||||||||
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— | — | — | — | (5,845 | ) | (75,207 | ) | (81,052 | ) | |||||||||||||||||||||
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Transactions with owners | ||||||||||||||||||||||||||||||
Issuance of shares to co-founders | 17 | 1 | 3,343 | — | (3,344 | ) | — | — | — | |||||||||||||||||||||
Issuance of treasury shares | 1 | — | (1 | ) | — | — | — | — | ||||||||||||||||||||||
Share-based compensations | 17 | — | — | — | 1,590 | — | — | 1,590 | ||||||||||||||||||||||
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2 | 3,343 | (1 | ) | (1,754 | ) | — | — | 1,590 | ||||||||||||||||||||||
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Balance at June 30, 2020 | 23 | 41,466 | (2 | ) | 2,657 | (54,570 | ) | (367,323 | ) | (377,749 | ) | |||||||||||||||||||
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The accompanying notes are an integral part of these interim condensed consolidated financial statements.
5
CONNECT BIOPHARMA HOLDINGS LIMITED
Unaudited Interim Condensed Consolidated Statements of Changes in Shareholders’ (Deficit)/Equity
Notes | Share capital | Share premium | Treasury shares | Share-based compensation reserves | Other reserves | Accumulated losses | Total shareholders’ (deficit)/equity | |||||||||||||||||||||||
RMB’000 | RMB’000 | RMB’000 | RMB’000 | RMB’000 | RMB’000 | RMB’000 | ||||||||||||||||||||||||
Balance at December 31, 2020 | 24 | 41,466 | (3 | ) | 6,602 | (1,693 | ) | (1,071,341 | ) | (1,024,945 | ) | |||||||||||||||||||
Comprehensive loss | ||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | (942,481 | ) | (942,481 | ) | |||||||||||||||||||||
Exchange differences | — | — | — | — | (16,323 | ) | — | (16,323 | ) | |||||||||||||||||||||
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— | — | — | — | (16,323 | ) | (942,481 | ) | (958,804 | ) | |||||||||||||||||||||
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Transactions with owners | ||||||||||||||||||||||||||||||
Issuance of ordinary shares, net of issuance costs | 16 | 14 | 1,305,818 | — | — | — | — | 1,305,832 | ||||||||||||||||||||||
Conversion from preferred shares to ordinary shares | 16 | 28 | 2,743,597 | — | — | — | — | 2,743,625 | ||||||||||||||||||||||
Repurchase of ordinary shares | 16 | — | — | — | — | (2,513 | ) | — | (2,513 | ) | ||||||||||||||||||||
Issuance of shares to co-founders | 17 | — | 1,417 | — | (1,417 | ) | — | — | — | |||||||||||||||||||||
Share-based compensations | 17 | — | — | — | 19,423 | — | — | 19,423 | ||||||||||||||||||||||
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42 | 4,050,832 | — | 18,006 | (2,513 | ) | — | 4,066,367 | |||||||||||||||||||||||
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Balance at June 30, 2021 | 66 | 4,092,298 | (3 | ) | 24,608 | (20,529 | ) | (2,013,822 | ) | 2,082,618 | ||||||||||||||||||||
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The accompanying notes are an integral part of these interim condensed consolidated financial statements.
6
CONNECT BIOPHARMA HOLDINGS LIMITED
Unaudited Interim Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, | ||||||||||||||
Notes | 2020 | 2021 | 2021 | |||||||||||
RMB’000 | RMB’000 | USD’000 | ||||||||||||
Note 2 | ||||||||||||||
Cash flows from operating activities | ||||||||||||||
Cash used in operations | 20 | (53,549 | ) | (252,936 | ) | (39,154 | ) | |||||||
Interest received | 569 | 180 | 28 | |||||||||||
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Net cash used in operating activities | (52,980 | ) | (252,756 | ) | (39,126 | ) | ||||||||
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Cash flows from investing activities | ||||||||||||||
Purchase of property, plant and equipment | (343 | ) | (23,477 | ) | (3,634 | ) | ||||||||
Payment in relation to right-of-use assets | — | (22,284 | ) | (3,449 | ) | |||||||||
Purchase of financial assets at fair value through profit or loss | (43,200 | ) | (42,500 | ) | (6,579 | ) | ||||||||
Proceeds from disposal of financial assets at fair value through profit or loss | 47,854 | 55,706 | 8,623 | |||||||||||
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Net cash generated from/ (used in) investing activities | 4,311 | (32,555 | ) | (5,039 | ) | |||||||||
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Cash flows from financing activities | ||||||||||||||
Proceeds from issuance of ordinary shares | 16 | — | 1,431,775 | 221,634 | ||||||||||
Payment in relation to listing expenses | — | (111,440 | ) | (17,251 | ) | |||||||||
Payment for lease liabilities | (223 | ) | (480 | ) | (74 | ) | ||||||||
Payment in relation to share repurchase | — | (2,513 | ) | (389 | ) | |||||||||
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Net cash (used in)/ generated from financing activities | (223 | ) | 1,317,342 | 203,920 | ||||||||||
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Net (decrease)/increase in cash and cash equivalents | (48,892 | ) | 1,032,031 | 159,755 | ||||||||||
Cash and cash equivalents at the beginning of period | 308,972 | 1,010,076 | 156,356 | |||||||||||
Effects of exchange rate changes on cash and cash equivalents | 4,226 | (17,061 | ) | (2,641 | ) | |||||||||
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Cash and cash equivalents at end of the period | 264,306 | 2,025,046 | 313,470 | |||||||||||
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The accompanying notes are an integral part of these interim condensed consolidated financial statements.
