twi pharmaceuticals, inc. · second-degree of kinship. ..... 81 ix. information on the number of...

In case of any discrepancy between the English and the Chinese version, the Chinese version shall prevail.

Stock code: 4180

TWi Pharmaceuticals, Inc.

2018

Annual Report This related information of Annual Report is disclosed at the Company Website:

http://www.twipharma.com/tw/investor_annualReport.aspx

The Website URL specified by the Financial Supervisory Commission for reporting of information:http://mops.twse.com.tw/mops/web/index

Printed on April 30, 2019

I. The name, job title, contact telephone number and email address of the spokesperson and acting spokesperson of the Company:

Spokesperson: Angela Luan Acting Spokesperson: Shelley Chiou

Job title: Finance and Investor Relation Director

Job title: Chief Operating Officer

Tel: (02)2657-3350 Tel: (02)2657-3350

Email: [email protected] Email: [email protected]

II. Address and telephone number of the head office, branch office, factory:

Name Address Telephone

Head Office

4F., No.41, Ln. 221, Gangqian Rd., Neihu Dist., Taipei City 114, Taiwan (R.O.C.)

(02)2657-3350

Chungli Plant

No.3-1, Ziqiang 4th Rd., Fuxing Vil., Chungli Dist., Taoyuan City 32063, Taiwan (R.O.C.)

(03)433-6438

No.17, Dongyuan Rd., Zhongfu Vil., Chungli Dist., Taoyuan City 32063, Taiwan (R.O.C.)

(03)433-2596

Synpac-Kingdom Plant

No.80, Sec. 1, Changan Rd., Luzhu Dist., Taoyuan City 33860, Taiwan (R.O.C.)

(03)321-5512

III. Name, Address, Website and Telephone Number of the Stock Transfer Agency:

Department of Stock Transfer Agency, CTBC Bank Co., Ltd.

Tel: (02)6636-5566

Website: http://www.chinatrust.com.tw Address: 5F., No.83, Sec. 1, Chongqing S. Rd., Taipei City 100

IV. Name of the CPA for the Financial Reports during the past year, Name of

mailto:[email protected]

mailto:[email protected]

http://www.chinatrust.com.tw/

Accounting Firm, Address, Website and Telephone:

Accountant Name: Teng, Sheng-Wei, CPA; Tseng, Hui-Chin, CPA

Accounting Firm Name: PricewaterhouseCoopers, Taiwan

Address: 27F, No. 333, Sec. 1, Keelung Rd., Taipei 11012, Taiwan

Website: http://www.pwc.tw

Tel: (02)2729-6666

V. Stock Exchangefor Trading of Overseas Listed Securities of the Company and the Method of Inquiry of Information for Such Overseas Listed Securities:

Luxembourg stock exchange http://www.bourse.lu

VI. Company's Website: http://www.twipharma.com

http://www.pwc.tw/

http://www.bourse./

http://www.twipharma.com/

Table of Contents One. Letter to Shareholders ............................................................................ 1

I. 2018 Business Report ................................................................................... 1 II. 2019 Business Plan ........................................................................................ 5 III. Impact from external competitive environment, regulatory environment,

and overall business environment. .............................................................. 6

Two. Company Profile ..................................................................................... 8 I. Founding Date ............................................................................................... 8 II. Company History .......................................................................................... 8

Three. Corporate Governance Report ......................................................... 13 I. Organizational System ............................................................................... 13 II. Information of Directors, Supervisors, President, Vice-Presidents,

Associate Vice Presidents, and Managers of Various Departments and Branches ...................................................................................................... 16

III. Implementation of Corporate Governance .............................................. 30 IV. Information on CPA professional fees ...................................................... 75 V. Information on replacement of certified public accountants.................. 77 VI. Information regarding if the Company’s Chairman, President, or any

Managerial Officer in charge of Finance or Accounting affairs ever held a position at its CPA's Accounting Firm or at an Affiliated Enterprise in the past year : .............................................................................................. 78

VII. Equity transfer or changes to equity pledge of Directors, Supervisors, Managerial Officers, or Shareholders holding more than 10% of Company shares in the most recent year (2018) up to the date of publication of this Annual Report: ............................................................ 78

VIII. Information on the top 10 holders of the Company's shares with the relationship identified as related parties or spouses or relatives within second-degree of kinship. ........................................................................... 81

IX. Information on the number of shares that are held by the Company, any of the Company’s Directors, Supervisors and Managerial Officers or a Company directly or indirectly controlled on the same invested enterprise and consolidated percentage of shareholding .......................................... 82

Four. Fundraising Status ............................................................................... 83 I. Source of Share Capital.............................................................................. 83 II. Shareholder Structure ................................................................................ 85 III. Distribution of equities ............................................................................... 85 IV. List of Major Shareholders ........................................................................ 85

V. Per Share Market Price, Per Share Net Worth, Earnings, Dividends and related information in the Past 2 Years. If there are earnings or capital reserves transferred to capital increase share distribution, the market price and cash dividend information adjusted retrospectively based on the number of issued shares shall be disclosed......................................... 87

VI. Dividend Policy and Implementation ....................................................... 87 VII. Impact on the Company's business performance and earnings per share

(EPS) due to dividends allotment proposal to be discussed at this Shareholders Meeting: ............................................................................... 88

VIII. Employees Bonus and Compensation for Directors and Supervisors .... 88 IX. Buyback of Company Shares by the Company: ...................................... 90 X. Issuance of corporate bonds: None. .......................................................... 91 XI. Issuance of preferred stocks: None. .......................................................... 91 XII. Issuance of overseas depositary receipts: ................................................. 92 XIII. Management of Employee Stock Options Certificates ............................ 93 XIV. Issuing new shares for merger, acquisition or in exchange for shares of

other companies ........................................................................................ 105 XV. Implementation of Use of Funds Plan ..................................................... 105

Five. Operation Overview ............................................................................ 115 I. Content of Business ................................................................................... 115 II. Market and production and marketing overview .................................. 135 III. Number, average length of service, average age and education

distribution ratio of employees in the most recent two years and as of the date of publication of this Annual Report .............................................. 145

IV. Environmental Expenditure Information .............................................. 145 V. Labor Management Relations ................................................................. 148 VI. Important Contract .................................................................................. 152

Six. Finance Overview ................................................................................. 153 I. The Condensed Balance Sheet and Income Statement of the most recent

five years, the names of Accountants and their audit opinions ............ 153 II. Financial analysis of the most recent 5 years ......................................... 158 III. The audit report of the Supervisor or the Audit Committee of the most

recent annual financial report ................................................................. 163 IV. The most recent annual financial report, including the Accountant Audit

Report, the two years comparison balance sheet, consolidated income statement, statement of changes in equity, the cash flow statement and the notes or attachments ................................................................................. 163

V. The Company's latest annual stand-alone financial report auditd and

certified by the Certified Public Accountant .......................................... 163 VI. The impact to the Company's financial status in case there is any financial

turnover problem for the Company and its affiliated enterprises in the most recent year and as of the date of publication of this Annual Report ........................................................................................................ 163

Seven. Review and Analysis of Financial Status and Financial Performance and Risk Matters ................................................................................ 164

I. Financial Status ........................................................................................ 164 II. Financial performance ............................................................................. 166 III. Cash flow ................................................................................................... 168 IV. The impact of major capital expenditures on financial and business

activities in the most recent fiscal year : ................................................. 168 V. The most recent annual investment policy, the main reason for its profit

or loss, improvement plan and the investment plan for the next year . 169 VI. Risks ........................................................................................................... 170 VII. Other important business matters: None. ........................................... 188

Eight. Special Items ..................................................................................... 189 I. Relevant Information of Affiliated Enterprises ..................................... 189 II. Private placement in the most recent year and as of the date of publication

of this Annual Report: None. ................................................................... 194 III. The status of holding or disposing of the Company's stock by the

subsidiaries in the most recent year and as of the date of publication of this Annual Report: None. ....................................................................... 194

IV. Other required supplementary explanations: ........................................ 195 V. Significant impact on shareholders' equity or securities prices in the

events as set forth in subparagraph 2 of paragraph 2 of Article 36 of the Securities and Exchange Act in the most recent year and as of the date of publication of this Annual Report: ........................................................ 196

One. Letter to Shareholders

Dear Shareholders, I. 2018 Business Report

(I) Implement Results of Business Plan

In 2018, the Company’s operating performance shows a consolidated operating revenue of NT$822,945 thousand, an increase by 2.03% compared with NT$806,544 thousand in 2017, and a consolidated operating loss of NT$717,657 thousand in the period, an increase by 43.14% compared with NT$501,382 thousand in 2017. Although the operating revenue grew slightly over the previous year, which was due to new product launch of one self-developed drug and one in-licensed drug and infusion of domestic CMO revenue generated by Synpac-Kingdom Pharmaceuticals, Inc., the subsidiary of the Company, the overall revenue generated by the existing launched products decreased because of market competition and the economic scale of product portfolio was not reached so that it was still insufficient to fully cover the operating expenses and it was still in a state of operating losses. The Company’s continuous investment in the research and development of high-tech special generic drugs in the US market resulted in R&D expenditures. Besides, with the PIV drug applications filed with the U.S. FDA, the litigation-related expenses occurred from the lawsuit with the brand’s pharmaceutical manufacturer. The protection mechanism of 30 months auto-stay period set up by the United States delayed launch time of generic drugs. All of the aforementioned conditions were factors which resulted in the Company's R & D investment being unable to immediately generate revenue. As such, although the Company had filed 19 ANDA applications which had been accepted by the U.S. FDA for review as of the end of 2018, only 5 products were sold on the market. As such, the economies of scale had not been reached and the Company was still in operating losses. In the future, with the granting of drug licenses, new drugs will enter the market and the operation conditions of the Company shall continue to improve. In addition, Synpac-Kingdom Pharmaceuticals, Inc., a subsidiary of the Company, could not fully utilize its capacity because the internally developed eye drugs were still under development, which also contributed to the operating losses. And TWi Biotechnology, Inc., another subsidiary of the Company, continued to invest in the development of new drugs. With the progress of the research and development process in each drug development program, the required R & D investment also increased. The product cycle of new drug development is longer than that of generic drugs and it was still in the R & D investment stage with no product launching in the market to generate income. This further increased R & D expenses as well as the operating losses of the Company.

In 2018, the Company endeavored to develop product projects following a sound business plan. Up to the fourth quarter of 2018, a total of 19 special generic drug applications

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were filed with the U.S. FDA and accepted for review. Among which, 8 special generic drugs had successfully obtained the U.S. FDA approvals and one special generic drugs had obtained tentative approval from the U.S. FDA. There were 5 self-developed, 1 externally acquired and 1 in-licensed special generic drugs launched in the U.S market. In addition, the Company had built up its capacity for sterile preparation through acquiring majority shares of Synpac-Kingdom Pharmaceuticals, Inc., which will provide cost-effective support for broadening product formulations and commercial production. It is expected that, as the Company’s self-developed generic drugs are launched in the U.S. market, its profit benefits will gradually improve and bring rewards to the shareholders.

(II) Financial income or expenditure and profitability Analysis

In 2018, the main expenditure items in the Company’s consolidated financial income and expenditure are R&D investment in special generic drugs with high-tech thresholds and new drugs. The Company’s investment in R&D aims at accumulating the energy of future product launches and growth in operating income.

Item 2017 2018

Financial structure

Debt-Asset Ratio 10.75% 13.17% Ratio of Long-term Capital to Fixed Assets 495.07% 486.61%

Solvency Current Ratio 746.96% 574.96% Quick Ratio 706.39% 524.19%

Profitability Return on Assets -4.31% -8.56% Return on Shareholders’ Equity -4.70% -9.75% Basic Earnings Per Share $-2.03 $-4.23

(III) Research and Development Status

1. Specialty generics

The progress of review of ANDA submissions and litigation of the Company in 2018 are summarized as follows:

(1) New approval of drug licenses by U.S. FDA:

A. Generic Diltiazem ER Capsule, was approved by the U.S. FDA in September 2018. The Company has already initiated preparation for product launch.

B. Generic Oxcarbazepine ER Tablet was granted with tentative approval by the U.S. FDA in November 2018. The Company will launch the product after the patents of the brand drug expire.

C. Generic Metoprolol Succinate ER Tablet, was approved by the U.S. FDA in

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December 2018. The Company has already initiated preparation for product launch.

(2) Acceptance for review by the U.S. FDA with regard to new ANDA submissions of the Company:

A. The Company filed an ANDA submission for TWi-019, which was accepted for review by the U.S. FDA in June 2018. The Company has continued to prepare for works of drug approval review.

(3) Litigation status for the drugs under review:

A. The Company had filed an ANDA submission of the generic Oxtellar XR(Oxcarbazepine ER Tablet). Supernus, the brand pharmaceutical company, had filed the patent infringement suit against the Company. The lawsuit was judged by the District Court that the patent is effective. The Company disagreed with such judgment and has appealed to the United States Court of Appeals. The United States Court of Appeals ruled in September 2018 to sustain the original District Court’s judgment. The generic drug is currently under review by the U.S.FDA and the Company will launch the product after the patents of the brand drug expire.

2. New drugs developed by TWi Biotechnology, Inc.

(1) The drug candidate AC-201CR for treatment of hemophilic arthropathy has entered into Phase IIa explanatory clinical trials.

(2) The drug candidate AC-203 for treatment of Bullous pemphigoid has entered into Phase IIa clinical trials.

(3) The Phase II clinical trials of drug candidate AC-203 for treatment of Hereditary Epidermolysis Bullosa all subtypes was approved by the TFDA and is conducted.

(4) The drug candidate AC-203 for treatment of Hereditary Epidermolysis Bullosa Simplex was granted by the US FDA with the qualification of Rare Pediatric Disease Designation.

(5) The drug candidate AC-203 for treatment of Hereditary Epidermolysis Bullosa Simplex was granted by the US FDA with the qualification of Fast Track Designation.

(6) The strategic partner, CCP, decided to early terminate the transnational pivotal clinical trial (CCP-020-301) of drug candidate AC-203 for treatment of Hereditary Epidermolysis Bullosa Simplex in order to unblind and analyze the clinical data. A subsequent clinical trial will be redesigned. All the other on-

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going clinical trials are continuously performed.

(7) The formulation optimization of drug candidate AC-701 for treatment of rash caused by administration of target drugs was completed and an application of Phase II clinical trial was submitted to the TFDA.

(8) Through the DRIRD platform, TWi Biotechnology, Inc. had cooperated with the academic and research institutions to perform In Silico Virtual Screening to explore and discover the new drug compounds with medication potential.

(IV) Implementation Results of Budget

In 2018, the Company only developed its internal budget targets and did not make financial forecasts open to the public. The overall implementation results were generally consistent with the range defined by the Company.

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II. 2019 Business Plan

(I) Operating Principle

The Company is a professional drug development and manufacturing company. It focuses on the R&D and commercialization of drugs and engages in operation of products mainly composed of special generic drugs. The operating principles are respectively described as follows:

1. Continue to strengthen the high-tech-barrier products in US market and develop other potential markets.

2. Target the markets where there are limited competitors.

3. Expand the range of dosage forms and product portfolio.

4. Expand the global outreach through drug licensing, co-marketing, strategic alliance along with other business models.

(II) Key production and distribution strategies

1. As of now, there are 5 self-developed generic drugs and 1 externally-bought generic drug sold through the self-sale platform and sales team deployed by TWi US in the US market.

2. There are 4 self-developed generic drugs and 1 CMO generic drug sold in the US market are manufactured in the Chung-Li plants. In addition, in consideration of the existing manufacturing capacity and efficiency, the Company also carries out its product development and product manufacturing through strategic alliance with third parties.

3. The Company will integrate and strengthen its internal senior and professional R&D team, expand the scope of the dosage forms and product portfolio, and enhance the global outreach through drug licensing, co-marketing and strategic alliance along with other business models.

(III) Future Development Strategy

1. Continue to focus on innovative special generic drugs and maintain the momentum of around 3-5 ANDA filings with the U.S. FDA per year.

2. Expand the technical platform to non-oral products such as local / percutaneous absorption preparations and special generic drug products such as eye drugs to further expand the niche market.

3. With operation headquarter in Taiwan, conduct international development and

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growth planning, enter the international markets outside the United States and the Greater China, and become one of the global integrated pharmaceutical companies.

4. Progress the clinical trial process of new drug candidates and license them to the international top-level pharmaceutical companies to cooperatively conduct the follow-up development.

(IV) Sales volume forecasts of major products and the forecasting bases

The Company’s management team makes the overall short-, medium- and long-term R&D objectives and strategies, and then the R&D team proposes R&D project plans, feasibility analysis, and financial evaluation. After a full discussion, the management team will determine the final R&D plan, resource allocation, and R&D schedule to be implemented.

III. Impact from external competitive environment, regulatory environment, and overall business environment.

The U.S. FDA started to collect ANDA submission filing fees and maintenance fees from generic pharmaceutical companies who file for ANDA submissions and who manufacture generic drugs in U.S. since October 2012 in accordance with the Generic Drug User Fee Act (GDUFA) to speed up the generic drug review process and manufacturing site audit. Although the Act increases the costs of development of generic drugs, at the same time it also increases the efficiency of drug review process and shortens the time for granting of drug licenses, which is beneficial to the future development of the overall industry. In addition, the economic instability in the global market results in changes in consumers’ health and medical expenditure. The governments of countries over the world are all dedicated to reducing health care costs and promoting the use of generic drugs to replace expensive original brand-name drugs. The Company is devoted to offering diversified innovative special generic drugs for consumers’ choices and aggressively secures the market share. Moreover, the Company, through research and development of new drugs by its subsidiary, TWi Bio, makes R&D in innovative drugs for diseases with unmet medical needs to create a blue ocean in drug market.

Finally, on behalf of all directors, I would like to express our sincerest gratitude to all our shareholders, employees and colleagues for your continuous contributions and efforts to the development of the Company, and thank you for your encouragement and support. The Company will continue to strive for developing products to be commercialized, and bring the maximum

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benefits for the shareholders and all employees. Sincerely,

TWi Pharmaceuticals, Inc. Chairman: Chih-Ming Chen President: Nick Liu Chief Accounting Supervisor: Annie Lo

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Two. Company Profile

I. Founding Date December 1, 1997.

II. Company History

TWi Pharmaceuticals, Inc. was established on September 1, 2006 by the merger of

Empax Pharma (hereinafter referred to as “Empax”) and TWi Pharmaceuticals Limited. TWi

Pharmaceuticals Limitd was established on June 3, 2002. Its parent company, Anchen

Incorporated (hereinafter referred to as “Anchen Inc.”), wasoperated in the United States and

mainly engaged in the research and development of drug release systems and controlled-

release generic drugs. TWi Pharmaceuticals Limitd acquired the Parke-Davis' production

facility in Chungli in October, 2004. On September 1, 2006, Empax merged with TWi

Pharmaceuticals Limited with Empax as the surviving company, and changed company

name to TWi Pharmaceuticals, Inc. (hereinafter referred to as “TWi Pharma” or “the

Company”). Through the arrangement of equity restructuring, Anchen Inc. became the

parent company holding 100% of TWi Pharma, and TWi Pharma was positioned as the

research and production facility of Anchen Inc. in Taiwan, providing the parent company

with the front-end contracted research servicesand contracted manufacturing of certain

generic drugs sold in the United States.

In order to realize the vision of being listed in the capital market of Taiwan, TWi

Pharma has transformed to the research and development of its own generic drugs from the

contracted research and manufacturing facility of the parent company, and has reorganized

the structure of the group. The first phase was for Anchen Inc. to restructure to spin-off in

March 2010, under which TWi Pharmaceuticals Holding, Inc. (hereinafter referred to as

“TWi Holding”) became the 100% holding company of TWi Pharma and at the same time,

through the distribution of dividends, Anchen Inc. distributed part of TWi Holding shares to

its shareholders, adopting “TWi” as the Group Identification to be distinguished from

Anchen; the second phase was for TWi Holding to buy back its own shares from its

shareholders at the price of shares of TWi Pharma in July and August of 2012. After such

share transfer transaction, TWi Holdings' shareholders received and directly owned the

shares of TWi Pharma.

As the original capacity expansion of the Chungli plant has reached a bottleneck, the

Company was actively looking for opportunities to expand the manufacturing capacity to

support the production requirements of its own products in the future. The Company

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acquired 94.97% equity of U-Liang Production, Co. (hereinafter referred to as “U-Liang

Production”) from February to March of 2013, and merged U-Liang Production through

short-form merger in March 2013 to expand the scope of Chungli plant.

TWi Biotechnology was formerly the new drug development department of TWi

Pharma. It was established on July 16, 2010 as a 100% owned subsidiary of TWi Holding

and a fellow company to TWi Pharma. In order to strengthen the operation scale of TWi

Pharma, TWi Pharma completed a share conversion tranction with TWi Biotechnology, after

which TWi Biotechnology became a 100% fully-owned subsidiary of TWi Pharma in

October, 2011. In order to meet the operation development requirements of TWi

Biotechnology and its vision to become a public listed company in capital marketin recent

years, the Company began to bring in other investors and adjust the equity structure of TWi

Biotechnology to reduce its shareholding in TWi Biotechnology to an adequate level.

However, the Company still maintains the operational control power in TWi Biotechnology.

TWi Biotechnology has been listed on the Emerging Market Board in December, 2016.

TWi Pharmaceuticals USA, Inc. (formerly known as TWi INTERNATIONAL LLC)

(hereinafter referred to as “TWi US”) is a subsidiary of the Company established at the end

of 2013. Since the main focus of the Company is on the US generic drug market, in order to

seize the US market to facilitate the expansion of US business and communication efficiency

with USFDA, TWi US was established to further strengthen the competitiveness of the

Company's products in the US market. With the completion of building-up of selling

platform and granting of the drug approvals, the self-developed generic drugs developed by

the Company has been sold on the US market.

The subsidiary Synpac-Kingdom Pharmaceutical Co., Ltd. (hereinafter referred to as

“Synpac-Kingdom Pharma”) is a company acquired by the Company in November 2017.

Synpac-Kingdom Pharma specializes in the production of ophthalmic products and will be

responsible for the manufacturing of the Company's ophthalmic products to support the

Company's ophthalmic products ANDA applications in the US market and commercial mass

production requirements.

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(I) Early Founding Period

Year Important Milestones

1997 Empax Pharma was established.

2002 Anchen Inc. established Taiwan subsidiary, TWi Pharmaceuticals Limited.

2004 TWi Pharmaceuticals Limited acquired Parke-Davis' production facility in

Chungli.

(II) Period as a subsidiary of Anchen Inc. - building up the foundation for the development of American generic drugs


2006 Empax Pharma merged with TWi Pharmaceutical Limited and changed company name to TWi Pharmaceuticals, Inc.

Chungli plant passed cGMP Audit of Department of Health.

2007 Chungli plant passed US FDA Pre-Approval Inspection.

2009 Chungli plant began as the contracted manufacturer for Anchen Pharmaceuticals, Inc. (hereinafter referred to as “Anchen Pharma.”) of anti-epileptic drug, Divalproex Sodium Extended Release Tablet, which was exported to US.

(III) Period as an independent company-Developing TWi's own generic and new drug

products for US market, with the objective to become an integrated research and development pharmaceutical company


2010 Complete corporate restructuring in which TWi Holding had been separated from Anchen Inc. and become the parent company of TWi Pharma.

Spun out the new drug development division as TWi Biotechnology for the

development of new drug.

2011 The Company completed share conversion with TWi Biotechnology, after which TWi Biotechnology became a 100% fully-owned subsidiary of the Company.

2012 Chungli Plant passed PIC/C cGMP audit.

TWi Holding completed share transfer with its shareholders, after which

the shareholders of TWi Holding directly owned shares of the Company.

Received approval for stock public issuance.

Listed on the Emergin Market Board with Stock ticker 4180.

2013 Granted with “Key Mittelstand Target” supported by Taiwan's Industrial

Development Bureau, Ministry of Economic Affairs.

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Merged with U-Liang Production.

The Company's special generic drug Cyclobenzaprine ER Capsules

obtained final approval from US FDA.

Listed on theTaipei Exchange. Established the US subsidiaryTWi USA.

2014 The Company's special generic drug Nifedipine ER Tablets obtained final approval from US FDA.

The Company's special generic drug Megestrol Acetate Suspension


The Company invested in Visum Pharmaceutical Co., Ltd. (hereinafter

referred to as “Visum”) and acquired 53.66% of its equity.

The Company's special generic drug Donepezil Hydrochloride ER Tablet


2015 The Company's special generic drug Guanfacine HCl ER Tablets obtained final approval from US FDA.

The Company has accumulated acquiring 65.5% equity in Visum. The US Subsidiary TWi USA won the drug sales permits from all the 50

states of USA. The 4 special generic drugs developed by the Company, i.e. Nifedipine ER

Tablets, Donepezil Hydrochloride ER Tablet, Guanfacine HCl ER Tablets and Megestrol Acetate Suspensionare, were officially launched on the US market.

2016 Visum passed the audit by US FDA and became a qualified cGMP plant. TWi Biotechnology, the Company's 73.07%-owned subsidiary, began listed

on the Emerging Market Board. Due to the policy changes, the Company re-adjusted its strategic

positioning of investment business in China, and the Board of Directors resolved to divest the investment stake in Visum on November 30, 2016.

2017 On April 18, 2017, the Company has completed the legal registration procedure for the ownership transfer of Visum and transferred the related rights and obligations to the succeeder.

The self-developed special generic drug, Guanfacine HCl ER Tablets, whose marketing right was originally granted to a third party, was re-launched under TWi’s own label after the Company has taken back the marketing right.

The Company's special generic drug Bupropion HCl ER Tablet obtained final approval from US FDA.

The Company acquired 95.02% equity of Synpac-Kingdom Pharma. 2018 The Company's special generic drug Diltiazem ER Capsule obtained final

approval from US FDA. The Company's special generic drug Bupropion HCl ER Tablet was

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launched. The Company's special generic drug Oxcarbazepine ER Tablet obtained

tentative approval from US FDA. The Company's special generic drug Metoprolol Succinate ER Tablet

obtained final approval from US FDA. 2019 The special generic drug Labetalol HCL Tablet, which was co-developed

by the Company and the strategic partner, was launched. The Company's special generic drug Dimethyl Fumarate DR Capsule

obtained tentative approval from US FDA. The Company's special generic drug Cyclobenzaprine HCL ER Capsule

was launched.

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Three. Corporate Governance Report

I. Organizational System (I) Organizational Structure

Board of Directors

Chairman

Shareholders meeting

Remuneration Committee

Audit Committee

Internal Audit

President Office President

Manufacturing Quality

Manufacturing and Technology

Legal Affairs

Quality A

ssurance and Quality

Control

Chem

ical Analysis

Product Developm

ent

Research and Development

Chief Operating Officer

Strategy and Product Planning

US M

arket Developm

ent and M

arketing

Finance and Accounting

Adm

inistration

Procurement

New

Business D

evelopment

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(II) Business Operations of Major Departments

epartment Main Job Duties

Chairman The highest overall decision maker, who establishes the Company's operational objectives and strategies, and implements the resolutions of Board of Directors.

President Internally, leading the management team to achieve the Company's overall operational performance; externally, promoting the business, expanding operation territory and achieving the Company's mission and vision.

President Office As the President's staff, assisting in the business matters such as strategic development and management of subsidiaries.

Chief Operating Officer

Leading the supporting departments such as Finance & Accounting, Procurement, Human Resource Management, General Affairs and Information to achieve corporate operation performance, integrate internal resources, build organization planning and make managerial decisions of the Company.

Internal Audit Assessing the integrity, rationality, and effectiveness of the Company's internal management system and implements the internal audit.

Strategy and Product Planning (1) Implementing, reviewing and monitoring of intellectual property rights

management. (2) Product development strategy planning and project schedule management.

US Market Development and Marketing

Implementing the international pharmaceutical market development, mutual licensing, marketing and sales promotion cooperation according to the Company's development strategy.

New Business Development Evaluation, development and research of products for new business.

Finance and Accounting

(1) Fund management, planning and execution, and processing of the stock affairs.

(2) Regular announcement or report of the financial status and management of investors’ relationship.

(3) Processing of accounting transactions and preparation of management reports for the decision-making analysis of the top management.

(4) Tax-related business such as tax reduction and exemption.

Administration

Information Information system installation and maintenance, network information security and electronic document data control.

Human Resource

Management

(1) Manpower recruitment management and educational training planning. (2) Planning and execution of payroll operations and welfare systems.

General Affairs

(1) Administrative affairs and document management. (2) Implementation and management of general affairs works.

Procurement Purchase of raw materials, machinery and equipments.

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Manufacturing Quality

Manufacturing and

technology

(1) Production planning management and implementation to manufacture products in compliance with cGMP quality specifications.

(2) Control of purchase, sales and inventory and management of warehousing. (3) Responsible for trial production of products, and enlargement and

improvement of manufacturing process.

Quality assurance and quality control

(1) Management of company-wide quality systems. (2) Assisting R&D Department in cGMP operations and prepares for cGMP

documentation. (3) Supplier quality management. (4) Quality management of contracted manufacturers. (5) Analysis and testing of all incoming raw materials and packaging materials. (6) Environmental monitoring at the manufacturing site. (7) Water quality and wastewater monitoring. (8) Analysis and testing of commercially-launched products. (9) Supporting to analysizing of new product research and development.

Research Development

Product development

(1) Research/development and design of pharmaceutical dosage forms, and emlargement and improvement of manufacturing process.

(2) The establishment of the pharmaceutical technology platform. (3) Promoting, planning and implementing to contract domestic and foreign

manufacturers to cooperate in the development of products of various dosage forms.

(4) Assessment and planning of BA/BE testing and clinical trials.

Legal Affairs

(1) Registration of the domestic and foreign pharmaceutical products and follow-up management of the launched products.

(2) Laws and regulations supports for Product research and development, factory cGMP, contracted manufacturing and inspection.

(3) Product laws and regulations knowledge training.

Chemical Analysis

(1) Analytical method development, validation, testing and method transfer for the active pharmaceutical ingredients of new R&D products.

(2) Analytical method development and validation of the new R&D products and analysis and testing of filed products.

(3) Supporting all the analysis works of new product R&D.

15

II. Information of Directors, Supervisors, President, Vice-Presidents, Associate Vice Presidents, and Managers of Various

Departments and Branches (I) Directors and Supervisors

1. Information on Directors and Supervisors

On June 8, 2016, the Company established the Audit Committee composed by all three Independent Directors to replace the Supervisors’ duties, and therefore, the Supervisors are discharged from duty.

Date: April 30, 2019; Unit: Shares, %

Title Name Gender Nationality or place of

registration

Date of First

Elected

Date Elected Term

Shares held on Election Shares currently held Shares currently held

by Spouse and Children

Shares Held in the Name of Other Persons Significant Experience

and Education Positions concurrently held in the

Company or other Companies

Any executive officer, director or supervisor who is

a spouse or relative within the second degree of kinship

Number of Shares Percentage Number of

Shares Percentage Number of Shares Percentage Number of

Shares Percentage Title Name Relationship

Chairman Chih-Ming Chen Male Republic of China 1/5/2004 6/8/2018 3

Years 4,361,460 3.62 4,361,460 3.62 - - 100,078,092 83.15

Ph.D. of Pharmacy, The Ohio State University

Founder, Andrx Pharmaceuticals,Inc.

Founder, Anchen Inc. Founder, TWi

Pharmaceuticals, Inc.

Chairman, TWi Biotechnology, Inc. Director, TWi Pharmaceuticals

Holding Inc. Director, Opulent Assets Holdings

Ltd. Director, Delightful Cheers Limited Director, Eldridge Capital Group

Ltd. Chairman, Allgenesis

Biotherapeutics, Inc. Chairman and CEO of NRT

Pharmaceutical, Inc.

- - -

Director

Representative of TWi

Pharmaceuticals Holding Inc.

(Cayman)

CAY 6/2/2015 6/8/2018 3 Years 29,146,782 24.22 29,146,782 24.22 - - - - - -

- - -

Jhih-Long Shen (Note 2)

Male Republic of China 7/13/2017 7/13/2017 3

Years - - - - - - - -

Ph.D. Chemical Engineering, U. of Wisconsin Madison

Director and President of ARK International Development Co., Ltd.

President of Integrity Development, ARDIC Instruments Co., Ltd.

Director and President of Xinchen Management Consultant Ltd.

President of Xinchen Investment Co., Ltd.

Director of ARDIC Instruments Inc. Director of Integrity Development

Inc. Director of Allgenesis

Biotherapeutics Inc.

16



registration

Date of First

Elected

Date Elected Term











Director of Level Biotechnology Inc.

Independent Director of Lotus Pharmaceutical Co., Ltd.

Director of Aslan Pharmaceuticals Pte, Ltd.

Wen-Hung Huang

(Note 2) Male Republic of

China 6/8/2018 6/8/2018 3 Years - - - - - - - -

Ph.D. of Social and Administrative Pharmacy, University of Minnesota

Professor of Institute Health and Welfare Policy, National Yang-Ming University Director-General of Food and Drug Analysis, Department of Health, Executive Yuan Director General of Bureau of Pharmaceutical Affairs, Department of Health, Executive Yuan Board Director of The Pharmaceutical Society of Taiwan Commissioner of Instruction Drugs Review Committee, Department of Health, Executive Yuan Commissioner of

Pharmaceutical Service Quality Improvement Committee, Department of Health, Executive Yuan

Independent Director of TaiGen Biopharmaceuticals Holdings Limited

Corporate Director's Representative of Orient PHARMA Co., Ltd.

Corporate Director's Representative of Formosa Pharmaceutical, Inc.

Consultant of LifeMax Biotechnology, Inc.

Director of Panion and BFF Biotech Inc.

Independent Director of EUSOL Biotech Co., Ltd.

Senior Consultant of YFY Biotech Management Company

- - -

Director

Representative of Opulent

Assets Holdings Ltd.

BVI 8/2/2012 6/8/2018 3 Years 28,460,824 23.65 28,460,824 23.65 - - - - - - - - -

17



registration

Date of First

Elected

Date Elected Term











Hai-Yi Ma Female Republic of China 6/2/2015 6/8/2018 3

Years - - - - - - - -

Ph.D. of Chemicals, Lehigh University, USA Vice President of Syntex Director, GM & CEO of ScinoPharm Taiwan, Ltd. Partner of Vivo Capital

Executive Director of Taiwan Bio Industry Organization Director of Formosa Pharmaceutical, Inc. Consultant of LifeMax Biotechnology, Inc. Director of Development Center for Biotechnology Director of Reber Genetics Co., Ltd. Consultant of Mei-Li-Ling Biotech Co., Ltd. Independent director of BioGend Therapeutics Co., Ltd.

Nick Liu Male Republic of China 6/2/2015 6/8/2018 3

Years - - - - - - - -

MBA, University of Washington Manager of JP Morgan Asset Management Taiwan Supervisor of TWi Biotechnology, Inc.

President of TWi Pharmaceuticals, Inc. Chairman of Synpac-Kingdom Pharmaceutical Co., Ltd. Corporate Director's Representative of TWi Biotechnology, Inc.

- - -

Independent Director Ching-Feng Sun Male Republic of

China 1/11/2013 6/8/2018 3 Years - - - - - - - -

MBA, U. of Michigan, USA MA of Materials Science, Wayne State U., USA G.M. of Saga Unitek Ventures, Ltd. Associate Vice President of Chen-Sin Venture Capital Inc. Creative Director Asian Science Center, Emerson Electric Independent Director of ASLAN Pharmaceuticals, Tah Tong Textile Co., Ltd., Wonderful Hi-Tech Co., Ltd.

Supervisor of Pixon Technologies Corporation and Newmax Technology Co., Ltd. Independent Director of ASLAN Pharmaceuticals Independent Director of Tah Tong Textile Co., Ltd. Independent Director of Wonderful Hi-Tech Co., Ltd.

- - -

18



registration

Date of First

Elected

Date Elected Term











Independent Director

Dong-Han Lin Male Republic of

China 6/8/2016 6/8/2018 3 Years - - - - - - - -

Department of Pharmacy, National Taiwan University Chairman and President of Lotus Pharmaceutical Co., Ltd. District Manager of Les Laboratoires Servier

Corporate Director's Representative of Formosa Laboratories, Ltd. Chairman of Alar Pharmaceutics Inc. Supervisor of Sheng-Jin International Co., Ltd.

- - -


Yu-Hui Su Female Republic of

China 6/8/2016 6/8/2018 3 Years - - - - - - - -

Department of Accounting, National Taiwan University, M.A. of Business School, National Taiwan University and Ph.D. of Business School, National Taiwan University (major in Accounting) Supervisor of Makalot Industrial Co., Ltd., CPC Corporation, Taiwan, Bank of Kaohsiung and Mega International Commercial Bank Director of Jhih-Jiou Venture Capital Co., Ltd. and CECI Engineering Consultants, Inc., Taiwan

Full-time Professor, Department of Accounting, Soochow University Adjunct Professor, Department of Accounting, National Taiwan University Independent Director of In Win Development Inc. Independent Director of Makalot Industrial Co., Ltd. Independent Director of Ennoconn Corporation

- - -

Note 1: The total number of shares issued by the Company on April 30, 2019 is referred to as the number of shares listed in the Change Registration Information of the Ministry of Economic Affairs, and the total number of shares currently issued by the Company is 120,356,787 shares.

Note 2: The company has re-elected all directors in the Annual General Shareholders Meeting on June 8, 2018 since the term of office of the Ninth Directors (including independent directors) is due. The representative of TWi Pharmaceuticals Holding Inc. (Cayman) of the Tenth Directors is Wen-Hung Huang. The information of Jhih-Long Shen, the previous representative, was updated as of the date when his term was due.

19

2. Major Shareholders of Institutional Shareholders

April 30, 2019

Names of institutional shareholders (layer 1)

Major Shareholders of Institutional Shareholders (layer 2)

TWi Pharmaceuticals Holding Inc. (Cayman)

SW Pacific Investment Ltd (99.976%)

Opulent Assets Holdings Ltd. Otago Heights Capital Inc. (100%)

3. Major shareholders of above-mentioned layer 2 shareholders if the layer 2 shareholders are institutional shareholders

April 30, 2019 Names of institutional

shareholders (layer2)

Major shareholders of institutional shareholders (layer 3)

SW Pacific Investment Limited (99.976%)

Delightful Cheers Limited (100%)

Otago Heights Capital Inc.(100%) Eldridge Capital Group Ltd. (100%)

20

4. Information on Directors and Supervisors

April 30, 2019

Qualifications

Name

Does the Director or Supervisor have five or more years of work experience and the following

professional qualifications

Compliance to the independence (Note 1) N

umber of other public com

panies for which such

Director or Supervisor concurrently serves as an

independent director

Serving as a lecturer or above

in public or private college institutions in

one of the following

departments: business

administration, law, finance,

accounting, or other disciplines relevant to the

company's operations

Currently serving as a judge, prosecutor,

lawyer, accountant or other

professional or a technical staff

certified by national

examinations and licensed by the

competent authorities

Having work

experiences such as business

administer action, legal

affairs, finance,

accounting, or other

fields necessiary

for the Company

1 2 3 4 5 6 7 8 9 10

Chih-Ming Chen No Jhih-Long Shen (Note

2) Representative of TWi

Pharmaceuticals Holding Inc. (Cayman)

No

Wen-Hung Huang (Note 2)

Representative of TWi Pharmaceuticals Holding

Inc. (Cayman)

1

Hai-Yi Ma Representative of Opulent

Assets Holdings Ltd No

Nick Liu Representative of Opulent

Assets Holdings Ltd No

Ching-Feng Sun 3 Dong-Han Lin No

Yu-Hui Su 3 Note 1: Please check “” under each criteria number if the Director or Supervisor meets the criteria for two years prior to

resuming the position and during the term of service. (1) Not employed by the Company or its affiliated companies. (2) Not a Director or Supervisor of the Company of any of its affiliates (excluding serving as Independent Directors

of the Company, its parent company or subsidiaries in compliance of the local regulations). (3) Not a natural shareholder that holds more than 1% of the Company’s total shares or ranks among top-ten

shareholders, collective under the name of that shareholder himself/herself, his/her spouse, minor children, and other entities who hold shares for the benefit of that shareholder.

(4) Not a spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship of any of the persons in either of the preceding three subparagraphs.

(5) Not a Director, Supervisor, or Employee of a Corporate Shareholder that directly holds 5% or more of the total number of outstanding shares of the Company or that ranks among the top five shareholders of the Company.

21

(6) Not a Director (Member of the Governing Board), Supervisor (Member of the Supervising Board), Managerial Officer, or a Shareholder that holds more than 5% shares of a company or institution that has financial or business relationship with the Company.

(7) Not a Professional Individual or Owner, Partner, Director (Member of the Governing Board), Supervisor (Member of the Supervising Board), Managerial Officer of a sole proprietorship, partnership, company, or institution that provides commercial, legal, financial, accounting, or consultation services to the Company or to any affiliated business, and the spouse thereof. However, members of Remuneration Committee who executes their responsibility according to Article 7 of Regulations Governing the Appointment and Exercise of Powers by the Remuneration Committee of a Company Whose Stock is Listed on the Taiwan Stock Exchange or Taipei Exchange are not bound by this limitation.

(8) Not the spouse or a relative within the second degree of kinship to any other director of the Company. (9) Not under any conditions defined in Article 30 of the Company Act. (10) Not elected as a governmental entity, institution or the representative as defined in Article 27 of the Company Act.

Note 2: The Company has re-elected all directors in the Annual General Shareholders Meeting on June 8, 2018 since the term

of office of the Ninth Directors (including independent directors) is due. The representative of TWi Pharmaceuticals Holding Inc. (Cayman) of the Tenth Directors is Wen-Hung Huang. The information of Jhih-Long Shen, the previous representative, was updated as of the date when his term was due.

22

(II) President, Vice President, Associate Vice President, and Managers of Various Departments and Branches

Date: April 30, 2019; UNit: Share, %

Title Name Gender Nationality

Date of Appointme

nt (Note 2)

Shares held Shares held under spouse

or minor children's names

Shares Held in the Name of Other Persons

Significant Experience and Education Positions concurrently held in other companies

Managerial Officer who is a spousal or relative within the

second degree of kinship Number of



President Nick Liu Male Republic of China 1/1/2018 - - - - - -

MBA of University of Washington Manager of JP Morgan Asset Management Taiwan Supervisor of TWi Biotechnology, Inc.

Corporate Director's Representative of TWi Pharmaceuticals, Inc. Corporate Director's Representative of TWi BBiotechnology, Inc. Chairman of Synpac-Kingdom Pharmaceutical Co., Ltd.

- - -

Chief Operating

Officer and Executive

Vice President

Jian-Bo Xie (Note 3) Male USA 4/29/2014 - - - - - -

Master of Shenyang Pharmaceutical University Director of Research and Development Division, Par Pharmaceutical Vice President of TWi Biotechnology, Inc. Chairman of Visum Pharmaceutical

- - - -

Chief Operating

Officer

Shelley Chiou Female Republic of

China 10/1/2018 - - - - - -

Bachelor of Accounting, Tamkang University Chief Operating Officers of Reber Genetics Co., Ltd. Chief Financial Officer of HealthBanks Group

- - - -

Senior Vice President

Ling-Ying Liaw Female Republic of

China 6/1/2015 - - - -

Master of Pharmacy, National Taiwan University Marketing Director and Pharmacist Representative of U-Liang Pharmaceuticals Co., Ltd. Former Chairman of Regulations and Technology Group, Taiwan Pharmaceutical Manufacturer's Association Chairman of Drug Review Guidelines Adaptation Project, Department of Health

-President of Synpac-Kingdom Pharmaceutical Co., Ltd. - - -

Vice President David Chou Male Republic of China 1/1/2016 - - - - -

Bachelor of Pharmacy, Taipei Medical University Factory Director of Center Laboratories, Inc. Manager of St.Shine Optical Co., Ltd. Vice President of TWi Biotechnology, Inc. Director of Visum Pharmaceutical

- - - -

Vice President Guang-Wei

Lu (Note 4)

Male USA 1/8/2018 - - - - - -

Ph.D. of Pharmacy, University of Georgia Director of Drug Delivery, Allergan plc. Research follow, Pfizer, Inc. Staff Scientist, Johnson & Johnson

- - - -

Vice President Jun-An Guo Male USA 9/10/2018 - - - - - - Catalent Pharma Solution VP, Quality AMRI VP, Quality - - - -

Associate Vice President Yu-Ling Lin Female Republic of

China 1/12/2017 - - - - - Master of Medical Engineering, National Yang-Ming University Director of TWi Pharmaceuticals, Inc.

- - - -

Note 1: The total number of shares issued by the Company as of April 30, 2019 is referred to as the number of shares listed in the Change Registration Information of the Ministry of Economic Affairs, and the total number of shares currently issued by the Company is 120,356,787 shares.

23

Note 2: The date of appointment is referred to as the date of serving the job position, rather than the date of employment by the Company. Note 3:. Jian-Bo Xie has transferred to serve as the consultant since September 21, 2018 and his information was updated as of the date of transfer. Note 4: Guang-Wei Lu has transferred to serve as the President of TWi Biotechnology, Inc. since March 27, 2019 and his information was updated as of the date of transfer.

24

(III) The remuneration paid to the Directors, Supervisors, President and Vice President

1. Remuneration Paid to Directors in 2018 Unit: NT$1,000; %

Title Name

Remuneration of Directors Proportion of Summation

of A, B, C and D to Net Income After Tax (NIAT)

Remuneration Paid due to Serving as An Employees Proportion of Summation of A, B, C, D, E, F and G to Net Income After Tax

(NIAT) Whether or not such employee

receives remuneration from companies invested

by the Company which are

notsubsidiaries of the Company

Remuneration (A)

Retirement Pension (B)

Director's Compensation

s (C)

Payment for Execution of

Business (D)

Salaries, Bonuses, and Special Expenses (E)

(Note 1)

Retirement Pension (F) Employee Remuneration (G)

The

Com

pany

All

Com

pani

es in

the

finan

cial

rep

orts

The

Com

pany

All

Com

pani

es in

the

finan

cial

rep

orts

The

Com

pany

All

Com

pani

es in

the

finan

cial

rep

orts

The

Com

pany

All

Com

pani

es in

the

finan

cial

rep

orts

The

Com

pany

All

Com

pani

es in

the

finan

cial

rep

orts

The

Com

pany

All

Com

pani

es in

the

finan

cial

rep

orts

The

Com

pany

All

Com

pani

es in

the

finan

cial

rep

orts

The Company All Companies in

the financial reports

The Company

All Companies

in the financial reports Cash Stock Cash Stock

Chairman Chih-Ming Chen - - - - - - 24 42 (0.005) (0.008) 4,654 4,654 - - - - - - (0.919) (0.919) None

Director

Jhih-Long Shen (Note 2) - - - - - - 6 6 (0.001) (0.001) - - - - - - - - (0.001) (0.001) None

Wen-Hung Huang (Note 2) 125 125 - - - - 18 18 (0.028) (0.028) - - - - - - - - (0.028) (0.028) None

Representative of TWi

Pharmaceuticals Holding Inc.

(Cayman)

- - - - - - - - - - - - - - - - - - - - None

Director

Hai-Yi Ma 125 125 - - - - 24 24 (0.029) (0.029) - - - - - - - - (0.029) (0.029) None

Nick Liu - - - - - - 27 27 (0.005) (0.005) 4,878 4,878 - - - - - - (0.964) (0.964) None

Representative of Opulent

Assets Holdings Ltd.

- - - - - - - - - - - - - - - - - - - - None


Ching-Feng Sun 500 500 - - - - 24 24 (0.103) (0.103) - - - - - - - - (0.103) (0.103) None

Independent Director Dong-Han Lin 500 500 - - - - 21 21 (0.102) (0.102) - - - - - - - - (0.102) (0.102) None

Independent Director Yu-Hui Su 500 500 - - - - 27 27 (0.104) (0.104) - - - - - - - - (0.104) (0.104) None

Note 1: Since 2016, the disclosed information of remuneration includes the expenses of employee stock options, which is different from the income concept of Income Tax Act. Note 2: The company has re-elected all directors in the Annual General Shareholders Meeting on June 8, 2018 since the term of office of the Ninth Directors (including independent

directors) is due. The representative of TWi Pharmaceuticals Holding Inc. (Cayman) of the Tenth Directors is Wen-Hung Huang. The information of Jhih-Long Shen, the previous representative, was updated as of the date when his term was due.

25

2. Remuneration Paid to President and Vice President in 2018 (1) Remuneration to President and Vice President

Unit: NT$1,000; %

Title Name

Salary (A) Retirement Pension (B)

Bonuses and special expenses (C) (Note 4) Employee remuneration (D)

Proportion of Net Income After Tax after summing up four items of A, B, C

and D (Note 1) If there is any remuneration

from the reinvestment

business other than from

subsidiaries

The

Com

pany

All

Com

pani

es

in th

e fin

anci

al

repo

rts

The

Com

pany

All

Com

pani

es

in th

e fin

anci

al

repo

rts

The

Com

pany

All

Com

pani

es

in th

e fin

anci

al

repo

rts

The Company All Companies in

the financial reports The

Company

All Companies

in the financial reports Cash Stock Cash Stock

President Nick Liu

29,198 29,198 - - 2,942 2,942 - - - - (6.15) (6.15) -

Chief Operating Officer and

Executive Vice President

Jian-Bo Xie (Note 2)

Chief Operating Officer Shelley Chiou

Senior Vice President Ling-Ying Liaw

Vice President David Chou

Vice President Guang-Wei Lu (Note 3)

Vice President Jun-An Guo

Note 1: Since 2016, the disclosed information of remuneration includes the expenses of employee stock options, which is different from the income concept of Income Tax

Act. Note 2: Jian-Bo Xie has transferred to serve as the consultant since September 21, 2018 and his information was updated as of the date of transfer. Note 3: Guang-Wei Lu has transferred to serve as the President of TWi Biotechnology, Inc. since March 27, 2019 and his information was updated as of the date of transfer.

26

(2) Remuneration Grade Level of President and Vice President Grade Level of Remuneration Paid to Each President and

Vice President of the Company Names of President and Vice President

The Company All Companies in the financial reports Lower thanNT$ 2,000,000 Jun-An Gu, Shelley Chiou - Jun-An Gu, Shelley Chiou

2,000,000NT$(including) ~ 5,000,000NT$(not including) Nick Liu, Ling-Ying Liaw, David Chou Nick Liu, Ling-Ying Liaw, David Chou 5,000,000NT$(including) ~ 10,000,000NT$(not including) Guang-Wei Lu, Jian-Bo Xie Guang-Wei Lu, Jian-Bo Xie

10,000,000NT$(including) ~ 30,000,000NT$(not including) - - 30,000,000NT$(including) ~ 50,000,000NT$(not including) - -

50,000,000NT$(including) ~ 100,000,000NT$(including) - - 100,000,000NT$ and more - -

Total 7 persons 7 persons

27

3. The name of managerial officers who were distributed with employee bonus and the status of distributiontatus: None.

(IV) Compare and explain the ratio of total remuneration payments to the Directors,

Supervisors, Presidents and Vice Presidents to the net income after taxes in financial report of the Company in stand-alone and consolidated bases respectively for the past two years, and explain the relevance between the policy, standard/composition and procedures of deciding of remuneration payments and the operating performance and the future risks. 1. Analysis of the ratio of total remuneration payments to the Directors, Supervisors,

Presidents and Vice Presidents to the net income after tax in the financial report of the Company in stand-alone and consolidated bases respectively for the past two years.

Unit: NT$1,000

Item

2017 Proportion of total

Remuneration to Net Income After Tax (Note 1)

2018 Proportion of total

Remuneration to Net Income After Tax (Note 1)

Stand-alone basis

Consolidated basis

Stand-alone basis

Consolidated basis

Director (Note 2) (7.65) (7.66) (2.25) (2.26)

President andVice President

(15.67) (15.67) (6.40) (6.40)

Total (Note 3) (16.34) (16.35) (7.70) (7.70) Note 1: Since 2016, the disclosed information of remuneration includes the expenses of

employee stock options, which is different from the income concept of Income Tax Act.

Note 2: On June 8, 2016, the Company established the Audit Committee to replace the Supervisors’ duties.

Note 3: The remuneration calculated repeatedly for Director Nick Liu to serve as the managerial officer of the Company in 2018 is ducted from the total amount.

2. The relevance between the policy, standard/composition and procedures of deciding of remuneration payments and the operating performance and the future risks. (1) In accordance with the provisions of the Articles of Incorporation, the Board of

Directors is authorized to determine the remuneration paid to the Directors of the Company based on the level of participation in the Company's operations and the value contributed and in reference to the standard of both its domestic and foreign peers in the industries. The Directors of the Company only receive the traveling expenses for the execution of business, while the Independent Directors and non-employee Directors, in addition to traveling expenses, also receive the fixed remuneration for the execution of the business. The remaining remuneration payments to the Directors is the salary expenses for the Directors serving as employees concurrently. All the traveling expenses received by the

28

aforementioned Directors as well as the fixed remuneration received by the Independent Directors and non-employee Directors for the execution of the business were reviewed by the Company's Remuneration Committee and submitted to the Board of Directors for approval. The earning distribution is based on the distribution ratio stipulated in the Company's Articles of Incorporation and distributed according to the resolution of Shareholders meeting. However, there was no earning distributed to the Directors in the past two years. The policies and standards of remuneration paid to the Directors of the Company will be adjusted based on the Company's operating performance and future risk factors.

(2) The remuneration for the President and Vice Presidents of the Company is based on the job position, contribution to the Company and reference to the industry standards, and is reviewed by the Remuneration Committee and submitted to the Board of Directors for approval. The earning distribution is based on the distribution ratio stipulated in the Company's Articles of Incorporation and distributed according to the resolution of Shareholders meeting. However, there was no earning distributed to the President and Vice Presidents of the Company in the past two years. The policies and standards of remuneration paid to the President and Vice Presidents of the Company will be adjusted based on the Company's operating performance and future risk factors.

29

III. Implementation of Corporate Governance

(I) Operation of Board of Directors: The Board of Directors were held 9 times (A) during the past year (2018) and the attendance of directors is as follows:

Title Name Actual

attendance in person (B)

Attendance by proxy

Rate of actual attendance in person (%)

(B/A)

Time of the most recent term to join

the Board of Directors

The first time to join the Board of

Directors

Chairman Chih-Ming Chen 8 1 88.89% June 8, 2018 January 5, 2004

Director

Jhih-Long Shen (Note 1)

2 1 66.67% July 13, 2017 July 13, 2017

Wen-Hung Huang (Note 1)

6 0 100% June 8, 2018 June 8, 2018

Representative of TWi Pharmaceuticals

Holding Inc. (Cayman)

- - - June 8, 2018 June 2, 2015

Director

Hai-Yi Ma 8 1 88.89% June 8, 2018 June 2, 2015

Nick Liu 9 0 100% June 8, 2018 June 2, 2015

Representative of Opulent Assets Holdings Ltd.

- - - June 8, 2018 August 2, 2012


Ching-Feng Sun 8 1 88.89% June 8, 2018 January 11, 2013


Dong-Han Lin 7 2 77.78% June 8, 2018 June 8, 2016


Yu-Hui Su 9 0 100% June 8, 2018 June 8, 2016

Other disclosures: I. Should any of the following take place at a Board of Directors meeting, the date and number of the Board of Directors meeting,

the content of the proposal, all independent director's opinion and the Company's response to such opinions shall be recorded: (I) Items listed in Section 3, Article 14 of the Securities and Exchange Act: Not Applicable since the Company has

established the Audit Committee. (II) Other than the matters mentioned above, other resolutions in which any of the Independent Directors opposes to or

reserves his/her opinion and are documented or stated: None. II. When Directors abstain themselves from voting on certain proposals for concerns of conflict of interest, the name of the Directors,

the content of the proposals, the reasons for abstentions and the results of voting counts should be stated:

Board of Directors

Meeting Date

Names of Directors

Content of Proposal Reasons for Abstentions Results of Voting Counts

4/23/2018 Director Nick Liu

The resolution for 2018 remuneration payment to the Company's managerial officer.

Director Nick Liu has conflict of interest in this case.

Such Director abstained the voting and discussion of this case in accordance with provisions specified in the Article 206 of the Company Act which applies to the provisions specified in the Article 178.

8/10/2018

Director Hai-Yi Ma and Director Wen-Hung Huang

The resolution for 2018 remuneration payment to the non-employee/non-Independent Directors of the Company.

Director Hai-Yi Ma and Director Wen-Hung Huang have conflict of interest in this case.

Such two Directors abstained the voting and discussion of this case in accordance with provisions

30

specified in the Article 206 of the Company Act which applies to the provisions specified in the Article 178.

8/10/2018

Independent Director Ching-Feng Sun, Independent Director Yu-Hui Su and Independent Director Dong-Han Lin

The resolution for 2018 remuneration payment to the Company's Independent Directors.

Independent Director Ching-Feng Sun, Independent Director Yu-Hui Su and Independent Director Dong-Han Lin have conflict of interest in this case.

Such three Independent Directors abstained the voting and discussion of this case in accordance with provisions specified in the Article 206 of the Company Act which applies to the provisions specified in the Article 178.

12/19/2018

Independent Director Ching-Feng Sun, Independent Director Yu-Hui Su and Independent Director Dong-Han Lin

The resolution for 2018 remuneration payment to the Company's Independent Directors.

Independent Director Ching-Feng Sun, Independent Director Yu-Hui Su and Independent Director Dong-Han Lin have conflict of interest in this case.

Such three Independent Directors abstained the voting and discussion of this case in accordance with provisions specified in the Article 206 of the Company Act which applies to the provisions specified in the Article 178.

12/19/2018

Director Hai-Yi Ma and Director Wen-Hung Huang

The resolution for 2018 remuneration payment to the non-employee/non-Independent Directors of the Company.

Director Hai-Yi Ma and Director Wen-Hung Huang have conflict of interest in this case.

Such two Directors abstained the voting and discussion of this case in accordance with provisions specified in the Article 206 of the Company Act which applies to the provisions specified in the Article 178.

Note 1: The Company has re-elected all directors in the Annual General Shareholders Meeting on June 8, 2018 since the term of office of the Ninth Directors (including independent directors) is due. The representative of TWi Pharmaceuticals Holding Inc. (Cayman) of the Tenth Directors is Wen-Hung Huang. The information of Jhih-Long Shen, the previous representative, was updated as of the date when his term was due.

III. The 2018 attendance of Independent Directors of the Board of Directors:

●: Attend in Person; ○: Attend by Proxy; ☆: Not Attended

2018 Ninth 23rd

Ninth 24th

Ninth 25th

Tenth 1st

Tenth 2nd

Tenth 3rd

Tenth 4th

Tenth 5th

Tenth 6th

Yu-Hui Su ● ● ● ● ● ● ● ● ●

Ching-Feng Sun ● ● ○ ● ● ● ● ● ●

Dong-Han Lin ● ● ● ● ○ ● ● ● ○

IV. The objectives of strengthening the functions of the Board of Directors in the current year and most recent year (such as setting up the Audit Committee, improving information transparency, etc.) and performance evaluation: 1. The performance of the Board of Directors of the Company:

(1) The Board of Directors of the Company consists of 7 Directors, including 3 Independent Directors, all of whom have more than five years of work experiences in business, legal affairs, finance or other experiences required for corporate operation.

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The Board of Directors of the Company operates in accordance with the “Rules of Procedure for Board of Directors Meetings” set by the Company. It reviews and discusses various operation developments and plans of the Company through scheduled and unscheduled meetings.

(2) The Company announces the attendance of Directors (including Independent Directors) in the Board of Directors meetings periodically, and discloses major resolutions of the Board of Directors at Market Observation Post System.

(3) The Company arranges training and educational programs to the Directors (including Independent Directors) regarding corporate governance and operation every year and conforms to the requirements of training hours for the Directors.

(4) In accordance with the provisions of the Articles of Incorporation of the Company, Board of Directors is authorized to determine the remuneration paid to the Directors (including Independent Directors) of the Company based on the level of participation in the Company's operations and the value contributed, and in reference to the standard of both of its domestic and foreign peers in the industries. The company has been clearly stated in the Company's Articles of Incorporation that it may purchase liability insurance for the liabilities arising from their executing of business during the term of office of the Directors (including Independent Directors). The Company has purchased the liability insurance for its Directors (and Supervisors) since 2012. In 2018, the Singapore-based American International Group and Fubon Insurance jointly underwrite the Director's and Supervisor's Liability Insurance for USD 10,000,000. In the future, the Company will continue to cover the insurance in accordance with the regulations and will assess to raise the coverage of insurance in a timely manner in response to the operational needs to provide adequate protection.

2. The Company has elected to add 2 Independent Directors in the 2016 Annual Shareholders Meeting and established the Audit Committee.

3. The implementation of improving information transparency by the Company: The Company discloses the financial and business related information of the Company in the Market Observation Post System and the Company's website in accordance with the relevant laws and regulations, and has set up a spokesperson/acting spokesperson system to disclose and communicate information externally to ensure all important information of the Company can be timely disclosed to the public.

(II) Information on operations of the Audit Committee or Information on operations of the Supervisors in Board of Directors Meeting 1. Information on operations of the Audit Committee: In the most recent year (2018)

the Audit Committee meetings were held 8 times (A), and the information on attendance of Independent Directors is as follows:

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Title Name Actual attendance

in person (Ｂ) Attendance by

proxy The actual attendance

rate (%) (B/A) Remarks


Ching-Feng Sun 8 0 100%

Independent Director Dong-Han Lin 6 2 75%


Yu-Hui Su 8 0 100%

Other disclosures: I. Should any of the following take place in the operations of Audit Committee, the date, number of the meeting, the content

of the proposal, resolution results and responses by the Company to the opinions of the Audit Committee shall be recorded. (I) Business matters specified in the Paragraph 5, Article 14 of the Securities and Exchange Act

Board of Directors

Content of Proposal Audit Committee resolution results

Responses by the Company to the

opinions of the Audit Committee

3/19/2018 Ninth 23rd

Adoption of the Company's Annual Business Report, Financial Statements and Consolidated Financial Statements for the fiscal year 2017.

Agreed with No Objection

All attending Directors agreed and

passed

Resolution on the Company's 2017 Internal Control System Effectiveness Evaluation and the Internal Control System Statement.



passed

Resolution on the change of the Company's Certified Public Accountants of the Company's Financial Statements..



passed

Resolution on the List of Director (including Independent Director) Candidates nominated by the Board of Directors.



passed

Resolution on the qualification review of the nominated Directors (including Independent Director).



passed

Resolution on the proposal to release the non-competition restriction for the Directors (including Independent Directors) of the Company, which, shall be submitted to the most recent Shareholders meeting for resolution.



passed

4/23/2018 Ninth 24th

Resolution on the qualification review of the nominated Directors (including Independent Director).



passed

Resolution on the proposal to release the non-competition restriction for the Directors (including Independent Directors) of the Company, which shall be submitted to the most recent Shareholders meeting for resolution.



passed

Resolution on the revision of the Company's "Internal Control System" and "Internal Audit Implementation Rules".



passed

Resolution on the amendment of the Company's Delegation of Authority.



passed

5/11/2018 Ninth 25th

Resolution on the amendment of the Company's Delegation of Authority.



passed

Resolution on the transfer of up to 500,000 shares of TWi Biotechnology to KGI Securities Co., Ltd. (hereinafter

Agreed with No All attending

Directors agreed and

33

referred to as “KGI Securities”) within three months providing TWi Biotechnology decides to appoint KGI Securities as its hosting underwriter.

Objection passed

6/26/2018 Tenth 2nd

Resolution to provide endorsements and guarantees facility of no more than NTD200,000,000 for Synpac-Kingdom Pharma, the 95.02% equity owned subsidiary of the Company.



passed

Resolution of giving up the preemptive right of the Company to subscribe for newly issued shares of TWi Biotechnology for its 2018 First Capital Increase.



passed

8/10/2018 Tenth 3rd

Report of Financial Statements for the 2nd Quarter of 2018 Agreed with No

Objection


passed

Resolution on termination of the endorsements and guarantees facility previously granted to TWi US,.



passed

10/12/2018 Tenth 4th

Resolution on the extension of credit facility granted by the Shanghai Commercial & Savings Bank, Ltd. to the Company.



passed

Resolution on the change of the finance and accounting supervisor and nomination of new finance and accounting supervisors.



passed

11/12/2018 Tenth 5th

Resolution on the 2019 audit plan. Agreed with No

Objection


passed

Resolution on the NTD100,000,000 credit facility granted by the Company to Synpac-Kingdom Pharmaceutical Co., Ltd., the 95.02% owned subsidiary of the Company



passed

12/19/2018 Tenth 6th

Resolution on the extension of credit facility granted by the Cathay United Bank, Co., Ltd. to the Company.



passed

(II) Except for the aforementioned business matters, other resolutions that have not been approved by the Audit

Committee but approved by more than 2/3 of all Directors: None. II. When the Independent Directors abstain from voting on certain proposals for concerns of conflict of interest, the name of

the Independent Directors, the content of the proposals, the reasons for abstentions and the results of voting counts shall be stated: None.

III. Communication between Independent Directors and Chief Internal Audit Executive and Accountants (including important

items, methods and results of communication in the Company's financial and business conditions): (I) Summary of previous communication between the Independent Directors and Accountants:

Audit Committee

Date Focus of Communication

Result of Communication

3/19/2018 1. The Accountant explained the audit results of the 2017 annual financial report and discussed the findings of his audit. 2. The Accountant discussed and communicated the questions raised by the meeting attendants.

No Objection 5/11/2018

1. The Accountant explained the audit results of the 2018 first quarter financial report and discussed the findings of his audit. 2. The Accountant discussed and communicated the questions raised by the meeting attendants.

No Objection

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8/10/2018 1. The Accountant explained the audit results of 2018 second quarter financial report and discussed the findings of his audit. 2. The Accountant discussed and communicated the questions raised by the meeting attendants.

No Objection 11/12/2018

1. The Accountant explained the audit results of 2018 third quarter financial report and discussed the findings of his audit. 2. The Accountant discussed and communicated the questions raised by the meeting attendants.

No Objection

(II) Summary of previous communication between the Independent Directors and Chief Internal Audit Executive:

Audit Committee

Date Focus of Communication

Result of Communication

3/19/2018

1. The Chief Internal Audit Executive explained the 2017 fourth quarter and 2018 first quarter internal audit results,which include items of supervision and management of the subsidiaries, engagement in transactions of financial derivatives, Rules of Procedure for Board of Directors Meetings, engagement in transactions of financial derivatives, lending and endorsements and guarantees to others, management of process for compiling financial statements (including the management of applicable international accounting standards, procedures for accounting professional judgment, accounting policies and the process of estimation changes), compliance with laws and regulations, and management of operation of the Audit Committee.

2. Statement of Internal Control System.

No Objection

5/11/2018 The Chief Internal Audit Executive explained the 2018 first quarter and second quarter internal audit results, which include items of budget management and engagement in transactions of financial derivatives.

No Objection

8/10/2018

The Chief Internal Audit Executive explained the 2018 second quarter and third quarter internal audit results, which includes items of production cycle, audit of subsidiaries, acquisition or disposal of assets, engagement in transactions of financial derivatives, lending and endorsements and guarantees to others, sales and receivable collection and engagement in transactions of financial derivatives.

No Objection

11/12/2018

1. The Chief Internal Audit Executive explained the internal audit results of the third and fourth quarter of 2018, which include items of management of process for compiling financial statements (including the management of applicable international accounting standards, procedures for accounting professional judgment, accounting policies and the process of estimation changes), engagement in transactions of financial derivatives, management of transactions among related parties, supervision and management of the subsidiaries, investment cycle, lending and endorsements and guarantees to others, procument and payment, and payroll and personnel cycle.

2. The Chief Internal Audit Executive explained the 2019 Audit Plan.

No Objection

35

(III) The operation of corporate governance of the Company and its deviation from what are regulated in the “Corporate Governance Best Practice Principles for TWSE/GTSM-Listed Companies”, and the reasons of such deviation

Assessed items Current operation

Deviation from the “Corporate Governance Best Practice Principles for TWSE/GTSM-Listed Companies” and reasons

Yes No Brief Description

I. Has the Company established and disclosed its code of practice on corporate governance based on “Corporate Governance Best Practice Principles for TWSE/ GTSM-Listed Companies”?

The Company has not established its Code of Practice on Corporate Governance in accordance with the “Corporate Governance Best Practice Principles for TWSE/GTSM-Listed Companies”, but the operations of the Company and its subsidiaries are managed in accordance with regulations specified in the “Internal Control System” and “Internal Audit System”, and has established relevant practices such as “Codes of Ethical Conduct”, “Ethical Corporate Management Best Practice Principles”, “Supervision and Management of Subsidiaries”, “Rules Governing Financial and Business Matters Between this Group and its Affiliated Enterprises”, “Endorsements and Guarantees Operating Procedure”, “Lending of Capital Operating Procedure”, “Acquisition or Disposal of Assets Management Procedure”, “Rules of Procedure for Board of Directors Meetings”, “Procedures for Election of Directors”, and “Rules of Procedure for Shareholders Meetings” and other corporate governance mechanisms. The Company has set 3 seats of Independent Directors. In essence, the Company has managed the practical operations according to the regulations of corporate governance.

The Company will establish and disclose its Code of Practice on Corporate Governance in according with the “Corporate Governance Best Practice Principles for TWSE/GTSM-Listed Companies” and relevant laws and regulations, depending on the future operating needs and if it is deemed as necessiary.

II. The shareholding structure of the Company and shareholders' equity

(I) Has the Company established an internal SOP to respond to and deal with shareholders' suggestions, questions, disputes and lawsuits, and implemented them

(I) The Company has assigned dedicated personnel to manage the shareholders' suggestions and

questions and established a spokesperson and acting spokesperson system for information disclosure to and communication with entities external to the Company. The shareholder meeting is held every year and any questions or relevant suggestions related to the Company can be raised directly by the attending shareholders in the meeting. Therefore, although the Company does not establish the concrete internal operating procedures, it does not cause a significant adverse impact on the management of shareholders’ suggestions.

Conforms to “Corporate Governance Best Practice Principles for TWSE/GTSM-Listed Companies”

36




according to existing rules?

(II) Has the Company well grasped the list of its main shareholders and the ultimate controllers behind such main shareholders?

(III) Has the Company established and implemented the mechanism of risk management and firewall with its affiliates?

(IV) Has the Company

established internal regulations to prohibit its employees from transacting any securities of the Company using undisclosed information?

(II) The Company grasps and manages the major shareholders who actually control the Company according to the shareholder register provided by the shareholder service agency and maintains a good communication and interaction channel with each of the major shareholders and manages a list of shareholders who ultimately control the Company.

(III) The risk control mechanism of the Company and its subsidiaries are managed in accordance with the regulations specified in the Company's “Internal Control System” and “Internal Audit System”, and is inspected periodically to ensure its compliance with regulations. At present, the Company has established “Rules Governing Financial and Business Matters Between this Group and its Affiliated Enterprises”, “Supervision and Management of Subsidiaries”, “Related Party Transactions and Procedures for Preparation of Financial Statements” and other risk control mechanisms.

(IV) The Company has established the “Ethical Corporate Management Best Practice Principles” and

“Codes of Ethical Conduct” that stated clearly that the insiders and related personnel of the Company, in the course of engaging in business activities, cannot directly or indirectly provide, promise, demand or accept any improper benefits, or make other unethical acts such as dishonesty which are in violation of integrity, illegal or in breach of fiduciary duty, in order to acquire or maintain interests. The Company will also conduct educational training to promote related subjects from time to time.

CConforms to “Corporate Governance Best Practice Principles for TWSE/GTSM-Listed Companies”

III. Organization and responsibilities of the Board of Directors

37




(I) Has the Board of Directors drawn up policies on diversity of composition of its members and implemented them?

(I) The diversity policy for the composition of the Board of Directors has been included in the Company's “Procedures for Election of Directors” and implemented. Board of Directors of the Company consists of 7 Directors, including 3 Independent Directors, all of whom have more than five-year working experiences of business, legal, finance or other capacities required for corporate business, and actively participate in the Board of Directors meetings. The Directors have provided professional recommendations for the Company's operational development and exchanged their opinions related to corporate governance with the management team of the Company. The implementation of diversity for the composition of Board of Directors is disclosed as in the Table below:

Core

Items of PhDiversity

Name of Director

Gender Age Nationality Education

Ope

ratio

nal

Judg

men

t C

ompe

tenc

e

Acc

ount

ing

and

Fina

ncia

l Ana

lysi

s C

ompe

tenc

e

Ope

ratio

n an

d M

anag

emen

t C

ompe

tenc

e

Cri

sis

Man

agem

ent

Com

pete

nce

Indu

stri

al

Kno

wle

dge

Inte

rnat

iona

l M

arke

t Pe

rspe

ctiv

e

Lea

ders

hip

Dec

isio

n-m

akin

g C

ompe

tenc

e

Chih-Ming Chen Male 68 Republic of

China Ph.D. of Pharmacy, The Ohio State University V V V V V V V

Wen-Hung Huang Male 69

Republic of China

Ph.D. of Social and Administrative

Pharmacy, University of Minnesota, USA

V V V V V V V

Hai-Yi Ma Female 72 Republic of China

Ph.D. of Chemicals, Lehigh University, USA V V V V V V V

Nick Liu Male 40 Republic of China

MBA, University of Washington V V V V V V V V

Ching-Feng Sun Male 57

Republic of China

MBA, U. of Michigan, USA

MA of Materials Science, Wayne State U., USA

V V V V V V V V

Dong-Ha n Lin Male 66 Republic of

China BA of Department of Pharmacy, National Taiwan University

V V V V V V V

Yu-Hui Su Female 57 Republic of China

Ph.D., Department of Accounting, National

V V V V V V V


38




(II) Has the Company

voluntarily formed any other functional committees in addition to the Remuneration Committee and Audit Committee, which are mandatory under law?

(III) Has the Company established procedures or riles on evaluating the performance of Board of Directors and the method of evaluation and implemented such evaluationsannually and periodically?

(IV) Has the Company evaluated the independence of Certified Public Accountants periodically?

Taiwan University (major in Accounting)

(II) The Company has established the Remuneration Committee in accordance with the law in 2012 and the Audit Committee voluntarily in 2016. Both Committees currently are composed of all three Independent Directors, all of whom have more than five-year working experiences of business, legal, finance, accounting or other capacities required for corporate business. In the future, the Company will establish various other functional committees according to the requirements of operational development.

(III) The Company has not specifically established the procedure for evaluation of performance of the Board of Directors, but all of the Directors actively participate in the Board of Directors meetings to provide timely recommendations on the Company's operational development.

(IV) The Company evaluates the independence and competence of the Certified Public Accountant once

every year. The Review and Evaluation Form for the Company's Certified Public Accountant this year has been submitted to the Board of Directors and it isconfirmed the Certified Public Accountant is qualified for independence, not the stakeholder of the Company, and of no conflict of interest in business. The evaluation items are disclosed as in the Table below:


39




Evaluation Items for the Independence and Competence of the Certified Public Accountant

Evaluation Results

Whether in compliance

1. Is the Accountant able to act independently when he/she is appointed to certify the financial report and audit the internal control system of the Company?

2. Does the Accountant have sufficient and appropriate professional competence and experience to ensure that the aforementioned operations can be effectively implemented?

3. Does the Accountant comply with the professional ethics of accountants and has no direct or indirect interest with the Company, which adversely affects the independence and impartiality of the Accountant?

4. Does the Accountant communicate with the Directors, Supervisors, Managerial Officers or stakeholders of the Company in a timely manner?

5. Is the Accountant committed to his/her duties and providing complete and correct services or recommendations tothe Company?

6. Is it true that the Accountant does not serve as a Director or Independent Director of the Company or its affiliates?

7. Is it true that the Accountant is not a shareholder of the Company or its affiliates?

8. Is it true that the Accountant is not paid with salary by the Company or its affiliates?

9. Is it true that the Accountant has not provided audit services to the Company for seven or more consecutive years?

10. Has the Accountant confirmed that the Accounting Firm to which he/she belongs has complied with the relevant independence regulations.

11. Is it true that the joint practice accountant of the Accounting Firm to which the Account belongs to does not serve as a Director or Managerial Officer or any position of of the Company that has a significant impact on the audit case within a year after such joint practice accountant leave his/her office?

Yes Yes


IV. Has the TWSE/GTSM-Listed Companies set up a corporate governance full-time (part-time) unit or personnel responsible

The President serves concurrently as the corporate governance officer for the Company to protect shareholders' equity and strengthen the functions of the Board of Directors. President Nick Liu has management experiences in legal, finance, stock affairs or meeting proceedings for more than three years in public companies. The main job duties of corporate governance personnel are to provide the information required by the Directors to perform business, assist the Directors in complying with the laws and


40




for corporate governance related business matters (including but not limited to providing required information for the Directors, Supervisors to perform their business, managing relevant business matters of the Board of Directors and Shareholders meetings in accordance with the law, managing the Company's registration and change of registration, preparing the Proceedings of Board of Directors and Shareholders meetings, etc.)?

regulations, and manage business matters related to the Board of Directors and Shareholders meetings in accordance with the law. The proceedings for 2018 are as follows:

1. To ensure that Board members are immediately informed of the Company's material information, the Company notifies the Board members immediately as soon as it is published.

2. The Board members are informed of the revision and development of the latest laws and regulations related to the Company's business fields and corporate governance.

3. The Company arranges education and training programs held in the Company for Directors to meet the requirements of laws and regulations.

4. The Company has evaluated and purchased appropriate “Directors’ and Officers’ (D&O) Liability Insurance”.

5. The communication meetings are held in regular schedule or from time to time for the communication among Independent Directors, Accountants and staff of Internal Audit, Finance and Accounting to implement the internal control system. Munites for communication meetings can be found on the Company's website at : http://www.twipharma.com.

6. The corporate governance officer is responsible for preparing for the agenda of the Board of Directors, notifying Directors seven days before the meetings, convening the meetings and providing meeting materials. If there are topics for certain Directors to abstain from discussion and voting due to conflict of interest, the Directors needing abstaining will be reminded of in advance. The minutes of the Board of Directors meetings are completed within 20 days after the meetings.

7. There are three Investor Conferences on business performance held in 2018 and the Company appoints representatives to participate in the investment forums from time to time. The spokesperson system is established as a channel for communication in multi aspects with investors.

8. The Company has registered the date of Shareholder Meeting in accordance with laws and regulations, prepared for the meeting notice, meeting handbook, annual general shareholders meeting report and meeting minutes within the statutory time limit, and managed the change


41




registrations after the Company's Articles of Incorporation is changed or the Director(s) is(are) re-elected.

V. Has the Company set up channels of communication for stakeholders (including but not limited to shareholders, employees, customers and suppliers), and set up a dedicated section of the Company's website for respondence to stakeholders to adequately respond to significant issues of corporate social responsibility which stakeholders care about?

The Company has set up the spokesperson system for information disclosure to and communication with outside entities, and has disclosed the financial and business related information of the Company on the Market Observation Post System and the Company's website in accordance with the laws and regulations, so that the stakeholders of the Company have sufficient information to understand in order to protect their rights and interests. For the business-related information disclosed on the the Company's website, contact information of dedicated personnel responsible for respondence of various issues are disclosed. The personnel responsible for respondence of various issues and methods of communication and respondence are disclosed as in the following Table:

Stakeholders Material Topics Concerned Communication and Response Methods

Shareholders and Investors

Market Image: Provides instant, synchronized and correct information of the Company in a timely manner and is committed to the symmetrical disclosure of investment information Laws and Regulations Compliance: Complies with all the latest revisions of laws, regulations and policies of the competent authorities, to be in compliance with the requirements specified in the laws and regulations Business Performance and Investment: Adopts a prudent financial strategy to maintain good corporation credit and operational performance

Contact: President Office, Angela Luan; [email protected] Annual General Shareholders Meeting in which the electronic voting is adopted Holds Investor Conferences from time to time to disclose and explain the Company's business status to the investors Announces revenue and material information timely in the Market Observation Post System Announces news release from time to time for explanation in addition to material events

Customers

Laws and Regulations Compliance: Complies with all the latest revisions of laws, regulations and policies of the competent authorities, to be in compliance with the requirements specified in the laws and regulations Product and Service Label: Provides products and services of market competitiveness and high quality Supplier Environmental Assessment: Builds long-

Contact: Strategic Planning and Project Management Division, Yuling Lin; [email protected] Participates in various forums and seminars from time to time Cooperates with customer's requirement and audit on products, environment and liabilities


42




term close and trusting business partnerships with customers

Suppliers

Anti-corruption: legal and fair trade Supplier evaluation: in compliance with GMP standards, questionnaires survey, on-site inspections and ISO certifications Laws and Regulations Compliance: Complies with all the latest revisions of laws, regulations and policies of the competent authorities, to be in compliance with the requirements specified in the laws and regulations

Contact: Procurement Division, Orden Chiao; [email protected] Participates in various forums and seminars from time to time Visits suppliers from time to time

Employees

Employers-Employee Relations: Protects and respects human rights Non-discriminative, diversified and equal opportunities: Maintains a legal and fair environment for employee development, evaluation and treatment Occupational Health and Safety: Maintains a Safe and healthy environment Laws and Regulations Compliance: Complies with all the latest revisions of laws, regulations and policies of the competent authorities, to be in compliance with the requirements specified in the laws and regulations

Contact: Human Resources and Administration Division, Karen Chiu; [email protected] The Personnel Unit sets up a box for employee opinions Freely Supplies safe and healthy lunches, provides free health examination every year, and establish Employee Welfare Committee to implement relevant welfare measures Organizes educational trainings from time to time to comply with relevant laws and regulations


VI. Has the Company appointed a professional shareholder service agency to organize Shareholders meetings and handle other relevant affairs?

The Company has appointed CTBC Bank Co., Ltd. as its Stock Transfer Agency, to manage Shareholders meetings and other relevant affairs (Address: 5F., No.83, Sec. 1, Chongqing S. Rd., Taipei City 100, Tel: 02-6636-5566).


43

VII. Information Disclosure (I) Has the Company built a

website to disclose information on financial statements and corporate governance?

(II) Has the Company utilized other methods of information disclosure (such as setting up English website, assigning a dedicated person to be responsible for the collection and disclosure of company information, implementing spokesperson system, and releasing the recorded investors' conferences on the company website)?

(I) The Company has set up website (http://www.twipharma.com/tw, including the English version) to

disclose the relevant operational information of the Company and its subsidiaries, with the linkage to Market Observation Post System to inquire the information such as financial, business and corporate governance required to be disclosed according to the provisions specified in relevant laws and regulations.

(II) The Company’s website includes the function for language switching between Chinese and English versions. The Company has set up the spokesperson and acting spokesperson system to be responsible for the information collection and disclosure of the Company. All relevant information of the Company's participation in the Investor Conference is disclosed in the Market Observation Post System according to the laws and regulations.


VIII. Does the Company have other material information that would provide a better understanding of its implementation of corporate governance (including but not limited to employees’ rights,

(I) Employees’ Rights and Employee Care: The Company and its subsidiaries manage the employees’ rights and employee care in accordance with the Labor Standards Act and related laws and regulations, and have established the “Employee Manual” and “Regulations for Performance Evaluation” for the employees to follow. The Company and its subsidiaries have set up the Employee Welfare Committees and Labor-Management Communication Conference, and encourage employees to participate in educational training courses, arrange employee health examination and purchase employee group insurance to safeguard the employees’ rights, as well as open up multiple channels for employees to express their opinions to maintain good communication and interaction with employees.


44

http://www.twipharma.com/tw

employee care, investor relations, supplier relations, stakeholders' rights, training programs of Directors and Supervisors, implementation of risk management policies and risk measurement standards, implementation of customer policies and purchase of liability insurance for the Directors and Supervisors of the Company)?

(II) Investor Relations: The Company proactively disclose its finance and business related information to the investors to safeguard their rights in accordance with the laws and regulations, and has set up the spokesperson and acting spokesperson system to communicate with investors with good interaction.

(III) Supplier Relations: The cooperation between the Company/its subsidiaries and the suppliers is managed in accordance with the relevant regulations of the Company and the contracts signed by both parties to safeguard the interests of both parties.

(IV) Stakeholders' Rights: The company has set up a spokesperson and acting spokesperson system responsible for communication with stakeholders, which discloses information related to the Company in the Market Observation Post System according to relevant laws and regulations, so that the stakeholders have sufficient information to understand the Company to protect their rights.

(V) Training programs of Directors (including Independent Directors): All the Company's Directors (including Independent Directors) have their professional competencies and the Company has continuously arranged training programs for them. The details of participation of the Company's Directors (including Independent Directors) in the training programs are listed as following: 1. Taiwan Corporate Governance Association:

(1) Course: Viewing the performance and effectiveness evaluation of the Board of Directors from the perspective of Directors and Supervisors; Study hours: 3 hours; The List of Directors (including Independent Directors) who participated: Director Hai-Yi Ma.

(2) Course: Operations Practice of the Remuneration Committee; Study hours: 3 hours; The List of Directors (including Independent Directors) who participated: Chairman Chih-Ming Chen, Director Wen-Hung Huang, Director Nick Liu, Director Hai-Yi Ma, Independent Director Dong-Han Lin, Independent Director Ching-Feng Sun, Independent Director Yu-Hui Su.

(3) Course: Securities Regulations--The Prevention and Control of Corporate Internal Fraud and the Establishment of the Whistleblower System; Study hours: 3 hours; The List of Directors (including Independent Directors) who participated: Director Wen-Hung Huang.

(4) Course: Corporate Goverance and Securities Laws; Study hours: 3 hours; The List of


45

Directors (including Independent Directors) who participated: Chairman Chih-Ming Chen and Director Nick Liu,

(5) Course: the Driving Force behind the Scenes for Corporate Goverance; Study hours: 3 hours; The List of Directors (including Independent Directors) who participated: Independent Director Yu-Hui Su.

2. Taipei Exchange: (1) Course: 100% Electronic Voting and Company Value Enhancement Forum; Study hours:

6 hours; The List of Directors (including Independent Directors) who participated: Independent Director Ching-Feng Sun.

3. Securities and Futures Institute: (1) Course: The Development Trend of Corporate Corruption and the Prevention Actions - from

the Perspective of Corporate Governance; Study hours: 3 hours; The List of Directors (including Independent Directors) who participated: Director Wen-Hung Huang,.

4. Taiwan Stock Exchange Corporation: (1) Course: 2018 ESG Investment Forum; Study hours: 3 hours; The List of Directors (including

Independent Directors) who participated: Independent Director Dong-Han Lin. (VI) Implementation of risk management policies and risk measurement standards:

The Company has established the “Internal Control System”, the “Internal Audit System” and the related corporate management practices in accordance with the laws and regulations. The Company and its subsidiaries manage and conduct various risk assessments and controls in accordance with their management practices.

(VII) Implementation of customer policy: The cooperation between the Company and its customers is managed in accordance with the regulations of the Company and the contracts signed by both parties to safeguard the rights and interests of both parties, and the Company has appointed a dedicated person to communicate with customers and manage related issues.