7
CONNECT BIOPHARMA HOLDINGS LIMITED
Notes to Unaudited Interim Condensed Consolidated Financial Statements
1. | General information and Basis of presentation |
1.1 | General information |
Connect Biopharma Holdings Limited (the “Company”) was incorporated on November 23, 2015 in the Cayman Islands as an exempted company with limited liability. The address of the Company’s registered office is P.O. Box 613, Harbour Centre, George Town, Grand Cayman KY1-1107, Cayman Islands. The Company completed its initial public offering (“IPO”) in March 2021 and the Company’s American Depositary Shares (“ADSs”) have been listed on the Nasdaq Global Market (“Nasdaq”) since then. Each ADS of the Company represents one ordinary share, par value USD 0.000174 per share.
The Company and its subsidiaries (collectively the “Group”) is a clinical-stage company focused on the discovery and development of next-generation immune modulators for the treatment of serious autoimmune diseases and inflammation. The Group has leveraged its expertise in the biology of T cell modulation to build a portfolio of drug candidates consisting of small molecules and antibodies targeting critical pathways of inflammation. The Group currently carries out clinical trials on its product candidates globally.
Connect Biopharma Hong Kong Limited (“Connect HK”) is a direct wholly owned subsidiary of the Company, and the Group carries out its business through Connect HK’s wholly owned subsidiaries: Suzhou Connect Biopharma Co., Ltd. (“Connect SZ”), Connect Biopharm LLC (“Connect US”) and Connect Biopharma Australia PTY LTD (“Connect AU”).
1.2 | Basis of presentation |
The unaudited interim condensed consolidated financial statements have been prepared in accordance with International Accounting Standard (“IAS”) 34 Interim Financial Reporting issued by the International Accounting Standards Board (“IASB”). Accordingly, they do not include all of the information and footnotes required by IFRS for complete financial statements. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with IFRS have been condensed or omitted.
The unaudited interim condensed consolidated financial statements included all adjustments as necessary for the fair statement of the Company’s financial position as of June 30, 2021, and results of operations and cash flows for the six months ended June 30, 2020 and 2021. The consolidated balance sheet as of December 31, 2020 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by International Financial Reporting Standards (“IFRS”). The unaudited interim condensed consolidated financial statements and related disclosures have been prepared with the presumption that users of the unaudited interim condensed consolidated financial statements have read or have access to the audited consolidated financial statements for the preceding fiscal years. Accordingly, these financial statements should be read in conjunction with audited consolidated financial statements and related footnotes for the years ended December 31, 2019, and 2020 included in the Company’s final prospectus filed with the Securities and Exchange Commission on March 19, 2021. The accounting policies applied are consistent with those applied in the audited consolidated financial statements for the preceding fiscal year. Results for the six months ended June 30, 2021 are not necessarily indicative of the results expected for the full fiscal year or for any future period.
The unaudited interim condensed consolidated financial statements for the six months ended June 30, 2020 and 2021 were authorized for issue by the Company’s board of directors (the “Board”) on August 31, 2021.
8
CONNECT BIOPHARMA HOLDINGS LIMITED
Notes to Unaudited Interim Condensed Consolidated Financial Statements
1. | General information and Basis of presentation (continued) |
Liquidity
Since inception, the Group has incurred accumulated losses of RMB 2,013.8 million (USD 311.7 million) as of June 30, 2021. For the six months ended June 30, 2021, the Group had net operating loss of RMB 268.4 million (USD 41.5 million) and net operating cash outflow of RMB 252.8 million (USD 39.1 million). The principal sources of funding have historically been continuous cash contributions from common equity holders and preferred shareholders. The cumulative contributions up through June 30, 2021 approximated USD 440.1 million, among which included USD 219.9 million of proceeds from issuance of ordinary shares in connection with the IPO or RMB 1,431.8 million based on the exchange rate as of the date of the IPO. As of June 30, 2021, the Group had net assets of RMB 2,082.6 million (USD 322.4 million), including a cash and cash equivalents balance of RMB 2,025.0 million (USD 313.5 million). Taking this into consideration, the Board believes that the Group will have sufficient available financial resources to meet its obligations becoming due and working capital requirements in the next twelve months from the date of issuance of these financial statements. Accordingly, the Board considers that it is appropriate to prepare the consolidated financial information on a going concern basis.
Impact of COVID-19
The outbreak of a novel strain of the coronavirus, specifically identified as “COVID-19”, has spread globally. COVID-19 is a virus causing potentially deadly respiratory tract infections and has impacted the global economy. In March 2020, the World Health Organization declared COVID-19 a pandemic.