(VIII) The coverage of liability insurance purchased by the Company for the Directors: The Company has specified clearly in the Articles of Incorporation that the Company can purchase liability insurance for the liability within the Director's scope of the business operations during the term of office of the Directors.The Company has purchased the Director's and Supervisor's liability insurance since 2012. In 2018, the Singapore-based American International Group and Fubon


46

Insurance jointly underwrite the Director's and Supervisor's Liability Insurance for USD 10,000,000. In the future, the Company will continue to cover the insurance in accordance with the regulations and will assess the operational needs at any time and may raise the amount of insurance in a timely manner to provide adequate protection.

IX. Please provide information on the status of improvement regarding the evaluation results of performance indicators of corporate governance published by the Corporate Governance Center of TWSE in the past year. For indicators to be improved, please also state the areas and policies the Company identified as priority for improvement. The Company was applicable to the corporate governance assessment for the first time in 2014 (the 1st assessment). In the future, for indicators to be improved, the Company will review its current/future strategies and practices and do the necessiary adjustments for improvement so that it can reach a balance between the policy development of the competent authorities and the development of the Company every year. The Company will promote the implementation plans for the indicators which can be improved at the current stage and identify the improvement timeline and targets for the indicators to be improved. At current stage, the priority of improvement focuses on the disclosure of implementation of employee welfare measures and the diversity policy of Board of Directors in the annual report and the Company’s website.

47

(IV) The composition, responsibilities and operation of the Remuneration Committee if it has been established by the Company 1. Information of the Members of the Company's Remuneration Committee

Identity status

(Note 1)

Qualifica tions

Name

Does the Director have five or more years of work experience and the following professional

qualifications

Compliance to the independence (Note 2)

Num

ber of other public companies for w

hich such m

enber concurrently serves as a mem

ber of the R

emuneration C

omm

ittee

Remark

Currently serving as a lecturer or a higher post in a private or public college or university in the field of business administration, law, finance, accounting, or other disciplines revelant tothe Company’s operations

Currently serving as a judge, prosecutor, lawyer, accountant, or other professionals or technician certified by national examinations and licensed by competent authorities.

Having work experiences

such as business

administration, legal affairs,

finance, accounting, or

other fields necessiary for the Company

1 2 3 4 5 6 7 8


Ching-Feng Sun

6


Dong-Han Lin

0


Yu-Hui Su 0

Note 1: Please identify whether the person is a Director, Independent Director, or of any other position. Note 2: Please check “” under each criterion number if a member meets the creteria within two years prior to

being elected and during his/her term of service. (1) Not employed by the Company or its affiliates. (2) Not a Director or Supervisor of the Company or any of its affiliates (excluding serving as an

Independent Director of the Company, its parent company or its subsidiaries in accordance with this Act or the local regulations).

(3) Not a natural shareholder who holds more than 1% of the Company’s total shares or ranks among top 10 shareholders, collectively under the name of that shareholder himself/herself, his/her spouse, minor children, and other entitles who hold shares for the benefit of that shareholder.

(4) Not a spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship in either of the preceding three paragraphs.

(5) Not a Director, Supervisor, or Employee of a Corporate Shareholder that directly holds more than 5% of the total number of issued shares of the Company or that ranks among the top shareholders of the Company.

(6) Not a Director (Member of the Governing Board), Supervisor (Member of the Supervising Board), Managerial Officer, or a Shareholder that holds more than 5% shares of a company or institution that has financial or business relationship with the Company.

(7) Not a Professional Individual or Owner, Partner, Director (Member of the Governing Board), Supervisor (Member of the Supervising Board), Managerial Officer of a sole proprietorship, partnership, company, or institution that provides commercial, legal, financial, accounting, or consultation services to the Company or to any affiliated business, and the spouse thereof.

(8) A person to whom none of the circumstances in the subparagraphs of Article 30 of the Company Act applies.

2. Operating of the Company's Remuneration Committee

(1). There are totally 3 members in the Remuneration Committee. (2). Term of service: the term of service of the Third Remuneration Committee of

the Company is from June 8, 2018 to June 7, 2021. There were 4

48

Remuneration Committee meetings (A) (Note) held in the past year (2018). The qualification of members and attendance are shown below:

Title Name Actual

attendance in numbers (B)

Attendance by proxy

The actual attendance rate (B/A)

Remark

Convener Ching-Feng Sun 4 0 100%

Committee Member

Dong-Han Lin 3 0 75%

Committee Member Yu-Hui Su 4 0 100%

Other disclosures: A. The date of the Board of Directors’ Meeting, session, contents discussed, results of the resolutions, and

respondence of the Company to the opinions of the members of the Remuneration Committee shall be disclosed if such Board of Directors’ meeting do not adopt or do revise the recommendations proposed by the Remuneration Committee (in case the salary and remuneration approved by the Board of Directors’ Meeting is better than that recommended by the Remuneration Committee, the differences and the reasons for the approval shall be disclosed, too): None.

B. The date of the Remuneration Committee, session, contents discussed, opinions of all members, and respondence to the objection opinions shall be disclosed if there are members holding objection or conservation to the topics discussed with records or written statements: None.

Note: The 4 meetings includes 1 of the Second Remuneration Committee and 3 of the Third Remuneration Committee

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(V) Implementations of Corporate Social Responsibility

Assessed items

Current Operation Deviation from Corporate Social

Responsibility Best Practice Principles for TWSE/GTSM- Listed

Companies and reasons


I. Implementation of corporate governance

(I) Has the Company established a corporate social responsibility (CSR) policy or system, and assessed the effectiveness of implementation?

(II) Does the Company periodically hold CSR training?

(III) Has the Company established a full-(part) time dedicated unit to promote CSR, and has the Board of Directors authorized senior management to deal with and then report to the Board of Directors on implementation?

(I) Although the Company has not specifically established a corporate social responsibility

policy or system, the Company and its subsidiaries expect to provide generic drugs and innovative new drugs of high quality and with economic benefits for use of people around the world by integrating their capacities in unique innovative research and development, patent analysis, clinical trials, experiences in pharmaceutical laws and regulations, as well as professional manufacturing to enhance the health and well-being of all people, which is the practice of the Company's corporate social responsibility. In the future, the Company will establish its corporate social responsibility (CSR) policy or system in accordance with the “Corporate Social Responsibility Best Practice Principles for TWSE/GTSM- Listed Companies” and related laws and regulations depending on the future operating needs and if it is deemed as necessiary.

(II) Although the Company does not regularly hold social responsibility educational training, through internal educational trainings from time to time and communication between the high-level management and employees, it not only keeps the employees informed of the Company's corporate ethics and corporate culture, but also promotes the importance of social responsibility to employees.

(III) Although the Company and its subsidiaries have not set up a full-time unit to promote corporate social responsibility, the Company and all its employees are committed to the promotion and implementation of corporate social responsibility. In the future, the Company will set up a dedicated unit to promote CSR according to the company's operational needs, and the high-level management shall report the operations to the Board of Directors.

The Company will establish its policies or systems for (I), (II) and (III) in accordance with the “Corporate Social Responsibility Best Practice Principles for TWSE/GTSM- Listed Companies” and related laws and regulations, depending on the future operating needs and if it is deemed as necessiary.

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Assessed items





(IV) Has the Company established a fair remuneration policy and linked employee performance evaluation with CSR policy as well as established a precise and effectivereward and disciplinary system?

(IV) The Company has established a reasonable remuneration policy and the Remuneration Committee is set up to be responsible for reviewing the integrity of policies, systems, standards and structure of performance evaluation and remuneration of Directors (including Independent Directors) and Managerial Officers. The Company and its subsidiaries have established the “Employee Manual” and “Regulations for Performance Evaluation” for the employees to comply with, and the employee performance evaluation has been performed every year and a clear and effective reward and disciplinary system has been implemented. In general, the employee's annual salary is composed of 14 monthly salaries, including 12 monthly salaries and a year-end bonus equivalent to 2 momthly salaries; year-end bonus and employee salary adjustment is determined based on the overall corporate performance and his/her individual performance. The average salary increase of the Company in the past three years is 3.7% in 2018, 2.5% in 2017 and 4% in 2016.

(IV) Conforms to the “Corporate Social Responsibility Best Practice Principles for TWSE/GTSM-Listed Companies”

II. Development of sustainable environment

(I) Has the Company strived to enhance the utilization efficiency of all resources and used renewable materials that lower the impact on the environment?

(I) The Company and its subsidiaries have strived to utilize the production resources in the

maximum efficiency, identified dedicated personnel to be responsible for the environmental protection works in accordance with relevant laws and regulations, and also employed qualified professional organizations for waste disposal and processing to dispose of the waste produced from the production operations of the Company's factories. The Company is also committed to reduce the burden and impact to the environment by implementing sorting of wastes to improve recovery rates, controlling office room temperature to reduce carbon emissions, and promoting energy saving and resource recycling.

Conforms to the “Corporate Social Responsibility Best Practice Principles for TWSE/GTSM-Listed Companies”

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Assessed items





(II) Has the Company established a suitable environmental management system according to the industry characteristics?

(III) Has the Company paid attention to the

impact of climate changes on the operational activities, and conducted greenhouse gas iinspection, and established the strategies for energy saving, carbon reduction and

(II) The Company is a professional drug R&D and manufacturing company, and has established an extremely complete and strict environmental management system. The Company's Neihu office passed the inspection for the qualifications of the assay laboratory designated by the TW FDA in July 2018; Chungli Plant (Building One) passed the TW FDA cGMP Inspection in November 2006, the US FDA Pre-Approval Inspection in July 2007, the TW FDA cGMP Inspection in December 2008, the TW FDA PIC/S cGMP Inspection in May 2011, the US FDA Pre-Approval with cGMP Inspection in September 2012, the TW FDA new dosage form Inspection in October 2012, the TW FDA PIC/S cGMP Inspection (including Chungli Plant (Building Two)) in March 2014, the US FDA Pre-Approval with cGMP Inspection (including Chungli Plant (Building Two)) in May 2014, the TW FDA PIC/S cGMP & GDP inspection (including Neihu Office) in January 2017, and the US FDA cGMP Inspection (including Chungli Plant (Building Two)) in July 2018; the Chungli Plant (Building Two) was acquired in 2013 and passed the TW FDA PIC/S cGMP Inspection in September 2014, the TW FDA new dose form Inspection in August 2015, the US FDA Pre-Approval Inspection in December 2016, the TW FDA PIC/S cGMP Inspection in May 2017 and the TW FDA new dose form and cGMP Inspection in May 2018. All of the above practices of site inspection are due to the implementation of the Company's production environment management system.

(III) The Company and its subsidiaries are committed to reduce the impact of the Company’s

operational activities to the environment by promoting and implementing sorting of wastes to improve recovery rates, controlling office room temperature to reduce carbon emissions, and promoting energy saving and resource recycling.


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Assessed items





curtailment in greenhouse gas emission?

III. Social Welfare Measures (I) Has the Company formulated

management policy and procedures as per laws and regulations and the International Human Rights Treaty?

(II) Has the Company established employee complaint mechanism and channels, and handled the employee complaints appropriately?

(III) Has the Company offered a safe and healthy work environment for its employees, and routinely implemented safety and health education for the employees?

(IV) Has the Company established a

periodic communications mechanism with its employees, and kept its employees informed of operational

(I) The Company and its subsidiaries comply with relevant labor laws and regulations to

formulate the “Employee Manual” and “Regulations for Performance Evaluation”, and protect employees' rights and fair treatment in accordance with internationally recognized basic labor human rights principles, such as employee appointments and dismissals, salary and contribution of pensions. The Company has set up the Employee Welfare Committee to manage employee welfare and is committed to enhance the welfare of its employees.

(II) The Company and its subsidiaries hold employer-employee meetings regularly and set up

boxes for employee opinions to establish the mechanism for regular communication with employees and to properly process and respond to employee opinions.

(III) The Company and its subsidiaries provide a safe and healthy working environment for

employees and organize employee health examination and labor safety educational training every year. In addition, the Company manages the safety and hygience works of each of the plant areas in accordance with the Occupational Safety and Health Act and related laws and regulations, and has established the “Code of Safety and Health Work” (which has been disclosed in the 2013 shareholders meeting annual report) to prevent occupational hazards and ensure the safety and health of employees.

(IV) The Company and its subsidiaries hold employer-employee meetings regularly and have set up boxes for employee opinions to establish the mechanism for regular communication with employees. In the event of any operational change that may lead to a major impact to the employees, the information will be promptly emailed and posted on the bulletin


53

Assessed items





changes that may impact its employees significantly in a fair manner?

(V) Has the Company established an effective career development plan for its employees?

(VI) Has the Company established relevant consumer rights protection policy and compliant delivery procedures in terms of R&D, procurement, production, operations, and service processes?

(VII) Whether the Company complies with relevant laws and regulations and international standards for marketing and labeling of products and services?

(VIII) Whether the Company evaluates the suppliers if they have any records of adversely impacting the environment and society in the past before dealing with the supplier?

(IX) Whether the contracts between the

Company and its major suppliers includes the terms of arbitary

board for the employees to understand. (V) At the beginning of each year, the annual target of each employee is set based on such

employee’s capacities and goal of the Company. The managers will also give advice and assistance. The Company will organize educational training internally from time to time and encourage employees to participate in external educational training to enhance their work competence.

(VI) The Company has established relevant consumer rights protection policies in terms of R&D, procurement, production, operation and service processes. For any problem regarding the Company's products and services, the consumer can contact the relevant responsible personnel appointed by the Company (contact Tel: (02) 2657- 3350) to safeguard the consumer rights.

(VII) All marketing and labeling of the Company's products and services are in compliance with the relevant local laws and regulations and the international standards.

(VIII) The Company cooperates with suppliers with good reputation. Although the suppliers' past records of adversely affecting the environment and society have not actually collected, the collaboration between suppliers and the Company has stood well and either party has complied with the relevant laws and regulations and committed to enhance the corporate social responsibility such as implementation of the environmental management policies.

(IX) If the Company's major suppliers are involved in violating the corporate social responsibility policies which causes significant environmental and social impacts, the Company will terminate or remove the contract at any time depending on the seriousness


54

Assessed items





termination of the Company upon the suppliers’ violation to their corporate social responsibility policies which will cause significant environmental and social impacts?

of such violation.


IV. Enhencement of information disclosure

(I) , Has the Company disclosed relevant and reliable information pertaining to corporate social responsibility on its website and MOPS?

(I) The Company discloses the financial and business related information in the Market Observation Post System (MOPS) in accordance with the laws and regulations, and discloses the information related to corporate social responsibility in the annual report. The Company has set up a dedicated section for corporate governance on its website for inquiry.


V. If the Company has set up its corporate social responsibility practices based on “Corporate Social Responsibility Best Practice Principles for TWSE/GTSM-Listed Companies”,the detailed information on the differences between the Company’s practices and what’s regulated in its corporate social responsibility shall be disclosed. The Company and its subsidiaries have not specifically established their corporate social responsibility practices in accordance with the “Corporate Social Responsibility Best Practice Principles for TWSE/GTSM-Listed Companies”. However, the overall business operation is managed in compliance with the relevant laws and regulations without significant differences.

VI. Other important information helpful in understanding CSR operation of the Company: (I) Environmental protection, Safety and Health: The Company has strived to utilize the production resources to the maximum efficiency, identified dedicated personnel to

be responsible for the environmental protection works in accordance with relevant laws and regulations, and employed qualified professional organizations to dispose of the waste produced from the production operations of the Company's factories. The Company and subsidiaries are also committed to reduce the burden and impact to the environment by implementing sorting of wastes to improve recovery rates, controlling office room temperature to reduce carbon emissions, and promoting energy saving and resource recycling. The Company is a professional drug R&D and manufacturing company, and has established an extremely complete and strict environmental

55

Assessed items





management system. The Company's Neihu office passed the inspection for the qualifications of the assay laboratory designated by the TW FDA in July 2018; Chungli Plant (Building One) passed the TW FDA cGMP Inspection in November 2006, the US FDA Pre-Approval Inspection in July 2007, the TW FDA cGMP Inspection in December 2008, the TW FDA PIC/S cGMP Inspection in May 2011, the US FDA Pre-Approval with cGMP Inspection in September 2012, the TW FDA new dosage form Inspection in October 2012, the TW FDA PIC/S cGMP Inspection (including Chungli Plant (Building Two)) in March 2014, the US FDA Pre-Approval with cGMP Inspection (including Chungli Plant (Building Two)) in May 2014, the TW FDA PIC/S cGMP & GDP (including Neihu Office) in January 2017, and the US FDA cGMP Inspection (including Chungli Plant (Building Two)) in July 2018; the Chungli Plant (Building Two) was acquired in 2013 and passed the TW FDA PIC/S cGMP Inspection in September 2014, the TW FDA new dose form Inspection in August 2015, the US FDA Pre-Approval Inspection in December 2016, the TW FDA PIC/S cGMP Inspection in May 2017 and the TW FDA new dose form and cGMP Inspection in May 2018. All of the above practices for site inspection are due to the implementation of the Company's production environment management system.

(II) Social Participation: The Company and its subsidiaries actively participate in the affairs of the building and the industrial park where it is located, and interactswell and assists mutually with its neighbors.

(III) Social Contribution, Social Services, Social Welfare: The company expects to provide generic drugs and innovative drugs of high quality and with economic benefits for use of all people around the world by integrating its capabilities in unique innovative research and development, patent analysis, clinical trials, medical laws and regulations experiences as well as professional manufacturing to improve the health and well-being for all people. The Company also co-operates with colleges and universities to hold pharmaceutical practical training programs to provide the college students with experiences to combine theories and practices, maintain good relationship with academic community and perform social responsibilities. All of the aforementioned measures taken by the Company reflect the practice and objectives of the Company in social contribution and services.

(IV) Consumer rights: The Company has established relevant consumer rights protection policies in terms of the R&D, procurement, production, operation and service processes, and if there is any problems with the Company's products and services, please contact the responsible personnel of the Company (contact Tel: (02) 2657- 3350) to safeguard the consumer rights.

(V) Human rights: The Company and its subsidiaries have laid great emphasis onon the rights and interests of employees and managed related practices in accordance with the provisions specified in the Labor Standards Act. In addition, in order to safeguard employee rights, the Company and its subsidiaries have set up Employee Welfare Committees, held Labor-Management Communication Conference, encouraged employees to participate in educational training courses, arranged employee health examination periodically, purchased employee group insurance, as well as open up multiple channels for employees to express their opinions to maintain good communication and interaction with employees.

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Assessed items





(VI) Other Social Responsibility Activities: In addition to continuing the implementation of existing corporate social responsibility activities, the Company and its subsidiaries will also add other social responsibility practices in the future.

VII. It shall be stated if the Corporate Social Responsibilities Report of the Company is qualified with the verification standards of the related verification institutions: The Company and it subsidiaries have not compiled their Corporate Social Responsibilities Reports. In the future the Corporate Social Responsibilities Reports may be compiled depending on the operational planning and needs.

57

(VI) The Company's implementation of Ethical Corporate Management and actions taken

Assessed items

Current Operation Deviation from the Ethical Corporate Management Best

Practice Principles of TWSE/GTSM- Listed

Companies and the root cause


I. Establishment of Ethical Corporate Management policies and programs

(I) Does the company clearly specify the policies and practices of Ethical Corporate Management in its regulations and external documents, and commitment of the Board of Directors and the Management Level to proactively implement the commitment such policies and practices?

(II) Has the company established any programs to prevent unethical behaviors, stated clearly in such programs the operation procedures, behavioral guidance, penalties of violation and appeal system, and thoroughly implemented such programs?

(I) The Company has established “Ethical Corporate Management Best Practice Principles”, and

disclosed it in the Company's website and the Market Observation Post System. The Board of Directors members and the management level of the Company have actively implemented the policy of Ethical Corporate Management. In 2018, the Company held educational training related to the topics of Ethical Corporate Management (corporate governance, audit, finance/accounting/investment taxation, human resource management, work environment safety and health, project management) for a total of 172 hours.

(II) The Company has established “Ethical Corporate Management Best Practice Principles” that clearly

states that the Company's Directors, Managerial Officers, Employees or Personnel with significant control ability (hereinafter referred to as “Significant Controllers”) are prohibited from directly or indirectly, in the course of engaging in business activities, providing, promising, asking or accepting any improper benefits, or doing other dishonest behaviors which are in violation of honesty, illegal or in breach of fiduciary duty, in order to acquire or maintain interests. The Company has also established a proper appeal system, and the keeps strictly confidential on the reporter's identity and the contents of the report; the Company will disclose the job title and name of the personnel in violation, date of violation, content of violation, handling status and other information timely in the Company's internal website in accordance with the disciplines for violation of Ethical Corporate

Conforms to “Ethical Corporate Management Best Practice Principles for TWSE/GTSM-Listed Companies”

58

Assessed items





(III) Has the Company taken precautionary measures to the activities within the scope of what are regulated in all sub-paragraphs of Paragraph 2, Article 7 of “Ethical Corporate Management Best Practice Principles for TWSE/GTSM- Listed Companies” or other operational activities with higher risk of unethical behavior?

1.

Management and the appeal system. (III) All the Directors, Managerial Officer, Employees or Significant Controllers of the Company abide

by the “Ethical Corporate Management Best Practice Principles” and “Employee Manual”. The Company's “Ethical Corporate Management Best Practice Principles” has clearly specified the prevention clauses as follows:

1. Prohibition against offering and receiving bribery: The Company and its Directors, Managerial Officers, Employees and Significant Controllers, during their execution of business, are prohibited from directly or indirectly providing, promising, asking for or accepting any improper benefits in any form, including kickbacks, commissions and negotiation fees, or from providing or receiving improper benefits from the customers, agents, contractors, suppliers, public officials or other stakeholders through any other means or channels, except that such above-mentiond practices are allowed by the local laws and regulations.

2. Prohibition against offering illegal political contributions: Donation made by the Company, its Directors, Managerial Officers, Employees and Significant Controllers directly or indirectly to the political parties and organizations or individuals involved in political activities shall comply with the Political Donations Act and the Company's related internal operating procedures, and can not be made for the purpose of commercial gains or trading advantages.

3. Prohibition again improper charitable donation or sponsorship: The charitable donation or sponsorship made by the Company and its Directors, Managerial Officers, Employees and Significant Controllers shall comply with relevant laws and internal operating procedures, and can not be made as an alternative way for bribery.

4. Prohibition against improper gifts, hospitality or other improper benefits: The Company and its Directors, Managerial Officers, Employees and Significant Controllers are prohibited from directly


59

Assessed items





or indirectly offering or accepting any improper gifts, hospitality or other improper benefits in order to establish a business relationship or influence the business transaction activities.

5. For business activities with higher risk of unethical behaviors (such as transactions of financial derivatives, capital loans, endorsement guarantees, etc.), the Company shall establish an effective accounting system and internal control system, keep no off-book account or secret account, and review from time to time to ensure the continuous effectiveness of the design and implementation of the systems.

6. Prohibition against infringement of business secrets, trademarks, patents, copyrights and other intellectual property rights: The Company's Directors, Managerial Officers, Employees or Significant Controllers are prohibited from, during the execution of business, directly or indirectly providing, promising, asking for or accepting any improper benefits , or from making other unethical acts such as dishonesty, illegality or acts in breach of fiduciary duty, in order to acquire or maintain interests.

7. Prohibition against engaging in actiovities of unfair competition: The Company's Directors (including Independent Directors) and Managerial Officers are prohibited from receiving improper benefits, due to their job positions in the Company, for themselves, their spouses, parents, children or anyone else.

8. Avoidance of direct or indirect damages caused by the products and services in either stage of research and development, procurement, manufacturing, supply or sale to the rights, health and safety of consumers or other stakeholders: The Company has established the policies to prevent conflict of interest, and provided appropriate channels for Directors and Managerial Officers to proactively explain whether the business they are engaged in is of potential conflict of interest with the Company. The Company's Directors are committed to high level self-discipline. For the proposals discussed in the Board of Directors Meeting which are of conflict of interest with the Directors or the legal institutions they represent and such conflict of interest may cause damage


60

Assessed items





to the benefit of the Company, such Directors may express their opinions and answers raised by other Directors, avoid and abstain from the discussion and voting, and not act as proxies for other Directors to exercise their voting rights. The Directors shall practice in self-discipline and improper mutual support between Directors is not allowed.


II. Implementation of Ethical Corporate Management

(I) Has the Company evaluated the ethical record of the business partners, and clearly specified in the clauses of the contracts ethical conducts with such business partners?

(II) Has the Company set up a full time (part time) unit subordinated to the Board of Directors to promote Ethical Corporate Management, and reported the implementation status to the Board of Directors regularly?

(III) Has the Company

(I) The company conducts business activities in a fair and transparent manner. Before dealing with the

business activities, the Company will consider the legality of agents, suppliers, customers or other business partners and check if there are records of unethical behaviors, avoid dealing with those who have unethical behaviors, and clearly specify the clauses of ethical conducts in the cooperation contracts.

(II) In order to strengthen the Ethical Corporate Management, the Company has set up the Personnel Unit as the dedicated unit to advance Ethical Corporate Management, responsible for the establishment and supervision of implementation of the Ethical Corporate Management policies, and the related units to be responsible for the establishment of prevention program. If any employee finds violations against this Best Practice Principles, the Personnel Unit shall summarize and report to the Board of Directors.

(III) The Company's “Ethical Corporate Management Best Practice Principles” has clearly specified the


61

Assessed items





establishedthe policy for avoidance of conflicts of interest, provided a proper reporting channel, and implemented it?

(IV) Has the company established an effective accounting and internal control system for the implementation of Ethical Corporate Management, and been audited regularly by the internal audit or the entrusted Accountant?

(V) Has the company organized

internal and external educational trainings

policy of prevention of conflict of interest and been operated in accordance with the regulations. The Best Practice Principles has clearly stated that the Company's Directors shall be committed to high level of self-discipline. For proposals to be discussed in the Board of Directors Meetings which are of conflict of interest with certain Directors or the legal persons they represent that may harm the interests of the Company, such Directors may express their opinions and answer questions raised by other Directors, but shall avoid and abstain from and not represent other Directors to exercise their voting rights. Directors shall act with high self-discipline, and improper mutual support between Directors is prohibited. The Company's Directors (including Independent Directors) and the Managerial Officers shall not use their job positions in the Company to receive improper benefits for themselves, their spouses, parents, children or any other persons. The Company's Personnel Unit also provides proper report channels, such as suggestion box and Personnel Unit email box.

(IV) In order to implement the Ethical Corporate Management, the Company has established its effective

Account System and Internal Control System to manage the business activities with higher risk of unethical behaviors such as financial derivatives transactions, capital loans and endorsement guarantees. It is prohibited fromkeeping an external account or a secret account, and shall be reviewed at any time to ensure that the design and implementation of the system continues to be effective. The Company's internal auditors have audited the compliance of the above-mentioned system and reported the audit report to the Board of Directors.

(V) Through the conversation and communication between the high level management and employees every quarter, the Company keeps the employees understanding the corporate culture of the Company's Ethical Corporate Management, and also encourages employees to participate in relevant


62

Assessed items





regularly regarding Ethical Corporate Management?

external educational training.

III. Operation of whistle-blower system in the Company

(I) Has the Company established a material whistle-blower and rewarding system, set up a convenient reporting channel, and designated appropriate personnel to handle the investigations, depending on the identity of the person being accused?

(II) Has the Company set up a standard operating procedure for accepting and investigating accusation cases and relevant confidentiality mechanism?

(III) Has the Company set up a protection plan for the whistleblower to prevent him/her from being

(I) The Company's Ethical Corporate Management responsible unit, i.e. Personnel Unit, provides proper

reporting channel such as setting up suggestion box and Personnel Unit email box to establish the whistle-blower system. For the accused targets and evidence, the Company will perform proper handling after the evidence is verified. Also, the Company combines the Ethical Corporate Management policy, the employee performance evaluation and the human resources policy to set up the clear and effective award and discipline system.

(II) The Company and its subsidiaries provide a proper whistle-blower system on the violations of Ethical Corporate Management regulations, and maintain strict confidentiality on the accusers’ identity and the contents of the accusation. If there is any violation of the Ethical Corporate Management regulation through the investigation of standard operating procedure, the information of job title, name of the personnel in violation, date of violation, content of violation, handling status or disciplinary action will be timely disclosed internally in the Company.

(III) The Company and its subsidiaries maintain strict confidentiality on the accusers’ identity and contents

of the accusation who report the violation of Ethical Corporate Management to protect the accusers from being improper treated due to the accusation.


63

Assessed items





subjected to improper treatment?

IV. Enhencement of Information Disclosure

(I) Has the Company disclosed the content and implementation of its Ethical Corporate Management Best Practice Principles in its website and Market Observation Post System?

(I) The Company has disclosed its “Ethical Corporate Management Best Practice Principles” in the

Company’s website and Market Observation Post System, and disclosed the relevant information of implementation effects in the Annual Report and Prospectus.


V. If the company has set its own “Ethical Corporate Management Best Practice Principles” according to the “Ethical Corporate Management Best Practice Principles for TWSE/GTSM-Listed Companies”, the differences between the actual practices and its “Ethical Corporate Management Best Practice Principles” shall be stated: The Company has established its “Ethical Corporate Management Best Practice Principles” in accordance with the “Ethical Corporate Management Best Practice Principles for TWSE/GTSM-Listed Companies” in 2013, and there is no material difference between the actual practices and its Best Practice Principles.

VI. Any important information to better understand the Company’s implementation of ethical corporate management: (for example, any review or amendment to the best practices for ethical corporate management of the company): The Company pays close attention on the domestic and abroad development of regulations related to Ethical Corporate Management, and encourages the Directors, Managerial Officers and Employees to make recommendations as the basis to review and improve the Company's “Ethical Corporate Management Best Practice Principles” to enhance the effects of the Company's Ethical Corporate Management.

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(VII) If the Company has set best practices for corporate governance and other relevant bylaws, the means to search for these bylaws shall be disclosed:

The Company and its subsidiaries have not established the Corporate Governance Best Practice Principles at the present, and will establish the Best Practice Principles according to the Company's actual operation requirements. However, the operations of the Company and its subsidiaries are managed in accordance with regulations specified in the “Internal Control System” and “Internal Audit System”, and the Company has established relevant practices such as “Codes of Ethical Conduct”, “Ethical Corporate Management Best Practice Principles”, “Supervision and Management of Subsidiaries”, “Rules Governing Financial and Business Matters Between this Group and its Affiliated Enterprises”, “Endorsements and Guarantees Operating Procedure”, “Lending of Capital Operating Procedure”, “Acquisition or Disposal of Assets Management Procedure”, “Rules of Procedure for Board of Directors Meetings”, “Procedures for Election of Directors”, and “Rules of Procedure for Shareholders Meetings” and other corporate governance regulations. Therefore, the Company has essentially managed the practical operations according to the regulations of corporate governance. The aforementioned practices are disclosed in the Company's website, annual report and Market Observation Post System, and same if there is modification.

(VIII) Other important information that can strengthen the understanding of the Company’s corporate governance practices may be disclosed: 1. Internal Control system: The Company and its subsidiaries have established the

effective Internal Control System in accordance with the provisions specified in the laws and regulations and in consideration of the Company's overall operation activities, managed the self-inspection operation of the Internal Control System effectively, and reported and reviewed the internal audit report made by the Audit Unit in the Board of Directors meeting in the quarterly basis, in order to ensure the effectiveness of the design and implementation of the system in response to the changes in the environment both inside and outside the Company.

2. Shareholders Meeting: The Company holds Annual General Shareholders Meeting every year, and discloses the relevant meeting information, Annual Report and meeting minutes in accordance with the provisions specified in the laws and regulations and the “Rules of Procedure for Shareholders Meetings”of the Company. The material resolutions related to finance and business of the Company shall be implemented after approval of the Shareholders Meeting.

3. Board of Directors: The Company's Board of Directors consists of 7 Directors (including 3 Independent Directors) and meets at least once a quarter to discuss the Company's relevant material finance and business proposals, and the relevant resolutions are disclosed on the Market Observation Post System for inquiry.

4. The “Procedures for Handling Material Inside Information” of the Company was approved by the Board of Directors Meeting in 2012 and was disclosed in the Market Observation Post System, the Company's website and dedicated area for

65

publication of the Company's internal regulations for the awareness of all the Managerial Officers and employees to avoid any violation of the inside-trading regulations and occurrence of insider trading.

(IX) Disclosure of the implementation of Internal Control System shall include the

following items: 1. Statement of Internal Controls:

Please refer to Page 197.

2. If an accountant is appomnited to audit the Internal Control System, the audit report by such accountant shall be disclosed: none.

(X) The punishment to the Company and its inside personnel by law, the disincentive measures to the insider personnel of the Company for breaching the Internal Control System, any material deficiencies and the status of improvement for the most recent year (2018) and up to the date of publication of this Annual Report : The Company was fined NT$240,000 by the Securities and Futures Bureau in 2018 for the non-conformity of the timing of information disclosure to the regulations in 2016. The Company has reviewed and improved the situation to strengthen the internal control management.

(XI) The significant resolutions made in the Shareholders meeting and the Board of

Directors meetings in the past year (2018) and up to the date of publication of this Annual Report:

Meeting / Date Significant resolutions made in the Board of Directors meetings

Board of Directors

meeting dated 03/19/2018

Business Matters of Discussion: 1. Passed the Budget of 2018 for the Company Group. 2. Passed the Annual Business Report, Financial Statements and

Consolidated Financial Statements of the Company for the fiscal year of 2017.

3. Passed the Company's 2017 Deficit Compensation. 4. Passed the Company's Reports on Accumulated Deficit and the

Execution of the Improvement Plan of the Operation for the fourth quarter 2017 of the Company.

5. Passed the Company's 2017 Effectiveness Evaluation of the Internal Control System and the Statement of the Internal Control System.

6. Passed the change of one of the Company's Certified Public Accountants of the Company's Financial Statements.

7. Passed the evaluation for the independence and competence of the Certified Public Accountants of the Company's Financial Statements.

66


8. Passed the Record Date of the Company's Employee Stock Options Certificates Conversion to Common Stock for Capital Increase.

9. Passed the Record Date of the Capital Reducation of the Restricted Stocks issued in accordance with the Company's “Practices of 2015 First Issuance of New Restricted Stocks”.

10. Passed the resolution to re-elect the 4 seats of Directors and 3 seats of Independent Directors, and submitted to the 2018 Annual General Shareholders Meeting for election.

11. Passed the List of Candidates of Directors (including Independent Directors) to be elected nominated by the Board of Directors.

12. Passed the Qualification Review of the nominated Candidaters of Directors (including Independent Directors) to be elected.

13. Passed the proposal to release the Prohibition on the Directors (including Independent Directors) of the Company or Representatives of Directors from participation in competitive business, and submitted to the Shareholders meeting for resolution.

14. Passed the related matters for acceptance of shareholders’ proposals and nomination of Candidates of Directors (including Independent Directors) before convening the 2018 Annual General Shareholders Meeting.

15. Passed the convening of the 2018 Annual General Shareholders Meeting of the Company.

Board of Directors


Business Matters of Discussion: 1. Passed the Qualification Review of the nominated Candidaters of

Directors (including Independent Director) to be elected. 2. Passed the proposal to release the prohibition on the Directors

(including Independent Directors) of the Company or Representatives of Directors from participation in competitive business, and submittd to the Shareholders meeting for resolution.

3. Passed the amendments to the Company's “Internal Control System” and “Internal Audit Implementation Rules”.

4. Passed the amendments to the Company's Level of Authority. 5. Passed the Remuneration of the Company's Managerial Officers

for 2018.

Board of Directors


Business Matters of Discussion: 1. Passed the Amendment to the Company's Level of Authority. 2. Passed the Record Date of the Company's Employee Stock Options

Certificates Conversion to Common Stock for Capital Increase. 3. Passed the consent for TWi Biotechnology to apply for the

Taiwan Trademark ” of Category 5, Category 35 and Category

67


42, which are in coexistence with the Company's trademarks “TWi” and “ ”.

4. Passed the plan for the Company, if TWi Biotechnology decided to change to appoint KGI Securities Co., Ltd. as its underwritting security firm, to transfer no more than 500,000 shares of TWi Biotechnology to KGI Securities Co., Ltd. within three months.

Board of Directors


Business Matters of Discussion: 1. Election of the Company's tenth Chairman. 2. Passed the appointment of three Members of the Third

Remuneration Committee.

Board of Directors


Business Matters of Discussion: 1. Passed the proposal to release prohibition on the Company's

Managerial Officers from participation in competitive business. 2. Passed the proposal to provide Endorsements and Guarantees

Facility of no more than NTD200,000,000 for Synpac-Kingdom Pharma, the 95.02% equity owned subsidiary of the Company.

3. Passed the proposal that the Company give up its preemptive right to subscribe for the newly issued shares of TWi Bio for its 2018 First Capital Increase.

Board of Directors


Business Matters of Discussion: 1. Passed the Record Date of the Company's Employee Stock Options

Certificates Conversion to Common Stock for Capital Increase. 2. Passed the termination of the Endorsements and Guarantees

Facility granted to TWi US. 3. Passed the 2018 Attendance Fees for the Directors attending the

Company's Meetings. 4. Passed the 2018 Fixed Remuneration for the Company's Non-

Independent Directors who were not paid with employee remuneration.

5. Passed the 2018 Fixed Remuneration for the Company's Independent Directors.

6. Passed the appointment of the Company's Managerial Officer.

Board of Directors


Business Matters of Discussion: 1. Passed the proposal that the Company apply for extension of credit

facility granted by the Shanghai Commercial & Savings Bank. 2. Passed the change of the finance and accounting supervisor and

nomination of new finance and accounting supervisors. 3. Passed to ratify the nomination of the managerial officer. 4. Passed the change of the acting spokeperson and nomination of

new acting spokeperson.

68


Board of Directors



Certificates Conversion to Common Stock for Capital Increase. 2. Passed the Record Date of Capital Reduction of the Restricted

Stocks issued in accordance with the Company's “Practices of 2015 First Issuance of New Restricted Employee Socks”.

3. Passed the the Company's 2019 Audit Plan. 4. Passed the proposal that the Company provide the short-term

lending facility in the amount of NTD100,000,000 to Synpac-Kingdom Pharma, the 95.02% equity owned subsidiary of the Company.

5. Passed the proposal to release the prohibition on the managerial officer(s) of the Company from participation in competitive business.

6. Passed the proposal to include the employees of Synpac-Kingdom Pharma to be able to participate in the employee stock ownership trust program of the Company.

Board of Directors


Business Matters of Discussion: 1. Passed the Budget of 2019 for the Company Group. 2. Passed the proposal that the Company apply for extension of credit

facility granted by the Cathay United Bank. 3. Passed the 2019 remuneration adjustment for all the employees

(including managerial officers) of the Company. 4. Passed the 2019 Attendance Fees for the Directors attending the

Company's Meetings. 5. Passed the 2019 Fixed Remuneration for the Company's

Independent Directors. 6. Passed the 2019 Fixed Remuneration for the Company's Non-

Independent Directors who were not paid with employee remuneration.

7. Passed the 2018 performance bonus and 2019 remuneration of the managerial officers of TWi US.

Board of Directors



Certificates Conversion to Common Stock for Capital Increase. 2. Passed the evaluation for the independence and competence of the

Certified Public Accountants of the Company's Financial Statements.

3. Pass the proposal of 2019 professional fees of the certified public accountant of the Company.

69


4. Passed the Annual Business Report, Financial Statements and Consolidated Financial Statements of the Company for the fiscal year of 2018.

5. Passed the Company's 2018 Deficit Compensation. 6. Passed the Company's Reports on Accumulated Deficit and the

Execution of the Improvement Plan of the Operation for the fourth quarter 2018 of the Company.

7. Passed the Company's 2018 Effectiveness Evaluation of the Internal Control System and the Statement of the Internal Control System.

8. Passed the report of implementation of the Company’s dealing with participation in capital increase by cash and disposing of shares of TWi Bio, the subsidiary of the Company, during the year of 2018.

9. Passed the proposal that the Company dispose of shares of TWi Bio it holds in installments and give up its preemptive right to subscribe the newly issued shares of TWi Bio for the capital increase by cash if there is any during the one-year period commencing from the date of the shareholders’ meeting.

10. Passed the amendment to the Articles of Incorporation of the Company and submitted to the 2019 Annual General Shareholders Meeting for resolution.

11. Passed the amendment to the Rules of Procedure for Shareholders Meetings of the Company and submitted to the 2019 Annual General Shareholders Meeting for resolution.

12. Passed the amendment to the Procedure for Election of Directors of the Company and submitted to the 2019 Annual General Shareholders Meeting for resolution.

13. Passed the amendment to the Procedure Governing the Acquisition and Disposal of Assets of the Company and submitted to the 2019 Annual General Shareholders Meeting for resolution.

14. Passed the amendment to the Regulation Governing Loaning of Funds to Others of the Company and submitted to the 2019 Annual General Shareholders Meeting for resolution.

15. Passed the amendment to the Regulation Governing Making of Endorsements and Guarantees of the Company and submitted to the 2019 Annual General Shareholders Meeting for resolution.

16. Passed the proposal to release the prohibition on the Directors (including Independent Directors) of the Company from participation in competitive business and submitted to the 2019 Annual General Shareholders Meeting for resolution.

70


17. Passed the related matters for acceptance of shareholders’ proposals before convening the 2019 Annual General Shareholders Meeting.

18. Passed the convening of the 2019 Annual General Shareholders Meeting of the Company.

19. Passed the 2019 remuneration adjustment plan of the Company. 20. Passed the 2018 performance evaluation of the managerial officers

and their 2019 remuneration adjustment. 21. Passed the proposal of 2019 performance targets for the managerial

officers of the Company.

Board of Directors


Business Matters of Discussion: 1. Passed the establishment of the Review Committee in compliance

with the laws and regulations for dealing with the public tender offer announced and declared by Calchen Pharmaceuticals, Inc. to purchase the shares of common stocks of the Company.

Board of Directors


Business Matters of Discussion: 1. Passed the verification and review result regarding the identity and

financial condition of the Offeror, fairness of the tender offer conditions, and reasonableness of the sources of the tender offer funds, and provided the recommendations to the Company’s shareholders with respect to the tender offer.

Board of Directors


Business Matters of Discussion: 1. Passed the proposal that the Company execute the Share

Conversion Agreement with Calchen Pharmaceuticals, Inc., under which the Acquiring Party, in accordance with the Corporate Merger and Acquisition Act, will issue its shares as the price in exchange for all the outstanding shares of the Company. The Company’s common stock will be terminated to be traded on the TPEx upon the record date of the share conversion if the share conversion is approved by the Company’s shareholders’ meeting and the application for the Company’s common stock to be terminated to be traded on the TPEx is approved by the relevant Authorities.

2. Passed the proposal that, in accordance with the Paragraph 1, Article 156-2 of the Company Act, the Company file application to void the qualification of the Company as a public company if the share conversion is approved by the Company’s shareholders’ meeting.

3. Passed the proposal of addition of new motions in the 2019 Annual General Shareholders Meeting of the Company.

71


4. Passed the proposal to release the prohibition on the managerial officer(s) of the Company from participation in competitive business.

72

Review of implementation of the resolutions of the Shareholders meeting:

Meeting date Resolution Implementation

Annual General

Shareholders Meeting

06/08/2018

Adoption Resolutions

The company's 2017 annual business report, financial statements and consolidated financial statements.

The proposal has been passed by the attending shareholders in the Annual General Shareholders Meeting.

The Company's 2017 Deficit Compensation


Election Resolutions

The Overall Reelection for the Directors (including Independent Directors) of the Company.

List of Elected Directors (including Independent Directors): (1) Chairman Chih-Ming Chen (2) Representative of Director TWi

Pharmaceuticals Holding Inc. (Cayman) Wen-Hung Huang

(3) Representative of Director Opulent Assets Holdings Ltd. Hai-Yi Ma

(4) Representative of Director Opulent Assets Holdings Ltd. Nick Liu

(5) Independent Director Yu-Hui Su (6) Independent Director Ching-Feng

Sun (7) Independent Director Dong-Han Lin

Other Resolutions

Release of prohibition on the Company's Directors and their representatives from participation in competitive business


Extempore Motion

The proposal that during the 1-year period starting from now, the Company may dispose of shares of TWi Biotechnology in installments or give up its preemptive righ to subscribe for


73

Meeting date Resolution Implementation

the newly issued shares of TWi Biotechnology for its Capital Increase if any.

(XII) For the Directors or Supervisors who have different opinions with records or written statements from the material resolutions passed in the Board of Directors meeting in the past year and up to the date of publication of this Annual Report, the main content are: None.

(XIII) In the most recent fiscal year and up to the date of publication of this Annual Report,

a summary of the resignations and dismissals of the Company’s Chairman, President, Officer in Charge of Accounting, Officer in Charge of Finance, Chief Internal Audit Executive and Chief Research and Development Officer:

Title Name Date Appointed

Date of dismissal

Reasons for resignation or dismissal

The Finance and Accounting Supervisor

Chiu, Hsing-Ying

2016/4/1 2018/10/12

Due to Ms. Chiu, Hsing-Ying’s personal career planning and adjustment of job responsibilities of the Company, Ms Luan, Angela, the Director of Finance and Investor Relation, was nominated as the Finance Supervisor, and Ms. Lo, Annie, the Associate Director of Accounting, was nominated as the Account Supervisor.

74

IV. Information on CPA professional fees Range of professional fees charged by the CPA of the Company

Accounting firm Name of the accountants Auditing period Remarks

PricewaterhouseCoopers, Taiwan

Sheng-Wei Teng

Hui-Chin Tseng 01/01/2018~12/31/2018

The CPA fees of the Company for 2018

Unit: NT$1,000 Category of Fees Fee Range Audit Fees

Non-Audit Fees

Total

1 Less than 2,000 thousand NT$ 0 1,847 1,847

2 2,000 thousand NT$(included) ~ 4,000 thousand NT$ 0 0 0

3 4,000 thousand NT$(included) ~ 6,000 thousand NT$ 4,030 0 4,030



6 10,000 thousand NT$(included) or above 0 0 0

(I) When the non-audit fees paid to the Certified Public Accountants, the CPA firm they are serving for, and the affiliatesaccounts for 25% or more of the audit fees, the amount of audit fees and non-audit fees and the content of non-audit service shall be disclosed.

Unit: NT$1,000

Name of the Accounting Firm

Name of the Accountants

Audit Fees

Non-Audit Fees Audit Period Remarks

System Design

Business Registration

Human Resource Others Subtotal


Sheng-Wei Teng 4,030 0 141 0 1,706

(Note1) 1,847 01/01/2018~

12/31/2018 Hui-Chin

Tseng

Note 1: For the NT$1,706,000 non-audit fee of 2018, NY$302,000 is the service fee for tax due diligence, and NT$1,404,000 is the service fee for transfer pricing report.

Note 2: The audit fees mentioned above is the fees paid to the Certified Public Accountant by the Company for services including financial report auditing.

(II) When the Company has changed the Accounting Firm, and the audit fees paid in

that particular fiscal year was less than that of the previous fiscal year, the amount of the audit fees before and after the change and the reason shall be disclosed: None

(III) When the audit fees decreases by 15% or more than that of the previous fiscal year,

75

the decreased amount, ratio and reason shall be disclosed: None.

76

V. Information on replacement of certified public accountants

(I) Information about the previous CPA

Date of Replacement The date of received the notice by the Company: 3/5/2018 The date of passed by the Board of Directors: 3/19/2018

Reason for replacement and explanation

In cooperation with the provisions specified in No. 46 of Statements of Auditing Standards, “Quality Control For Firms”, the engagement Account shall be rotated during a certain period of time.

Eeasons for the replacement whether it is due to termination of or refusal to accept the appointment by either the appointer or the Accountant

Party Situation Accountant Appointer

Proactive termination of the appointment

Not Applicable Refusal to accept (continue) the appointment

Opinions other than unqualified ones and reasons for issuing such opinionsfor the most recent two years

None

Different opinions from that of the Company

Yes

Accounting principles or practices Disclosure of financial report Scope or Procedure of Audit Others

None Description: None

Other disclosing items (Paragraph 6-1-4 to 6-1-7 of Article 10 of the Standards shall be disclosed)

None

(II) Information about the succeeding CPA

Name of the accounting firm PricewaterhouseCoopers, Taiwan Name of the accountants Tseng, Hui-Chin, CPA

Date of appointment

The date of received the notice by the Company: 3/5/2018 The date of passed by the Board of Directors: 3/19/2018

Consultation prior to the appointment regarding the certain accounting method/accounting principle and the possible opinions of the succeeding CPA

None

The written opinion of the succeeding CPA with different comments from the opinion of the previous CPA

None

77

(III) The previous CPA's reply to paragraphs 6-1 and 6-2-3, Article 10 of the

Standard:

Not applicable.

VI. Information regarding if the Company’s Chairman, President, or any

Managerial Officer in charge of Finance or Accounting affairs ever held a

position at its CPA's Accounting Firm or at an Affiliated Enterprise in the past

year :

None.

VII. Equity transfer or changes to equity pledge of Directors, Supervisors,

Managerial Officers, or Shareholders holding more than 10% of Company

shares in the most recent year (2018) up to the date of publication of this Annual

Report:

(I) Change in the equities of the Company held by the Directors, Supervisors, Managerial Officers and Major Shareholders

Title Name

2018 April 23, 2019

Increase (decrease) of shares

held

Increase (decrease) of shared pledged


held


Ninth and Tenth D

irectors Chairman Chih-Ming Chen - - - -

Director TWi Pharmaceuticals Holding, Inc. - - - - Representative: Wen-Hung Huang (Note 1) - - - -

Director

Opulent Assets Holdings Ltd. - - - -

Representative: Hai-Yi Ma - - - -

Representative: Nick Liu - - - - Independent

Director Ching-Feng Sun - - - - Independent

Director Dong-Han Lin - - - - Independent

Director Yu-Hui Su - - - -

Retired Director TWi Pharmaceuticals Holding, Inc. - - Not

Applicable Not

Applicable Representative: Jhih-Long Shen (Note 1) - - Not

Applicable Not

Applicable

78

Title Name

2018 April 23, 2019


held



held


Major Shareholder Chih-Ming Chen - - - -

Major Shareholder

TWi Pharmaceuticals Holding, Inc. - - - -

Major Shareholder Opulent Assets Holdings Ltd. - - - -

Managerial O

fficers

President Nick Liu - - - - Chief

Operating Officer

Shelley Chiou - - - -

Senior Vice President Ling-Ying Liaw - - (401,284) -

Vice President David Chou - - (141,750) -

Vice President Jun-An Guo - - - - Associate

Vice President

Yu-Ling Lin 30,000 - (102,552) -

Finance Supervisor Angela Luan - - - -

Accounting Supervisor Annie Lo - - - -

Resigned Managerial

Officer

Jian-Bo Xie (Note 3) (10,000) - Not Applicable

Not Applicable

Guang-Wei Lu (Note 4) - - Not Applicable

Not Applicable

Note 1: The Company has re-elected all directors in the Annual General Shareholders Meeting on June 8,

2018 since the term of office of the Ninth Directors (including Independent Directors) is due. The representative of the tenth Director of TWi Pharmaceuticals Holding Inc. (Cayman) is Wen-Hung Huang. The information of Jhih-Long Shen, the previous representative, was updated as of the date when his term was due

Note 2: The information on the equity transfer and equity pledge changes is from the elected date. For the resigned Directors and Managerial Officers, the information on the equity transfer and equity pledge changes is as of the resignation date.

Note 3: Jian-Bo Xie has transferred to serve as the consultant since September 21, 2018. The information of Jian-Bo Xie was updated as of the date of transfer.

Note 4:Guang-Wei Lu has transferred to serve as the President of TWi Biotechnology, Inc. since March 27, 2019. The information of Guang-Wei Lu was updated as of the date of transfer.

79

(II) Stock transfer information:

Name Reasons

for Transfer

Transaction Date

Transaction Counterparty

The Relationship between the Transaction Counterparty and

the Directors/Shareholders’ Holding more than 10%

Ownership of the Company

Number of

Shares Price

Ling-Ying Liaw

Public Tender Offer

2019.4.19 Calchen


A company holding shares of the Company for the benefit of the

Chairman Chih-Ming Chen 401,284 72.00

David Chou

Public Tender Offer

2019.4.19 Calchen



Chairman Chih-Ming Chen 141,750 72.00

Yu-Ling Lin

Public Tender Offer

2019.4.19 Calchen



Chairman Chih-Ming Chen ,102,552 72.00

(III) Stock Pledge information: There is no stock plede transactions among the related parties.

80

VIII. Information on the top 10 holders of the Company's shares with the relationship identified as related parties or spouses or relatives within second-degree of kinship.

April 10, 2019: Unit: Share, %

Name

Shares held personally

Shares held under the names

of spouse or minor children

Shares held under the names of others

The name and relationship of the top 10 shareholders with the

relationship identified as related parties or spouse or relatives

within second-degree of kinship

Rem

arks

Number of

shares Percentage

Number

of shares Percentage

Number of

shares Percentage Name Relationship

Calchen Pharmaceuticals, Inc. Chairman: Chih-Ming Chen

36,519,120 30.34 - - - -

Chih-Ming Chen

Chairman

-

Pharmaceuticals Holding, Inc.

With same ultimate beneficiary

Opulent Assets Holdings Ltd.


Xinchen Investment Co., Ltd.


TWi Pharmaceuticals Holding, Inc. (Cayman) Director: Chih-Ming Chen

29,146,782 24.21 - - - -

Chih-Ming Chen

Director

-

Calchen Pharmaceuticals, Inc.






Opulent Assets Holdings Ltd. Director: Chih-Ming Chen

28,460,824 23.64 - - - -

Chih-Ming Chen

Director

-



TWi Pharmaceuticals Holding, Inc.




Xinchen Investment Co., Ltd. Representative: Chih-Ming Chen

5,951,366 4.94 - - - -

Chih-Ming Chen

Chairman

-


With sameultimate beneficiary





81

April 10, 2019: Unit: Share, %

Chih-Ming Chen 4,361,460 3.62 - - 63,409,972


Chairman

-


Director


Director


Chairman

TransGlobe Life Insurance Co., Ltd. Representative: Teng-De Peng

890,000 0.74 - - - - - - -

Cathay Venture Inc. Representative: Jen-Huo Chang

338,000 0.28 - - - - - - -

Bao-Jia Wong 261,000 0.22 - - - - - - - Jioh-Jiang Investment Co., Ltd. Representative: Jiun-Fei Chang

147,606 0.12 - - - - - - -

Investment Account of Goldman Sachs International Corporation in Trust of HSBC Bank (Taiwan)

120,000 0.10 - - - - - - -

IX. Information on the number of shares that are held by the Company, any of the Company’s Directors, Supervisors and Managerial Officers or a Company directly or indirectly controlled on the same invested enterprise and consolidated percentage of shareholding None.

82

Four. Fundraising Status I. Source of Share Capital

(I) Source of Share Capital

The predecessor of the Company was Empax Pharma Co., Ltd.(hereinafter referred to as “Empax”), established on December 1, 1997, a drug development company specializing in oral drug delivery systems. Empax merged with TWi Pharmaceuticals, Limited on September 1, 2006, with Empax as the surviving company, and changed company name to TWi Pharmaceuticals, Inc.( hereinafter referred to as “TWi Pharma” or “the Company”). After the merger, the authorized capital was NT$290,000,000, divided into 29,000,000 shares of common stock, and the paid-in capital was NT$263,763,000, divided into 26,376,000 shares of common stock. The information of changes in capital in the most recent year (2018) and up to the date of publication of this Annual Report are shown as follows:

Unit: Thousand Shares, NT$1000

Time Issued Price

Authorized Capital Paid-in Capital Conversion

ratio

Remark

Number of Shares

Dollar Amount

Number of Issued Shares

Dollar Amount

Source of Share Capital

Capital Increased by Assets Other

than Cash

Others

2. 2014 48 200,000 2,000,000 113,210 1,132,099 - Conversion of Stock Options Certificates -

Approved on 2/27/2014 by Jing-Shou-Shang-Tzu No.

10301035470



10301102650

9. 2014 10 200,000 2,000,000 113,255 1,132,547 - Issuance of Employee Restricted Stockd -


10301174610

10. 2014 10

200,000 2,000,000 113,073 1,130,727 - Issuance of Employee

Restricted Stocks - Approved on 10/1/2014 by Jing-Shou-Shang-Tzu No.

10301205490 - - Buyback of Employee Restricted Stocks -

12. 2014 48 200,000 2,000,000 113,106 1,131,057 - Concersion of Stock Options Certificates -


10301254380

3. 2015 10




4. 2015 10 200,000 2,000,000 113,104 1,131,042 - Issuance of Employee Restricted Stocks -


10401054380



10401120120

10. 2015 10




11. 2015 197 200,000 2,000,000 127,323 1,273,227 -

Issuance of New Shares for Capital Increased to

Participate in the Issuance of Overseas Depositary Receipts

- Approved on 11/25/2015 by Jing-Shou-Shang-Tzu No.

10401242180



10401260050

5. 2016 10




83

Time Issued Price

Authorized Capital Paid-in Capital Conversion

ratio

Remark

Number of Shares

Dollar Amount

Number of Issued Shares

Dollar Amount

Source of Share Capital

Capital Increased by Assets Other

than Cash

Others

48 - Conversion of Stock Options Certificates -

9. 2016 -

200,000 2,000,000 127,312 1,273,118 - Buyback of Employee


10501216200 48 - Conversion of Stock Options Certificates -



10501284200

5. 2017 -

200,000 2,000,000 125,102 1,251,016 - Cancellation of Treasury

Stocks - Approved on 5/3/2017 by Jing-Shou-Shang-Tzu No.


9. 2017 -

200,000 2,000,000 120,369 1,203,686 - Cancellation of Treasury

Stock - Approved on 9/4/2017 by Jing-Shou-Shang-Tzu No.




10601164680

4. 2018 -






10701071750



10701113480

12. 2018 -




4.2019 48 200,000 2,000,000 120,357 1,203,568

- Conversion of Stock Options Certificates -

Approved on 4/9/2019 by Jing-Shou-Shang-Tzu No. 10801035440

Note: There are 19,690 shares converted from Employee Stock Options Certificates still under process of registration change.

(II) Type of Shares April 30, 2019: Unit: Share

Type of Share

Authorized Capital Remarks

Outstanding Shares

Unissued Shares Total

Common stock 120,376,477 79,623,523 200,000,000

The outstanding shares include 19,690 shares converted from Employee Stock Options Certificates under process of registration change.

(III) Information with regards to overall reporting system: None.

84

II. Shareholder Structure April 23, 2019: Unit: Share, Person, %

Shareholder Structure

Quantity

Government

agencies

Financial institutions

Other juristic persons

Foreign institutions and foreign

persons

Natural persons

Treasury stock Total

Number of Shareholders

- 2 21 30 3,665 0 3,718

Number of Shares Held

- 906,398 43,290,849 58,146,235 18,032,995 0 120,376,477

Shareholding percentage

- 0.75% 35.96% 48.31% 14.98% 0.00% 100.00%

III. Distribution of equities (I) Distribution of equities

April 10, 2019: Unit: Share, Person Range of Number of Shares

Held Number of

Shareholders Number of Shares

Held Shareholding

percentage 1 to 999 292 38,233 0.03%

1,000 to 5,000 2,887 5,384,172 4.47%

5,001 to 10,000 290 2,267,914 1.88%

10,001 to 15,000 74 961,516 0.80%

15,001 to 20,000 65 1,195,826 0.99%

20,001 to 30,000 42 1,060,021 0.88%

30,001 to 40,000 16 579,344 0.48%

40,001 to 50,000 16 744,000 0.62%

50,001 to 100,000 22 1,529,878 1.27%

100,001 to 200,000 6 687,021 0.57%

200,001 to 400,000 2 599,000 0.50%

400,001 to 600,000 0 0 0.00%

600,001 to 800,000 0 0 0.00%

800,001 to 1,000,000 1 890,000 0.74%

More than 1,000,001 5 104,439,552 86.77%

Total 3,718 120,376,477 100.00% (II) Preferred shares: None.

IV. List of Major Shareholders The names, number of shares held and shareholding percentage of shareholders holding more than 5% shares of the Company or ranking as the top 10 shareholders of the Company:

85

April 23, 2019: Unit: Share Shares

Name of Major Shareholders Number of

Shares Held Shareholding

percentage

Calchen Pharmaceuticals, Inc. 36,519,120 30.34

TWi Pharmaceuticals Holding Inc. (Cayman) 29,146,782 24.21%

Opulent Assets Holdings Ltd. 28,460,824 23.64%

Xinchen Investment Co., Ltd. 5,951,366 4.94%

Chih-Ming Chen 4,361,460 3.62%

TransGlobe Life Insurance Inc. 890,000 0.74% Cathay Venture Inc. 338,000 0.28%

Bao-Jia Wong 261,000 0.22%

Jioh-Jiang Investment Co., Ltd. 147,606 0.12%

Investment Account of Goldman Sachs International Corporation in Trust of HSBC Bank (Taiwan)

120,000 0.10%

86

V. Per Share Market Price, Per Share Net Worth, Earnings, Dividends and related information in the Past 2 Years. If there are earnings or capital reserves transferred to capital increase share distribution, the market price and cash dividend information adjusted retrospectively based on the number of issued shares shall be disclosed

Unit: NT$ / Thousand Shares Year

Item 2017 2018 As of April 30, 2019

Per Share Market Price

Highest 104.0 104.5 71.70 Lowest 64.10 54.00 58.90 Average 82.60 73.70 65.23

Per Share Net Worth

Before distribution (Note 1)

46.89 (17.42) Not Applicable (Note 5)

After distribution (Note 1) 46.89 (17.42) Not Applicable (Note 5)

Per Share Earnings

Number of Weighted Average Shares (Note 1)

122,632 (17.42) Not Applicable (Note 5)

Earnings per Share (Note 1) (2.03) (17.42) Not Applicable

(Note 5)

Per Share Dividends

Cash Dividends (Note 1) - - -

Stock Dividends

Dividends from Retained

Earnings - - -

Dividends from Capital

Surplus Distribution

- - -

Accumulated unpaid dividends None None None

Return on Investment Analysis

Price to Earning (P/E) Ratio (Note 2) (40.69) (17.42) Not Applicable

(Note 5) Price to Dividend (P/D)

Ratio (Note 3) Not

Applicable Not

Applicable Not Applicable

Cash Dividend Yield (Note 4)

Not Applicable

Not Applicable Not Applicable

Note 1: Calculated at a par value of NT$10 per share. Note 3: Price-Dividend Ratio = average closing price per share for that year/cash dividend per share.

Note 2: Price-Earnings Ratio = average closing price per share for that year/Earnings per share.

Note 4: Cash Dividend Yield = cash dividend per share/average closing price per share for that year.

Note 5: Up to the date of publication of this Annual Report, the financial statements of 1st quarter of 2019 had not been audited by the Accountant.

VI. Dividend Policy and Implementation

(I) Dividend Policy Specified in the Articles of Incorporation of the Company

The Company shall, after its accumulated losses have been covered by the before-tax profit of the current year before deducting the amount distributed to employees’ compensation and remuneration to directors and supervisors, withdraw 1% to 10% of the amount of balance thereof, if any, as employees’ compensation and not more than 5% as remuneration to directors and supervisors. The Company shall, by a resolution adopted by a majority vote at a meeting of Board of

87

Directors attended by at least two-thirds of the total number of directors, determine the ration for profit distribution as employees’ compensation and remuneration to directors and supervisors and the form of profit distribution as employees’ compensation either in shares or in cash; and a report of such distribution shall be submitted to the shareholders’ meeting. Qualification requirements of employees entitled to receive shares or cash as their compensation include the employees of subsidiaries of the Company meeting certain specific requirements.

The Company shall, after its losses have been covered and all taxes and dues have been paid, and at the time of allocating the net profit on the general final report, first set aside ten percent of such profits as a legal reserve, and set aside or reverse another sum as special reserve in accordance with laws and regulations or the rules prescribed by the competent authority. The remaining balance, if any, plus the accumulated retained earnings of prior years as accumulated distributable earnings, except for retaining an appropriate amount being delivered to the shareholders’ meeting for resolution after a proposal for distribution of profits depending on operational needs adopted by the Board of Directors, shall be distributed as dividends to shareholders subject to the resolution of the shareholder’ meeting.

The percentage of the amount of surplus earnings distributed to dividend to shareholders accounted for the earnings after tax in the current year shall not be less than 10% as a principle. Among which, the amount of cash dividends shall be not less than 10% of the total amount of cash dividends and stock dividends, provided, however, that stock dividends will be distributed instead when less than NT$0.1 per share of cash dividends, and the ration of distribution thereof may be adjusted depending on the Company’s future earnings and financial status. Where there are future substantial capital expenditures and R&D projects, dividends to shareholders may be distributed fully as stock dividends upon approval of the shareholders’ meeting. The Company shall not pay dividends or bonuses, if there are no surplus earnings.

(II) The dividend distribution proposal of this Shareholders Meeting

The company is still in a state of accumulated losses as of the end of 2018. Therefore, there is no dividend distribution plan this year, which was approved by the Audit Committee and the 7th meeting of the 10th Board of Directors dated March 15, 2019, and then submitted it to the Annual General Shareholders Meeting of the Company dated June 21, 2019 for approval.

(III) Explanations for anticipated material changes in dividend policy: None.

VII. Impact on the Company's business performance and earnings per share (EPS) due to dividends allotment proposal to be discussed at this Shareholders Meeting: None.

VIII. Employees Bonus and Compensation for Directors and Supervisors (I) The percentage or range of compensation for Employees, Directors and Supervisors, as set

forth in the Company's Articles of Incorporation The Company shall, after its accumulated losses have been covered by the before-tax profit of the current year before deducting the amount distributed to employees’ compensation and remuneration to directors and supervisors, withdraw 1% to 10% of the amount of balance thereof, if any, as employees’ compensation and not more than 5% as remuneration to directors and

88

supervisors. The Company shall, by a resolution adopted by a majority vote at a meeting of Board of Directors attended by at least two-thirds of the total number of directors, determine the ration for profit distribution as employees’ compensation and remuneration to directors and supervisors and the form of profit distribution as employees’ compensation either in shares or in cash; and a report of such distribution shall be submitted to the shareholders’ meeting. Qualification requirements of employees entitled to receive shares or cash as their compensation include the employees of subsidiaries of the Company meeting certain specific requirements. The Company shall, after its losses have been covered and all taxes and dues have been paid, and at the time of allocating the net profit on the general final report, first set aside ten percent of such profits as a legal reserve, and set aside or reverse another sum as special reserve in accordance with laws and regulations or the rules prescribed by the competent authority. The remaining balance, if any, plus the accumulated retained earnings of prior years as accumulated distributable earnings, except for retaining an appropriate amount being delivered to the shareholders’ meeting for resolution after a proposal for distribution of profits depending on operational needs adopted by the Board of Directors, shall be distributed as dividends to shareholders subject to the resolution of the shareholder’ meeting. The percentage of the amount of surplus earnings distributed to dividend to shareholders accounted for the earnings after tax in the current year shall not be less than 10% as a principle. Among which, the amount of cash dividends shall be not less than 10% of the total amount of cash dividends and stock dividends, provided, however, that stock dividends will be distributed instead when less than NT$0.1 per share of cash dividends, and the ration of distribution thereof may be adjusted depending on the Company’s future earnings and financial status. Where there are future substantial capital expenditures and R&D projects, dividends to shareholders may be distributed fully as stock dividends upon approval of the shareholders’ meeting. The Company shall not pay dividends or bonuses, if there are no surplus earnings.

(II) The basis for estimating the remuneration for the Employees, Directors and Supervisors for this period, the basis for calculating the number of shares to be distributed as the Employees remuneration for this period, and accounting treatment when the actual distribution is different from estimates:

Since the Company is still at accumulated losses for both 2017 and 2018, the estimated amount is NT$0. (III) The remuneration distribution passed by the Board of Directors:

1. The remuneration distributed to Employees, the Directors and Supervisors in cash or stock. If such remuneration is different from the estimate of the year in which expenses recognized, the difference, reason and treatment shall be disclosed: None.

2. The amount of remuneration distributed to Employees in stocks and the percentage of such amount to the net profit after tax of the stand-alone financial reports of this period: None.

(IV) The informnation of actual remuneration (including the number of shares, amount and share price) distributed to Employees, Directors and Supervisors in the previous year, and the difference, reason and treatment if such actual remuneration is different from the recognized remuneration: None.

89

IX. Buyback of Company Shares by the Company:

Since some of the EmployeeRestricted Stocks issued in accordance with the Company's 2013 First, 2013 Second, 2014 First and 2015 First Employee Restricted Stocks Plans did not meet their respective vested conditions, the Company has bought back all such unvested Employee Restricted Employee Right Stocks in accordance with the applicable Employee Restricted Stocks Plans. Such shares bought back by the Company amounts to 708,000 shares and have been canceled from the Company’s paid-in capital.

Expiry of the Period for Buyback of the First Treasury Stocks and Its Implementation

Purpose of Buyback To maintain the Company's credit and the shareholder rights

Period for Buyback 11/7/2016~1/6/2017 Range of Buyback Price NT$ 80-120 Types and Number of Shares Boughtback 2,278,000 shares of Common Stock

Dollar Amount of Shares Boughtback NT$ 240,401,995

Average Buyback Price per Share NT$ 105.53 The Number of Boughtback Shares Being Cancelled or Transferred

2,278,000 shares of Common Stock

Accumulated Number of the Company's Shares held by the Company

0

The Ratio of Accumulated Number of the Company's shares Held by the Company to the Total Number of the Company’s Issued Shares

0%

Expiry of the Period for Buyback of the Second Treasury Stocks and Its Implementation

Purpose of Buyback To maintain the Company's credit and the shareholder rights

Period for Buyback 5/15/2017~7/14/2017 Range of Buyback Price NT$ 70-100 Types and Number of Shares Boughtback 4,764,000 shares of Common Stock

Dollar Amount of Shares Boughtback NT$ 414,539,074

Average Buyback Price per Share NT$ 87.01 The Number of Boughtback Shares Being Cancelled or Transferred

4,764,000 shares of Common Stock

Accumulated Number of the 0

90

Company's Shares Held by the Company The Ratio of Accumulated Number of the Company's Shares Held by the Company to the Total Number of the Company’s Issued Shares

0%

X. Issuance of corporate bonds: None.

XI. Issuance of preferred stocks: None.

91

XII. Issuance of overseas depositary receipts: Date of Issuance

Item

September 22, 2015

Date of Issuance September 22, 2015

Securities Exchange in Which GDRs Listed Luxembourg Stock Exchange

Offering Size USD 87,087,861

Offering Price per Unit USD 6.05

Number of GDRs to Be Offered 14,400,000 Units

Source of Securities Represented by GDRs

Issuance of new common stock shares for Capital Increased to participate in the issuance of Overseas Depositary Receipts

Number of Securities Represented by GDRs 14,400,000 Shares

Rights and Obligations of Holders of GDRs

Referring to the relevant information disclosed in the published prospectus

Trustee Not Applicable

Depositary Institution Citibank, N.A.

Custodian Institution First Commercial Bank, Co., Ltd.

Outstanding Balance 0 unit as of April 30, 2019

Allocation method for Related Expenses during the Period of Issuance and Duration

In accordance with the agreements between the Company and the underwriting syndicate/depositary bank

Important Clauses of the Depositary and Custodian Agreements

The company will provide the necessary public information in accordance with the agreements for the depositary bank to notify the holders of GDRs

Market Price per Unit (Note)

2018

Highest USD3.60

Lowest USD 1.74

Average USD2.47

Current year as of April 30,

2019

Highest USD 2.32

Lowest USD 1.91

Average USD 2.11

92

Note: For companies who have participated in the issuance of overseas depositary receipts, the relevant information of market prices of the overseas depositary receipts in the most recent year and up to the date of publication of this Annual Report shall be listed. If the overseas depositary receipts are listed in more than one securities exchanges, their price information shall be listed separately according to the trading locations.

XIII. Management of Employee Stock Options Certificates

(I) Management of Employee Stock Options Certificates April 30, 2019

Types of Employee Stock

Options Certificates

2012 First Employee Stock Options Certificates

Effective Date of Approval Not Applicable

Issue (Process) Date 7/1/2012

Number of Units Issued

3,615.889 units issued originally, of which 186.255 units have expired and 3,429.634 units remaines (Each unit represents 1,000 shares of Common Stock)

The Ratio of Number of Shares for Subscription to the Total Number of Issued Shares

(%)

2.69%

Duration Type A and B: 8.75 years; Type C, D and E: 9.75 years Method of Exercise Issuance of new shares of common stock

Vesting Schedule and Ratio (%)

(Note 1)

Type A: 25% of the total granted shares vest since the granted date, and then an incremental 5% vest for each of the 15 subsequent 3-month full service periods;

Type B: 100% of the total granted shares vest after 33-month full service from the granted date;

Type C: 20% of the total granted shares vest after 9-month full service from the granted date, and then an incremental 5% vest for each of the 16 subsequent 3-month full service periods;

Type D: 20% of the total granted shares vest after a full-service period of 9 months and 11 days from the granted date, and then an incremental 5% vest for each of the 16 subsequent 3-month full service periods;

Type E: 20% of the total granted shares vest after a full-service period of 19 months from the granted date, and then an incremental 5% vest for each of the 16 subsequent 3-month full service periods.

Number of Exercised shares 3,351,697 Shares

Dollar Amount for Purchasing the

Exercised Shares NT$ 114,799,920

Number of Unexercised

Shares 77,937 Shares

The Subscription Price per Share of the Unexercised

Shares

Type A and B: NT$ 16 Type C, D and E: NT$ 48

93

Types of Employee Stock

Options Certificates


Ratio of Number of Unexercised

Shares to the Total Number of Issued

Shares (%)

0.06%

The Impact on Shareholders'

Equity The ratio of number of unexercised shares to the total number of issued shares is 0.06%, which has no significant impact on the dilution of the shareholdings.

Note 1: In accordance with the resolutions of Board of Directors Meeting dated June 20, 2012, the Stock Options Certificates granted in accordance with the “2012 First Employee Stock Options Certificates Plan” can be early exercised before the Company's stocks are listed at Emerging Stock Market. For employees who wish to exercise the Employee Stock Options Certificates, they shall reply their early-exercise decisions and complete the payment of the exercise price within the specified period of time. For employees who fail to complete the payment of the exercise price, the vesting schedule remains the same as it is originally regulated in the Plan. There were 61 grantees who early exercised the Stock Options Certificates and completed payment of the exercise price, with a total of 2,657,215 shares issued from exercise of the Type A, B, C, D and E Stock Options Certificates. In addition, in accordance with resolutions of the Board of Directors meeting dated July 6, 2012, the vesting schedule of a certain part of Type A Stock Options Certificates was revised so that such Type A Stock Options Certificates became vested and exercisable within 3 months from July 6, 2012. Such Type A Stock Options Certificates represented 140,753 shares of common stock.

Note 2: The above-mentioned Employee Stock Optionts Certificates were originally issued by the Company's parent company, TWi Holding, and converted to the Company's Employee Stock Options Certificates on July 1, 2012.

Note 3: The “total number of issued shares” as of April 30, 2019 mentioned in the above table is referred to as the number of shares listed in the Change Registration Information of the Ministry of Economic Affairs, which currently is 120,356,787 shares.

94

April 30, 2019 Types of Employee

Stock Options Certificates


Effective Date of Approval 4/9/2013


Number of Units Issued 187.231 units issued originally, of which 19.231 units have expired and 168.000 units remains (Each unitrepresents 1,000 shares of Common Stock)

The Ratio of Number of Shares for

Subscription to the Total number of Issued

Shares (%)

0.13%

Duration Type F: 8.75 years Method of Exercise Issuance of new shares of common stock


Type F: 65% of the total granted shares vest after 24-month full service from the granted date, and then an incremental 5% vest for each of the 7 subsequent 3-months full service periods;

Number of Exercised Shares 168,000 Shares


Exercised Shares NT$ 8,064,000

Number of Unrxercised Shares -

The Subscription Price per Share of the

Unexercised Shares -

Ratio of Number of Unexercised Shares to the Total Number of Issued Shares (%)

-

The Impact on Shareholders' Equity There are no unexercised shares.

Note: The “total number of issued shares” as of April 30, 2019 mentioned in the above table is referred to as the number of shares listed in the Change Registration Information of the Ministry of Economic Affairs, which currently is 120,356,787 shares.

April 30, 2019

Types of Employee Stock Options

Certificates 2013 Second Employee Stock Options Certificates


Issue (Process) Date 5/1/2013 Number of Units Issued

(Note 1)(Note 2) 1,708.656 units issued, of which 798.815 units have expired, and 909.841 units remaines (Each unit represents 1,000 shares of Common Stock)


Subscription to the Total Number of Issued

Shares (%)

0.98%

Duration Type G: 10 years

95


Certificates 2013 Second Employee Stock Options Certificates

Method of Exercise Issuance of new shares of common stock Vesting Schedule and

Ratio (%) Type G: 50% of the total granted shares vest after 24-month full service, and then the residual 50% vest after the subsequent 12-month full service is due.

Number of Exercised Shares -


Exercised Shares -

Number of Unexercised Shares 909,841 Shares


Unexercised Shares (Note 2)

Type G: NT$ 218.5


0.76%

The Impact on Shareholders' Equity

The ratio of number of unexercised shares to the total number of issued shares is 0.76%, which has no significant impact on the dilution of the shareholdings.

Note 1: The original approved number of units to be issued was 1,700, and the actual number of issued units was 1,693.8.

Note 2: The number of issued units and the exercise price were adjusted in accordance with the “2013 Second Employee Stock Options Certificates Plan”, which was triggered by the offering of the Overseas Depositary Receipts in 2015.


April 30, 2019


Certificates 2014 First Employee Stock Options Certificates


Issue (Process) Date 4/1/2014 8/1/2014 9/1/2014 12/1/2014

Number of Units Issued (Note 1) (Note 2)

977.993 units issued, of which

476.955 units have expired, and 501.038units

remains (Each unit represents 1,000

shares of Common Stock)

122.2 units issued, all of which have expired (Each unit represents 1,000


3.8 units issued, all of which have expired (Each unit represents 1,000


13.5 units issued, all of which have

expired, (Each unit represents 1,000 shares of

Common Stock)


Subscription to the total Number of Issued

Shares (%)

0.52% - - -

Duration 10 Years

96



Method of Exercise Issuance of new shares of common stock


50% of the total granted shares vestafter 24-month full service from the granted date, and then the residual 50% vest after the subsequent 12-month full service is due;

Number of Exercised Shares - - - -


Exercised Shares - - - -

Number of Unexercised Shares 501,038 Shares - - -



Type H: NT$ 240 - - -


0.42% - - -


The ratio of number of

unexercised shares to the total number of issued shares is 0.42%, which has

no significant impact on the dilution of the shareholdings.

No unexercised shares.



Note 1: The original approved number of units to be issued was 1,700. Note 2: The number of issued units and the exercise price were adjusted in accordance with the “2014 First Employee

Stock Options Certificates Plan”, which was triggered by the offering of Overseas Depositary Receipts in 2015.


April 30, 2019




Issue (Process) Date 6/1/2015 9/1/2015 11/17/2015 4/26/2016

Number of Units Issued (Note 1) (Note 2)

1,373.043 units issued, of which

740.894 units have expired, and

632.149 units remaines (Each unit represents 1,000 shares of Common Stock)

140.461 units issued, of which

123.478 units have expired, and 16.983

units remaines (Each unit

represents 1,000 shares of Common

Stock)

205 units issued, of which 20 units have expired, and

185 units remaines (Each unit represents 1,000 shares of

Common Stock)

5 units issued, none of which have expired (Each unit

represents 1,000 shares of

Common Stock)

97





Shares (%)

0.75% 0.04% 0.16% 0.004%

Duration 10 Years Method of Exercise Issuance of new shares of common stock


40% of the total granted shares vest after 24-month full service from the granted date, and then an incremental 20% for each of the 3 subsequent 12-month full service periods;

Number of Exercised Shares - - - -

Dollar Amount of Exercised Shares - - - -

Number of Unexercised Shares 632,149 Shares 16,983 Shares 185,000 Shares 5,000 Shares



Type I: NT$ 201 Type I-1: NT$ 203 Type I-2: NT$ 165

Type I-3: NT$ 108


0.53% 0.01% 0.15% 0.004%


The ratio number of unexercised

shares to the total number of issued shares is 0.53%,

which has no significant impact on the dilution of the shareholdings.

The ratio of number of unexercised

shares to the total number of issued shares is 0.01%,



unexercised shares to the total number of issued shares is 0.15%,



unexercised shares to the total number of issued shares is 0.004%,


Note 1: The original approved number of units to be issued was 2,000, and the actual number of issued units was 1,370.4.

Note 2: The number of issued units and the exercise price of Type I and Type I-1 were adjusted in accordance with the “2015 First Employee Stock Options Certificates Plan”, which was triggered by the offering of Overseas Depositary Receipts in 2015.

Note 3: The “total number of issued shares” as of April 30, 2019 mentioned in the above table is refered to as the number of shares listed in the Change Registration Information of the Ministry of Economic Affairs, which currently is 120,356,787 shares.

98

April 30, 2019 Types of Employee

Stock Options Certificates




Number of Units Issued 1,472 units issued originally, of which 448.2 units have expired, and 1,023.8 units remaines (Each unit represents 1,000 shares of Common Stock)



Shares (%)

1.16%

Duration Type J: 10 Years Method of Exercise Issuance of new shares of common stock


Type J: 40% of the total granted shares vest after 24-month full service from the granted date, and then an increment 20% for each of the 3 subsequent 12-month full service periods;

Number of Exercised Shares -

Dollar Amount of Exercised Shares -

Number of Unexercised Shares 1,023,800 Shares


Unexercised Shares Type J: NT$ 97.40


0.85%


The ratio of number of unexercised shares to the total number of issued shares is 0.85%, which has no significant impact on the dilution of the shareholdings.

Note 1: The approved number of units to be issued was 2,000, and the actual number of issued units was 1,472. Note 2: The “total number of issued shares” as of April 30, 2019 mentioned in the above table is referred to as the

number of shares listed in the Change Registration Information of the Ministry of Economic Affairs, which currently is 120,356,787 shares.

99

(II) Management of Restricted Stocks April 30, 2019

Types of New Restricted Employee Shares 2015 First Restricted Stocks

Effective Date of Approval 08/11/2015 Issue Date 9/1/2015 3/22/2016

Number of Shares of Restricted Stocks Issued 50,000 Shares 50,000 Shares

Issue price NT$ 10 The Ratio of Number of

Shares of Restricted Stocks Issued to the Total Number of

Issued Shares

0.078%

Vesting Conditions of Restricted Stocks

Upon the first anniversary after the issue date, 20% of the Restricted Stocks is vested; A total of 40% of the Restricted Stocks is vested cumulatively upon the second anniversary after the issue date; A total of 60% of the Restricted Stocks is vested cumulatively upon the third anniversary after the issue date; A total of 80% of the Restricted Stocks is vested cumulatively upon the fourth anniversary after the issue date; A total of 100% of the Restricted Stocks is vested cumulatively upon the fifth anniversary after the issue date.

Restriction of Rights on Restricted Stocks

(1) For the Restricted Stocks issued according to this Plan, the restrictions on the rights of the granted employees before such Restricted Stocks become vested are as follows: 1. the granted employees cannot sell, pledge, transfer, endow, collateralize or dispose

of the Restricted Stocks. 2. The rights to vote on shareholders' meeting: the same as other common stocks of

the company. 3. The rights of distribution of shares/dividends and preemptive rights of

shareholders: the same as other common stocks of the Company. (2) The Restricted Stocks issued according to Paragraph (2), Article 5 of this Plan shall

be managed in custody by the custodian bank before they become vested. The Company is authorized by the granted employees to sign, revise the related custodian contracts.

Custody of Restricted Stocks

After the Restricted Stocks are granted, the Company shall register such shares in the Company's Shareholders List and issues new common shares by way of book-entry transfer. If it is chosen to manage such Restricted Stocks in custody, such Restricted Stocks shall be kept in custody with the custodian bank before they become vested.

The Treatment for the Shares of Restricted Stocks, of

which the Grantees Fail to Meet the Vesting Conditions

1. Voluntary resignation: The unvested Restricted Stocks shall become void immediately upon the day of voluntary resignation, and the Company shall buy back such shares at the original issue price and cancel the shares according to the laws.

2. Termination of employment due to other reasons than voluntary resignation (including termination of labor contract, cease of job duties, dismissal and lay off for which prior notice is not required): In addition to the aforementioned reasons, upon the termination of the labor contract relationship between the Company and the employees due to other reasons, the Company shall buy back such shares at the original issue price and cancel the shares according to the laws.

3. Retirement: The unvested Restricted Stocks shall become void upon the effectiveness of retirement, and the Company shall buy back such shares at the original issue price and cancel the shares according to the laws.

4. Extended personal leave and leave for child care: For employees taking extended personal leave or leave for child care, which is approved by the Company, their unvested Restricted Stocks shall be bought back at the original issue price and cancelled by the Company, unless otherwise resolved by the Board of Driectors meeting of the Company. The treatment of such unvested Restricted Stocks is authorized to the Board of Directors Meetings for resolution.

5. Death from ordinary causes: Death due to reasons other than occupational accidents specified in Subparagraph 5, Paragraph (4) of this Article 5 is deemed as death from ordinary causes. The unvested Restricted Stocks become void upon death from ordinary causes, and the Company shall buy back such shares at the original issue price and cancel the shares according to the laws.

6. Disability or death due to occupational accidents: The unvested Restricted Stocks become void upon termination of service arising from disability or death due to

100

Types of New Restricted Employee Shares 2015 First Restricted Stocks

occupational accidents, and the Company shall buy back such shares at the original issue price and cancel the shares according to the laws. However, if such employees are deemed to have great contributions or be devoted loyally to fulfill the job duties, which are recognized and approved by the Board of Directors meetings, the treatment of their unvested Restricted Stocks is authorized to the Board of Directors Meetings for resolution.

7. Transfer: If the employees requests for transfer or are assigned by the Company to transfer to the Affiliated Enterprise or other companies, their unvested Restricted Stocks shall be treated as those in the case of voluntary resignation.

8.The unvested and void Restricted Stocks, including those in all above-mentioned paragraphs shall by bought back by the Company at the original issue price and cancelled according to the laws. However, for stock and cash dividends alloted from those unvested and void Restricted Stocks, the employees are not required to return or pay back such stock and cash dividends.

9. If the employees violate the provisions specified in the Paragraph (2), Article 6 of the Plan to terminate or lift the authorization to the Company before their unvested Restricted Srocks become vested, the Company has the rights to buy back the unvested Restricted Stockss at the original issue price and cancel the shares.

Number of Shares of Restricted Stocks That Have been Bought

Back 60,000 Shares

Number of Shares of Vested Restricted Stocks 40,000 Shares

Number of Shares ofUnvested Restricted Stocks -

The Ratio of Number of Shares of Unvested Restricted Stocks to

the Total Number of Issued Shares (%)

-

The Impact on Shareholders' Equity There are no unvested Restricted Stocks outstanding.

Note: The “total number of issued shares” as of April 30, 2019 mentioned in the above table is referred to as the number of shares listed in the Change Registration Information of the Ministry of Economic Affairs, which currently is 120,356,787 shares.

101

(III) The names of the top 10 Managerial Officers and Employees in the accumulated number of shares which can be purchased from exercise of the Employee Stock Options Certificates granted to them, the information of granting details and status of exercise up to the date of publication of this Annual Report.