The Group has taken measures to protect the safety of its employees and continuously monitors and evaluates the situation regarding COVID-19. COVID-19 ultimately may impact the Group’s clinical trials, including potential delays and restrictions on the ability to recruit and retain patients, principal investigators, and healthcare employees. COVID-19 could also affect the operations of contract research organizations (“CROs”) engaged by the Group. The Group continuously monitors the possible impact of COVID-19 on the Group, its CROs, contract manufacturing organizations and clinical sites performing research and development activities for the Group and has developed alternatives to limit the impact of COVID-19 on its operations going forward.
Management expects that COVID-19 will have some impact on the Company’s business and operations, but it is not expected to have a material adverse effect on the financial condition or liquidity of the Company.
2. | Summary of significant accounting policies |
The accounting policies and method of computation used in the preparation of the interim condensed consolidated financial statements are consistent with those used in the preparation of the audited consolidated financial statements for the preceding fiscal years included in the Company’s final prospectus filed with the Securities and Exchange Commission on March 19, 2021.
Convenience translation
Translations of the unaudited interim condensed consolidated balance sheet, the unaudited interim condensed consolidated statement of loss, unaudited interim condensed consolidated statement of comprehensive loss and unaudited interim condensed consolidated statement of cash flows from RMB into USD as of and for the six months ended June 30, 2021 are solely for the convenience of the readers and calculated at the rate of USD 1.00 = RMB 6.4601, representing the exchange rate as of June 30, 2021 set forth in the China Foreign Exchange Trade System. No representation is made that the RMB amounts could have been, or could be, converted, realized or settled into USD at that rate, or at any other rate.
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2. | Summary of significant accounting policies (continued) |
New and amended standards and interpretations not yet adopted by the Group
Effective for annual periods beginning on or after | ||||
Amendments to IAS 1 | Classification of Liabilities as Current or Non-current | January 1, 2022 | ||
Amendments to IAS 16 | Property, Plant and Equipment: Proceeds before intended use | January 1, 2022 | ||
Amendments to IFRS 3 | Reference to the Conceptual Framework | January 1, 2022 | ||
Annual Improvements | Annual Improvements to IFRS Standards 2018–2020 | January 1, 2022 |
3. | Fair value estimation |
The table below analyzes the Group���s financial instruments carried at fair value as of December 31, 2020 and June 30, 2021 by level of the inputs to valuation techniques used to measure fair value. Such inputs are categorized into three levels within a fair value hierarchy as follows:
(i) | Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1). |
(ii) | Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2). |
(iii) | Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3). |
As of June 30, 2021, the Group did not carry any financial assets or liabilities measured at fair value.
As of December 31, 2020 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
RMB’000 | RMB’000 | RMB’000 | RMB’000 | |||||||||||||
Assets | ||||||||||||||||
Financial assets at fair value through profit or loss | — | — | 13,068 | 13,068 | ||||||||||||
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Total assets | — | — | 13,068 | 13,068 | ||||||||||||
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Liabilities | ||||||||||||||||
Financial instruments with preferred rights | — | — | 2,071,508 | 2,071,508 | ||||||||||||
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Total liabilities | — | — | 2,071,508 | 2,071,508 | ||||||||||||
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3. | Fair value estimation (continued) |
There were no transfers between Levels 1, 2 and 3 during the periods presented.
Financial instruments in Level 3
If one or more of the significant inputs are not based on observable market data, the instrument is included in Level 3.
Specific valuation techniques used to value financial instruments include:
• | Quoted market prices or dealer quotes for similar instruments; |
• | A combination of observable and unobservable inputs, including risk-free rate, expected volatility, discount rate for lack of marketability (“DLOM”), etc. |
Level 3 instruments within the Group’s assets and liabilities include short-term investment in wealth management products measured at fair value through profit or loss and financial instruments with preferred rights.
The following table presents the changes in Level 3 instruments of short-term investment in wealth management products for the six months ended June 30, 2020 and 2021.
Six Months Ended June 30, | ||||||||
2020 | 2021 | |||||||
RMB’000 | RMB’000 | |||||||
Financial assets at fair value through profit or loss | ||||||||
Opening balance | 30,632 | 13,068 | ||||||
Additions | 43,200 | 42,500 | ||||||
Settlements | (47,854 | ) | (55,706 | ) | ||||
Investment income credited to profit or loss* | 396 | 138 | ||||||
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Closing balance | 26,374 | — | ||||||
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*includes unrealized gains recognized in profit or loss attributable to balances held at the end of the reporting period | 177 | — |
The valuation of financial instruments with preferred rights is set out in Note 19.
The carrying amounts of the Group’s other financial assets and liabilities, including cash and cash equivalents, other receivables, trade payable and other payables, approximate their fair values.
4. | Critical accounting estimates and judgements |
The preparation of the interim condensed consolidated financial statements requires the use of accounting estimates which, by definition, may not equal the actual results. Management also needs to exercise judgment in applying the Group’s accounting policies. Estimates and judgments are continually evaluated. They are based on historical experience and other factors, including expectations of future events that may have a financial impact on the Group and that are believed to be reasonable under the circumstances.