April 30, 2019; Unit: Share, %, NT$

Title Name

Number of shares

which can be

pruchase d from

exercise of

options granted

The ratio of

number of shares

which can be

purchased from exercise

of options granted to the total

number of issued shares

(Note 1)

Exercised Unexercised and effective

Number of

shares

Exercise price

Total exercise price

The ratio of number

of exercised shares

to the total

number of

issued shares

Number of shares

Exercise Price

Total exercise price

The ratio of number

of unexercised and effective shares to the total

number of

issued shares

Managerial O

fficers

Executive Vice

President

Jian-Bo Xie (Note 3)

1,358,813 (Note 2) 1.13

289,011 Type A and B

NT$ 16 4,624,176 0.24

63,835 Type C NT$ 48 3,064,080 0.05

Senior Vice

President

Ling-Ying Liaw

107,921 Type G NT$ 218.5 23,580,739 0.09

49,100 Type H NT$ 240 11,784,000 0.04

Vice President David Chou

248,948 Type C NT$ 48 11,949,504 0.21

79,699 Type I NT$ 201 16,019,499 0.07

Associate Vice

President Yu-Ling Lin 200,000 Type J

NT$ 97.4 19,480,000 0.17

Em

ployees

Executive Vice

President (Note 4)

Rick Pallokat

1,670,662 (Note 2) 1.39

394,106 Type A and B

NT$ 16 6,305,696 0.33

244,365 Type G

NT$ 218.5

53,393,753 0.20

President (Note 5)

Chih-Kuang Chen

Director Wen-Ho Chiao

92,472 Type H NT$ 240

22,193,280 0.08 Director Yi-Hsuan Li

Director Yi-Ting Lin 122,305 Type I

NT$ 201 24,583,305 0.10

Director Hung-Yi Yang

499,827 Type C NT$ 48 23,991,696 0.42

Deputy Director (Note 6)

Jyun-Li Wu 120,000 Type I-2

NT$ 165 19,800,000 0.10 Deputy Director

Shao-Ming Li

Deputy Director

Ching-Ju Tseng

130,000 Type J NT$ 97.4

12,662,000 0.11 Senior

Manager Hsun-Ta Li

Note 1: The “total number of issued shares” as of April 30, 2019 is referred to as the number of shares listed in the Change Registration Information of the Ministry of Economic Affairs, which currently is 120,356,787 shares.

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Note 2: The number of shares which could be purchased from exercise of the void Employee Stock Options Certificates (if they were not void) for the top 10 Managerial Officers is 320,299, while that for the top 10 Employees is 67,587.

Note 3: Transferred to serve as the consultant on September 21, 2018. The information was updated as of the date of transfer. Note 4: Executive Vice President of the TWi US. Note 5: The President of TWi Biotechnology, who transferred to serve as the consultant on March 15, 2019. The information was updated as of the

date of transfer. Note 6: His resignation became effective on January 25, 2019.

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(IV) The names of the top 10 Managerial Officers and Employees in the accumulated

number of Restricted Stocks granted to them, and the information of granting and vesting details

April 30, 2019; Unit: Share, %, NT$

Title Name

Number of Restricted

Stocks granted

The ratio of number of Restricted

Stocks granted to the total


(Note 1)

Vested Restricted Stocks Unvested and effective Restricted Stocks

Number of vested

Restricted Stocks

Issue price

Total purchase

price

The ratio of

Number of vested

Restricted Stocks to the total


Number of unvested

and effective

Restricted Stocks

Issue price

Total purchase

price

The ratio of Number

of unvested

and effective

Restricted Stocks to the total


Managerial O

fficers

Executive Vice

President (Note 3)

Jian-Bo Xie

303,000 (Note 2)

0.25 173,000 10 1,730,000 0.14 - - - - Senior Vice President

Ling-Ying Liaw

Vice President

David Chou

Associate Vice

President Yu-Ling Lin

Em

ployees

President (Note 4)

Chih-Kuang Chen

351,000 (Note 2)

0.29 135,000 10 1,350,000 0.11 - - - -

Associate Vice

President (Note 5)

Li-Ju Yeh

Director Wen-Ho Chiao

Director Yi-Hsuan Li Director Han-Bin Lin Director Yi-Ting Lin

Director Hung-Yi

Yang Deputy Director

Shao-Ming Li

Deputy Director

Ching-Ju Tseng

Senior Manager

Hsun-Ta Li

Note 1: The “total number of issued shares” as of April 30, 2019 is referred to as the number of shares listed in the Change Registration Information of the Ministry of Economic Affairs, which currently is 120,356,787 shares.

Note 2: The number of void Restricted Stocks for the top 10 Managerial Officers is 130,000, while that for the top 10 employees is 216,000. Note 3: Transferred to serve as the consultant on September 21, 2018. The information was updated as of the date of transfer. Note 4: Transferred to serve in TWi Biotechnology and then transferred to serve as the consultant on March 15, 2019. The information was updated

as of the date of transfer. Note 5: Transferred to serve in TWi Biotechnology.

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XIV. Issuing new shares for merger, acquisition or in exchange for shares of other

companies

Empax, the predecessor of the Company, merged with TWi Pharmaceuticals, Ltd. on September 1, 2006 as the surviving company, by issuing 11,676,385 shares of its common shares to Anchen Inc., the then-current parent company of TWi Pharmaceuticals, Ltd., in exchange for shares of TWi Pharmaceuticals, Ltd. held by Anchen Inc. and changed the name of the surviving company to TWi Pharmaceuticals, Inc. This merger was approved in October, 2006 with Fu-Jian-Shang-Tzu No. 09583472510.

Under the listing plan of TWi Enterprise Group, the Company was identified as the listing entity, and in addition to the operation of special generic drugs of the Company, the new drug business of TWi Biotechnology shall be incorporated as a whole. Therefore the capital structure within the TWi Enterprise Group was reorganized again in October 2011, and through the share conversion with TWi Biotechnology, the Company issued 9,622,642 shares of common stock in exchange for 25,500,000 shares of common stock of TWi Biotechnology, which represented a conversion ratio for every share of the Company's common stock in exchange for 2.65 shares of TWi Biotechnology’s common stock. After the share conversion, TWi Biotechnology became a 100% owned subsidiary of the Company. This share conversion was approved in February 2012 by the approval letter of the Ministry of Economics numbered Jing-Shou-Shang-Tzu No. 10101018060.

In addition, due to the Company’s continuous dedication in research and development of its generic drug products, the production capacity of Chungli Plant Building I had reached bottleneck, so that the Company actively searched for the opportunity of plant expansion to match the production requirement of the Company's own products. In 2013, the Company merged with U-Liang Production Co., Ltd. through the short-form merger to enhance its production capacity, which brought a positive impact on the overall operation of the Company. Before such short-form merger, the Company had acquired 2,849,178 shares of U-Liang Production's common stock, which accounted for 94.97% equity of U-Liang Production. On March 21, 2013, the Board of Directors Meetings of both companies passed the resolution of merger and signed the merger agreement.The record date of the merger was set as March 28, 2013, and on that record date, all the shares of U-Liang Production owned by the Company were cancelled without consideration and the remaining shareholders of U-Liang Production were paid with cash as the price for the merger. Therefore, no new shares were issued for such merger. This short-form merger was approved on April 26, 2013 by the approval letter numbered Jing-Shou-Shang-Tzu No. 10201077810.

XV. Implementation of Use of Funds Plan (I) Content

As of the previous quarter up to the date of publication of this Annual Report, for the previous issuances or private placements of securities that have not been completed or that have been completed in the most recent three years withthe plan benefits not yet being revealed, the details of the previous issuances or private placements of securities, including

105

the changes of the plans, source and use of funds, reasons for changes, benefits before and after the changes, as well as the dates on which the changes of the plans were reported to the Shareholders Meetings, shall be clearly specified, and the date on which such information was input to the website designated by the FSC shall be disclosed: Not Applicable.

(II) Implementation The comparison of the expected benefit and actual implementation of each of the respective use of fund of the funding plans as of the previous quarter up to the date of publication of this Annual Report shall be analyzed. If the expected benefit is not achieved, the reasons, impact on the Shareholders' equity and improvement plan shall be explained specifically: Not Applicable.

(III) 2015 Issuance of Overseas Depositary Receipts 1. Original Plan:

(1) Approval Date and Number of the Approval Letter issued by the Competent Authority: Financial Supervisory Commission August 4, 2015 Jing-Guan-Zheng-Fa-Tzu No. 1040028688.

(2) Total Funds Required: equivalent to NT$ 4,204,515,000.

(3) Source of Funds: Approximately US$87,088,000 was raised through offering of the Overseas Depositary Receipts, which was equivalent to NT$2,836,800,000 (calculated at the exchange rate of NT$32.574:1), the residual NT$1,367,715,000 was anticipated to be funded by other sources.

(4) The estimated use and source of funds are disclosed as in the Table below:

Unit: USD1,000; NT$1,000

Use of Funds Description Required Amount

Source of Funds Overseas

Depositary Receipts

Other Sources of

Funds

Research and Development of Special Generic

Drugs

Salary and Others

NT$553,000 NT$1,236,800

(USD 40,000) NT$625,147 Outsourcing services and Litigation, etc.

NT$1,308,947

Construction of New Plant and

Purchase of Machinery and

Equipments

Plant and Facilities

NT$469,268 NT$1,236,800

(USD 40,000) NT$487,368 Purchase of Machinery and Equipments

NT$1,254,900

Reinvestment to Visum NT$618,4

00 NT$618,400

(USD 20,000) -

Total NT$4,204,515

NT$3,092,000 (USD 100,000) NT$1,112,515

Among them, funds equivalent to NT$2,836,800,000 was raised by the offering of the Overseas Depositary Receipts, while the remaining amount required for the plan

106

would be funded by the Company's own funds, bank loans or other domestic issuance plans. The use of funds and the projected schedule of this Plan are disclosed in the Table below:

Unit: NT$1,000

Use of Funds

Projected

Completion

Date

Total

Amount

Required

Projected Schedule

2015 2016

3rd

Quarter

4th

Quarter

1st

Quarter

2nd

Quarter

3rd

Quarter

4th

Quarter Research and

Developmen of Special Generic

Drugst

4th Quarter, 2021

1,861,947 - 124,070 124,614 124,614 124,614 124,613

Construction of New Plant and

Purchase of Machinery and

Equipments

2nd Quarter, 2019

1,724,168 114,197 43,528 81,552 32,645 228,573 -

Reinvestment to Visum

4th Quarter, 2016

618,400 - 412,267 - - - 206,133

Total 4,204,515 114,197 579,865 206,166 157,259 353,187 330,746

Unit: NT$1,000

Use of Funds Projected

Completion Date

Projected Schedule 2017 2018

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter


of Special Generic Drugs

4th Quarter, 2021

128,784 128,784 128,784 128,784 72,852 72,852 72,851 72,851

Construction of New Plant and Purchase of Machinery

and Equipments

2nd Quarter, 2019

85,985 97,423 22,008 193,831 - 2,370 - 552,614


4th Quarter, 2016

- - - - - - - -

Total 214,769 226,207 150,792 322,615 72,852 75,222 72,851 625,465

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Unit: NT$1,000


Completion Date

Projected Schedule 2019 2020

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter



4th Quarter of 2021

43,803 43,803 43,803 43,804 38,650 38,650 38,650 38,650

Construction of New Plant and Purchase of Machinery

and Equipments

2nd Quarter of 2019

- 269,442 - - - - - -


4th Quarter, 2016

- - - - - - - -

Total 43,803 313,245 43,803 43,804 38,650 38,650 38,650 38,650

Unit: NT$1,000


Completion Date

Projected Schedule 2021

1stQuarter 2ndQuarter 3rdQuarter 4thQuarter Research and

Development of Special Generic Drugs

4th Quarter of 2021 25,767 25,767 25,767 25,766

Construction of New Plant and Purchase of Machinery and

Equipments

2nd Quarter of 2019 - - - -

Reinvestment to Visum 4th Quarter, 2016 - - - - Total 25,767 25,767 25,767 25,766

(5) Projected Potential Benefits

The total amount to be raised under this Plan was equivalent to NT$ 4,204,515,000, of which NT$ 1,861,947,000 was projected to be invested in research and development of special generic drugs, NT$ 1,724,168,000 was projected to be invested in the construction of new plant and purchase of machinery and equipments, and the remaining NT$ 618,400,000 was projected to be used to increase the investment in Visum. The projected potential benefits to be generated are as explained as follows:

A. Research and Development of Special Generic Drugs:

The Company expected to invest NT$ 1,861,947,000 in the research and development of special generic drugs, with the benefits mainly arising from the revenue and profit generated after the drugs are successfully developed, granted with approvals, scaled up into mass-production and launched to the market.

B. Purchase of Machinery and Equipments:

The Company expected to invest NT$ 1,724,168,000 in constructing the plant in

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Chungli to meet the production requirements of new products. The benefits are mainly from the production and sales of new products in the future.

C. Reinvestment to Visum:

Name of Investment

Target

Investment Amount

Main Business

Use of Funds Purpose and Benefits

Visum Pharmaceutical Co., Ltd.

618,400,000

Design of oral solid preparation prescriptions and drug development

To expand the plant and supplement working capital

To support the requirements of plant expansion and research and development of products, and to increase the shareholding of the Company in Visum and the investment income that could be recognized

(6) Project Items and Implementation of Them


As of the 4th quarter of 2016, the Company had spent NT$ 224,879,000 in research and development of special generic drugs, representing a 36.12% implementation rate. The degree of difficulty of R&D projects will affect the development schedule, but the implementation of overall research and development projects is in normal conditions.

B. Purchase of Machinery and Equipments:

The Company has changed its plan of expanding manufacturing capacity of non-oral generic drugs (including injectables, pastes, patches and ophthalmic drops, etc.) from building self-owned plant to cooperating with the external third parties with existing plants and equipments. Although this might lower the potential return on investment, by reducing the scale of investment, it could also reduce and diversify the investment risk of high devotion of the Company into the injectable products. Such adjustment of the Company’s strategy was expected to improve the short-term profitability by eliminating the depreciation expenses in future years due to large capital expenditures, andat the same time achieve the strategic objective of expanding the product portofolio of diversified dosage forms. Due to such adjustment of the Company’s strategy, the original plan of plant construction was not implemented.

C. Reinvestment to Visum:

In response to changes in industrial policies in China, the Company re-adjusted its strategic positioning for Visum. The Board of Directors meeting dated November 30, 2016 resolved the Company cease the reinvestedment plan to Visum and dispose of its investment in Visum. Legal registration with Competent Authority in China regarding such disposal of investment was completed on April 18, 2017. Therefore, the original

109

reinvestment plan was not implemented.

2. Plan after the Change:

(1) Total Funds Required: equivalent to NT$ 3,461,947,000.

(2) Source of Funds:

A. The fund capital with its size equivalent to NT$2,836,800,000 was raised through issuance of 14,400,000 new shares of the Company represented by offering of Overseas Depositary Receipts, with the par value of NT$10 per share and issue price of NT$ 197 per share.

B. The fund capital with its size equivalent to NT$ 625,147,000 was anticipated to be sourced by the Company's own funds, bank loans or other domestic issuance plans.

(3) The difference in the use of funds before and after the change is as follows: Unit: NT$1,000

Source of Funds

Item

Amount before Change Amount after Change Difference Check Results

Overseas Depositary

Receipts

Bank Loans / Company's own Funds

Total Amount

Overseas Depositary

Receipts


Total Amount

Overseas Depositary

Receipts


Total Amount

Research and Development of Special Generic Drugs

1,236,800 625,147 1,861,947 1,236,800 625,147 1,861,947 - - -

The Amount of Change is

more than 20% of the Fundraising

Amount.

Construction of New Plant and Purchase of Machinery and Equipments

1,236,800 487,368 1,724,168 - - - (1,236,800) (487,368) (1,724,168)

Reinvestment to Visum 363,200 255,200 618,400 - - - (363,200) (255,200) (618,400)

Procurement of Ingredients for Commercial Launch Products

- - - 1,600,000 - 1,600,000 1,600,000 - 1,600,000

Total 2,836,800 1,367,715 4,204,515 2,836,800 625,147 3,461,947 - (742,568) (742,568)

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(4) The use of funds of the Plan after change and its projected schedile are disclosed in the Table below:

Unit: NT$1,000


Completion Date

Total Funds

Required

Projected Schedule

2015 2016 2017

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

1st Quarter



4th Quarter, 2021

1,861,947 25,498 45,377 62,050 33,898 124,613 128,784

Procurement of Ingredients

for Commercial

Launch Products

1st Quarter, 2019

1,600,000 - - - - - 65,061

Total 3,461,947 25,498 45,377 62,050 33,898 124,613 193,845

Unit: NT$1,000


Completion Date

Projected Schedule 2017 2018 2019

2nd Quarter

3rd Quarter

4th Quarter

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

1st Quarter



4th Quarter, 2021

128,784 128,784 128,784 93,545 93,545 93,545 93,545 64,496

Procurement of Ingredients

for Commercial

Launch Products

1st Quarter, 2019

66,780 66,780 100,711 130,904 318,770 318,770 318,770 213,454

Total 195,564 195,564 229,495 224,449 412,315 412,315 412,315 277,950

Unit: NT$1,000


Completion Date


2nd Quarter

3rd Quarter

4th Quarter

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

1st Quarter

Research and Development of Special Generic

Drugs

4th Quarter, 2021

64,496 64,496 64,496 59,343 59,343 59,343 59,343 46,460

Procurement of Ingredients for

1st Quarter, 2019

- - - - - - - -

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Completion Date


2nd Quarter

3rd Quarter

4th Quarter

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

1st Quarter

Commercial Launch Products

Total 64,496 64,496 64,496 59,343 59,343 59,343 59,343 46,460

Unit: NT$1,000


Completion Date

Projected Schedule 2021

2nd Quarter 3rd Quarter 4th Quarter Research and

Development of Special Generic Drugs

4th Quarter, 2021 46,460 46,460 46,459

Procurement of Ingredients for

Commercial Launch Products

1st Quarter, 2019 - - -

Total 46,460 46,460 46,459

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(5) Reason for Change

A. Purchase of Machinery and Equipments:

The original strategy plan was to build a self-owned factory to expand the dosage form of the products of the Company into injection products. The development of the injection product takes continuous investment of resources for 3 to 5, or maybe 5 to 10 years to reap the profits and payback of the investment. This original strategy was aimed for medium to long term objectives of diversifying the product dosage forms and maximizing the profits arising from successful development of products. However, to achieve such medium to long term objectives, the Company had to invest lots of resources in the relatively short term, which would lead to increased risk and sacrifice short term financial performance. With the consecutive launchs of the Company's own products in the US market, the Company has entered into the payback period from the investment period. In consideration of the potential offect of the enhencement of the financial performance brought by the product launchs in the market if the company had implemented the strategy to build its self-owned factory, the Company decided to adjust its development strategy appropriately in response to the change of environment to maintain a stable operation and protect shareholders’ equity, which was changed from one focusing on long-term growth and development to that balancing both short-term and long-term growth and development. Therefore, the Company changed to cooperate with external third parties with existing plants and equipments to expand the dosage forms of non-oral products (including injectables, pastes, patches and ophthalmic drops). Although the reduced scale of own investment might lower the projected return on investment, it could also reduce and diversify the investment risk of high devotion into injectable products. Through this adjustment, on the one hand, the short-term profitability would be improved due to decrease of capital expenditure that would generate depreciation expenses in future years, while on the other hand, the strategic objective of expanding and diversifying product dosage forms was expected to be maintained. Therefore the original plan of construction of new plant and purchase of equipments was adjusted.

B. Reinvestment to Visum:

Since the Company had adjusted its strategic positioning of Visum decided not to continue the investment and would dispose of all the equities of Visumit held, the original use of funds to reinvest to Visum shall be changed.

(6) Projected Potential Benefits

The total size of funds to be raised was equivalent to NT$3,461,947,000, of which NT$ 1,861,947,000 was expected to be invested in research and development of special generic drugs, and NT$ 1,600,000,000 was expected to be used for procurement of ingredients for the commercial launch products.


The Company expected to invest NT$ 1,861,947,000 in the research and development of special generic drugs, with the expected benefits arising mainly from

113

the revenues and profits generated after such drugs are successfully approved, phased to mass-production and launched on the market.

B. Procurement of Ingredients for Commercial Launch Products:

At that time when the Plan was changed, there were 4 self-owned products and 1 CMO product of the Company sold in the US market. Overall sales and scale of procurement of ingredients was estimated to grow greatly according to the then-current market share of the launched products, their growth potential and the sales forecast of products to be launched in the future. As such, the Company planned to spend NT$ 1,600,000,000 to support the requirement for procurement of ingredients for the commercial launch products.

(7) Implementation of the Plan


The Company had invested NT$ 652,769,000 as of 1st quarter of 2019 in research and development of special generic drugs under this Plan, representing an implementation ratio of 52.49%. However, the degree of difficulty of the projects under research and development will affect the development schedule, but the overall implementation of projects under research and development is in normal conditions.

B. Procurement of Ingredients for Commercial Launch Products:

The Plan of procurement of ingredients for commercial launch products became effective and was implemented in 2017, and the Company had spent NT$ 660,894,000 in the procurement of ingredients under this Plan as of 1st quarter of 2019, representing an implementation ratio of 41.31%. The overall implementation of procurement of ingredients is in normal conditions.

In summary, although the progress of the implementation of the Plan has been delayed, the reasons for delay shall be reasonable and it doesn’t cause any major abnormal effects. The fundraising by offering of Overseas Depositary Receipts was completed in the end of September, 2015, and as of 1st quarter of 2019, the Company has continued to invest in the research and development of special generic drugs and procurement of ingredients for commercial launch products. The remaining funds that have not been used are currently deposited in the foreign currency accounts of the Company.

114

Five. Operation Overview

I. Content of Business

(I) Scope of Business

1. Main Content of Business in Operation

The Company currently focuses on research and development, manufacturing and commercialization of special generic drugs with “high market niche” in the US market. As of the date of publication of this Annual Report, there are 20 ANDA submissions of the Company filed with the US FDA and accepted for review. 8 of them were approved and 2 of them were tentatively approved by the US FDA, and as of the date of publication of this Annual Report, the commercially launched products sold in the US market by the Company include 6 self-developed drugs, i.e. Guanfacine ER Tablet, Donepezil Hydrochloride ER Tablet, Nifedipine ER Tablet, Megestrol Acetate Suspension, Bupropion Hydrochloride ER tablet and Cyclobenzaprine HCL ER Capsule, 1 co-developped drug, i.e. Labetalol HCl Tablet, 1 externally acquired drug, i.e. Hydroquinone Cream, and 1 in-licensed drug, i.e. Cephalexin.

Dedication to special generic drugs in US market requires integrating of high-end research and development, patent analysis, advanced knowledge in pharmaceutical laws and regulations, market competition analysis and technology of high density. Therefore, price competition dynamics in the special generic drug market is far different from that in the traditional generic drug market. The special generic drug products that the Company focuses on can be divided into two main categories:

High Barrier generic drugs: For certain special generic drugs, there are usually limited competitors even after the expiration of the patents of the reference drugs due to their high technological threshold and high entry barriers.

Paragraph IV Generic Drugs: The Company is proficient at research and development of generic drugs of Paragraph IV, according to the categorization of US Abbreviated New Drug Application (ANDA), which is of the highest difficulties for subsmission. In order to provide the consumers with generic drugs of high quality with therapeutic effects identical to the reference drugs prior to the expiration of the patents of reference drugs, it is required to bypass the patent protection of the reference drugs or prove the patents of the reference drugs are invalid.

In addition, the Company is also engaged in various pharmaceutical areas through its subsidiaries. The major business activities are as follows:

The subsidiary, TWi Biotechnology, is positioned as a professional new drug development company with innovation, quality and efficiency as its core competitiveness. Succeeding the research and development achievement of innovative new drugs accumulated by the TWi Group, TWi Biotechnology is dedicated to the research and development of therapeutic drugs for treatment of diseases related to innate immune modulators or the mechanism of innate immune modulation. By integrating its experiences in research management of clinical trials, pre-clinical trials, animal pharmacology and toxicology, both domestic and international regulatory affairs, protection of patents and intellectual properties, and international licensing practices, as well as

115

abundant knowledge in specialty drugs in US market, TWi Biotechnology has established its competitive advantages in the research and development of innovative new drugs.

The establishment of TWi US has strengthened the sales competitiveness of the Company's products in the US market, enhanced the management of the US market, facilitated the business expansion in US market and improved communication efficiency. With the establishment of the self-sale platform, the granting of drug sales licenses for all the 50 states in the United States, and the granting of the drug approvals, the special generic drugs developed by the Company have launched successively in the US market.

Synpac-Kingdom Pharma specializes in the production of ophthalmic preparations. After becoming a subsidiary of the Company, Synpac-Kingdom Pharma is responsible for manufacturing the ophthalmic products of the Company to support the ANDA submissions and commercial production of ophthalmic products in the US market.

2. Business Composition

Unit: NT$1,000

Year Product

2016 2017 2018

Amount Composition Amount Compositio

n Amount Composition

Sales of Launched Drugs

USA 504,500 67.83% 649,193 80.49% 696,694 84.66%

Taiwan 15,775 2.12% 45,751 5.67% 13,764 1.67%

Sales of Drugs for Clinical Trials

USA - - 52,449 6.50% 25,837 3.14%

CMO Revenue

USA 208,322 28.01% 30,729 3.81% 19,362 2.35% Taiwan - - - - 66,937 8.14%

Technological Service Revenue

USA - - 116 0.02% - - Taiwan 671 0.09% 60 0.01% 37 0.00% Others 1,887 0.25% 580 0.07% - -

Licensing Revenue

USA 4,912 0.66% 27,434 3.40% 314 0.04% Others 7,711 1.04% 232 0.03% - -

Total 743,778 100.00% 806,544 100.00% 822,945 100.00%

Note 1: The information comes from consolidated financial statements of the Company.

Relevant explanation and analysis are as follows:

Sales Revenue of the Launched Generic Drugs: This revenue of the launched generic drugs comes from the sales of products owned or in-licensed by the Company in the US such as Guanfacine ER Tablet, Donepezil Hydrochloride ER Tablet, Nifedipine ER Tablet, Megestrol Acetate Suspension, Bupropion Hydrochloride ER tablet, Hydroquinone and Cephalexin, and in Taiwan such as the oral tablets and capsules for antihypertension, anti-depression and gastroesophageal reflux disease.

Sales of Drugs for Clinic Trials: This revenue mainly comes from the supply of the drug AC-203 to the strategic partner of the Company’s subsidiary (CCP) for the clinical trials of AC-203.

CMO Revenue: This revenue mainly comes from the contracted manufacturing revenue of the antiepileptic drug, Divalproex Sodium Extended Release Tablet, for Par

116

Pharmaceutical Inc. and contracted manufacturing revenue of dosmestic ophthalmic drugs by the subsidiary of the Company.

Technological Service Revenue: This revenue mainly comes from the contracted R&D services provided by the Company and its subsidiaries.

Licensing Revenue: This revenue mainly comes from out-licensing of the Company’s products and its subsidiary’s AC-203 to CCP.

117

3. The Company's Current Products (Services)

Products(Services) Description

Sales Revenue from Generic Drugs sold in US

Generic drugs mainly sold in the U.S. market and with indications including despressive disorder, attention deficit hyperactivity disorder, dementia caused by mild to moderate Alzheimer's disease, hypertension, angina pectoris, and anorexia/cachexia/ unexplained weight loss in AIDS patients.

Sales Revenue from Generic Drugs sold in domestic market

Generic drugs mainly sold in the domestic market and with indications including hypertension, despressive disorder and Gastroesophageal reflux disease.

Contracted R&D and manufacturing

Services provided to strategic partners to assist them in product development and manufacturing

4. New Products (Services) to Be Developed

There are about 15 to 20 projects of special generic drugs under research and development by the Company. The relevant explanations are as follows:

Products Description

Research and development of drugs of oral controlled release dosage forms

The development of sustained release dosage forms, improvement of manufacturing process, increase of drug stability, improvement of drug bioavailability, control of drug absorption rate and control of drug concentration in blood to reduce side effects.

Research and development of drugs of semi-solid dosage forms

The development of percutaneous absorption preparations, gel, ointment, patches, etc, which are used for local or systemic actions.

Ophthalmic drugs Indications related to eye diseases

In addition, the innovative new drug projects currently under the research and development by TWi Biotechnology, one of the Company's subsidiaries, are listed as follows:

Project Mechanism of Action Indications

AC-203 Assembly of the inflammasome inhibitor

Hereditary epidermolysis bullosa, bullous pemphigoid

AC-201CR Assembly of the inflammasome inhibitor

Hemophilia arthropathy, Gout, degenerative arthritis, type 2 diabetes

AC-701 Inflammatory cytokine modulator New drug

Immune skin diseases such as skin toxic reactions such as rash, which are caused by taking target treatment drugs

The current development progress of innovative new drugs of TWi Biotechnology are

listed as follows:

Product Main Indication Development Progress

AC-201CR Hemophilia arthropathy Granted with TFDA approval to implement

multi-site Phase II clinical trial

Degenerative osteoarthritis Under review by TFDA for new drug examination and registration

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Product Main Indication Development Progress

AC-203

Hereditary epidermolysis bullosa simplex

A multi-national pivotal trial conducted by CCP, the strategic partner, was approved by US FDA. During the trail period, due to change of trial execution and regulations, CCP decided to early terminate the pivotal clinical trial in order to unblind and analyze the clinical data. A subsequent clinical trial and development plan will be redesigned based on the unblinding result. The new trial will be conducted soon later.

Hereditary epidermolysis bullosa all subtypes

Granted with TFDA approval to implement multi-site explanatory Phase IIa clinical trial

Bullous pemphigoid Granted with TFDA approval to implement multi-site Phase II clinical trial

AC-701

Skin toxic reactions such as rash caused by taking target treatment drugs (EGFRI)

Optimization of the formulation was completed and a Phase IIa clinical trial was approved by the TFDA.

(II) Industry Overview

1. Special Generic Drugs

(1) Current status and development of the Industry

The biotechnology industry is composed of four sub-industries, i.e. the pharmaceutical industry, the medical device industry, the emerging biotechnology industry, and the biotechnical and medical service industry. The coverage is shown as in the Figure below. Pharmaceutical industry in Taiwan includes two major fields, i.e. Chinese herbal medicines and small molecule drugs. For the sector of small molecule drugs, it can be further divided into new drugs, generic drugs, active pharmaceutical ingredients and other western medicine preparations.

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Source of Information: Taiwan Industry Economics Services

According to research by IQVIA, the global pharmaceutical market will reach US$ 1.5 trillion by 2021, representing a 33% growth from that in 2016. Among them, the US will remain as the world's largest single pharmaceutical consumer market and the largest source of momentum for the growth of global pharmaceutical market, which is projected to be followed by Mainland China.

In addition, all governments around the world are actively promoting the replacement of brand drugs with low-cost and high-quality generic drugs, which is aimed to be a way to restore fiscal balance by controlling pharmaceutical expenditures. Due to the acceleration of the aging of the world's population and the economic downturn in Europe and the United States, all governments around the world are trying their best to cut medical costs by promoting the use of generic drugs to replace high-priced brand drugs, which leads to the steady and stable growth of the global market for generic drugs. The research institutes also estimated that the share of generic drugs in overall pharmaceutical market is expected to exceed 20% by 2020. In the United States, under the encouragement of the insurance system and national regulatory policies, the use rate of generic drugs has increased significantly; in Europe, due to pressures arising from rising drug prices, many governments have actively encouraged the use of generic drugs, and because of improved process by the EU competent authorities, the submission and review process for generic drugs is shortened; The Japanese government is vigorously promoting the objective of a 80% market share for the use of generic drugs by 2020, which causes major pharmaceutical companies including Teva and Actavis to enter into the Japanese generic drug market through the establishment of joint ventures or mergers and acquisitions with Japanese pharmaceutical companies. The importance of generic drug market all over the world is widely perceived.

Inconsistent to the industrial trend in global generic drug markets, due to the control

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of total drug price limit under the national health insurance system and the fierce price competition in the drug market, the pharmaceutical market in Taiwan is segmented and of low margins. If the generic drugs pharmaceutical companies in Taiwan only focus on Taiwan's market, they are likely to fall into the predicament of price competition. In order to seek high product margins, it is necessary for them to diversify into the oversea markets such as Europe, the United States and Japan.

For generic drugs pharmaceutical companies in Taiwan to export their products to the European and American countries, they are confronted with competition of generic drugs pharmaceutical companies in India, Europe and the United States, among which, the generic drugs pharmaceutical companies in India have the highest advantage in competing with low prices. Therefore, in order to develop the oversea markets, generic drugs pharmaceutical companies in Taiwan shall focus on the development of special generic drugs with high technology threshold and high entry barriers, and strive to pursue differentiation in product quality or production technology. In general, due to long-term loss of the health insurance systems in developed countries in the past, it is inevitable to seek the generic drugs with lower prices to lower the pharmaceutical purchasing costs, but for special generic drugs with high technology threshold and high entry barriers, due to less competition, they are more resistant to the price-cutting pressure so that it is possible to maintain their prices and margins closer to that of the reference drugs.

(2) Relevance among the industry chain

Source of Information: Prepared by the Company

(3) Development trends and competitiveness of products

A. Special generic drugs of oral controlled release dosage form

Special generic drugs development

platform

Mass production

In vivo test Regulatory review

Marketing

Market value assessment

Technology assessment

Patent analysis

Active pharmaceutical ingredients

Research and development

of preparations

Pharmaceutical excipients companies

Active ingredients

pharmaceutical companies

Cooperative development companies

Domestic distributor

International marketing

partner

Downstream distributor

medical hospital clinic

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The number of potential competitors of each of special generic drugs of the oral controlled release dosage form developed or to be developed by the Company is usually not more than five or six. Most of the generic drugs in the US market are easily to be substituted and most of the competitors are Indian generic drugs pharmaceutical companies. The general way of competition adopted by them is to cut prices to gain more market share, and for such generic drugs, lots of competitors (usually more than ten) will enterthe market after the patent protection of reference drugs expires. However, the special generic drugs of the Company focuses are those with high technology threshold and high entry barriers, which increases the difficulties for the generic drug pharmaceutical companies that compete with price-cutting strategy, especially the Indian competitors, to enter the markets. Therefore, for the special generic drugs with high technology threshold and high entry barriers, the competition is less intense.

B. Special generic drugs of semi-solid dosage form

In order to continuously expand the product portfolio, the semi-solid dosage form is also the development focus of the Company. At present, the special generic drugs of the topical/percutaneous absorption preparation are of the priority of development. The topical/percutaneous absorption preparation is to prepare the drug into an appropriate dosage form for the purpose of administrative treatment through the skin. After administration, the drug may exert medicinal effect on the local area of the human body or may enter the blood circulation after being absorbed by the capillary to produce a systemic effect. The topical/percutaneous absorption preparations include emulsions, lotions, solutions, suspensions, pastes, ointments, creams, films, gels, patches, and medicated patches. Usually topical/percutaneous absorption preparations have the following advantages: (a) they can exert maximum efficacy at the place of administration, and significantly reduce the exposure of other parts of the body to unnecessary drug doses and side effects; (b) they will not pass through the gastrointestinal tract, liver and other organs that causes decomposition or reduced pharmaceutical effect; (c) they will not cause the feeling of pain like injections; (d) they are suitable for the patients who suffer from special diseases but are not suitable for oral administration.

C. Special generic drugs of ophthalmic dosage form

The Company is based on its sustained release control platform as the niche, and has expanded the product portfolio to special generic drugs of ophthalmic drugs/emulsions. Compared with general eye drops preparation, the ophthalmic emulsions use an oil-in-water drug delivery system to enhance drug absorption, along with slow release features to achieve pharmaceutical effect and prolonged action time. This allows patients to maintain, and even improve the drug use efficacy while reduce the frequency of drug use, thereby reducing the side effects that may be derived. And with the application of electronic and information technology products extended to everyday life, excessive use or excessive stimulation causes the increased occurrence of

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ophthalmic diseases. Ophthalmic drugs are one kind of special medicine, and compared with other special medicine, market competition is relatively low since the pharmaceutical companies that manufacture ophthalmic drugs must develop manufacturing competence of strict standard.

2. New Drugs

(1) Current status and development of the industry

With the continuous increasing of the elderly population around the word and the improvement of life quality, the demand for health care is also increased, driving the development of the global medical and pharmaceutical related industries. In addition to the global trend of aging of population, the Ministry of Health and Welfare of Taiwan has released the statistics on cause of death of our countrymen in 2016, which shows nine of the top ten causes of death among our countrymen are chronic diseases with increasing share among all causes of death. Therefore, subject to the relatively stable market supply and increasing market demand, the market size of the pharmaceutical industry is expected to expand gradually.

According to statistics of piblished by TrendForce, a global market research firm, the global pharmaceutical market scale is about US$ 1.2 trillion in 2018, representing a annual growth rate of 3.8% compared to that of 2017, due to the launch of new drugs and continued increase of usage, and is expected to reach about US$ 1.55 trillion in 2023, representing a compound annual growth rate (CAGR) of 5.1% from 2018 to 2023. And, according to the 2018 Global Forward-looking Report released by EvaluatePharma, the sales of global prescription drug market is predicted to grow from US$ 830 billion in 2018 to US$1,204 billion in 2024, representing a compound annual growth rate of 6.4% from 2018 to 2024. The global sales of prescription drugs account for about 70% of sales of the global pharmaceutical market, indicating that the sales in the prescription drug market still dominates the scale of global pharmaceutical market. Although the US FDA takes strict management on review of new drug submissions, the demand for pharmaceutical products in emerging markets is growing rapidly and the demand for medical quality is gradually increasing. Therefore, the growth of the overall prescription drug market is still promising. Currently, the major multinational pharmaceutical companies are competing to invest huge resources in developing new drugs or in merger and acquisition of biotech companies to strengthen their portfolio.

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The United States is largest pharmaceutical market and of the first priority for most

of launches of new drugs in the world at present. It has the most vigorous activities in new drugs and the strict management of review process for submissions of new drugs. Once the drug is approved by the US FDA, it also helps to accelerate the review time of that drug in other countries. In addition, with the fast review mechanisms promoted in recent years by US FDA, the review time in US is also shortened. Therefore, for most international pharmaceutical companies, the United States is considered as the priority target market for launches of their new drugs. In order to speed up the launches of new drugs to meet the health needs of patients, for candidate drugs with obvious potential for improving the medical effect, preliminary clinical evidence of significantly improving the medical effect, or healing effect for treatment of serious or life-threatening diseases superior to that of the existing drugs, singular or combined use of Priority Review, Fast Track, Accelerated Approval and Breakthrough Therapy is applicable to shorten the development and review process. Priority Review is applicable to review of rare disease drugs (orphan drugs) and the average review time for rare disease drugs is only about 10 months, compared with about 13 months for review of the general drugs. In addition, rare disease drugs are granted with an exclusivity period of 7 years for sales since their launches. According to the statistics published by US FDA, there are 59 submissions of new drugs approved in 2018, which is the highest record in the history and nearly twice of the average number of approvals for the past 10 years. Among the 59 approvals in 2018, there are 24 qualified for Fast Track, 24 for Priority Review, 4 for Accelerated Approval and 34 are granted with rare disease drugs (orphan drugs) certification, accounting for 87% of the total new drug approvals in 2018.

In terms of market opportunities, 43% of the approved orphan drugs in 2014 came from major international pharmaceutical companies, while 38% were developed by small and medium-sized biotechnology companies, which means that small pharmaceutical companies are able to “fight the giants” in the field of development of orphan drugs. Furthermore, orphan drugs have advantages in price setting. Statistics published by EvaluatePharma shows that in 2017, the average medical expenditure per year for each patient using orphan drugs is US$147,308, which is about five times the average expenditure per year for each patient using non-orphan drugs, which is US$30,708. EvaluatePharma also estimated that the global orphan drug market will grow from

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US$138 billion in 2018 to US$262 billion in 2024, representing a compound annual growth rate of 11.3%, and share percentage of sales of orphan drugs around the world relative to that of whole prescription drugs (excluding generic drugs) will reach 21.7% in 2024.

(2) Relevance of industry chain

New drug industry in Taiwan is small, and the scale of domestic market is too small to support the sustainable development of the industry. Globalization is bound to be the solution for the development of new drug industry in Taiwan. The development strategy of biotechnology and pharmaceutical industry in Taiwan is, through utilization of high-quality clinical trial structure, local medical laws and regulations which are connected internationally and preferential treatment of local policies provided by the government, to carefully select the leading drug molecules with potentials discovered by the research and academic institutions and employs the teams with rich experiences in developing new drugs to actively conduct clinical trials. With the implementation of the development strategy, it is expected there shall be more and more out-licensing deals to international large pharmaceutical companies or biotechnology companies in future.

The team of TWi Biotechnology mainly focuses on the screening of drugs to be developed, drawing up of development strategies, project management, evaluation of regulatory patents/establishment of patent protection, and design and conduction of clinical trials. With the progress of development of drugs, the proportion of works required to be contracted out has also gradually increased, such as contracted manufacturing, toxicological testing, animal testing, research of drug mechanism and clinical trials, etc. For the clinical trials conducted by TWi Biotechnology in Taiwan, in addition to entrusting CROs to conduct data analysis, TWi Biotechnology also directly entrust national medical centers and some regional hospitals to conduct clinical trials.

The development of new drugs is a lengthy and risky process, which requires huge investment expenditures and high-end technology for research and development. Therefore, in order to speed up launch schedule, lower investment expenditures and risks, and enhance the global development and market potentials, after the drug is developed to certain stage, TWi Biotechnology will actively seek international pharmaceutical companies, through co-development or out-licensing, to take the responsibility for conducting international clinical trials NDA submissions and product launches. The new drug development industry chain in which TWi Biotechnology is engaged is explained in the Figure below:

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(3) Development trends and competitiveness of products

In order to survive in nature, animals have evolved their innate and adaptive immune systems in order to defend against the invasion of foreign pathogens. When mammals are attacked by foreign pathogens, the innate immune system is activated firstly. The main immune cells involved are macrophage and dendritic cells, which have Patent Recognition Receptors (PRRs) to detect pathogens or cells composition that are destroyed by the invasion of pathogens. The former is called Pathogen-associated Molecular Patterns (PAMPS), such as microbial nucleic acid composition, toxic protein or cell wall components, and the latter is called Damage-Associated Molecular Patterns (DAMPs), including uric acid crystals, cholesterol crystals, ATP, and saturated fatty acids. When innate immune cells find pathogenic or Damage-associated Molecules, a series of reactions inside the cells will be activated to induce more immune cells to gather, and inform and activate the adaptive immune system to destroy or control the pathogens, which is defined as the inflammatory reaction in physiology. There are several Pattern Recognition Receptors (PRRs) in the cytoplasm of innate immune cells, of which NLRP3 is know to be able to recognize the most kinds of Damage-associated Molecular Patterns (DAMPs) and is also the target being mostly studied. At present, it is known that the DAMPs which can be recognized by NLRP3include uric acid, cholesterol crystals, β-amyloid, Amylin, and ATP saturated fatty acids. When NLRP3 is activated, it will combine with other proteins in the cytoplasm to form a large structure called inflammasome, and the combined inflammasome will cause Caspase-1, a special proteinase, to be self-activated firstly. This activated Caspase-1 can hydrolyze IL-1β and IL-18, the cell enzymes which will promote inflammation in the cells, from the biologically inactive proteins to active cytokines and release them extracellularly. In human bodies, tissue cells in many organs have IL-1β or IL-18 receptors, and after binding to IL-1β or IL-18, the cells may apoptosis or release more cellular components to cause subsequent inflammatory reactions. Balanced and effective control of cell death and

Target Lead Preclinical Phase I, Phase II, Phase III, Approval Market

Drug discovery research Drug development and clinical trial Sales on the Market

TWi Biotechnology

Out-License Partners

CMO Partners CRO Partners

In-License Partners

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transient inflammatory response help the body to eliminate the source of infection and repair tissues, while unbalanced cell death and long-term inflammation may cause damage or abnormalities in organ tissues and enlarge or aggravate organ damages, both of which may be the cause of the diseases and the source of the symptoms. It is proved in in–vitro, animal and human clinical studies that the combinations of inflammasome, activation, and organs affected by the inflammatory cytokines IL-1β and IL-18 exist throughout the skin, articular cartilage, pancreas, kidney, digestive tract, liver, heart, blood vessels, eyes, brain and nervous system, and such existence plays an important role in immune-related skin diseases such asHereditary Epidermolysis Bullosa, Psoriasis, Atopic Dermatitis, Bullous Pemphigoid, metabolic diseases such as Type 2 Diabetes, Non-alcoholic Hepatitis, Gout/Hyperuricemia, Chronic Nephritis, Degenerative / Rheumatoid Osteoarthritis, Lupus Erythematosus, Ocular Uveitis and Alzheimer's Dementia.If we are able to prevent the inflammasome from being activated or the inflammatory cytokines IL-1β, IL-18 from being produced and released,it may be possible to cure or alleviate the above-mentioned diseases. That is to say that the inflammasome caspase-1, IL-1β/IL-18 system can be aimed as the target for drugs administered to effect on to cure the aforementioned diseases later.

Cellular signaling networks associated with inflammasome, inflammatory

substances and possible diseases

Source of Information: Wikipedia

The main therapeutic ingredient of the new drugs candidates AC-203 and AC-201CR developed by TWi Biotechnology is an oral small molecule compound that has been approved in nearly 30 countries in Europe and Central and South America for the treatment of Degenerative Osteoarthritis (OA). The research from the 1980s to the 1990s

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showed that this compound can inhibit the concentration of IL-1β in the joint, reduce the vitality of IL-1β receptor in the meropodium chondrocytes, and protect the bone and joint from the destruction of IL-1β inflammatory cytokines and reduce joint inflammation and its symptoms. The Company (TWi Biotechnology was spun off from the Company's new drug development department) and TWi Biotechnology have conducted several in vitro animal and clinical studies on this compound since 2009, discovered its mechanism of the molecular and cellular layers, and identified the reason that why this active compound and its main active metabolite can inhibit IL-1β production is because its main active metabolite (AC-201AM) can enter the cytoplasm to prevent the combination and activation of the inflammasome. In addition, TWi Biotechnology also discovered that AC-201AM can inhibit the transporter URAT-1 which re-absorbs uric acid in the kidney to help the elimination of uric acid in the body. At present, TWi Biotechnology has applied for global patent protection for the new Mechanism and possible applications discovered.

The current main new drug development projects of TWi Biotechnology are: AC-203, with the indications of Hereditary Epidermolysis Bullosa (including Epidermolysis Bullosa all subtypes, such as Epidermolysis Bullosa Simplex (EBS), Junctional Epidermolysis Bullosa (JEB) and Dystrophic Epidermolysis Bullosa (DEB)) and Bullous Pemphigoid; AC-201CR, with the indications of Hemophilia Arthropathy; and AC-701, with the indications of immune skin diseases, such as skin toxic reactions such as rash due to taking target treatment drugs . The development trends and market conditions of each product/indication are as follows:

A. AC-203

(a) Hereditary Epidermolysis Bullosa (EB)

Hereditary Epidermolysis Bullosa (EB), known domestically as “Bubble Dragon” and internationally as “Butterfly Children” is an extremely serious and rare disease caused by genetic mutation heredity. The gene mutation arises in the keratin KRT-5 and KRT-14 located in the epidermal basement of the skin, causing abnormal epidermal fragility. As long as the skin is slightly rubbed or stimulated, the blisters will develop and may further expand the rupture to form a wound, which causes a severe feeling of pains and itching. These symptoms occur since birth or infancy, and the patients suffer repeadly. Due to the impaired integrity of the skin, the patients are highly susceptible to infection, which induces sepsis that resulted in life in danger. Even the patients with mild symptoms may be hindered in life, schooling, and employment because the symptoms arise on the skin. The patients surviving the disease and growing up may also face the risk of skin cancer.

According to histopathology and examination of blister rupture position by electron microscopy, EB can be roughly divided into three categories: Epidermolysis Bullosa Simplex (EBS), Junctional Epidermolysis Bullosa (JEB) and Dystrophic Epidermolysis Bullosa (DEB). Hereditary Epidermolysis Bullosa is caused mainly by the genetic mutation heredity in the genes which are responsible for connection of substance attached in epidermis and dermis.

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Epidermolysis Bullosa Simplex (EBS) is the most popular of all EB types, and according to investigation and research in US, it accounts for more than 90% of the total. Although the symptoms of EBS are milder, generalized EBS patients may suffer from blisters and wounds around the whole body. Even for localized EBS patients, 10% to 30% of the body area is often affected by blisters and wounds.

Because of limited resources, TWi Biotechnology began to seek appropriate partners when entering the clinical trial phase. After evaluating several potential partners, TWi Biotechnology decided to partner with Castle Creek Pharmaceuticals (CCP) in the United States to license out the exclusive rights of product and market development of AC-203 outside Asia. TWI Biotechnology will continue to cooperate with CCP to advance the process of AC-203, and because TWi Biotechnology still keeps all the rights of AC-203 in Asia, therefore, it will also target developed countries in Asia such as Japan, Taiwan and South Korea to seek partners for product development and sales.

(b) Bullous Pemphigoid (BP)

The Bullous Pemphigoid (BP) is a rare disease, the Bullosa Skin Lesions associated with autoimmune system. It mainly occurs in the elder between 70 and 80 years old, and for the elder older than 80 years old, the occurrence is significantly higher. According to the literature reports, there are about 7 to 14 occurrences per million people per year, and there are about 30,000 patients in the United States. It is estimated that there are several hundred occurrences in Taiwan every year. As the population ages, the number of BP patients increases every year.

AC-203 is a small molecule that regulates the inflammatory response and has the potential to treat BP. AC-203 and its active metabolites have been proved in many in vivo and in vitro experiments to have considerable functions including inhibition of IL-1 production and reduction of activities of IL-1 receptor, by inhibiting the message path of mitogen-activated protein kinase (MAPK) to increase the activities of IL-1 receptor antagonist (IL1-Ra), which causes to inhibit NFκB (nuclear factor-kappaB) and AP-1 (activator protein-1) transcription factors. In addition, there are studies using the HaCaT keratinocyte strain to test the inhibitory effect of AC-203 on the activities of IL-6 and IL-8 induced by BP180 antibody. The results of the studies show that the Clobetasol Propionate treatment will reduce the production of IL-6 and IL-8, and its effect is positively correlated with dosage, that confirms the principle of the current treatment strategy to externally administer Clobetasol Propionate on the localized or widespread BP patients who are inable to take oral steroids or immunosuppressive agents. Similar phenomena can also be observed on HaCaT cells treated with AC-203. AC-203 can inhibit the activities of IL-6 and IL-8 induced by BP-180 antibody, and has a significant anti-inflammatory effect by inhibiting the transmission of signals such as MAPK and NFκB, which makes AC-203 a potential candidate for slowing down the inflammatory responses caused by cytokines in BP patients.

B. AC-201CR

(a) Hemophilia Arthropathy

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Hemophilia is a rare hemorrhagic disease in which the X chromosome is congenitally deficient in coagulation factors, and is further classified into hemophilia A (deficient in coagulation factor VIII) and hemophilia B (deficient in coagulation factor IX). Traditionally, hemophilia is classified as mild, moderate, and severe according to the the degree of deficiency of coagulation factors, and easy hemorrhage is the main clinical manifestation of hemophilia. The severity of hemorrhage in hemophilia patients is usually associated with the concentration of coagulation factors in the body. Most hemorrhage incidents are internal hemorrhage of joints or muscles, while joint disease of hemophilia is a common complication of severe hemophilia. The repeated hemorrhage of joints causes chronic arthropathy, which often makes the mobility of patient's limbs difficult. Hemorrhage usually occurs in joints of knees, ankles and elbows. The incidence of hemophilia joint disease is extremely high in the hemophilia group, and the progression of this lesion is mainly affected by the frequrncy of joint hematoma occurrences.

The IR dosage form of AC-201 has been approved in many countries for the treatment of osteoarthritis. It has been proved to have the characteristics of affecting both chondrocyte synthesis and decomposition in vitro experiments, and of protecting cartilages in animal studies.

The rare hereditary hemophilia has caused significant economic burdens on medical expenditures, patients, caregivers and societies around the world, not only due to the direct expenditures required for hospital treatment, hospital discharge care and medication treatment,but also other possible costs stemming from reduced work capacity, the loss caused by absence, poor quality of life, sufferings andboth the physical and psychological adverse effects of the patients and their families, which are caused by the poor management of the rare hereditary hemophilia. Hemophilia Arthropathy is the main problem affecting patient activity and has not been well controlled. Therefore, it is of urgent medical needs to research and develop therapeutic drugs that can treat Hemophilia Arthropathy or delayits occurrence, and AC-201CR is a potential therapeutic candidate drug for treatment of Hemophilia Arthropathy.

C. AC-701

(a) Immune skin disease such as the skin toxic reaction caused by taking target treatment drugs (Epidermal Growth Factor Receptor (EGFR) inhibitor)

Although EGFR inhibitors developed in recent years, including Erlotinib (Tarceva®), Afatinib (Gilotrif®), Cetuximab (Erbutix®) and Panitumumab (Vectibx®), provide good treatment for cancer patients, the effective treatment of the dermal toxicity caused by this type of drugs has been in lack and there is still no formally approved drug. The cause of dermal toxicity is unclear, but it is generally believed that it is because the signaling pathway of epidermal growth factors is blocked by target drugs, leading to differentiation, metabolic abnormalities and even apoptosis of keratinocytes and the release of pro-inflammatory factors to trigger inflammatory

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responses. Acne-prone drug rash is most common among this type of skin toxicity, with the proportion of 80% or more. The patients will grow acen-looking, painful and itchy skin rash on the face, scalp, chest and back. In addition to acne-prone skin changes, paronychia is also common, and for certail target drugs, the rate of occurrence is as high as 40% to 50%. In addition to seriously affecting the quality of life of patients, these skin side effects can cause reduced usage or even termination of taking of the drugs, which may adversely affect cancer treatment. According to IQVIA statistics, there are 30,000 to 40,000 people taking EGFRI in the United States in 2015 and 20,000 to 30,000 in Europe. The patient number of those two area accounts for more than 70% of the total number of patients in the world.

AC-701 is a small molecule drug stemming from Chinese herbal medicines. It can achieve the prevention and treatment effects by inhibiting the production of proinflammatory cytokines and reducing the apoptosis of keratinocyte. After AC-701 was licensed in, TWi Biotechnology initiated the formulation development and completed a pilot Phase II clinical trial in Taiwan for treatment of pityriasis rosea and rash, which has initially validated the efficacy of AC-701.

(III) Technology and Research and Development Overview

1. The technical level and research and development of the business The Company focuses on the development of special generic drugs and new drugs with

international competitiveness. The focus of research and development is on the development of following products:

(1) Special Generic Drugs

The Company currently has developed the technology platform for a variety of oral controlled release dosage forms, and in addition to the internal resources, in order to expand the dosage forms of its special generic drugs in the US market, the Company has selected other domestic manufacturers qualified for Good Manufacturing Practice (GMP) standards to jointly develop the dosage forms the Company were less engaged in. After the target products under cooperation are developed, the Company will file the ANDA submissions in the United States. The target dosage forms of special generic drugs of the Company are described as follows:

A. Oral controlled release dosage forms

With the accumulated competency in the past and the experiences of challenging products with high-tech thresholds, the Company has filed a number of ANDA submissions of oral long-acting sustained-release/immediate-release dosage forms and successfully launched several self-developed special generic drugs in US. In the future, by utilizing its professional kniwledges in management of bioequivalence trials, the Company will continue to develop special generic drugs of oral solid dosage forms with high technology thresholds and build up its portfolio composed of products with high market niche and market potential to compete with the world-class special generic drug companies.

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B. Semi-solid dosage form preparation

The Company has formed alliance with the domestic manufacturers specializing in manufacturing of patches to jointly develop special generic drugs of local/percutaneous absorption preparation with high technology threshold. Combining the Company's accumulated experiences and professional technological knowledge in prescription development, regulatory affairs with US FDA, plant inspection and implementation of bioequivalence trials with the expertise of strategic partners in the manufacture of patches, the Company has filed several ANDA submissions of semi-solid dosage form preparations with the US FDA, including patches, gels, ointments and solutions. The abundance of the product portofolio is continuously accumulated.

C. Special generic drugs of ophthalmic dosage forms

The Company is dedicated to expanding to the applications of different dosage forms. The Company has successfully filedits first ANDA submission of special generic drugs of ophthalmic dosage forms with US FDA in 2016, which is an ophthalmic emulsion drug for the treatment of dry eye. In addition, there are a number of active R&D projects of ophthalmic drugs/emulsions in the Company, showing the efforts the Company has mdae to continue to expand its product portfolio of ophthalmic drugs.

(2) New drugs

For the new drug candidates currently developed by TWi Biotechnology, although the therapeutic indications are different, they all belong to innate immune modulators or are related tothe mechanism of innate immune modulation, and in their respective target therapeutic indications to be cured, they are all classified as drug candidates with new mechanisms or indications. One of the important criteria for international pharmaceutical companies or biotechnology companies to seek co-development or licensing targets is that the co-development or licensing targets are with new mechanisms. For AC-203, in addition to the licensing and cooperation with CCP outside the Asian region, there are several international companies inquiring the progress of the clinical development of the new drug candidate. The new drug projects in development by TWi Biotechnology are summarized as in the following table:

Item AC-203 AC-201CR AC-701 Mechanism of

action Assembly of the inflammasome inhibitor

Assembly of the inflammasome inhibitor

Inflammatory cytokine modulator new drug

Main Indications

Hereditary epidermolysis bullosa, bullous pemphigoid

Hemophilia arthropathy, etc.

Immune skin diseases (such as: skin toxic reactions such as rash, caused by taking cancer target treatment)

Design of functions

Topical sterile special preparation

Improve the bioavailability of drugs and develop long-acting release dosage forms to achieve the goal of treating new indications

Topical special dosage form to achieve the objective of long-term sustained release

Advantages Reduce or prevent skin blisters in patients Change the disease

Oral assembly of inflammasome inhibitor Delay the progress of

New mechanism of action Excellent safety and

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Item AC-203 AC-201CR AC-701 process Reduce the risk of complications Improve the quality of life of patients Excellent safety and clinical efficacy New mechanism of action

arthropathy Excellent safety and clinical efficacy

clinical efficacy Few alternatives of clinical medication

Market demand

Hereditary epidermolysis bullosa is a kind of rare diseases, and there is no approved drug for treatment of it. Except for the steroids of high concentration and antibiotics that cannot be used for long term, there is no approved drug for treatment of bullous pemphigoid.

Hemophilia arthropathy is a kind of rare diseases and there is no approved drug for treatment of this indication.

Except for the steroids of high concentration and antibiotics that cannot be used for long term, there is no approved drug at present.

2. Research and development personnel and their education and experiences Unit: Person

Year Personnel 2017 2018 Current year as of

February 28, 2019 With master’s degree (including) or higher

52 67 67

With bachelor’s degree 20 18 16

Gratuated from senior high school (including) or lower

0 0 0

Total 72 85 83 Note: This Table includes the information of subsidiaries.

3. Invested research and development expenses for the most recent five years Unit: NT$1,000

Item 2014 2015 2016 2017 2018 Research and development

expenses 632,580 794,739 720,568 579,963

540,546

Net revenue 356,687 437,368 743,778 806,544 822,945 Percentage of R&D

expense to net revenue

177.35% 181.71% 96.88% 71.91% 65.68%

Note: Information of the consolidated financial statements.

4. The technologies or products that have been successfully developed

Product Indication Bupropion HCl ER Tablet (Note 1) Depressive Disorder Cyclobenzaprine ER Capsules (Note 2) Muscle Relaxant

Cyclosporine Ophthalmic Emulsion Chronic Dry Eye

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Product Indication Dexlansoprazole DR Capsule GERD Diltiazem ER Capsule (Note 3) Vasospatic Agina, Hypertension Dimethyl Fumarate DR Capsule (Note 4) Multiple Sclerosis Donepezil 23mg Tablet (Note 5) Alzheimer‘s Disease Guanfacine ER Tablet (Note 6) ADHD Lidocaine Patch 5% Post-herpetic Neuralgia Megestrol Acetate 125mg/ml Oral Suspension (Note 7)

Anorexia, Cachexia, or significant unexplained weight loss for AIDS patients

Metoprolol Succinate ER Tablet (Note 8) Hypertension Nifedipine Extended-Release Tablet (Note 9) Vasospatic Angina, Hypertension

Oxcarbazepine ER Tablets (Note 10) Epilepsy Testosterone Gel, 1.62% Hypogonadism Testosterone Transdermal Solution, 30 mg/1.5 mL Hypogonadism

TWi-017 Reduce Triacylglycerol

TWi-018 Genital herpes and mucocutaneous herpes simplex virus infections

TWi-019 Bronchospasm for >12-year-old TWi-020 Ventricular tachycardia Technology platforms for various oral controlled-release dosage forms Used for development of drugs

Note 1: The Company obtained the drug license in November 2017 for such product and the product was launched.

Note 2: The Company obtained the drug license in February 2013 and the producted was launched.

Note 3: The Company obtained the drug license in September 2018. Note 4: The Company obtained the tentative approval in January 2019. Note 5: The Company obtained the drug license in October 2014 and the product was launched. Note 6: The Company obtained the drug license in June 2015 and the product was launched. Note 7: The Company has obtained the drug license in August 2014 and the product was

launched. Note 8: The Company, in cooperation with Visum, filed the special generic drug application

with the US FDA and obtained the drug license in December 2018. Note 9: The Company obtained the drug license in April 2014 and the product was launched. Noted 10: The Company obtained the tentative approval in November 2018. .

(IV) Long and short term business development plans

1. Short term business development plans

(1) Continue to focus on special generic drugs with innovative prescriptions, and maintain the momentum of filing 3 to 5 ANDA submissions per year.

(2) Expand the technology platform to special generic drug products of

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topical/percutaneous absorption preparations, and ophthalmic drug products to further expand the niche market.

(3) Enter the international market outside the United States and Greater China region to become one of the global integrated pharmaceutical companies through international mergers and acquisitions with Taiwan as the operational headquarter.

(4) Form strategical alliance with pharmaceutical companies in Taiwan to take them to enter the U.S. market.

2. Long term business development plans

(1) Continue to license in or develop new products to expand the research and development pipeline.

(2) Deeply cultivate the biotechnology industry in Taiwan to become the world-class professional development Company for the special and rare diseases.

II. Market and production and marketing overview

(I) Market analysis

1. Areas of sales of main products (services) Unit: NT$1,000; %

Area 2016 2017 2018

Amount Percentage Amount Percentage Amount Percentage

Taiwan 16,446 2.21% 45,811 5.68% 80,738 9.81%

USA 717,734 96.50% 759,921 94.22% 742,207 90.19%

Others 9,598 1.29% 812 0.10% - -

Total 743,778 100.00% 806,544 100.00% 822,945 100.00% Note: Information of this Table is that of consolidated financial statements.

2. Market supply and demand and growth in the future

According to statistics of the global market research firm TrendForce, the global pharmaceutical market scale is estimated to be about US$ 1.2 trillion in 2018, due to new drug launches and continued increase of drug usage, representing a growth rate of 3.8% compared to that of 2017 and is expected to reach about US$ 1.55 trillion by 2023. The projected compound annual growth rate (CAGR) is 5.1% from 2018 to 2023. And, the 2018 Global Forward-looking Report released by EvaluatePharma predicts that the sales of global prescription drug market will grow from US$ 830 billion in 2018 to US$1,204 billion by 2024, representing a projected compound growth rate of 6.4% from 2018 to 2024. Sales of global prescription drugs account for about 70% of that of the total global pharmaceutical drugs, indicating that the sales of global prescription drugs still dominates the scale of global pharmaceutical market.

In addition, all governments are actively promoting the replacement of brand drugs

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with low-cost and high-quality generic drugs in order to restore fiscal balance by controlling the pharmaceutical expenditures. With the aging of the world's population, coupled with the economic downturn in Europe and the United States, all governments are trying their best to cut medical costs and striving to promote the use of generic drugs to replace high-priced brand drugs, which lesds to steady growth of the globalgeneric drug market. The research institutes also estimated that the share of generic drugs in overall pharmaceutical market will exceed 20% by 2020. In the United States, under the encouragement of the health insurance system and national regulatory policies, the rate of use of generic drugs has increased significantly. In Europe, due to drug price pressures, many governments have actively encouraged the use of generic drugs, and because of improved process by the EU competent authorities, the review process of generic drugs is shortened. The Japanese government vigorously promotes the objective of 80% market share for the use of generic drugs by 2020, making the Japanese generic drug market a must for all major pharmaceutical companies to compete for. Major pharmaceutical companies such as Teva and Actavis have, through joint venture alliances with or merger and acquisition of Japanese pharmaceutical companies, entered the Japanese generic drug market. It is obvious that generic drug markets around the world are of growing importance.

The research and development focus of TWi Biotechnology is based on the medical needs of patients, which is targeted at serious rare diseases of emerging and unmet medical needs. Among them, the AC-203, with the target indication of Hereditary Epidermolysis Bullosa, has been successfully licensed to CCP. The new drug candidate has been granted with Orphan Drug Designation in the United States, Taiwan and the European Union and with Rare Pediatric Disease Designation and Fast Track Designation for pediatric medication by the US FDA. There has not been any approved drugs for treatment of such indication.

Orphan drugs are for treatment of rare diseases. Definition of rare diseases is different in different countries. It is defined as diseases with patient number less than 200,000 in the United States, less than 0.05% of total population in Europe, less than 0.01% of total population in Taiwan, and less than 50,000 in Japan. EvaluatePharma statistics shows that in 2017, the global sales of orphan drugs amounts to approximately US$125 billion, a 11.3% growth from 2016, while that of non-orphan drugs is only 1.1% in the same period. Sales of orphan drugs accounts for 15.9% of that of total global prescription drugs (excluding generic drugs), and the share percentage is estimated to increase year by year. The compound annual growth rate (CAGR) of orphan drug sales is estimated to be 11.3% from 2018 to 2024, and the sales of orphan drugs is estimated to reach US$262 billion by 2024. The annual average medical cost per patient for orphan drugs is about US$147,308 in 2017, while the average annual cost per patient for non-orphan drugs is US$30,708 for the same period. Therefore, although the number of patients taking orphan drugs is smaller, it is possible for a single orphan drug in US to have sales more than US$1 billion (The maximum single orphan drug sales in the United States in 2017 is US$5.4 billion).

In order to encourage the research and development of orphan drugs, the US FDA

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established the Orphan Drug Act in 1983, and added in an accelerated review process in 1992, as well as providing tax incentives for research and development, fees exemptions for drug registration, and market exclusivity. EU also grants a 10-year market exclusivity to drugs for treatment of rare diseases. Therefore, from the growing share global sales of orphan drugs and the privileges and favors granted by the regulatory agencies around the world, it is clear that the research and development of orphan drugs is gradually gaining more and more attention and the growth of demand and market of of orphan drugs is expected.

3. Competitive niche There are a relatively limited number of pharmaceutical companies around the world

that specialize in the research and development of special generic drugs. Therefore the pricing and the competition status of this market is far different from that of the traditional generic drug market. The following capabilities are required to enter the market, which are also the competitive advantages developed by the Company:

(1) Innovative design and research and development of prescriptions: Different from traditional generic drug pharmaceutical companies, the special generic drug pharmaceutical companies which target to challenge the patent protection of reference drugs must have capabilities in design and research and development of innovative prescriptions, coupled with the comprehensive technologies of analysis, development, validation and chemical examination.

(2) Patent analysis and litigation strategy planning: In order to by-pass the patent protection or claim the patents are invalid, comprehensive capacities in patent analysis and litigation strategy planning are important to facilitate the quick entry of the market by generic drug pharmaceutical companies.

(3) Clinical design of bioequivalence studies and pharmacokinetics: Although the large-scale three-phase clinical trials are not required for the development of the generic drugs, bioequivalence studies, which may cost hundreds of thousands to millions of US dollars, in accordance with the bioequivalence regulations of generic drugs of the US FDA are required. The capacity to design a bioequivalence study with precise cost control that complies with the US FDA regulations and demonstrates the bioequivalence of the special generic drug identical to that of its reference drug will materially affect the operational proformance of the special generic drug pharmaceutical companies.

(4) Qualified manufacturing sites: For the drugs sold on the US market, the whole manufacturing process have to meet the US cGMP qualifications and the manufacturing sites have to pass the US FDA inspection. The relevant regulations are complicated and the costs of execution and maintenance are high, which set strict challenges for generic drug pharmaceutical companies. In addition, in accordance with the Generic Drug User Fee Act (GDUFA) published in October 2012, the US FDA began to charge the generic drug pharmaceutical companies which file ANDA submissions with application fees and maintenance fees for inspection of the manufacturing sites to accelerate the process for product review and the

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manufacturing site inspection. Although such measures raise the cost of the development of generic drugs, it also enhances the efficiency of review process and shortens the schedule of issuance of the drug license, which shall be beneficial to the future development of the overall industry.

(5) Regulatory affairs regarding ANDA submission and registration: The Company has filed several ANDA submissions in the United States and accumulated rich experiences in document writing and preparing required for ANDA submissions, which enables the Company to file the ANDA submissions with the highest degree of completion in the shortest time after the completion of the bioequivalence studies so as to ensure that the US FDA can accept the Company's ANDA submissions in the shortest possible time.

(6) Speed of drug development: One of the intentions of the US Hatch-Waxman Act is to shorten the time-to-market for generic drugs, to promote drug price competition, and to activate the pharmaceutical market and alleviate the market monopoly dueto single supply of the brand pharmaceutical company. Therefore, it’s a main operating focus for special generic drug pharmaceutical companies to speed up the development of generic drugs, enter market early and share the market with the brand pharmaceutical companies by utilizing the favorable measures provided by the Hatch-Waxman Act.

(7) Familiarity with the US pharmaceutical market: Experienced familiarity with the market needs is required to identify the appropriate targets for development, and after the developed drugs are approved, a comprehensive cooperative sales model is required to actually gain the profits. Therefore, possession of relevant market experiences is one of the required keys for the success of the special generic drug pharmaceutical companies.

In addition to specializing in the research and development of special generic drugs, the Company also actively invests in research and development of new drugs through TWi Biotechnology. With the Company's rich experiences in development of prescriptions and dosage forms combined with the expertise of TWi Biotechnology in clinical trials and clinical development of new drugs, development targets with market potential are identified. Through the development of new indications, innovative prescriptions and innovative drug delivery methods, TWi Biotechnology devotes to high-efficiency innovative research and development and applies for patent protection to further enhances the market value of drug candidates and develop synergies by leveraging the development experiences of both new drugs and generic drugs. More information can be found in the section of Relevant Information of Affiliated Enterprises.

4. Advantages and disadvantage for the visions and the countermeasures

A. Advantage Factors Item Explanation of the Advantage Factors

Advantages

- A research and development team with extensive experience and competence in US.

- Well grasp of the US marketing channels through the sales channel platform of self-owned generic drugs established by TWi US.

- Excellent product selection ability with the establishment of a comprehensive

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Item Explanation of the Advantage Factors product selection strategy to reduce the risk of development failure.

- Development of experience and competence in practical implementation / management of clinical trials.

- Very experienced in the development of dosage forms, which leads to high competitiveness.

Opportunities

- The countries all over the world are actively cutting spending on pharmaceuticals, so economical and affordable generic drugs are of the priority choices to replace the high-priced brand drugs. As the world's largest medical market, the medical reform of the United States is benefiting the generic drug pharmaceutical companies.

- The US government has increased the quality requirements for controlled release dosage forms, which may prevent low-price competitors from entering market.

- The enforcement of GDUFA in the United States in October 2012 indirectly raises the entry threshold for generic drug market enhances the efficiency of drug review process, and shorten the schedule of issuing the drug approvals.

B. Disadvantage Factors and Countermeasures Explanation of Disadvantage

Factors Countermeasures

- It is more difficult to find research and development personnel with experience in international pharmaceutical companies in Taiwan.

- The Company actively recruits international research and development talents to join the research and development team via international recruitment channels. Talents from the US, Japan, and Singapore have been recruited to enhance the Company's technological capacities to the international level and maintain competitiveness at global level.

- Continuous integration of distributors will benefit large-scale generic drug pharmaceutical companies.

- Vertical integration of the preparation developers with the API providers.

- Multinational pharmaceutical companies enter the generic drug market themselves.

- Growing competition from pharmaceutical companies in China and Indian.

- Through the sales platform built by TWi US, the Company is able to grasp the market information and respond to market dynamics in the first line, which further strengthens the sales competitiveness of the Company's products in the US market.

- Adoption of a “high-efficiency” innovation strategy to build the market competitive advantages by focusing on special generic drugs with high entry barries.

(II) Important use and production process of existing products sold on the market

1. Important use of the main products

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Main products Important use

Oral Tablet

Bupropion HCl ER Tablet Depressive disorder

Donepezil HCl ER Tablet Dementia (dementia) symptoms of mild to moderate Alzheimer's disease

Nifedipine ER Tablet Hypertension, angina cordis Guanfacine ER Tablet 1mg/2mg/3mg/4mg Attention deficit hyperactivity disorder

Divalproex Sodium Extended Release Tablet

Valproate anti-epileptic drug for epileptic seizures, minor epileptic seizures, mixed and temporal lobe epilepsy

Topiramate Adjuvant therapy for epilepsy, epilesy combined with LENNOX-GASTAUT syndrome and primary generalized tonic-clonic seizures

Rapmitec Tablets Hypertension, heart failure after myocardial infarction

Anbutrine XL Depressive disorder

Oral Capsule

Lanxo Capsule Gastroesophageal reflux disease - treatment of erosive reflux esophagitis

Venforspine XR Capsule Depression, generalized anxiety disorders, social anxiety disorders

Cyclobenzaprine HCL ER Capsule Muscle relaxant

Liquid Megestrol Suspension 125mg/mL

Anorexia, cachexia, or unexplained weight loss of patients with Acquired Immune Deficiency Syndrome (AIDS)

2. Manufacturing process There are 6 generic drugs developed by the Company, namely Donepezil HCl

Tablets 23mg, Guanfacine ER Tablets 1mg/2mg/3mg/4mg, Megestrol Acetate Oral Suspension 125mg/mL, Bupropion Hydrochloride ER Tablets 150mg/300mg, Diltiazem Hydrochloride ER Capsules 360mg/300mg/240mg/180mg/120mg (approved and in manufacturing for launch batches), Cyclobenzaprine Hydrochloride ER Capsules 15mg/30mg and 1 CMO generic drug , namely Divalproex Sodium Extended Release Tablets, are manufactured by the Company and exported to US. The check and acceptance process of raw materials and the production process of the products are listed as follows.

Raw materials

Self-developed and self-manufactured special generic drug: Donepezil HCl Tablets

Self-developed and self-manufactured special generic drug: Guanfacine ER Tablets

Receiving Assigning

Batch Number

Sampling Testing Releasing

Weighing Granulation Mixing Tableting Film coating Printing

Packaging Dispensing

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Self-developed and self-manufactured special generic drug: Megestrol Acetate Oral Suspension 125mg/mL

Self-developed and self-manufactured special generic drug: Bupropion Hydrochloride ER Tablets

Self-developed and self-manufactured special generic drug: Cyclobenzaprine Hydrochloride ER Capsules

Self-developed and self-manufactured special generic drug: Diltiazem Hydrochloride ER Capsules

CMO generic drug product: Divalproex Sodium Extended Release Tablet

(III) Supply status of main raw materials

Main raw materials Supplier Supply status

Bupropion HCl Magnifica Inc. Good Diltiazem HCl Ren-Pharm International, Ltd. Good Guanfacine Hydrochloride, USP Chemo Good Megestrol Acetate,USP Teva Good Excipient A Ashland Industries Europe Good Excipient B Colorcon Good

(IV) The name of the customers or suppliers whose amount of purchases or sales accounts for more than 10% of the total amount of purchases or sales in either of the most recent two years, the amount and percentage of purchases or sales, and thereasons for the

Weighing Mixing Tableting Drying Dispensing Packaging

Weighing Main ingredients

suspension preparation Grinding Preparation / Mixing Filling Packaging

Weighing Granulation Mixing Tableting Film coating Printing/

Packaging

Weighing Drug loading via

micro pills Capsule filling Packaging

Weighing Drug loading via

micro pills Capsule filling Packaging

Weighing Granulation Mixing Tableting Film coating Printing / Packaging

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increase or decrease. However, if there exists a binding confidentiality regulated by the agreement or the counterparty is a non-related individual, the code can be used for information disclosure.

1. Information of major suppliers for the most recent two years (Information of consolidated financial report)

Note: As of the date of publication of this Annual Report, the financial information of 1st quarter of 2019 is not audited by the Accountant.

Reasons for Increase and Decrease: Mainly due to increase in number of products launched and sales of products, which causes increased demand of ingredients.

Unit: NT$1,000; % Year 2017 2018 1st Quarter, 2019

Item Name Amount

Percentage of Annual

Net Purchase

Relationship with the Issuer

Name Amount


Net Purchase


Name Amount


Net Purchase

Relationship

with the

Issuer

1

China Chemical

& Pharmaceutical Co.,

Ltd.

217,151 60.96 No

China Chemical

& Pharmace

utical Co., Ltd.

193,707 37.7 No - - - -

2 Apace 23,361 6.56 No Carlsbad 65,911 12.83 No - - - -

3 Chemo 15,004 4.21 No Apace 43,062 8.38 No - - - -

4 Perrigo 8,389 2.36 No Colorcon 36,870 7.17 No - - - -

5 Others 92,315 25.91 - Others 174,298 33.92 - - - - -

Net

Purchase 356,220 100

Net Purchase

513,848 100 Net

Purchase - -

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2. Information of major customers for the most recent two years (Information of consolidated financial report)

Unit: NT$1,000; % Year 2017 2018 1st Quarter 2019

Item Name Amount Percentage of Annual Net Sales


Name Amount Percentage of Annual Net Sales


Name Amount Percentage of Annual Net Sales


1 Amerisource

Bergen Corporation

101,051 12.53 No Amerisource

Bergen Corporation

140,723 17.10 No - - - -

2 McKesson

Pharmaceutical 150,145 18.61 No McKesson Pharmaceutical 131,645 16.00 No - - - -

3 Others 555,348 68.86 - Others 550,577 66.90 - - - - -

Net Sales 806,544 100 Net Sales 822,945 100 Net Sales - -

Note: As of the date of publication of this Annual Report, the financial information of 1st quarter of 2019 is not audited by the Accountant. Reasons for Increase and Decrease: Mainly due to increase in number of products launched and change in sales portfolio in response to market competition status, which leads to increase of total sales and change of ratios.

(V) Production quantity and value of the most recent two years

Unit: NT$1,000; Thousand Tablets; Liquid (Thousand Bottles) Year

Production Quantity and Value Main Products

2017 2018

Production Capacity Quantity Value Production

capacity Quantity Value

Generic Drug - Tablet (USA) 30,000 23,545 85,587 227,173 62,168 129,624

Generic Drug- Liquid (USA) 95 17 11,247 144 30 33,285

Generic Drug (Taiwan) 24 2 286 - - - CMO 60,000 10,030 34,911 6,227 6,227 17,782 Total 90,119 33,594 132,031 233,544 68,425 180,691

Note: The information comes from the consolidated financial statements and the production activities by the Company's Chungli Plant.

The Company's revenue mainly comes from sales of the self-developed generic drug products sold in the US and the CMO products. The Company began to launch its self-developed generic drug products in the US market since 2015, and the production output value changes according to the orders. However, the quantity and value of the CMO product has declined in response to the decreasing demand in recent years.

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(VI) Sales quantity and value of the most recent two years

Unit: NT$1,000; Thousand Tablets; Liquid (Thousand Bottles); Batches (Trial Drug) Year

Sales Quantity and Value Main Products

2017 2018

Domestic Sales (Taiwan / Others)

Exporting Sales (USA)

Domestic Sales (Taiwan / Others)

Exporting Sales (USA)

Quantity Value Quantity Value Quantity Value Quantity Value

Generic Drug - Tablets 6,192 43,239 76,909 506,196 4,358 12,488 114,420 544,022

Generic Drug - Liquid 7 2,512 18 91,777 4 1,276 148 91,201

Generic Drug - Semi-solid - - 112 51,220 - - 158 61,471

CMO - - 10,552 30,729 7,305 66,937 7,176 19,362


Services - 60 - 696 - 37 - -

Royalty - - - 27,666 - - - 314

Trial Drug - - 67 52,449 - - 24 25,837

Total 6,199 45,811 87,658 760,733 11,667 80,738 121,926 742,207

Note: The sales quantity and value are compiled in the consolidated basis.

With the launches of the self-developed generic drug products since 2015 and acquired generic drug products since 2017, quantity and value of production and sales in the future shall show a positive trend.

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III. Number, average length of service, average age and education

distribution ratio of employees in the most recent two years and as of the

date of publication of this Annual Report Unit: Person; Age; Year

Year 2017 2018 Current year as of February 28, 2019

Number of Employees

Managerial Officers 15 17 17

Supervisors above Manager level 37 36 38

Clerks 231 284 289 Total 283 337 344

Average Age 38.1 37.5 Average Service Period + 4.5 4.1

Education Distribution Percentage

Ph. D. 5.65% 5.64% 5.23% Master Degree 34.98% 35.31% 36.34% University and

College 51.24% 51.63% 50.58%

High School (including) or

lower 8.13% 7.42% 7.85%

Note: The above is combined information and includes the information of subordinated companies.

IV. Environmental Expenditure Information

(I) The explanation of the status of application of the permits for establishment of pollution facilitiesor for pollutant emission, payment of pollution control fees, or establishment of the dedicated environmental protection unit and personnel, if such measures are required by laws and regulations:

1. The Company has identified dedicated personnel to be responsible for the environmental protection works, and commissioned Xinyoucheng Company, Shangyuan Environmental Protection Co., Inc., Shuimei Engineering Co., Ltd., Dingli Environmental Protection Engineering Co., Ltd. and Sunny Friend Environmental Technology Co., Ltd. to clean and dispose the wastes.

Organization Company Name Kind of Permit Permit Number

Cleaning Company

Xinyoucheng Company

Waste Cleaning Permit

101 Tao-Fei-Ching No. 0579-1

Shangyuan Environmental Protection Co., Inc.

Waste Cleaning Permit


Shuimei Engineering Co., Ltd.

Letter of Permit by Ministry of Economic Affairs

Ministry of Economic Affairs 02/05/2002 Jing-Shou-Gong-Tzu Letter No. 09121000800

Treatment Company

Dingli Environmental Protection Engineering Co.,

Waste Disposal Permit


145

Organization Company Name Kind of Permit Permit Number Ltd.

Sunny Friend Environmental Technology Co., Ltd.


Ministry of Economic Affairs 05/15/2015 Jing-Shou-Gong-Yong-Tzu Letter No. 10400497151

Shuimei Engineering Co., Ltd.


Ministry of Economic Affairs 02/05/2002 Jing-Shou-Gong-Tzu Letter No. 09121000800

2. Acquisition of the permit for pollutant emission of the Company: (1) Chungli Plant (Building One) was granted with the operation permit of air

pollution control equipment numbered H5685-00 on December 26, 2013.

(2) Chungli Plant (Building Two) was granted with the water pollution control permit numbered Taoyuan County Huan-Pi-Tzu No.H3334-00 on October 12, 2013.

(II) The Company's investment in the main equipments for the prevention and control of environmental pollution, the main purposes and possible benefits

Unit: NT$1,000; March 31, 2019 Equipment

Name Quantity Date of Acquiration

Investment Cost

Un-Depreciated Balance

Purposes and Estimated Potential Benefits

Wet Dust Collector 1 set 6/26/2008 500 - (1) Purpose: To discharge

the gas after remove part of dust powder gas generated in the process by washing.

(2) Benefits: To control air pollution to certain degree and reduce air pollution.

Wet Washing Tower 1 set 12/31/2008 1,800 -

Dust Collection System 1 set 12/31/2008 1,050 -

Wet Washing Tower

Equipment 1 set 11/30/2011 1,550 -

Waste Gas Washing Tower 1 set 11/30/2011 85 -

Waste Gas Exhaust System 1 set 11/30/2011 700 -

VOC Incinerator 1 set 1/31/2014 19,288 7,434

(1) Operation Permit Numbered: H5686-00.

(2) Purpose: To discharge the carbon dioxide and water generated from high temperature combustion of the organic solvent gas produced in the process.

(3) Benefits: To gain better control of air pollution.

Business Wastewater Treatment

System

1 set 7/31/2016 6,480 4,523 (1) It complies with the

standards for sewage treatment by sewage treatment plants of

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Unit: NT$1,000; March 31, 2019 Equipment

Name Quantity Date of Acquiration

Investment Cost

Un-Depreciated Balance

Purposes and Estimated Potential Benefits

Chungli Industrial Park Management Center.

(2) Purpose: It is used to treat business wastewater and reduce chemical oxygen demand (COD), biochemical oxygen demand (BOD) and solid suspended solids (SS) in wastewater.

(3) Benefits: To meet the wastewater discharge standards of the Environmental Protection Administration of the Executive Yuan.

Amendment in Gas System of

Heavy Oil System,

Including Medium Gas Storage Tank

1 set 10/16/2018 619 610

(1) Purpose: To upgrade the existing boiler from usage of fuel coal/heavy oil to usage of clean fuel.

(2) Benefits: To meet the air pollution standards and save fuel.

1. Explanation of the Company's improvement of environmental pollution during the most recent year and as of the date of publication of this Annual Report and the treatment measures for pollution disputes if there are any: None.

2. Explanation of the total amount of losses (including the idemnity) and fines due to environmental pollution in the most recent year and as of the date of publication of this Annual Report, and the future response measures (including improvement measures) and possible expenditures (including the estimate amount of possible loss, fines and idemnity due to failure to take countermeasures) If the expenditures cannot be reasonably estimated, the reasons shall be explained: None.

3. Explanation of the impact of the current pollution status and the improvement measures of the Company on its earnings, competitive position and capital expenditures and the disclosure of the Company’s estimated significant environmental capital expenditures for the next two years:

There is no pollution event for which the Company is fined in the most recent year and as of the date of publication of this Annual Report and therefore there is no significant impact on the Company's earnings, competitive position, capital expenditures and estimated significant environmental capital expenditures in the next two years.

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V. Labor Management Relations

(I) Explanation of the welfare measures, educational and training programs, retirement system of the Company and the implementation of such aforestated measures, as well as the agreement between employers and employees and measures for protecting rights and interests of the employees

1. Employee welfare measures and the implementation status All the employees of the Company and its subsidiaries enjoy the welfare

measures of labor insurance, national health insurance, labor pensions contribution and group medical insurance for accidents, sickness and hospitalization. All the insurance payments are managed in accordance with relevant regulations and group insurance contracts. The Company provides group lunch meals at all office areas, on-board health examination, annual health examination, and parking spaces for car and motorcycles, etc. The Company and Synpac-Kingdom Pharma have set up the Employees Welfare Committees, which are responsible for planning, promoting and implementing various employee welfare activities including wedding, fertity and funeral subsidies, employee travel and gifts for the three festivals, etc. The members of Employee Welfare Committee are all elected by voting of the employees according to laws and regulations. TWi Biotechnology has not set up its Employees Welfare Committee since the number of its employees does not reached the threshold of setting up the Employees Welfare Committee, and welfare measures for its employees are provided by TWi Biotechnology with the aims to make its welfare measures to be as possiblly consistent with that of the Company.