In preparing the interim condensed consolidated financial statements, the nature of significant judgments made by management in applying accounting policies and the key sources of estimation uncertainty were consistent with those described in the audited consolidated financial statements for the preceding fiscal years included in the Company’s final prospectus filed with the Securities and Exchange Commission on March 19, 2021.
11
5. | Expenses by nature |
Six Months Ended June 30, | ||||||||
2020 | 2021 | |||||||
RMB’000 | RMB’000 | |||||||
Clinical trials related expenses | 40,486 | 182,545 | ||||||
Employee benefit expenses (Note 6) | 9,861 | 40,635 | ||||||
Consultancy fee | 11,716 | 31,002 | ||||||
Office expenses | 696 | 2,821 | ||||||
R&D materials and consumable supplies | 846 | 6,602 | ||||||
Depreciation and amortization | 395 | 1,432 | ||||||
Others | 2,133 | 734 | ||||||
|
|
|
| |||||
66,133 | 265,771 | |||||||
|
|
|
|
6. | Employee benefit expenses |
Six Months Ended June 30, | ||||||||
2020 | 2021 | |||||||
RMB’000 | RMB’000 | |||||||
Wages, salaries and bonuses | 6,574 | 17,998 | ||||||
Share-based compensation expenses (Note 17) | 1,590 | 19,423 | ||||||
Welfare expenses | 436 | 2,641 | ||||||
Housing funds | 307 | 573 | ||||||
Contributions to defined benefit plan (i) | 954 | — | ||||||
|
|
|
| |||||
9,861 | 40,635 | |||||||
|
|
|
|
(i) | The defined benefit plan was established in 2018 for one founder and subsequently terminated in 2020. The aggregate value of the benefits under this plan was fully funded and rolled over into an individual retirement account for the benefit of the founder. The Company will have no further obligations with respect to such plan and is no longer subject to actuarial risk and investment risk. |
Employee benefit expenses were charged in the following line items in the interim condensed consolidated statements of loss:
Six Months Ended June 30, | ||||||||
2020 | 2021 | |||||||
RMB’000 | RMB’000 | |||||||
Research and development expenses | 7,030 | 22,999 | ||||||
Administrative expenses | 2,831 | 17,636 | ||||||
|
|
|
| |||||
9,861 | 40,635 | |||||||
|
|
|
|
12
7. | Other income |
Six Months Ended June 30, | ||||||||
2020 | 2021 | |||||||
RMB’000 | RMB’000 | |||||||
Government grants | 2,715 | 5,041 | ||||||
|
|
|
|
Government grants are cash incentive received related to specific operating expenses incurred. During the six months ended June 30, 2021, the Group received a one-time award of RMB 5.0 million (USD 0.8 million) from China local government for its successful IPO.
8. | Other gains/(losses) – net |
Six Months Ended June 30, | ||||||||
2020 | 2021 | |||||||
RMB’000 | RMB’000 | |||||||
Net foreign exchange gains/(losses) | 482 | (741 | ) | |||||
Investment income from wealth management products | 396 | 138 | ||||||
Other loss (i) | — | (7,037 | ) | |||||
|
|
|
| |||||
878 | (7,640 | ) | ||||||
|
|
|
|
(i) | The Group incurred a loss of RMB 7.0 million (USD 1.1 million) due to a phishing scam experienced in May 2021 which resulted in the Company remitting such amount to an account set up by the phishers rather than to one of the Company’s vendors. No loss or download of company data nor any loss or compromise of customer or third-party information has been discovered and the Company is currently continuing to investigate this incident. Management has filed a claim with the Company’s cyberinsurance underwriter. No recovery from insurance has been received as of the date of this filing. |
9. | Income tax |
The Company is incorporated in the Cayman Islands as an exempted company with limited liabilities under the Companies Law of Cayman Islands and accordingly, is exempted from Cayman Islands income tax. Due to loss position for the Group’s other entities located in Hong Kong, United States, China, and Australia, no provision for income taxes has been provided for the six months ended June 30, 2020 or 2021.
13
10. | Net loss per share |
Upon approval of shareholders of the Company on March 12, 2021, every 1.74 ordinary shares were consolidated into one ordinary share (the “Share Consolidation”) (Note 16). To calculate net loss per share, the number of shares used reflects such Share Consolidation retrospectively as of January 1, 2020 in the calculation of the weighted average number of ordinary shares outstanding.
Basic net loss per share is calculated by dividing the net loss attributable to owners of the Company by the weighted average number of ordinary shares outstanding. Basic and diluted net losses per share reflecting the effect of the issuance of ordinary shares by the Company are presented as follows:
Six Months Ended June 30, | ||||||||
2020 | 2021 | |||||||
Net loss attributable to owners of the Company (RMB’000) | (75,207 | ) | (942,481 | ) | ||||
Weighted average number of ordinary shares outstanding | 17,090,228 | 46,935,542 | ||||||
|
|
|
| |||||
Basic net loss per share (RMB) | (4.4 | ) | (20.1 | ) | ||||
|
|
|
|
Share options and preferred shares are considered as potential dilutive shares throughout the reporting periods. However, since the Group had incurred net losses for six months ended June 30, 2020 and 2021, the potential dilutive shares have anti-dilutive effect on net loss per share if they are converted to ordinary shares and were excluded from such calculation. Thus, diluted net loss per share is equivalent to the basic net loss per share.