2. Advanced study and training The educational and training programs are planned and managed based on the

vision that the educational and training programs play as vehicles of the lifelong learning of employees to improve the talents of human resources, strengthen work efficiency and quality, and create a positive virtuous cycle in working environment. The Human Resources Department of the Company and its subsidiaries will summarize the needs of all departments, arrange internal educational and training plans from time to time, and implement such plans after they are approved by the responsible managers. Professional training programs organized by the external organizations will also be arranged depending on the job requirements to provide the employees with a complete channel of training and advance studies.

Implementation of the Company's educational and training programs for employee in the most recent year and as of the date of publication of this Annual Report is shown as follows:

Name of the Programs Course content Course

hours Course

fee

Manufacturing and Quality

Management Courses

A.Operation and technology related to production process

B. Operation and maintenance of instruments for production process

C. Improvement of pharmaceutical companies in drug quality and productivity

D.Trainings and discussions related to pharmaceutical PIC/S GMP Related

E. Trainings for quality management system and

609 $140,995

148

Name of the Programs Course content Course

hours Course

fee audit

F. Trainings and discussions for material/product inspection, analysis validation and verification technology

G.Management of QC laboratories in Pharmaceutical companies

Research and Development Management

course

A.Research and development of innovative drugs, development strategy and application technology

B.Drug market trends, business opportunities and challenges

C.Development and practical applications of preparation technology

D.Trainings and discussions for management of pharmaceutical companies and related laws and regulations

E.Latest developments of medical laws and regulations and the impact assessment

F.Trainings related to clinical trials

398 $251,515

General Management

Courses

A.Corporate governance, auditing, finance, accounting and investment taxation

B.Human resource management and safety and health in working environment

C.Project management

172 $112,988

3. Retirement System and Implementation The Company and its subsidiaries have established the employee retirement

plan in accordance with the “Labor Standards Act”. For the employees selecting old pension systems, the retirement reserve has been contributed based on 2% of the paid salary and deposited in the dedicated account in Bank of Taiwan, which is managed by the Workers’ Retirement Reserve Fund Supervisory Committee. Starting from April 2018, there is no employee of Synpac-Kingdom Pharma applicable to the old pension systems, and in August 2018, the last resigned employee of Synpac-Kingdom Pharma applicable to the old pension systems had drawn his pension payment. Synpac-Kingdom Pharma applied to the Bureau of Labor Insurance, Ministry of Labor in September 2018 to settle its dedicated account in Bank of Taiwan and got the written notice of account settlement dated December 6, 2018 issued by the Bureau of Labor Insurance, Ministry of Labor. In addition, due to the implementation of the “Labor Pension Act” of Republic of China (hereinafter referred to as the “new pension system”) from July 1, 2005, for the employees originally applicable to the old pension system but selecting new pension system or the employees who begins their service after the implementation of the new pension system, their pension plan is applicable to the defined contribution plan, under which their Companies and its subsidiaries contribute 6% of their monthly wage as the pensions every month, which are deposited in the respective Employee Personal Account of the Bureau of Labor Insurance.

4. Agreement between Labor and Management The Company and its subsidiaries have complied with all government laws

and regulations and paid attention to the rights and interests of labors. The recruitment, leaving, retirement and all welfare measures of the employees shall be

149

managed based on the Labor Standards Act and relevant laws and regulations to maintain good interaction between Labor and Management. In addition, the Company and its subsidiaries place high emphasis on the reaction and feedback from the employees. Employees can reflect their opinions through regular labor management meetings, e-mails and employee suggestion boxes, which maintain a smooth communication channel between Labor and Management and a harmonious labor-management relation. The Company and its subsidiaries will continue to make efforts to implement welfare measures to make the labor-management relations more harmonious and eliminate the possibility of disputes between Labor and Management.

5. Implementation of measures to protect employees’ rights and interests The Company and its subsidiaries have established a comprehensive system,

which clearly specifies all management measures stating the rights, obligations and welfares of employees, and regularly reviews the revises the employee welfare measures to safeguard the rights and interests of all employees. The Company's employee equity and welfare measures are summarized as follows: (1) Food, clothing, housing, transportation, education and entertainment (or

Everyday Living):

A. Safe and healthy nutritious lunch is provided daily by the Company for free;

B. The Company proactively provides foreign employees with residence or residential searching services;

C. Spacious parking lots in the plant area are established for the employees to park cars and motorcycles;

D. Dedicated cleaning personnel is recruited to clean and maintain the environment every day and the disinfection in offices and plants is arranged once or twice a year. There is also dedicated personnel responsible for the cleaning and maintenance of the roads and environmental greening in the plant areas;

E. The Employee Welfare Committee from time to time organizes recreational activities, such as birthday celebrations, employees meal party, family days, and employee travel and so on, to provide physical and mental relaxation and promote emotional exchanges among colleagues;

F. Employees are entitled to birthday gift and cash gift for three festivals, and the Company regularly helds end of year party every year.

(2) Medical health care:

A. Every new employee is subsidized by the Company for the on-board health examination;

B. The regular health examination is conducted by the Company for every employee once a year, with the the examination items being adjusted depending on the requirements and job duty of the employee;

C. Employees are entitled to group insurance with the coverage for Hospitalization / accidents / cancers. Employees who suffers from the insured accidents can apply for the related medical insurance payment. Family dependents of the employees have the right to join the group

150

insurance program at their own cost. (3) Wedding funeral and maternity allowance:

A. Employees are entitled to allowance which are paid for weddings, funerals, and maternity to give birth, ranging from NT$ 1,500 to NT$ 11,000.

6. Establishment of the Employee Code of Conduct of Ethics The company and its subsidiaries have established their respective Employee

Code of Conducts which are placed in the internal domains for the reference of all employees.

In addition, the Company has established the Ethical Code of Conduct in 2013 for the Company's Directors (including Independent Directors) and Managerial Officers to abide by, and has the Code disclosed in the Market Observation Post System, the Company's website and the internal domain for publishment of the internal regulations.

(II) The losses arising from labor management disputes in the most recent year and as of the date of publication of this Annual Report, the estimated amounts of the losses currently and in the future, and and responsive measures. If the losses cannot be reasonably estimated, the reasons why the loses cannot be reasonably estimated shall be explained.

None

151

VI. Important Contract

Nature of Contract Party Term Main Contents Restrictive Covenants

Supply and Manufacturing Par Pharma.

From October 1, 2008 to December 31, 2019

Comtractured manufacturing

Confidentiality clauses

Supply and Manufacturing Company B

From September 30, 2011 to the 7th anniversary after launch of the product

Supply and manufacturing of the target generic drugs


Cooperative Development Company C From July 20, 2012

Licensing of certain patents and related technologies


Product Licensing Agreement Company D

From January 6, 2017 to the occurrence of the events of termination specified in the Agreement

Licensing and supply of the target ANDA Product


Cooperative Development Company E From December 16,

2015 Cooperation of product development, marketing and distribution


Cooperative Development

Intech Biopharm Corporation From April 25, 2017 Joint cooperative

development Confidentiality clauses

Cooperative Development

Appco Pharma LLC

From February 5, 2018

Joint cooperative development


Settlement Agreement

Cephalon, Inc. and Ivax International GmbH

From July 30, 2013 Settlement and licensing Confidentiality clauses


Endo Pharmaceuticals, Inc., Teikoku Seiyaku Co., Ltd. and Teikoku Pharma USA ,Inc.

From April 18, 2014 Settlement and licensing Confidentiality clauses


Takeda Pharmaceutical Company Ltd.

From April 27, 2015 Settlement and licensing Confidentiality clauses


Unimed pharmaceuticals, LLC, Besins Healthcare Inc., and Besins Healthcare Luxembourg SARL

From November 18, 2016 Settlement and licensing Confidentiality

clauses

Settlement Agreement Allergan Inc. From January 11,

2017 Settlement and licensing Confidentiality clauses

152

Six. Finance Overview

I. The Condensed Balance Sheet and Income Statement of the most recent

five years, the names of Accountants and their audit opinions

(I) Condensed Balance Sheet and Income Statement － International Financial Reporting Standards

1. Condensed Balance Sheet

(1)Condensed Balance Sheet－stand-alone basis Unit: NT$1,000

Year

Accounts

Financial information for the most recent 5 years

2014 2015 2016 2017 2018

Current assets 1,795,339 4,267,015 4,735,009 4,149,796 3,527,590

Property, plant and equipment 904,603 1,020,668 918,278 973,001 969,585

Intangible assets 134,869 119,018 106,340 109,299 162,519

Other assets 915,175 1,108,834 870,465 711,742 994,916

Total assets 3,749,986 6,515,535 6,630,092 5,943,838 5,654,610

Current liabilities

Before distribution 230,371 146,119 236,400 218,831 244,797

After distribution 230,371 146,119 236,400 218,831 244,797

Non-current liabilities 28,452 67,122 69,358 80,437 39,243

Total liabilities

Before distribution 258,823 213,241 305,758 299,268 284,040

After distribution 258,823 213,241 305,758 299,268 284,040 Equity attributed to

shareholders of the parent company

3,491,163 6,302,294 6,324,334 5,644,570 5,370,570

Capital 1,131,096 1,275,072 1,275,312 1,204,124 1,203,556

Capital reserve 4,732,341 7,790,456 8,280,915 7,905,992 8,084,659

Retained Earnings

Before distribution (2,362,944) (2,709,978) (2,929,868) (3,361,846) (3,870,399)

After distribution (2,362,944) (2,709,978) (2,929,868) (3,361,846) (3,870,399)

Other equity (9,330) (53,256) (89,913) (103,700) (47,246)

Treasury stock - - (212,112) - -

Non-controlling equity - - - - -

Total Equity

Before distribution 3,491,163 6,302,294 6,324,334 5,644,570 5,370,570

After distribution 3,491,163 6,302,294 6,324,334 5,644,570 5,370,570

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(2) Condensed Balance Sheet－consolidated basis Unit: NT$1,000

Year

Accounts

Financial information for the most recent 5 years As of March 31,

2019 (Note)

2014 2015 2016 2017 2018

Current assets 1,956,603 4,832,310 5,839,515 4,793,245 4,627,365 -

Property, plant and equipment 1,111,456 1,265,921 925,154 1,163,273 1,151,453 -

Intangible assets 955,220 830,955 136,612 136,614 250,327 -

Other assets 401,872 204,562 113,246 312,551 383,707 -

Total assets 4,425,151 7,133,748 7,014,527 6,405,683 6,412,852 -

Current liabilities

Before distribution 359,348 313,342 388,545 641,698 804,815 -

After distribution 359,348 313,342 388,545 641,698 804,815 -

Non-current liabilities 54,253 37,600 16,152 47,080 40,022

Total liabilities

Before distribution 590,739 503,834 404,697 688,778 844,837 -

After distribution 590,739 503,834 404,697 688,778 844,837 - Equity attributed to


3,491,163 6,302,294 6,324,334 5,644,570 5,370,570 -

Capital 1,131,096 1,275,072 1,275,312 1,204,124 1,203,556 -

Capital reserve 4,732,341 7,790,456 8,280,915 7,905,992 8,084,659 -

Retained Earnings

Before distribution (2,362,944) (2,709,978) (2,929,868) (3,361,846) (3,870,399) -

After distribution (2,362,944) (2,709,978) (2,929,868) (3,361,846) (3,870,399) -

Other equity (9,330) (53,256) (89,913) (103,700) (47,246) -

Treasury stock - - (212,112) - - -

Non-controlling equity 343,249 327,620 285,496 72,335 197,445 -

Total Equity

Before distribution 3,834,412 6,629,914 6,609,830 5,716,905 5,568,015 -

After distribution 3,834,412 6,629,914 6,609,830 5,716,905 5,568,015 - Note: As of the date of publication of this Annual Report, the financial statements of the 1st quarter of 2019 has not been audited by the Accountant.

154

2. Condensed Income Statement

(1)Condensed Consolidated Income Statement－stand-alone basis

Unit: NT$1,000

Year

Accounts

Financial information for the most recent 5 years

2014 2015 2016 2017 2018

Operating Revenue 368,268 473,011 696,877 653,734 559,895

Gross profit 81,163 110,582 242,051 195,120 31,979

Net gross profit 51,265 140,480 210,428 192,129 23,914

Operating income (828,940) (494,427) (383,990) (350,174) (493,424)

Non-operating income and expenses (74,658) 146,688 162,330 133,455 (7,239)

Net profit (loss) before tax (903,598) (347,739) (221,660) (216,719) (500,663)

Net profit from continuing operation (903,598) (347,739) (221,682) (248,605) (508,770)

Loss from discounted operation - - - - -

Net profit (loss) in this period (903,598) (347,739) (221,682) (248,605) (508,770)

Total other comprehensive income for the year

(net income after tax) 39,367 (23,200) (44,654) (14,961) 829

Total comprehensive profit/loss in the year (864,231) (370,939) (266,336) (263,566) (507,941)

Net profit attributed to shareholders of the parent

company (864,231) (370,939) (266,336) (263,566) (507,941)

Net profit attributed to non-controlling interests - - - - -

Total comprehensive profit (loss) attributed to


(864,231) (370,939) (266,336) (263,566) (507,941)

Total comprehensive profit (loss) attributed to non-

controlling interests - - - -

Earnings per Share (8.05) (2.99) (1.76) (2.03) (4.23)

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(2)Condensed Consolidated Income Statement－consolidated basis

Unit: NT$1,000

Year

Accounts

Financial information for the most recent 5 years As of March 31, 2019 (Note) 2014 2015 2016 2017 2018

Operating Revenue 356,687 437,368 743,778 806,544 822,945 -

Gross profit 84,901 99,128 258,340 320,459 62,947 -

Net gross profit 55,003 129,026 258,340 320,459 62,947 -

Operating income (943,039) (887,873) (685,584) (501,382) (717,657) - Non-operating income

and expenses 36,145 444,675 387,122 252,278 190,030 -

Net profit (loss) before tax (906,894) (443,198) (298,462) (249,104) (527,627) - Net profit for the year

from continuing operation (906,884) (434,894) (291,893) (289,558) (550,189) -

Loss from discounted operation - - - - - -

Net profit (loss) in this period (906,884) (434,894) (291,893) (289,558) (550,189) -

Total other comprehensive income for the year

(net income after tax) 43,420 (23,200) (63,731) (12,028) 829 -

Total comprehensive profit/loss in the year (863,464) (458,094) (355,624) (301,586) (549,360) -

Net profit attributed to shareholders of the parent

company (903,598) (347,739) (221,682) (248,605) (508,770) -

Net profit attributed to non-controlling interests (3,286) (87,155) (70,211) (40,953) (41,419) -

Comprehensive profit (loss) attributed to


(864,231) (370,939) (266,336) (263,566) (507,941) -

Comprehensive profit (loss) attributed to non-

controlling interests (767) (87,155) (89,288) (38,020) (41,419) -

Earnings per Share (8.05) (2.99) (1.76) (2.03) (4.23) - Note: As of the date of publication of this Annual Report, The financial statements of the 1st

quarter of 2019 has not been audited by the Accountant.

(II) Name of the Certified Public Accountants for the most recent five years and the audit opinions

Year Certified Public

Accountant Name of the Accounting

Firm Audit Opinion

2014 Tseng, Hui-Chin, Hsiao, Chun-Yuan


Modified unqualified opinion

2015 Tseng, Hui-Chin, Teng, Sheng-Wei


Modified unqualified opinion

2016 Teng, Sheng-Wei, Liang, Hua-Ling

PricewaterhouseCoopers, Taiwan Unqualified Opinion

2017 Teng, Sheng-Wei, PricewaterhouseCoopers, Unqualified Opinion

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Liang, Hua-Ling Taiwan

2018 Teng, Sheng-Wei, Tseng, Hui-Chin

PricewaterhouseCoopers, Taiwan Unqualified Opinion

Note 1: The audit opinions in the period from 2014 to 2018 are for the audit of consolidated financial statements

Note 2: Explanation on replacement of Certified Public Accountants:

(1) Reason for replacement in 2014: In response to the adjustment of the internal business of the Accounting Firm.

(2) Reason for replacement in 2016: due to the required rotation in accordance with the provisions specified in the Statements on Auditing Standards No. 46 “Quality Control for Public Accounting Firms”, stating that the Accountant in Charge shall be rotated during a certain period of time.

(3) Reason for replacement in 2018: due to the return of the rotated Accountant in 2016 in accordance with the provisions specified in the Statements on Auditing Standards No. 46 “Quality Control for Public Accounting Firms”, stating that the Accountant in Charge shall be rotated during a certain period of time, and return of the rotated Accountant is only allowed after a certain period of time.

157

II. Financial analysis of the most recent 5 years (I) Financial analysis

1. International Financial Reporting Standards－stand-alone basis Year

Analysis items (Note 2)

Financial analysis of the most recent 5 years 2014 2015 2016 2017 2018

Financial structure

Liability to assets ratio (%) 6.90 3.27 4.61 5.03 5.02 Long-term capital to property, plant, and equipment ratio (%)

388.53 623.56 695.73 587.88 557.44

Solvency Current ratio (%) 779.33 2,920.23 2,002.96 1,896.35 1,441.03 Quick ratio (%) 718.33 2,834.69 1,953.28 1,843.48 1,354.39 Interest coverage ratio (9,715.11) - (36,942.33) (18,058.92) (17,263.24)

Operation performance

Receivables turnover rate (times) 4.19 2.51 2.74 2.23 1.92

Average days of collection 87.06 145.38 133.28 163.73 190.14 Inventory turnover rate (times) 3.52 3.75 5.31 4.94 3.46

Account payables turnover rate (times) 6.29 11.31 10.51 7.04 7.93

Average days of sale 103.67 97.42 68.68 73.95 105.37 Property, plant and equipment turnover rate (times)

0.42 0.49 0.72 0.69 0.58

Total assets turnover rate (times) 0.09 0.09 0.11 0.10 0.10

Profitability

Return on assets (%) (21.43) (6.77) (3.37) (3.95) (8.77) Return on equity (%) (23.37) (7.10) (3.51) (4.15) (9.24) Profit before tax to paid-in capital ratio (%) (79.89) (27.29) (17.41) (18.00) (41.60)

Net profit ratio (%) (245.36) (73.52) (31.81) (38.03) (90.87) Earnings per Share (NT$) (8.05) (2.99) (1.76) (2.03) (4.23)

Cash flow

Cash flow ratio (%) (238.78) (249.19) 87.80 (262.73) (74.37) Cash flow adequacy ratio (%) (244.07) (239.38) (198.70) (224.77) (226.28)

Cash re-investment ratio (%) (15.05) (5.52) 3.14 (9.88) (3.32)

Leverage Operating leverage 0.79 0.84 0.61 0.65 0.73

Financial leverage 1.01 1.00 1.00 1.00 1.00

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Explanation of causes for changes of the aforesaid financial ratios reaching 20% or higher in the 2 most recent years (2017 and 2018): 1. Current ratio and quick ratio: Mainly because the current product portfolio has not reached economic scale and the Company has

continuously invested in research and development of special generic drugs with high technology threshold, the operating revenue is insufficient to fully cover the operating expenses, which leads to the decline of those two ratios.

2. Inventory turnover rate and average days of sale: Mainly because the trading mode changes, which leads to increase of inventory, the inventory turnover rate declines and the average days of sale increase.

3. Rate of return on assets and rate of return on equity: Mainly because the overall sales of existing generic drugs decline due to price erosion caused by market competition and the current product portofolio has not reached economic scale, both the net profit and the rate of return decline.

4. Profit before tax to paid-in capital ratio: That ratio declines mainly because the net profit also declines. 5. Net profit ratio: The net profit ratio declines mainly because the net profit also declines. 6. Earnings per share: Earnings per share declines mainly because the net profit also declines. 7. Cash flow ratio and cash re-investment ratio: Those two ratios decline mainly because the net cash outflow from operating activities

also declines. Note: The financial information from 2014 to 2018 is audited by the Certified Public Accountant.

159

2. International Financial Reporting Standards－consolidated basis Year

Analysis items (Note 2)

Financial analysis of the most recent 5 years Current Year as of March 31, 2019 (Note 1) 2014 2015 2016 2017 2018

Financial structure

Liability to assets ratio (%) 13.35 7.06 5.77 10.75 13.17 -

Long-term capital to real property, plant and equipment ratio (%)

349.87 526.69 715.67 495.07 486.61 -

Solvency

Current ratio (%) 544.49 1,542.18 1,502.92 746.96 574.96 -

Quick ratio (%) 500.20 1,486.65 1,460.19 706.39 524.19 -

Interest coverage ratio (1,043.82) (1,469.69) (3,350.99) (462.02) (248.00) -

Operation performance

Receivables turnover rate (times) 3.24 3.20 6.85 5.67 2.64 -

Average days of collection 113 114 53 64 138 -

Inventory turnover rate (times) 3.3 2.28 3.44 2.61 2.46 -

Account payables turnover rate (times) 5.5 9.20 10.71 5.41 7.37 -

Average days of sale 111 160 106.23 139.62 148.62 - Property, plant and equipment turnover rate (times)

0.37 0.37 0.68 0.77 0.71 -

Total assets turnover rate (times) 0.08 0.08 0.11 0.12 0.13 -

Profitability

Return on assets (%) (19.91) (7.52) (4.13) (4.31) (8.56) - Return on equity (%) (22.46) (8.31) (4.41) (4.70) (9.75) - Profit before tax to paid-in capital ratio (%) (80.18) (34.79) (23.44) (20.69) (43.84) -

Net profit ratio (%) (254.25) (99.43) (39.24) (35.90) (66.86) - Earnings per Share (NT$) (8.05) (2.99) (1.76) (2.03) (4.23) -

Cash flow

Cash flow ratio (%) (179.99) (132.11) (10.86) (93.72) (76.78) - Cash flow adequacy ratio (%) (303.19) (258.39) (251.57) (236.13) (259.19) -

Cash re-investment ratio (%) (18.89) (6.45) (0.62) (10.14) (10.80) -

Leverage Operating leverage 0.80 0.79 0.65 0.69 0.79 -

Financial leverage 1.00 1.00 1.00 1.00 1.00 -

160

Explanation of causes for changes of the aforesaid financial ratios reaching 20% or higher in the 2 most recent years (2017 and 2018):

1. Current ratio and quick ratio: Mainly because the current product portfolio has not reached economic scale and the Company has continuously invested in research and development of special generic drugs with high technology threshold, the operating revenue is insufficient to fully cover the operating expenses, which leads to the decline of those two ratios. In addition, due to the enforcement of No. 15 of IFRS in 2018, the estimated sale discount to the clients originally classified as account receivables deduction is re-classified as other current liabilities, which also leads to decline of both current ratio and quick ratio.

2. Interest coverage ratio: It is mainly due to the increase in interest expense in 2017. 3. Receivables turnover rate and average days of collection: Due to the enforcement of No. 15 of IFRS in 2018, the estimated sale discount to the

clients originally classified as account receivables deduction is re-classified as other current liabilities, which also leads to increase of ending balance of account receivables, decline of receivables turnover rate and increase of average days of collection.

4. Account payables turnover rate: The account payable turnover rate increased mainly because the operating cost increases. 5. Rate of return on assets and rate of return on equity: Both of the rates of return decline mainly because the net profit also declines. 6. Profit before tax to paid-in capital ratio: That ratio declines mainly because the net profit also declines. 7. Net profit ratio: The net profit ratio declines mainly because the net profit also declines. 8. Earnings per share: Earnings per share declines mainly because the net profit also decliones. Note 1: The financial information from 2014 to 2018 is audited by the Certified Public Accountant, while that

of the 1st quarter of 2019 has not been audited by the Accountant as of the date of publication of this Annual Report.

Note 2: Calculation formula for financial analysis are listed as follows: 1. Financial structure

(1) Debt-to-asset ratio＝Total liabilities／Total assets. (2) Long-term capital to property, plant and equipment ratio＝ (Total Equity ＋Non-current

liabilities)／net property, plant and equipment. 2. Solvency

(1) Current ratio＝Current assets／Current liabilities. (2) Quick ratio＝(Current assets －inventory－prepaid expense)／Current liabilities. (3) Interest coverage ratio＝net income before income tax and interest expense／current interest

expense. 3. Operation performance

(1) Receivables (including accounts receivables and business-related notes receivables) turnover rate = net operating revenue / average balance of receivable of the period (including account receivables and business-related note receivables).

(2) Average days of collection = 365 / receivables turnover rate. (3) Inventory turnover rate = cost of sales / average balance of inventory. (4) Payables (including account payables and business-related note payables) turnover rate = cost

of sales / average balance of payables of the period (including account payables and business-related note payables).

(5) Average days of sales = 365 / inventory turnover ratio. (6) Property, plant, and equipment turnover rate = Net sales / Average net balance of property, plant,

and equipment (7) Total asset turnover rate = net sales / average balance of total assets.

4. Profitability (1) Return on assets ＝ [net income + interest expense (1 – tax rate)] / average balance of total

assets. (2) Return on equity = profit and loss after tax / average balance of total equity. (3) Net profit ratio = net income / net sales. (4) Earnings per share = (net income (loss) attributed to shareholders of the parent Company –

dividends on preferred shares) / weighted average number of issued shares. (Note 3) 5. Cash flow

(1) Cash flow ratio = net cash flow from operating activities / current liabilities. (2) Net cash flow adequacy ratio = Net cash flow from operating activities for the most recent five

years / (capital expenditures + inventory increase + cash dividend) for the most recent five years.

161

(3) Cash flow reinvestment ratio = (Net cash flow from operating activities – cash dividend) / gross property, plant and equipment + long-term investment + other non-current assets + working capital). (Note 4)

6. Leverage: (1) Operating leverage = (Net operating revenue – variable operating and expenses) / Operating

income (Note 5). (2) Financial leverage = operating income / (operating income – interest expenses).

Note 3: Below rules shall be followed in calculating earning per share: 1. It should be based on the weighted average number of shares of common stock, rather than the

number of issued shares at the end of the year. 2. Where there is capital increase by cash or treasury stock transaction in the circulation period, the weight average number of shares shall be adopted based on the outstanding period of the shares. 3. In the case of capital increase by surplus or by capital reserve, the annual and semi-annual earnings

per share of previous years shall be retrospectively adjusted in accordance with the proportion of capital increase without considering the issuance period of such capital increase.

4. If the preferred share is non-convertible and cumulative, the dividend of the year (whether it has been issued or not) shall be deducted from net income after tax, or added to the net loss after tax. If the preferred stock is non-cumulative, the dividend of the preferred stock shall be deducted from the net profit after tax if there is net profit after tax and no adjustment is required in case there is loss.

Note 4: Below rule shall be followed in calculating cash flow analysis: 1. Net cash flow from operating activities is referred to as the net cash inflow from operating activities

in the cash flow statement. 2. Capital expenditure is referred to as the annual cash outflow of capital investment. 3. The increase in inventory is counted only when the balance at the end of the period is greater than

the balance at the beginning of the period. If the inventory decreases at the end of the year, it is counted as zero.

4. Cash dividends include the cash dividends of common stocks and preferred stocks. 5. Gross property, plant and equipment is referred to as the total property, lant and equipment without

deduction of accumulated depreciation. Note 5: The issuer shall categorize the operating costs and operating expenses into fixed ones and variable

ones in accordance with their properties. If the categorization is subject to estimation or subjective judgment, it shall be of rationality and consistency.

Note 6: Where company shares have no par value or where the par value per share is different from NT$10, the paid-in capital involved in the calculation of the aforesaid ratios shall be replaced with the equity attributed to the shareholders of the parent company in the balance sheet.

162

III. The audit report of the Supervisor or the Audit Committee of the most

recent annual financial report

Please refer to Page 198.

IV. The most recent annual financial report, including the Accountant Audit

Report, the two years comparison balance sheet, consolidated income

statement, statement of changes in equity, the cash flow statement and the

notes or attachments

Please refer to Page 199 to Page 300.

V. The Company's latest annual stand-alone financial report auditd and

certified by the Certified Public Accountant

Please refer toPage 301 to Page 386.

VI. The impact to the Company's financial status in case there is any financial

turnover problem for the Company and its affiliated enterprises in the

most recent year and as of the date of publication of this Annual Report

None.

163

Seven. Review and Analysis of Financial Status and Financial

Performance and Risk Matters I. Financial Status

(I) International Financial Reporting Standards－stand-alone basis Unit: NT$1,000; %

Year Accounts 2017 2018

Increases (decreases) Amount %

Current assets 4,149,796 3,527,590 (622,206) -14.99 Investment

adopting equity method

454,326 660,979 206,653 45.49

Property, plant and equipment 973,001 969,585 (3,416) -0.35

Intangible assets 109,299 162,519 53,220 48.69 Other assets 257,416 333,937 76,521 29.73 Total assets 5,943,838 5,654,610 (289,228) -4.87

Current liabilities 218,831 244,797 25,966 11.87

All reserves - - - - Other liabilities 80,437 39,243 (41,194) -51.21 Total liabilities 299,268 284,040 (15,228) -5.09

Capital 1,204,124 1,203,556 (568) -0.05 Capital reserve 7,905,992 8,084,659 178,667 2.26

Retained earnings (3,361,846) (3,870,399) (508,553) 15.13

Other equity (103,700) (47,246) 56,454 -54.44 Treasury stock - - - -

Total Shareholder's

Equity 5,644,570 5,370,570 (274,000) -4.85

Changes more than 20% and with the amountreaching NT$10 million or more in the most recent two years:

1. Investment adopting equity method: Mainly due to incremental investment to the subsidiary of the Company in 2018.

2. Intangible assets: Mainly due to acquisition of technology and rights of one generic drug in 2018. 3. Other assets: Mainly due to increase of prepayment for equipments and prepayment for purchases

in the end of 2018. 4. Other liabilities: Balance of other liabilities of 2018 declines mainly because the ending credit

balance of investment adopting equity method in 2017 is booked in other liabilities and in 2018, the Company make investment to its subsidiary.

5. Other equity: Mainly due to repurchase of employee restricted stocks in 2018, which leads to increase of other equity.

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(II) International Financial Reporting Standards－consolidated basis Unit: NT$1,000; %

Year Accounts 2017 2018

Increases (decreases) Amount %

Current assets 4,793,245 4,627,365 (165,880) -3.46 Investment

adopting equity method

- - - -

Property, plant and equipment 1,163,273 1,151,453 (11,820) -1.02

Intangible assets 136,614 250,327 113,713 83.24 Other assets 312,551 383,707 71,156 22.77 Total assets 6,405,683 6,412,852 7,169 0.11

Current liabilities 641,698 804,815 163,117 25.42

All reserves - - - - Other liabilities 47,080 40,022 (7,058) -14.99 Total liabilities 688,778 844,837 156,059 22.66

Capital 1,204,124 1,203,556 (568) -0.05 Capital reserve 7,905,992 8,084,659 178,667 2.26

Retained Earnings (3,361,846) (3,870,399) (508,553) 15.13

Other equity (103,700) (47,246) 56,454 -54.44 Treasury stock - - - -

Non-controlling equity 72,335 197,445 125,110 172.96

Total Shareholder's

Equity 5,716,905 5,568,015 (148,890) -2.60

Changes more than 20% and with the amount reaching NT$10 million or more in the most recent two years: 1. Intangible assets: Mainly due to acquisition of technology and rights of one generic drug and in-

licensing of the exclusive marketing right of another generic drug in 2018. 2. Other assets: Mainly due to increase of prepayment for equipments and prepayment for

purchases in the end of 2018. 3. Current Liabilities: Mainly due to the enforcement of No. 15 of IFRS in 2018, the estimated sale discount

to the clients originally classified as account receivables deduction is re-classified as other current

liabilities, which leads to increase of current liabilities.

4. Other equity: Mainly due to repurchase of employee restricted stocks in 2018, which leads to

increase of other equity. 5. Non-controlling equity: Mainly due to the Company’s giving up of the preemptive right to

purchase the newly issued shares of one of its subsidiary for capital injection, which leads to

increase of non-controlling equity.

(III) The main reason of material changes in the financial status of the most recent two years

and the impact

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Since the completion of the parallel division of shareholding restructuring of the Company and its original parent company Anchen Inc. in April 2010, the company has invested in the research and development of its own products, and the operation of the Company is in a stable state in recent years. The investments made in recent years including purchase of the production equipments and technologies and rights of external generic drugs, as well as acquitision of the subsidiary in order to establish the production capacity of eye drugs will also contribute to the strategic planning of the Company in the US market in the future to bring out the positive impact on future financial and business activities. The company will continue to strive for the research and development of special generic drugs and new drugs to make contributions to the biotechnology industry in Taiwan and create maximum benefits for all shareholders.

II. Financial performance (I) Operating results analysis table

1. International Financial Reporting Standards－stand-alone basis Unit: NT$1,000; %

Year Accounts 2017 2018 Increase (decrease)

Amount % Operating revenue 656,388 657,741 1,353 0.21

Minus: Sales return and discount (2,654) (97,846) (95,192) 3,586.74

Net operating revenue 653,734 559,895 (93,839) -14.35 Operating cost (458,614) (527,916) (69,302) 15.11

Gross profit (Note) 192,129 23,914 (168,215) -87.55 Operating expense (542,303) (517,338) 24,965 -4.6

Net operating income (loss) (350,174) (493,424) (143,250) 40.91

Non-operating income and expenses 133,455 (7,239) (140,694) -105.42

Net profit (loss) before tax (216,719) (500,663) (283,944) 131.02

Minus: Income tax expenses (31,886) (8,107) 23,779 -74.58

Profit (loss) after tax (248,605) (508,770) (260,165) 104.65 Changes more than 20% and with the amount reaching NT$10 million or more in the most recent two years: 1. Sales return and discount, gross profit: Mainly due to the price erosion caused by the market

competition, which leads to the decline of gross profit. 2. Non-operating income and expense: Mainly due to recognition of investment loss of the subsidiary

adopting equity method. 3. Income tax expenses: Mainly due to under-estimation of income tax for the years prior to 2017,

which leads to recognition of larger amount of income tax expenses in 2017 than that in 2018.

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2. International Financial Reporting Standards－consolidated basis Unit: NT$1,000; %

Year Accounts 2017 2018 Increase (decrease)

Amount % Operating Revenue 2,201,953 2,743,844 541,891 24.61

Minus: Sales return and discount (1,395,409) (1,920,899) (525,490) 37.66

Net operating revenue 806,544 822,945 16,401 2.03 Operating cost (486,085) (759,998) (273,913) 56.35

Gross profit 320,459 62,947 (257,512) -80.36 Operating expense (821,841) (780,604) 41,237 -5.02

Net operating income (loss) (501,382) (717,657) (216,275) 43.14

Non-operating income and expenses 252,278 190,030 (62,248) -24.67

Net profit (loss) before tax (249,104) (527,627) (278,523) 111.81

Minus: Income tax expenses (40,454) (22,562) 17,892 -44.23

Profit (loss) after tax (298,558) (550,189) (260,631) 90.01 Changes more than 20% and with the amount reaching NT$10 million or more in the most recent two years: 1. Operating revenue: Mainly due to new product launches in 2018 and injection of domestic CMO

revenue of Synpac-Kingdom Pharma, which was acquired by the Company in November 2017. 2. Sales return and discount, operating cost, gross profit: Due to the price erosion caused by the

market competition. In addition, the capacity utilization rate of Synpac-Kingdom Pharma, which was acquired by the Company in November 2017, is lower than expectation and the un-allocated fixed manufacturing expenses has to be recognized, which leads to increase of operating cost and decrease of gross profit.

3. Non-operating income and expenses: Mainly due to recognition of gain recognized in bargain purchase transaction in 2017.

4. Income tax expenses: Mainly due to higher estimated withholding tax of oversea income for 2017 than that for 2018 and under-estimation of income tax for the years prior to 2017, which leads to recognition of larger amount of income tax expenses in 2017 than that in 2018.

3. Estimated sales quantity and the estimation basis Since the completion of the parallel division of shareholding restructuring of the the Company and its original parent company Anchen Inc. in April 2010, the Company has invested in the research and development of its own generic drug products. As of now, the Company has filed 20 ANDA submissions in the United States and and all of them are accepted by the US FDA for review. 8 of the 19 ANDA submissions have been approved, of which 5 have been sold on the market. And there are 1 externally acquired product and 1 in-licensed product sold on the market. It is estimated that the Company’s self-developed generic drugs have the opportunity to be sold in the US market in the coming years, and the benefits of the research and development of sel-developed generic drugs will gradually emerge.

4. Possible impact on the Company's future financial and business activities and the response plan

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In addition to pursue the high growth of revenue and profitability, the Company is also committed to reducing the level of fluctuations in revenue and profitability mentioned above. Therefore, the Company will focus on the research and development of products with high-tech threshold and high entry barriers and diversify into other products of high difficult dosage forms other than that of the oral dosage form, in order to reduce the fluctuations in revenue and profitability due to the market competition.

III. Cash flow

(I) Analysis of changes in cash flow in the latest year (2018): Unit: NT$1,000; %

Year Item 2017 2018

Increase (decrease)

amount

Increase (decrease)

percentage (%) Operaing activities (601,383) (617,977) (16,594) 2.76

Investment activities (194,442) (64,061) 130,381 -67.05 Financing activities (409,496) 342,381 751,877 -183.61

Analysis of changes: 1. Investment activities: decrease of outflow is mainly due to increase of balance of time

deposits in 2017 with the term more than 3 months. 2. Financing activities: increase of inflow is main due to buy-back of the Company’s shares in

2017 and the capital injection of the Company’s subsidiary in 2018, after which the non-controlling equity also increases.

(II) Analysis of cash flow in the coming year (2019)

Analysis of changes in cash flow in the coming year (2019): 1. Business activities: The cash outflow of operating activities is mainly due to the

continuous research and development activities in 2019. 2. Investment activities: The cash outflow of investment activities is mainly due to the

continuous purchase of machinery and equipments. 3. Financing activities: The cash outflow from financing activities is mainly due to the

repayment of bank loans borrowed by the Company’s subsidiary.

Cash liquidity analysis: 1. Liquidity: The current ratio at the end of 2018 was 574.96%; the cash liquidity will

remain in good conditions in the coming year. 2. Investment Plan: Depending on the operation requirements. 3. Financing Plan: Depending on the operation requirements.

IV. The impact of major capital expenditures on financial and business

activities in the most recent fiscal year :

The Company's capital expenditures in 2018 were made in accordance with its financial planning and such capital expenditures are made mainly for the adjustment of layout of its Chungli Plant and purchase of machinery and equipments in response to the mass production preparation for the Company's newly approved generic drugs by the US FDA. Therefore, there is no material impact on the Company's financial and business activities.

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V. The most recent annual investment policy, the main reason for its profit

or loss, improvement plan and the investment plan for the next year

(I) The Company's reinvestment policy The Company's reinvestment policy is based on its long-term strategic planning aiming

to enable the Company to be actively dedicated to research and development of drugs in various fields. The Company has invested in the subsidiary TWi Biotechnology to fulfill its strategic development in research and development of new drugs since 2011 and the Company's shareholding percentage in TWi Biotechnology is 61.15% as of the date of publication of this Annual Report. The Company recognized an investment loss of NT$77,481,000 under equity method in 2018 and the Company will continue to evaluate its reinvestment plan cautiously in the future.

In 2013, the Company invested and founded 100% owned US subsidiary TWi US to facilitate the expansion of the US and global business, enhance the communication efficiency, and further strengthen the sales competitiveness of the Company's products in the US and global markets. The Company recognized an investment profit of NT$6,847,000 under equity method in 2018.

In November 2017, in order to accelerate the expansion and development of the US ophthalmic drug market, the Company acquired Synpac-Kingdom Pharma, which specializes in ophthalmic drug products, and has acquired a total of 97.01% of equity till now, in the hope that it will assist the Company in launching its ophthalmic drugs in a more efficient manner. The Company recognized an investment loss of NT$121,814,000 under equity method in 2018.

(II) The main reason for the profit or loss of reinvestment in the most recent year

At present, the new drug projects of TWi Biotechnology are still under the research and development stage so that there is no product sold on the market or generating sufficient royalty revenue, which caused the investment losses in 2018. The main operating activities of TWi US are for selling and marketing generic drugs of the Company. It generated profit in 2018 and therefore the Company recognized an investment profit in 2018. Synpac-Kingdom Pharma is strategically positioned as the manufacturing site of the Company’s ophthalmic drug products in the US. Since the co-developed ophthalmic drug products are still under research and development stage, Synpac-Kingdom Pharma was in loss in 2018, which caused the Company to recognize an investment loss in it in 2018.

(III) Improvement plan The product development strategy of TWi Biotechnology is to actively form alliance

with the world's major pharmaceutical companies to carry on the subsequent development and marketing of its products after the Phase I to Phase II clinical trials are completed. Such strategy is aimed at early realizing the profitability of new drug products early through receiving of royalties, being more flexible in the development of new drug products,

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enhancing the success possibility of the development of new drug products and synchronizing with the world trends.

TWi US, the 100% owned US subsidiary of the Company, has started to sell and market generic drugs developed by the Company's in the United States since 2015 and has turned profitable in 2017 with the stable sales of products on the market. It is expected that the profitability will grow with the new addition of product launches on the market in the future.

The Company has acquired a total of 97.01% of equity of Synpac-Kingdom Pharma as of now. The acquisition of Synpac-Kingdom Pharma is expected to strengthen the production capacity of the company's ophthalmic drug products. Before the ophthalmic drug products developed in cooperation with the Company are approved in the United States, it is expected that the existing domestic CMO business is insufficient to generate profit. Revenue coming from contracted manufacturing of the ophthalmic drug products co-developed with the Company after they are successfully launched in the United States is required for improvement of the revenue and profitability of Synpac-Kingdom Pharma.

(IV) Investment plan for the following year

In the future, the Company will evaluate the operational requirements of its subsidiaries to determine whether to increase the reinvestment.

VI. Risks

The Company mainly focuses on the US generic drug market, especially the research and development of special generic drugs with high technology threshold and that of Paragraph IV with high added value. The Company also has several approved generic drugs sole of Taiwan market. Therefore, the market competition and generic drug regulations both in the United States and Taiwan will affect the Company's operating results.

In addition, TWi Biotechnology, one of the Company's subsidiaries, is dedicated to research and development of new drugs, which is characterize with long development time, high investment risk and high uncertainty of investment benefits. In November 2017, in order to accelerate the expansion and development of the US ophthalmic drug market, the Company acquired Synpac-Kingdom Pharma, which specializes in ophthalmic drug products, and has acquired a total of 95.02% of equity as of now, in the hope that it assist the Company in successfully launching its ophthalmic drug products on the market in a more efficient manner. Therefore, the research and development progress of the subsidiaries will also affect the Company's operating results. Overall, the risks associated with the Company are summarized as follows:

(I) The impact of volatility in interest rate and exchange rate and inflation on the

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Company's profitability and the future responsive measures

1. The impact of volatility in interest rate on the Company's profitability and future responsive measures

The interest rate risk of the Company mainly comes from the long and short term bank loans. However, since the Company successfully completed the capital increase before its shares being listed in TPEx at the end of 2013, it repaid all the outstanding bank loans in early 2014 and has not made any new borrowing until now. The current outstanding bank loan of the TWi Enterprise Group comes from the loan borrowed by Synpac-Kingdom Pharma, which was incorporated into the TWi Enterprise Group through the acquisition of Synpac-Kingdom Pharma by the Company. Due to the relatively low amount of the loan compared to the scale of the Company's assets, in the most recent year and as of the date of publication of this Annual Report, the volatility in interest rate did not cause any material adverse impact on the Company's operating results. In the future, if the Company has borrowing requirements either for long term or short term, it will take in to consideration the trend of rising interest rate to arrange an optimal combination of short and long term funding sources to mitigate the risk of rising interest rate and reduce the overall financing cost. The Company will also strive to grasp the interest rate dynamics from time to time to seek favorable interest rates and reduce the risk of interest rate volatility.