11. | Property, plant and equipment |
Laboratory equipment | Leasehold improvements | Office equipment, furniture and others | Assets under construction | Total | ||||||||||||||||
RMB’000 | RMB’000 | RMB’000 | RMB’000 | RMB’000 | ||||||||||||||||
As of December 31, 2020 | ||||||||||||||||||||
Cost | 5,672 | 1,461 | 585 | 1,906 | 9,624 | |||||||||||||||
Accumulated depreciation | (1,460 | ) | (808 | ) | (417 | ) | — | (2,685 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net book value | 4,212 | 653 | 168 | 1,906 | 6,939 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Six months ended June 30, 2021 | ||||||||||||||||||||
Opening net book value | 4,212 | 653 | 168 | 1,906 | 6,939 | |||||||||||||||
Additions | 16,656 | 1,102 | 361 | 663 | 18,782 | |||||||||||||||
Transfers | — | 2,449 | — | (2,449 | ) | — | ||||||||||||||
Depreciation | (600 | ) | (400 | ) | (44 | ) | — | (1,044 | ) | |||||||||||
Disposal | (151 | ) | — | (2 | ) | — | (153 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Closing net book value | 20,117 | 3,804 | 483 | 120 | 24,524 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
As of June 30, 2021 | ||||||||||||||||||||
Cost | 22,177 | 5,012 | 944 | 120 | 28,253 | |||||||||||||||
Accumulated depreciation | (2,060 | ) | (1,208 | ) | (461 | ) | — | (3,729 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net book value | 20,117 | 3,804 | 483 | 120 | 24,524 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
14
12. | Lease |
Amounts recognized in the condensed consolidated balance sheets are as follows:
(i) | Right-of-use assets |
Land use rights | Office rental | Total | ||||||||||
RMB’000 | RMB’000 | RMB’000 | ||||||||||
Opening net book amount-as of January 1, 2021 | — | 929 | 929 | |||||||||
Additions | 22,284 | 518 | 22,802 | |||||||||
Depreciation | (74 | ) | (299 | ) | (373 | ) | ||||||
|
|
|
|
|
| |||||||
Closing net book amount-as of June 30, 2021 | 22,210 | 1,148 | 23,358 | |||||||||
|
|
|
|
|
| |||||||
As of June 30, 2021 | ||||||||||||
Cost | 22,284 | 2,607 | 24,891 | |||||||||
Accumulated depreciation | (74 | ) | (1,459 | ) | (1,533 | ) | ||||||
|
|
|
|
|
| |||||||
Net book value | 22,210 | 1,148 | 23,358 | |||||||||
|
|
|
|
|
|
The addition of land use rights was the prepaid land lease payments to acquire long-term interest in the usage of land in the mainland People’s Republic of China (“PRC”) over the period of 50 years that is stated in the land use right certificate. The land is expected to be used for the construction of production and office facilities.
(ii) | Lease liabilities |
December 31, | June 30, | |||||||
2020 | 2021 | |||||||
RMB’000 | RMB’000 | |||||||
Non-current | 309 | 482 | ||||||
Current | 604 | 615 | ||||||
|
|
|
| |||||
913 | 1,097 | |||||||
|
|
|
|
Amounts recognized in the interim condensed consolidated statements of loss in addition to depreciation shown above were as follows:
Six Months Ended June 30, | ||||||||
2020 | 2021 | |||||||
RMB’000 | RMB’000 | |||||||
Interest expense | 19 | 22 | ||||||
Expense relating to short-term leases | 82 | 17 | ||||||
Expense relating to leases of low-value assets that are not shown above as short-term leases | 15 | 15 |
The total cash outflow for leases for the six months ended June 30, 2020 and 2021 was RMB 0.2 million and RMB 0.5 million, respectively.
15
13. | Other non-current assets |
December 31, | June 30, | |||||||
2020 | 2021 | |||||||
RMB’000 | RMB’000 | |||||||
Deductible value-added tax | 10,260 | 13,319 | ||||||
Prepayments for purchase of non-current assets (i) | 9,600 | 14,295 | ||||||
|
|
|
| |||||
19,860 | 27,614 | |||||||
|
|
|
|
(i) | As of June 30, 2021, the Group had made prepayments of approximately RMB 14.3 million, compared to RMB 9.6 million as of December 31, 2020, primarily due to the purchase of laboratory equipment for Connect SZ. |
14. | Other receivables and prepayments |
December 31, | June 30, | |||||||
2020 | 2021 | |||||||
RMB’000 | RMB’000 | |||||||
Prepayment for CRO services | 28,043 | 52,658 | ||||||
Prepaid expenses (i) | — | 12,936 | ||||||
Deposits (ii) | 3,881 | 4,668 | ||||||
Others | 1,731 | 2,638 | ||||||
|
|
|
| |||||
33,655 | 72,900 | |||||||
|
|
|
|
(i) | In March 2021, the Group made payments to purchase director and officer liability insurance. Such expenses are amortized over 1 year. |
(ii) | Deposits held by CRO suppliers are refundable upon the completion of related services. |
16
15. | Cash and cash equivalents |
December 31, | June 30, | |||||||
2020 | 2021 | |||||||
RMB’000 | RMB’000 | |||||||
Cash at bank | ||||||||
-USD deposits | 975,810 | 1,981,028 | ||||||
-RMB deposits | 28,113 | 41,953 | ||||||
-AUD deposits | 6,153 | 2,065 | ||||||
|
|
|
| |||||
1,010,076 | 2,025,046 | |||||||
|
|
|
|
Cash at bank located in the PRC earns interest at floating rates based on daily bank deposit rates, while deposits in banks outside the PRC are with interest rate of nil.
Cash at banks denominated in RMB are deposited with banks in the PRC. The conversion of these RMB-denominated balances into foreign currencies and the remittance of funds out of China are subject to the rules and regulations of foreign exchange control promulgated by the government of the PRC. As of June 30, 2021, USD 296.7 million of deposits and AUD 0.4 million of deposits were held in banks outside the PRC.
16. | Share capital |
Upon approval of shareholders of the Company on March 12, 2021, every 1.74 ordinary shares with a par value of USD 0.0001 each in the authorized share capital of the Company (including all issued and unissued shares) were consolidated into one share with a par value of USD 0.000174 each. Therefore, on June 30, 2021, the authorized share capital of the Company was changed from USD 50,000 into USD 76,560. The number of ordinary shares below are presented retrospectively as if such Share Consolidation took place as of January 1, 2021.
Number of ordinary shares | Share capital | Share premium(i) | Total | |||||||||||||
RMB’000 | RMB’000 | RMB’000 | ||||||||||||||
As of January 1, 2021 | 19,653,791 | 24 | 41,466 | 41,490 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Issuance of ordinary shares (ii) | 12,937,500 | 14 | 1,305,818 | 1,305,832 | ||||||||||||
Conversion from preferred shares to ordinary shares (Note 19) | 24,791,804 | 28 | 2,743,597 | 2,743,625 | ||||||||||||
Repurchase of ordinary shares (iii) | (20,765 | ) | — | — | — | |||||||||||
Issuance of shares to co-founders (Note 17) | 121,080 | — | 1,417 | 1,417 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
As of June 30, 2021 | 57,483,410 | 66 | 4,092,298 | 4,092,364 | ||||||||||||
|
|
|
|
|
|
|
|
(i) | Share premium mainly arose from the contributions to the Company by its holders of ordinary shares and the conversion from preferred shares. |
17
16. | Share capital (continued) |
(ii) | In March 2021, 12,937,500 ADSs (representing 12,937,500 ordinary shares, including the exercise of the option by the underwriters in full to purchase additional ADSs) were offered by the Company in connection with its listing on Nasdaq, and the proceeds received were USD 219.9 million or RMB 1,431.8 million based on the exchange rate as of the date of the IPO. The Company incurred issuance costs of USD 19.3 million in connection with this offering. |
(iii) | In March 2021, at the request of one co-founder, the Group repurchased 20,765 ordinary shares from him for a consideration of RMB 2.5 million (USD 0.4 million) for the payment of employee withholding taxes related to share-based awards, then such shares were cancelled accordingly. |
17. | Share-based compensation |
2019 stock incentive plan
The Group adopted the 2019 stock incentive plan on November 1, 2019, under which the Group may grant various awards such as options, restricted shares or restricted share units to employees, directors, and consultants for services to be rendered. As of December 31, 2020, the Group had reserved 4,460,600 ordinary shares which were held by Connect Union for the issuance of options that are considered as treasury shares. After the Share Consolidation, the number of ordinary shares reserved was 2,563,563.
In January 2021, 95,000 options were granted to three new employees with an exercise price of USD 4.69 per ordinary share. After the Share Consolidation, those options granted were exercisable to acquire 54,598 ordinary shares with an exercise price of USD 8.2 per ordinary share.
On February 20, 2021, 564,981 options were granted to each of the co-founders and 337,000 options were granted to certain non-executive employees, directors and consultants. The exercise price per share of each option was USD 6.72. After the Share Consolidation, those options were exercisable at a price of USD 11.7 each to acquire 324,702 ordinary shares by each of the co-founders and 193,677 ordinary shares by certain non-executive employees, directors and consultants.
The activities of the options outstanding as of June 30, 2021 were as follows:
Number of options | Weighted average exercise price per share option | |||||||
Options outstanding as of December 31, 2020 | 1,665,883 | |||||||
Granted | 897,679 | USD 11.5 | ||||||
Forfeited (i) | (82,759 | ) | USD 8.7 | |||||
|
| |||||||
Options outstanding as of June 30, 2021 | 2,480,803 | |||||||
|
| |||||||
Options exercisable as of June 30, 2021 | 283,499 | |||||||
|
|
The weighted average remaining contractual life of options outstanding as of December 31, 2020 and June 30, 2021 was 9.3 years and 8.8 years, respectively.
(i) | The options were forfeited when the employment terminated. |
18
17. | Share-based compensation (continued) |
Fair value of options granted
The Group determined its equity value which was estimated using the hybrid method and adopted the allocation model to determine the fair value of its underlying ordinary shares.
Based on the fair value of underlying ordinary shares, the Group used the Binomial option-pricing model to determine the fair value of options as of the grant date. Key assumptions (before the Share Consolidation) for the options granted are set forth below:
December 31, | June 30, | |||||||
2020 | 2021 | |||||||
Weighted average exercise price during the period | USD 3.8 | USD 6.6 | ||||||
Grant date share price | USD 1.2~USD 6.4 | USD 7.5 | ||||||
Risk-free interest rate | 0.8%~1.1 | % | 1.3%~1.5 | % | ||||
Expected volatility | 61.8%~77.4 | % | 60.5 | % | ||||
Option life | 10 years | 10 years | ||||||
Expected early exercise multiple | 2.2 | 2.2 | ||||||
Dividend yield | Nil | Nil | ||||||
Forfeiture rate | 9.5 | % | 9.5 | % | ||||
Weighted average fair value of options granted during the period | USD 2.4 | USD 4.2 |
The Company adopted the average volatility of comparable companies as a proxy of the expected volatility of the underlying shares. The volatility of each comparable company was based on the historical daily stock prices for a period with length commensurate to the remaining maturity life of the share options.
Share-based compensation to co-founders
Pursuant to the shareholders agreement, upon achievement of certain R&D milestones, 210,682 ordinary shares were issued to the co-founders during the six months ended June 30, 2021. After the Share Consolidation, these have become 121,080 ordinary shares.
Based on the anti-dilutive obligation of the Company to issue additional Series C preferred shares, the Company also issued 80,457 Series C preferred shares in March 2021. After the Share Consolidation, these have become 46,232 preferred shares.
The Group determined its equity value which was estimated using the hybrid method and adopted the allocation model to determine the fair value of this share-based payment as USD 0.9 per share before the Share Consolidation (USD 1.57 after the Share Consolidation) on the grant date. Key assumptions included risk-free interest rate of 2.5%, expected volatility of 60.0%, dividend yield of nil and were based on the management’s best estimates.
19
17. | Share-based compensation (continued) |
Share-based compensation expenses included in the interim condensed consolidated financial statements of loss for the six months ended June 30, 2020 and 2021 were as follows:
Six Months Ended June 30, | ||||||||
2020 | 2021 | |||||||
RMB’000 | RMB’000 | |||||||
Research and development expenses (Note 6) | 1,428 | 8,529 | ||||||
Administrative expenses (Note 6) | 162 | 10,894 | ||||||
|
|
|
| |||||
1,590 | 19,423 | |||||||
|
|
|
|
18. | Other payables and accruals |
December 31, | June 30, | |||||||
2020 | 2021 | |||||||
RMB’000 | RMB’000 | |||||||
Accrued professional service fee | 8,090 | 22,215 | ||||||
Payroll and welfare payables | 4,124 | 1,856 | ||||||
Others | 541 | 312 | ||||||
|
|
|
| |||||
12,755 | 24,383 | |||||||
|
|
|
|
19. | Financial Instruments with preferred rights |
The Group has completed a series of financings by issuing preferred shares with the following details:
Date of subscription | Round | Number of preferred shares | Subscription consideration | |||||||||
RMB’000 | ||||||||||||
March 3, 2016 | Series Pre-A | 3,109,000 | 33,110 | |||||||||
January 3, 2017 | Series A | 8,471,200 | 137,868 | |||||||||
December 20, 2018 | Series B | 10,127,579 | 379,148 | |||||||||
August 21, 2020 / December 1, 2020 | Series C | 21,349,537 | 923,247 | |||||||||
|
|
|
| |||||||||
43,057,316 | 1,473,373 | |||||||||||
|
|
|
|
After the Share Consolidation, the above number of preferred shares were changed to 24,745,572 and together with 46,232 preferred shares as disclosed in the Note 17, the Company’s issued and outstanding preferred shares were 24,791,804 prior to March 19, 2021. Upon completion of the IPO, such preferred shares were converted to ordinary share on a one-for-one basis.
20
19. | Financial instruments with preferred rights (continued) |
��
Movements of financial instruments with preferred rights during the six months ended June 30, 2020 and 2021 were as follows:
Fair Value | ||||
RMB’000 | ||||
Six months ended June 30, 2020 | ||||
As of January 1, 2020 | 643,008 | |||
Change in fair value recognized in profit or loss | 13,217 | |||
Change in fair value due to foreign currency translation recognized in other comprehensive income | 9,589 | |||
|
| |||
As of June 30, 2020 | 665,814 | |||
|
| |||
Six months ended June 30, 2021 | ||||
As of January 1, 2021 | 2,071,508 | |||
Change in fair value recognized in profit or loss | 674,269 | |||
Change in fair value due to foreign currency translation recognized in other comprehensive income | (2,152 | ) | ||
Converted to ordinary shares upon IPO | (2,743,625 | ) | ||
|
| |||
As of June 30, 2021 | — | |||
|
|
The Group first determined the equity value and then allocated the equity value to each element of the Group’s capital structure using either the option pricing back-solve method (“OPM”) or a hybrid method.
Key valuation assumptions used to determine the fair value of the financial instruments with preferred rights for the six months ended June 30, 2020 were as follows:
DLOM | 23.9% ~ 25.8% | |||
Expected volatility | 68.0% ~ 75.2% | |||
Risk-Free interest rate | 0.1% ~ 0.2% |
21
20. | Cash used in operations |
Six Months Ended June 30, | ||||||||||
Notes | 2020 | 2021 | ||||||||
RMB’000 | RMB’000 | |||||||||
Loss before income tax | (75,207 | ) | (942,481 | ) | ||||||
Adjustments for: | ||||||||||
- Finance income – net | (550 | ) | (158 | ) | ||||||
- Investment income from wealth management products | 8 | (396 | ) | (138 | ) | |||||
- Amortization of intangible assets | — | 15 | ||||||||
- Depreciation of property, plant and equipment | 11 | 191 | 1,044 | |||||||
- Depreciation of rights-of-use assets | 12 | 204 | 373 | |||||||
- Share-based compensation expenses | 17 | 1,590 | 19,423 | |||||||
- Net foreign exchange differences | 8 | (482 | ) | 741 | ||||||
- Fair value changes of financial instruments with preferred rights | 19 | 13,217 | 674,269 | |||||||
- Loss on disposal of property, plant and equipment | — | 153 | ||||||||
Changes in working capital | ||||||||||
- Other receivables and prepayments | (6,289 | ) | (42,522 | ) | ||||||
- Other non-current assets | (2,422 | ) | (3,059 | ) | ||||||
- Other payables and accruals | 724 | (1,628 | ) | |||||||
- Trade payables | 15,871 | 41,032 | ||||||||
|
|
|
| |||||||
Net cash used in operations | (53,549 | ) | (252,936 | ) | ||||||
|
|
|
|
21. | Commitments |
As of June 30, 2021, the Group had capital commitments of approximately RMB 9.6 million (as of December 31, 2020: RMB 23.2 million), primarily in conjunction with the acquisition of laboratory equipment.
22. | Related party transactions |
Parties are considered to be related if one party has the ability, directly or indirectly, to control or exercise significant influence over the other party. Parties are also considered to be related if they are subject to common control. Members of key management of the Group and their close family members are also considered as related parties.
22
23. | Related party transactions (continued) |
Names of related parties | Nature of relationship | |
Hangzhou Simo Company Limited | Entity controlled by a director of the Company | |
Frontage Laboratories (Suzhou) Company Limited | Entity controlled by a director of the Company | |
Hangzhou Tigermed Consulting Company Limited | Entity controlled by a director of the Company | |
Beijing Medical Development (Suzhou) Company Limited | Entity controlled by a director of the Company |
As the former director Xiaoping Ye resigned on February 2, 2021, the above companies were no longer considered as related parties for the six months ended June 30, 2021.
In addition to other related party transactions and balances disclosed elsewhere in these notes to financial statements, the following is a summary of significant transactions and balances with related parties during the six months ended June 30, 2020 and 2021 and at each period end.
(a) Significant transactions with related parties:
Six Months Ended June 30, | ||||||||
2020 | 2021 | |||||||
RMB’000 | RMB’000 | |||||||
Purchase of clinical trials related services | ||||||||
Hangzhou Simo Company Limited | 3,585 | — | ||||||
Frontage Laboratories (Suzhou) Company Limited | 1,291 | — | ||||||
Hangzhou Tigermed Consulting Company Limited | 88 | — | ||||||
Beijing Medical Development (Suzhou) Company Limited | 252 | — |
(b) Balances with related parties:
December 31, | June 30, | |||||||
2020 | 2021 | |||||||
RMB’000 | RMB’000 | |||||||
(i) Prepayments | ||||||||
Hangzhou Tigermed Consulting Company Limited | 850 | — | ||||||
Hangzhou Simo Company Limited | 507 | — |
All the above balances with related parties were unsecured, interest-free and had no fixed repayment terms.
(c) Key management personnel compensation:
Six Months Ended June 30, | ||||||||
2020 | 2021 | |||||||
RMB’000 | RMB’000 | |||||||
Wages, salaries and bonuses | 3,042 | 8,422 | ||||||
Share-based compensation expenses | 208 | 13,200 | ||||||
Contributions to defined benefit plan | 965 | — | ||||||
Welfare, housing funds and other | 101 | 182 |
23
24. | Events after the reporting period |
Grant of stock options under 2021 stock incentive plan
On July 30, 2021, 570,000 options were granted to certain newly hired employees and a consultant. The weighted- average exercised price was USD 20.7 per share.
24