2. The impact of fluctuation in exchange rate on the Company's profitability and future responsive measures

The Company is mainly engaged in the research and development of US generic drug products, and also provides contracted manufacturing and contracted research services. Most of major customers and some of the major suppliers are foreign companies, and hence, most of the account receivables and part of the research and development expenses are counted in foreign currencies. The Company's net foreign currency exchange loss to the net operating revenue was -35.16% in 2017 and 13.59% in 2018. In addition, the Company completed a fundraising of Capital Increase by offering of Overseas Depositary Receipts in September 2015. Therefore, the Company has a huge position of US dollars. Due to the restrictions on usage of funds raised by offering of Overseas Depositary Receipts, the raised foreign currency position cannot be exchanged into New Taiwan Dollars, and therefore, the Company is suspectible to the fluctuations in foreign exchange rate. The Company will continue to pay close attention to the tendency of US dollars in order to mitigate the impact of foreign exchange rate on the Company's operating results as much as possible.

R&D projects of the Company's subsidiaries are currently under research and

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development and there are no such products launched on the market for sale. Therefore the fluctuation on foreign exchange rate has not caused material impact on the operating results of those subsidiaries. The revenues and expenses of TWi US are mainly counted in the local currency. The main risk due to fluctuation in foreign exchange rate TWi Biotechnology faces is from the clinical and professional service fees paid to the foreign contracted research institutions in foreign currencies. The revenues and expenses of Synpac-Kingdom Pharma are mainly counted in New Taiwan dollars, and the proportion of revenues and expenses in foreign currency are relatively low.

3. The impact of inflation on the Company's profitability and future responsive measures

The inflation did not cause material impact on the profitability of the Company and its subsidiaries in the past. The Company will pay close attention to the inflation and if the cost of purchase increases due to inflation in the future, the Company will also adjust the price of sales in a timely manner to mitigate the adverse effect. Therefore, the inflation has a relatively limited impact on the Company's profitability.

(II) The policies for being engagd in high-risk and highly-leveraged investments,

capital lendings and endorsement and guarantees to others, and derivative transactions, the risks of profitability due to such mentioned tranactions and the future responsive measures

All the Company and its subsidiaries focus on the operation of the business and are not engaged in high-risk and highly-leveraged investments. For any investment to be made in the future due to business requirements, it shall be managed in accordance with the relevant measures established by the Company, and the information regarding the investment shall be disclosed timely and correctly according to the provisions of laws and regulations.

The NT$ 100,000,000 capital lending granted by the Company to Synpac-Kingdom Pharma was managed in accordance with the “Lending of Capital Operating Procedure” in 2018 in order to satisfy the need for short term financing of Synpac-Kingdom Pharma. Such capital lending was approved by the Company's Board of Directors meeting. If there is any new need of capital lending in the future, the Company will evaluate and manage the transaction in accordance with the “Lending of Capital Operating Procedure”.

Due to the operational need of Synpac-Kingdom Pharma, the Company provided an endorsements and guarantees facility of NT$ 200,000,000 to it in accordance with the “Endorsements and Guarantees Operating Procedure”. If there is any new need of endorsements and guarantees in the future, the Company will evaluate and manage the transaction in accordance with the “Endorsements and Guarantees Operating Procedure”.

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All the Company and its subsidiaries have not been engaged in the derivative transactions as of the date of publication of this Annual Report. If the need occurs due to business requirement in the future, the Company will manage the derivative transactions in accordance with the relevant laws and regulations and the Company's “Acquisition or Disposal of Assets Management Procedure”.

(III) Future research and development projects, estimated expenses and related risks

Unit: NT$1,000

Item Category Estimated expenses to be invested in research and

development

Short term

- Research and development of products of oral controlled release dosage forms

- Research and development of products of semi-solid dosage forms

- Ophthalmic drugs - Clinical trials for the new drugs of

the subsidiary

800,000

Medium and long term

- Continuous expansion of the technology platform

- Continuous dedication to all types of research and development activities with high efficiency and innovation

- Continuous in-licensing of the new drug candidates

- Integration of the development of new drugs and special generic drugs

1,600,000 and above

All of the Company's research and development programs focus on the generic drugs with high technology threshold and high entry barriers in the United States. Compared with new drug development, the research and development of generic drugs is less expensive and risky. According to the US FDA regulations, when developing the generic drugs, the generic drug pharmaceutical companies can rely on the safety and efficacy information of the reference drugs previously approved by the US FDA without the need to carry out various complicated and costly clinical trials. The generic drug pharmaceutical companies only need to submit the exprimental data proving that the generic drugs are bioequivalent to the reference drugs, which accelerate the launching of the generic drugs.

However, the US generic drug market is highly competitive andcomplicated. Either the “timing” of research and development, selection of products, patent protection of reference drugs, patent litigation or the US FDA's review schedule will affect the success rate of the Company's research and development projects.

The Company's management team has abundant experiences in the generic drug market in US, and is able to well grasp the dynamics in market demand, the research and

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development activities of competitors and the laws and regulations. In addition, the Company is experienced in strategic cooperation and product co-development with several domestic pharmaceutical companies. Therefore, through the successful experiences of the management team and the assistance of strategic partners, it is expected that the success rate of the research and development projects shall be improved. However, the overall risk of research and development of projects still cannot be completely avoided.

(IV) The impact of important domestic and international policies and legal changes

on the Company's financial business and responsive measures

1. Changes in various health insurance, social welfare policies or regulatory systems may reduce the selling price of generic drugs or increase operating costs;

2. Changes in the laws and regulations may affect the review process and standards of the generic drugs, resulting in prolonged review time or inability of the generic drugs to be approved, and/or increase in costs;

3. The drugs of the Company to be launched in US are planned to be sold mainly by TWi US. The pricing, sales and related management of the drugs sold in US have to be managed in accordance with US medical regulations to avoid abusing medical resources adn subsidies. For example, it may be deemed illegal to provide medical institutions with incentive rebates and allowances, which may result in huge fines or criminal punishment. Since the relevant laws and regulations are complicated and interpretated differently from person to person, if the sales partners are investigated by law enforcement agencies, it may affect the sales of the Company's generic drugs and cause adversely impact on the profitability of the Company;

4. Each country or region has made strict and respective laws and regulations for the administrations of drug review and product launch. The Company currently focuses on the US generic drug market, and for drugs to be sold in US, they have to be approved by the US FDA. If the Company would like to launch its drugs in the markets other than US in the future, it has to comply with the local laws and regulations of those target markets to get such drugs approved according to the local laws and regulations;

5. The Company has set up research and development and production sites for generic drugs in Taiwan, and conducted clinical and bioequivalent trials in other countries and regions. Therefore, the Company has to operate the business in accordance with the circustances and in compliance with relevant regulations of those countries and regions;

6. In order to comply with environmental, safety and health related regulations of different regulatory authorities, the Company has to spend a large amount of money,

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time and efforts ensuring that all operations are in compliance with relevant regulations. If there is any problem arising at any point, it will result in fines and penalties, recall of products or even accusations, which will cause losses to the Company.

The company is pursuing sustainable operations in an efficient and cost-effective manner and is in compliance with the laws and regulations revelant to its business activities and strategic objectives. The Company has taken appropriate responsive measures to the changes of important domestic and international policies and laws in the most recent year. In the future, the Company's financial, accounting and legal affair departments will continue to grasp the latest regulatory changes and seek professional advices from lawyers and accountants on the important changes in domestic and international policies and laws and regulations to propose responsive measures to reduce the impact on the Company's financial and business activities. However, the relevant risks are still difficult to be hedged completely.

(V) The impact of technology and industry changes on the Company's financial and

business activities and the responsive measures The industrial risks of the US generic drug market are explained as follows:

1. Before the generic drugs are approved by the US FDA, a strict, time-consuming, and expensive review process is required, and the results of drug review is unpredictable, which may affect the profitability of the Company;

2. It takes more than three years in average to get a generic drug approved since the initiation of research and development of that generic drug. If the market demand changes during the period, the Company may not be able to recover the invested research and development costs;

3. A 180-day exclusivity period will be granted to the First To File (FTF) generic drugs. However, for the FTF generic drugs with the exclusivity period expired or those to which no exclusivity period is applicable, competitors may be able to enter the market, which will decay the profitability and product life cycle;

4. The Company is not located in its main target market (US), and there exist risks of not being able to grasp changes in the regulations and dynamics of target market in time. However, through the establishment and operation of TWi US, the risk can be effectively reduced;

5. There are numerous competitors that have a longer history, a stronger financial system and more resources in research, development, production, marketing and so on than that of the Company, which enable the competitors to research and develop, produce and sell products in a more efficient or cheaper way. The continuous

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integration of the distributors will benefit large pharmaceutical companies, while may compress the living space of small and medium pharmaceutical companies. The brand pharmaceutical companies are also the competitors of the generic drug pharmaceutical companies, which will make efforts to delaying the launch of generic drugs through the licensing of Authorized Generics, extending the drug patents, the filing of patent litigation, or submitting the citizen petitions to the governments.

The generic drug market in US is highly competitive. The Company will pay close attention to the changes of market demands and the industry to immediately grasp the industry dynamics and keep informed of any updated market information, so as to continuously improve its research and development capabilities and enhance its competitiveness. However, this risk is still difficult to be hedged completely. The Company focuses in the research and development of special generic drugs in the US market, which is a market with relatively higher entry threshold, and suffering from lower impact of technological changes in the short term. Therefore, in the most recent year and as of the date of publication of this Annual Report, the technology changes did not cause material adverse effects on the Company's financial and business activities.

(VI) The impact of corporate image change on corporate crisis management and the

responsive measures All the company and its subsidiaries have operated business in an ethical, stable and practical way. Since the inception, the Company and its subsidiaries have actively strengthened the internal management, improved quality and efficiency, and entered the capital market to attract more talents to join the Company and its subsidiaries. The Company and its subsidiaries are dedicated to development of the robust management team feedback of the operating results to the shareholders and the society, and enforcement of the corporate social responsibilities. The overall corporate image of TWi Group is well developed and maintained, and as of now there has been no corporate risk caused by the damage of the overall corporate image.

(VII) Expected benefits and possible risks of mergers and acquisitions and the

responsive measures Due to industry characteristics, the Company may conduct mergers and acquisitions

with other companies or acquisition of products/assets, which may result in an increase in amortization expenses and affect the Company's operating results.

Mergers and acquisitions with other companies or acquisition of products/assets are common practices in the pharmaceutical industry. If the Company decides to conduct such kind of transactions, the professional opinions from all relevant parties and a comprehensive

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evaluation are required. Such transactions will be implemented only when the comprehensive evaluation shows that the expected future benefits is greater than the investment cost in order to protect the interests of shareholders. However, the realized results of such transactions may differ from the expectations.

In order to expand the space room for manufacturing and research and development, the Company conducted a short-form merger with U-Liang Production in March 2013. After taking into consideration the need for plant expansion of the Company and the advantageous location of the plant of U-Liang Production, the Company decided to acquire the plant of U-Liang Production through the aforementioned short-form merger. Such short-form merger was approved by the Ministry of Economic Affairs in April 2013, and has not caused adverse impact on the Company's operating results. More detailed information is included in the next section (8) for the expected benefits and possible risks of plant expansion and the responsive measures. In addition, in order to accelerate the Company to enter the ophthalmic drug market in U.S., the Company acquired Synpac-Kingdom Pharma in November 2017. Synpac-Kingdom Pharma specializes in manufacturing of ophthalmic preparations. It is positioned as the main manufacturing site of the Company’s ophthalmic drugs after it became one of the subsidiaries of the Company to support the Company to file the ANDA submissions of the ophthalmic drugs in the U.S. market and support the needs of commercial production in the future.

(VIII) Expected benefits and possible risks of plant expansion and the responsive

measures As the pharmaceutical market changes rapidly and the investment to be made for

expansion of plant and the new production lines is large, in order to avoid the risk that the expansion plan may not meet actual needs, the Company decides to implement its expansion plan in installments depending on the market changes and the timing of drug approvals, as well as continues to actively research and develop new products and new technologies and improves the efficiency of production process. This is aimed at maximizing the benefits of the expansion plan and establishing a sustained competitive advantage in a competitive environment.

As the expansion of the then-existing production capacity of the Chungli Plant has reached the bottleneck, therefore, the Company actively sought opportunities to expand/build the plant to meet the requirements of manufacturing the self-developed drugs in the future. As mentioned in the previous section, the Company acquired the previous plant of U-Liang Prodcution in March 2013 through a short-form merger. The relevant expected benefits are as follows:

1. Increase of the space for manufacturing: The company currently has 6 self-developed generic drugs and one CMO generic drug (sold in the US) manufactured

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in the Chungli Plant, and there are still a number of generic drugs that are already approved or under review by the US FDA, which are estimated to be launched in the US market in future years. Due to the limited manufacturing space in the then-current Chungli Plan, it is difficult to mass-produce a variety of products at the same time.Therefore it is required to increase the space for manufacturing in response to the mass production of various products in the future. In addition, the larger space allows grouping of products with same homogeneity, and through mutual support of equipments, and the usage and utilization is improved.

2. Increase of the spacefor research and development: Due to the limited space for research and development and the Company's active ambition to diversify into drug products of different dosage forms, this plant expansion plan is expected to contribute to the increased capacity of research and development equipments and reduced time of trial-production, which assists the Company in seizing the market opportunities.

3. High management efficiency: The location of the plant of U-Liang Production is only 500 meters away from the Company's Chungli Plant, and it is convenient to manage those two sites under the identical organizational structure and by the same management team, which is beneficial not only to the future US FDA's plant inspection, but also effective management of the resource allocation between the two sites. The expected targeted is to achieve maximum benefit at minimal cost.

TWi Biotechnology is still in research and development stage at present, and there is no plant building (expansion) plan as of the date of publication of this Annual Report. Another subsidiary, Synpac-Kingdom Pharma, is positioned as the manufacturing site of the Company’s ophthalmic drugs to be launched in the U.S. market. Synpac-Kingdom Pharma is dedicated to upgrading its manafacturing and quality control system to meet the standards of the US FDA’a drug review regulations, in order for the Company to file its ANDA submissions of ophthalmic drugs and to supply its ophthalmic drugs to the U.S. market.

(IX) The risks of purchase from or sales to concentrated parties and the responsive

measures

1. Concentration of purchases: The main sources of the Company's purchases are scattered both domestically and internationally. In the most recent year and as of the date of publication of this Annual Report, purchases from the top three suppliers accounts for more than 70% of the total purchase amount. The main materials of the Company's 1 CMO drug and 6 self-developed drugs are supplied by the major suppliers. Due to the industrial characteristics of pharmaceutical manufacturing industry, relevant raw materials shall meet strict specifications or patent restrictions. Therefore, in order to maintain stable production quality, a long-term supply

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relationship is established between the suppliers and the Company. The Company will diversify its product portfolio and increase the number of cooperative suppliers to disperse the proportion of the purchase amount of one single material and reduce the risk of this concentration of purchases.

2. Concentration of sales: The Company's current sales revenue mainly comes from the sales of self-developed generic drug products, sales of drugs for clinical trials, CMO revenue and royalty revenue, etc. The Company has launched 5 self-developed generic drugs, 1 externally-acquired generic drug and 1 in-licensed generic drug in the US in the most recent year and as of the date of publication of this Annual Report, and continue to perform contracted manufacturing for Par Pharma. The company has filed 20 ANDA submissions in the United States and all of them have been accepted for review by the US FDA. Among them, 8 of the ANDA submissions were successfully approved by the US FDA. The Company expects to get more generic drug approved and launched in the coming years. With the launches of drugs of the Company, it is expected that the concentration of sales will be continuously reduced in the future.

(X) The impact and risk of transfer of large number of shares by the Directors,

Supervisors or Shareholders holding more than 10% of the shares of the Company and the responsive measures

The company was originally a 100%-owned subsidiary of TWi Holding. In order to realize the vision of being listed in the capital market of Taiwan, TWi Holding transferred part of the Company’s shares it originally held to its shareholders in July and August of 2012. Therefore, the shareholding of TWi Holding in the Company decreased from 100% to approximately 30% after that transaction. Except for the aforementioned transaction, Directors, Supervisors or Shareholders holding more than 10% of the shares on the Company did not perform significant share transfer transactions as of the date of publication of this Annual Report.

(XI) The impact and risk of changes in management rights of the Company and the

responsive measures All the Company and its subsidiaries operate stably. As of the date of publication of

this Annual Report, the Company and its subsidiaries did not undergo changes in management rights.

(XII) Litigation and non-contentious events

1. The Company Litigation Events

The facts of dispute, the target amount of the dispute, the commencement of

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the litigation, the main parties involved in the dispute and the current status shall be disclosed if the result of litigation event with final verdict, pending litigation event, non-contentious event or administrative litigation is likely to cause a significant impact on the shareholders' equity or price of the securities as of the date of publication of this Annual Report:

(1) Submission of generic version of Dexilant®

The Company filed an ANDA submission of generic version of Dexilant® of Takeda to the US FDA, and submitted the Paragraph IV certification for the patents specified in the Orange Book. Takeda and the patent holder consequently filed two patent infringement litigations against the Company and requested the court to prohibit the Company's generic drug product from being sold on the market. The Company and Takeda have reached a settlement in April, 2015 and signed the licensing and supplier contracts.

(2) Submission of generic version of Oxtellar XR®

The Company filed an ANDA submission of the generic version of Oxtellar XR ® of Supernus Pharmaceuticals, Inc. to the US FDA, and submitted Paragraph IV certification for the patents specified in the Orange Book according to the laws. Supernus consequently filed a patent infringement litigation against the Company and requested the court to prohibit the Company's generic drug product from being sold on the market. The court’s judgment ruled the patent was valid. The Company disagreed with the judgment and appealed to the Court of Appeals for the Federal Circuit. The Court of Appeals for the Federal Circuit ruled to maintain the original District Court judgment in September 2018.

(3) Submission of generic version of Restasis®

The Company filed an ANDA submission of the generic version of Restasis® of Allergan, Inc. to the US FDA, and submitted Paragraph IV certification for the patents specified in the Orange Book according to the laws. Allergan, Inc. consequently filed a patent infringement litigation against the Company and requested the court to prohibit the Company's generic drug product from being sold on the market before the patents expire. The Company and Allergan, Inc. had reached a settlement in January 2017 and signed a settlement agreement.

(4) Submission of generic version of Androgel® 1.62%

The Company filed an ANDA submission of the generic version of

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Androgel® 1.62% of AbbVie Inc. to the US FDA, and submitted Paragraph IV certification for the patents specified in the Orange Book according to the laws. AbbVie Inc. consequently filed a patent infringement litigation against the Company and requested the court to prohibit the Company's generic drug product from being sold on the market before the patents expire. The Company and AbbVie Inc. had reached a settlement in November 2016 and signed a settlement agreement.

(5) Submission of generic version of Tecfidera®

The Company filed an ANDA submission of the generic version of Tecfidera® of Biogen to the US FDA, and submitted Paragraph IV certification for the patents specified in the Orange Book according to the laws. Biogen consequently filed a patent infringement litigation against the Company and requested the court to prohibit the Company's generic drug product from being sold on the market before the patents expire. At present, this litigation is still in progress, and the results of the litigation will affect the time for the Company to launch its generic drug product.

In summary, for the applicants of Paragraph IV ANDA submissions, the brand pharmaceutical companies and the patent holders can file patent litigations within the statutory period and initiate a 30-month stay mechanism, requesting the US FDA not to approve the generic drugs within 30 months to delay the time of launches of generic drugs. All the aforementioned litigations are of this type of patent litigation, which are common in the industry of Paragraph IV generic drugs.

2. Litigation events filed by the Company's Directors, Supervisors, President, person in charge, major shareholders holding more than 10% equity and subordinated companies

The is no litigation with final verdict, pending litigation, non-contentious event or administrative litigation filed by the Company's Directors, Supervisors, President, person in charge, major shareholders holding more than 10% equity and subordinated companiesin the last two years and as of the date of publication of this Annual Report. Therefore, there is no significant impact on the Company's shareholders' equity or price of the securities.

3. Major financial events of the Company's Directors, Supervisors, Managerial Officers and Major Shareholders with shareholding ratio of more than 10%

The Company's Directors, Supervisors, managerial officers and major

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shareholders with a shareholding ratio of more than 10% have not experienced financial turnover difficulties or lost of credit in the past two years and as of the date of publication of this Annual Report. Therefore, there is no significant impact on the Company's shareholders' equity or price of the securities.

(XIII) Other important risks and the responsive measures

1. The Company's overall operational risks and the responsive measures

Aspect Risk details

Laws and Regulations

(1) Uncertainty of review time by the US FDA or the TFDA (2) Changes of national health insurance and payment policy (3) Failure to immediately respond to complex laws and regulations,

which may result in fines, litigation expenses, or restricted business activities

(4) Serious or unexpected health or safety concerns with potential risk of litigation and indemnification


(1) Uncertainty in the amount of expenses to be invested for research and development, acquisition or in-licensing of new products

(2) Unexpected results of clinical or bioequivalence tests

Manufacturing

(1) Fluctuations in the prices of various raw materials (2) Interruption of contracted manufacturing services or supplies of

raw materials (3) Procurement of key materials in advance during the drug review

process in preparation for the subsequent manufacturing, which may cause losses to the Company if such drug is not finally approved.

(4) Possible adjustments of layout of the plant in response to the inspection by the US FDA inspection, or in accordance with the changes of related inspection standards.

(5) Relatively uncertain quality stability for CMO products

Cooperative distribution

(1) Uncertainty in market acceptance of the products upon and after their launches

(2) Unsustained ability to maintain sales prices and profits (3) Impact from the operation of external customers that may also

affect the profitability of the Company. (4) Market entry of the substitute products which may cause the

Company's products to lose competitiveness

External Cooperation

(1) Inability to effectively manage the strategic partners in drug review process, market share, sales volume, sales milestone, and compliance with laws and regulations, etc.

(2) Terms and conditions of cooperative development or licensing contracts that may affect the timing of revenue recognition

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Aspect Risk details

Intellectual property

(1) Uncertainty of results of patent litigation, related litigation and expenses

(2) The ability to protect the intellectual property rights of own products and the ability to avoid infringement to the intellectual property rights of products of others

The company focuses on generic drugs with high technology threshold. In addition to the products of oral controlled release dosage forms the Company originally specializes in, the Company also has diversified into the research and development of products of special dosage forms such as local / percutaneous absorption preparations, ophthalmic drugs and emulsions in recent years, in order to expand the technology platform, increase product scope, enhance the Company's competitive advantages and reduce operational risks. In the medium and long term, the Company expects to further strengthen its competitive advantages through strategic alliances with active pharmaceutical ingredient (API) and other special dosage from pharmaceutical companies to maintain its competitiveness sustained.

2. The risks subsidiaries / reinvestment companies and the responsive measures

TWi Biotechnology engages in the research and development of new drugs. New drug development is an industry of high risk and high reward. The drug development time is lengthy and the investment required is huge. It is conservatively estimated that it takes about 10 to 12 years to advance a new drug from research and development stage to product launch, and the cost is estimated to be about US$300 million to US$500 million. There are two categories of product research and development strategies of TWi Biotechnology. One is to research and develop new drugs internally. Since the research and development team of TWi Biotechnology is experienced in new drug development, it will search for drug candidates from the existing drugs with potential to develop new indications or new dosage forms. The other strategy is to introduce external research projects with potential for further development, conduct preclinical and clinical development through aid of TWi Biotechnology's experiences in regulatory affairs associated with domestic and international new drug development, and to construct related patent protection.

Although the successful development of new drugs will bring considerable profits, huge investment in research and development is required before the product is launched, which will affect the Company's investment income and operating results. The risks associated with research and development of new drugs are as follows:

(1) According to the statistics of the Pharmaceutical Research and Manufacturers of

183

America (PhRMA), for every 5,000 to 10,000 screened compounds, about 250 can enter the preclinical phase, about 5 can enter the clinical phase, and only one can get the drug approval by US FDA. Therefore, the ability tocontinuously research and develop will affect the results of operations;

(2) The results of cooperation with external organizations or developers may affect the results of operations. The strategic cooperation between TWi Biotechnology and external organizations allows TWi Biotechnology to flexibly utilize domestic and international resources and research and development efficiency from industries and academia. However, the results of the cooperative development are uncertain. In addition, after the initial development of the new drug is completed and taken up by the cooperative partner for further development, the research and development strategy of such cooperative partner may not be completely consistent to the original expectation. Whether the project isable to be successfully developed and launched will affect the licensing revenue of TWi Biotechnology;

(3) The patents and intellectual property rights of new drugs may be infringed, which may affects the results of operations. Patent protection of the new drug candidates developed by TWi Biotechnology in the target market is well established during the early stage of development, and if infringed, TWi Biotechnology will actively seek solutions.

The criteria for TWi Biotechnology to select new drug candidates for further development include that (1) the candidate shall have the potential to satisfy unmet medical needs, (2) the candidate has great market demand, and (3) the candidate will perform in the new mechanism so that increased future profitability is expected. The business model of TWi Biotechnology is to develop the lead drug molecules to the stage of clinical phase I or II, and actively seek the major pharmaceutical companies in the world to take up the subsequent works for research and development and product launch. This business model will allow TWi Biotechnology to be more flexible in new drug development, lower the clinical trial costs and connect with the world trends. In addition, the drug delivery technology and the experiences of executing clinical trials in the Greater China as well as regulatory affairs in the Greater China and the USA, which are specifically developed by TWi Biotechnology, will assist in accelerating the clinical development schedule and enhancing the success rate of new drug development. However, the risks of new drug development can not be hedged completely.

The acquisition of Synpac-Kingdom Pharma by the Company is targeted to fulfill the strategic planning for the Company to enter into the ophthalmic products. Since Synpac-Kingdom Pharma is mainly engaged in the contracted manufacturing

184

of ophthalmic drugs, the risks it faces are limited. The risk of development of the ophthalmic drug products is mainly borne by the Company.

3. Patent related risks and the responsive measures

When the generic drug applicant files ANDA submission to the US FDA, it has to submit the certification for the patents of the reference drug specified in the Orange Book to state the status the patents. Such certification is divided into four categories: (i)Paragraph I: there is no related patents for the reference drugs, (ii)Paragraph II: the patents of the reference drug have expired, (iii) Paragraph III: the patents of the reference drug have not expired, and the applicant will launch it generic product after the patents expire, and (iv) Paragraph IV: the applicant believes that the patents of the reference drug is invalid or unenforceable, or the applicant's generic product does not infringe the patents of the reference drug. The following figure illustrates the four categories of patent certifications for ANDAsubmission:

(1) The company is also engaged in the development of the Paragraph IV generic

drugs. Therefore, when the Company files Paragraph IV ANDA submission to the US FDA, the brand pharmaceutical company will file a patent litigation against the Company, which is usually involved with complex technology and legal disputes. The patent litigation is usually very costly and will delay or hinder the timing of product launch. If the Company loses the litigation, it may causd delayed product launch or even loss of the opportunity for product launch, which will affect the operating results;

(2) For the Paragraph IV generic drug, if the Company settles with the brand pharmaceutical company, it may cause the attention of the US FTC and other regulatory authorities to check if the relevant settlement conditions violate the antitrust laws;

Paragraph I No patent application

information

Paragraph II Patents have expired

Paragraph III Patents will expire in the

future

Paragraph IV Patents do not expire

The generic drug applicant claims that the patent is not valid or its generic product

does not infringe the patents of the reference drug

Drug approval is not related to patent

issues One or more generic drugs launched 1. Low technology threshold 2. High technology threshold

In addition to drug review, the drug launch is also relevant to the court's judgment 1. High risk, higher cost 2. Higher potential profit (180-day market exclusivity for the FTF)

Drug approval will be granted after the expiration of patents

Drug approval may be granted before the

expiration of patents

185

(3) In addition, the related production processes or the generic drug products of the Company may not be protected by patents, and may be plagiarized by third parties, or the Company may not have sufficient resources to defend the related patents acquired.

Regarding the research and development of Paragraph IV generic drugs, the Company will review the relevant information of intellectual properties to decide whether to bypass patent layout of the brand pharmaceutical companies or to claim the invalidity of the patents of the reference drugs to improve the chance of winning the litigation with the brand pharmaceutical companies. In addition, since the litigation between the Company and the brand pharmaceutical companies occurs before the launch of the generic products, even if the Company loses the litigation, there is no indemnification risk. The loss is limited to the expenses of litigation paid by the Company or the counter party of the litigation.

4. Other important risks and the responsive measures

(1) Risks of lack in talents and capital

In recent years, in order to expand the product portofolio and acquire technical resources, the M&A activities initiated by the large-scale pharmaceutical companies are prevalent, resulting in an industrial situation in which high-tech talents and capital funds are concentrated to the large-scale pharmaceutical companies. Currently the operating scale of the Company is still relatively small and resources it owns are insufficient. Therefore, although the Company is supported bya group of shareholders of high quality, it is still confronted with the risk of inability in recruiting talents and raising funds. In response to the aforementioned industrial situation of resources being concentrated to the large-scale pharmaceutical companies, the Company has developed a clear market positioning by inaugurating from the special generic drugs of high technology threshold to construct an international vision and jump away from the frame of traditional generic drug pharmaceutical industry so as to attract talents and capital investment.

(2) Risks of Taiwan market

Certain products of The Company are currently manufactured by its cooperative partners and sold in Taiwan. Although the revenuegenerated in Taiwan market is relatively small and gradually declines, the Company is still confronted with the product and market risks in Taiwan. However, since those products have been sold for many years and entered into the mature stage, the relevant market and product risks are under the control of the Company.

(3) Risks of information and communication security and the responsive

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measures

The Company has established an information and communication security system to control and manage its important functions required for corporate operation such as finance and business. However, it is still unable to guarantee the Company completely free from external hacker attacks. Such hacker attacks will invade the internal internet system of the Company to destroy the operation and damage the goodwill of the Company. If heavily attacked, it is possible for the Company to lose its important data and its manufacturing activities may be shut down accordingly. The potential impact include:

A. Malicious steal of the commercial secrets, other intellectual properties and confidential information of the Company, such as information of customers or other stakeholders, as well as personal information of employees.

B. Implantation of computer virus, malicious software and blackmail sofeware into the internet system of the Company in order to obstruct the operation of the Company, obtain the control right of the Company’s computer system, blackmail the Company and peep at the Company’s confidential information.

C. Delayed manufacturing of products which may lead to indemnification to the loss of customers and huge maintenance cost for remedies and improvement to strengthen the information and communication security system of the Company.

D. Leakage by the Company of customer or third party information on which the Company bears duty of confidentiality, which may result in lawsuits and legal investigation and confront the Company with material legal liabilities.

Through periodical information and communication security inspection and control, the Company evaluates the appropriateness, effectiveness and safety of its information and communication security system in hope that, even though the Company is surronded by various information security threats, the impact of the evolving hacker attack be mitigated or excluded. However, that risk is difficult to be completed hedged.

(4) Risk of economic cycle and the responsive measures

A. Unstable conditions in global market and economy may cause the consumers to change their health and medical expenditures;

B. Fluctuations in the industries related to the Company may result in poor

187

transaction conditions and affect the efficiency of the Company's operations;

C. The extremely unstable comditions of capital and credit markets may increase the cost of capital of the Company.

The Company will strive to grasp the cyclical changes in the economy and adjust its operational strategies in a timely manner to diversify the risk of the industrial economic cycle. However, this risk cannot be completely hedged.

VII. Other important business matters: None.

188

Eight. Special Items

I. Relevant Information of Affiliated Enterprises (I) Organization Structure of Affiliated Enterprises

As of April 30, 2019

61.15%

TWi Pharmaceuticals USA, Inc.

(TWi US)

TWi Pharmaceutical

Ltd.

(TWi BVI)

TWi Pharmaceuticals Europe Limited

(TWi UK)

(Note: The Board of Directors Meeting dated April 26, 2016 passed the

resolution for liquidation and TWi UK entered the

liquidation process on July 27, 2017)

TWi Biotechnology Inc.

(TWi Biotechnology)

TWi Pharmaceutical Cayman Ltd

(TWi CAY)

100%

100% 100% 100%


(“TWi Pharma” or “the Company”)

Synpac-Kingdom Pharmaceutical Co., Ltd.

( Synpac-Kingdom Pharma )

97.01%

189

1. The name, founding date, address, paid-in capital and main business of each Affiliated Enterprise

April 30, 2019

Name of Enterprise Founding Date Address Paid-in Capital Main Business or Products

TWi Biotechnology July 16, 2010 8F., No.41, Ln. 221, Gangqian Rd., Neihu Dist., Taipei City

NTD 674,343,950 New Drug Development

Synpac-Kingdom Pharma July 20, 1965

4F., No.41, Ln. 221, Gangqian Rd., Neihu Dist., Taipei City

NTD250,000,000 Ophthalmic preparation

manufacturing

TWi UK (Note 1) June 20, 2014

Birchin Court,20 Birchin Lane, London, England

US$ 1

Consultation services and

sales of generic drugs

TWi US November 15, 2013

Country Club Campus Plaza I, 115 West Century Road, Suite 180, Paramus, New Jersey 07652, United States of America

US$ 38

Consultation services and

sales of generic drugs

TWi BVI May 30, 2014

P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands.

US$ 13 Holding Company

TWi CAY June 5, 2014

P. O. Box 31119 Grand Pavilion, Hibiscus Way, 802 West Bay Road, Grand Cayman, KY1 - 1205 Cayman Islands

US$ 0.07 Holding Company

Note 1: The Board of Directors Meeting dated April 26, 2016 passed the resolution for liquidation and TWi UK has entered the liquidation process since July 27, 2017.

2. Controlling and subordinate parties assumed in accordance with Article 369-3 of

the Company Act Reasons for the assumption: Shareholding percentage is disclosed as follows:

190

April 30, 2019

Name of controlling company

Shares held Founding date of the controlling company

Address of the

controllingcompan

y

Paid-in capital of the controlling company

Main business of

the controlling company

Name of subordinate

company

Number of shares

Shareholding percentage

TWi Pharmaceuticals,

Inc.

TWi Biotechnology 41,239,000 61.15%

December 1, 1997

4F., No.41, Ln.

221, Gangqian

Rd., Neihu Dist., Taipei City

1,203,567,870

Research and development

of special generic drugs

Synpac-Kingdom Pharma 24,252,492 97.01%

TWi UK 100 100% (Note 1)

TWi US 38 100%

TWi BVI 1,312 100%

TWi CAY - (Note 2)

Note 1: The Board of Directors Meeting dated April 26, 2016 passed the resolution for liquidation and TWi UK has entered the liquidation process since July 27, 2017.

Note 2: TWi CAY is the 100% owned second-tier subsidiary of the Company, which is 100% directly held by TWi BVI, the 100% owned subsidiary of the Company.

3. The scope of industries covered by the business operated by the Company and its overall Affiliated Enterprises. The correspondence and cooperation of the entities among the Group shall be explained if the business operated by either entity of the Group is mutually related.

(1) Businesses operated by each Affiliated Enterprise:

A. The Company: Research, development and manufacturing of the special generic drugs

B. TWi Biotechnology: New drug development

C. Synpac-Kingdom Pharma: Contracted manufacturing of ophthalmic products, which is positioned to support the filing s of ANDA submissions and commercial mass production of ophthalmic products of the Company in the US market.

D. TWi UK: Consultation services and sales of generic drugs. The Board of Directors Meeting of the Company dated April 26, 2016 passed the resolution for liquidation of TWi UK and TWi UK has entered the liquidation process since July 27, 2017.

E. TWi US: Consultation services and sales of generic drugs

F. TWi BVI: Holding Company

G. TWi CAY: Holding Company

(2) Correspondence and cooperation among entities of the TWi Group:

TWi Biotechnology was originally the department of new drug research and development of the Company. Based on the strategic consideration of resource cooperation and risk management, the Company completed the organization

191

restructuring in June 2010, after which the original new drug department was spun off into an independent company namely TWi Biotechnology, which succeeded to the resources in new drug development accumulated by the Company. Since then, the Company has specialize in the research and development of generic drugs, while TWi Biotechnology has specialized in the research and development of new drugs.

The mutual support relationship between the Company and TWi Biotechnology is

described in the following figure:

Through its strong experiences in new drug clinic development and deep understanding of market demand new drugs, combined with the research and development experiences and technology in developing special generic drugs of sustained release dosage forms, TWi Biotechnology has successfully introduced several new drug development projects, most of which are targeted to satisfy the unmet medical needs. The Company adopts a strategy of “high-efficiency and innovative research and development “. In addition to being the first pharmaceutical company in Asia which focuses on special generic drugs, the Company also integrates the clinical development experiences of TWi Biotechnology to effectively reduce the development risks of drugs with high market value andform a high level synergy. The TWi Group expects to support the new drug development with the revenue generated form sales of special generic drugs in the short term, and harvest the high growth benefits driven by new drugs through the high-efficiency abd innovative strategies in the medium and long term.

Establishment of TWi US enables the Company to strengthen the sales competitiveness in the US market, improve the grasp of dynamics of the US market facilitate the US business expansion and improve communication efficiency. Through the self-built selling platform of TWi US and with the drugs continuously being approved, the products have been launched successively in the US market.

1. Fully understanding of the pharmaceutical market and new drug development strategies

2. Experienced in conducting cross-country clinical trials

3. Skilled in regulatory affairs of new drugs in the US 4. Proficiency in the patent layout strategies of new

drugs in the US 5. Specialization in clinical development evaluation of

new drugs

1. Rich development experience in prescription and dosage form

2. Production process and manufacturing which conform to the US FDA cGMP

3. Highly skilled in the regulatory affairs in the US 4. Familiarity with the patent layout strategies of

generic drugsin the US 5. Ample experiences in international licensing and

supportive administrative management

TWi Biotechnology The Company

The Company TWi Biotechnology

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Synpac-Kingdom Pharma specializes in the production of ophthalmic preparations. After the acquisition by the Company, Synpac-Kingdom Pharma is positioned to be responsible for the contracted manufacturing of the ophthalmic products of the Company in order to support the filings of ANDA submissions and the requirements of commercial mass production of ophthalmic products of the Company in the US market.

4. The names of Directors, Supervisors and Presidents of all Affiliated Enterprises and

their shareholdings or capital contributions to the Affiliated Enterprises April 30, 2019; Unit: Share

Name of Enterprise Title Name or Representative

Shares held Number of

shares Shareholding

percentage

TWi US Director Dr. Chih-Ming Chen 38 100%

TWi UK (Note 1) - - - -

TWi Biotechnology

Chairman TWi Pharmaceuticals, Inc. Representative: Chih-Ming Chen

41,239,000 61.15% Director TWi Pharmaceuticals, Inc. Representative: Nien-Hua Liu

Director TWi Pharmaceuticals, Inc. Representative: Chun-Yi Luan

Director Yueh Yueh - -

Independent Director Jui-Lien Huang - -

Independent Director Ming-Huan Chung - -

President and CEO Chih-Kuang Chen (Note 2) 1,063,000

(Note 3) 1.58%

President Guang-Wei Lu (Note 4) - -

Synpac-Kingdom Pharma

Chairman TWi Pharmaceuticals, Inc. Representative: Nien-Hua Liu

24,252,492 97.01% Director TWi Pharmaceuticals, Inc. Representative: Ling-Ying Liaw

Director TWi Pharmaceuticals, Inc. Representative: Chun-Yi Luan

Supervisor Hung-Yi Yang - -

Presidebt Ling-Ying Liaw

TWi BVI Director TWi Pharmaceuticals, Inc. Representative: Nien-Hua Liu 1,312 100%

TWi CAY Director TWi Pharmaceutical Ltd. Representative: Nien-Hua Liu 7 100%

Note 1: The Board of Directors Meeting dated April 26, 2016 has passed the resolution for liquidation of TWi UK, and TWi UK has entered the liquidation process since July 27, 2017.

Note 2: Chih-Kuang Chen has trasnferred to serve as the consultant of TWi Biotechnology, Inc. The information was updated as of the date of transfer.

Note 3: Including shares under trust with discretion reserved. Note 4: Guang-Wei Lu has transferred to serve as the President of TWi Biotechnology, Inc. since March

27, 2019. The information was updated as of the date of transfer.

193

5. The financial status and operation results of each affiliated enterprise shall be clearly

stated in this Section of operation overview of Affiliated Enterprises. December 31, 2018; Unit: $1000

Name of Enterprise

Paid-in Capital

Total assets

Total liabilities

Net worth

Operating revenue

Operating profit

Net profit and loss

(after tax)

Earnings per share

(after Tax)

TWi Biotechnology NT 674,344 542,007 34,515 507,492 25,837 (115,362) (112,516) (1.86)

Synpac-Kingdom Pharma NT 150,000 372,238 246,988 125,250 66,938 (125,575) (128,199) (8.55)

TWi UK (Note 1) US 1 1,981 346 1,635 - (345) 47 -

TWi US US 38 761,101 531,308 229,793 696,693 17,259 6,847 -

TWi BVI US 13 36,933 - 36,933 - (272) (268) -

TWi CAY US 0.07 36,835 - 36,835 - (212) (208) -

Note 1: The Board of Directors meeting dated April 26, 2016 passed the resolution for liquidation of TWi UK, and TWi UK has entered the liquidation process since July 27, 2017.

6. Affiliation Report: Not Applicable.

7. Consolidated financial statements of the Affiliated Enterprise:

If the subsidiaries to be considated into the affiliated enterprise consolidated financial statements of the Company in accordance with “Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises” in 2018, (from January 1, 2018 to December 31, 2018) are the same as those to be considated into the consolidated financial statements of the Company in accordance with No. 10 of the International Financial Reporting Standards, and the relevant information which shall be disclosed in the affiliated enterprise consolidated financial statements has been disclosed in the aforementioned consolidated financial statements of the Company, then a statement shall be placed in the first page of the consolidated financial report of the Company and it is not necessary to prepare the affiliated enterprise consolidated financial statements. Please refer to Page 199 to Page 300 for the Company's 2018 consolidated financial statements and the CPA’s audit report.

II. Private placement in the most recent year and as of the date of publication of this Annual Report: None.

III. The status of holding or disposing of the Company's stock by the subsidiaries in the most recent year and as of the date of publication of this Annual Report: None.

194

IV. Other required supplementary explanations:

The implementation of the Company’s commitment events to TPEx since it was listed in TPEx on December 3, 2013:

Commitment events to TPEx Implementation (I) The Company committed to added in

its “Acquisition or Disposal of Assets Management Procedure” the clause of “The Company shall not abstain from participating in the capital increase of TWi Biotechnology in the future years; in the future, if the Company has to abstain from participating the capital increase or dispose of shares of TWi Biotechnology due to strategic alliance or any other considerations approved by the Taipei Exchange, such proposal shall be approved by the special resolution of the Company's Board of Directors Meeting.” If the clause is revised in the future, it shall be disclosed in the Market Observation Post System and reported in writing to Taipei Exchange for reference.

1. The addition of aforementioned clause to the “Acquisition or Disposal of Assets Management Procedure” was approved by the resolution of the Company's 18th meeting of the 8th Board of Directors dated October 1, 2013, and was reported to the Company's Annual General Shareholders Meeting dated June 12, 2014.

2. The Company’s 32nd meeting of the 8th Board of Directors dated March 5, 2015 approved the Company to abstain from the subscription of the 2015 Second Capital Increased by Cash of TWi Biotechnology.

3. The Company’s 8th meeting of the 9th Board of Directors dated April 26, 2016 approved the Company to dispose the shares of TWi Biotechnology within the cap of 10,000,000 shares at the per share price of not lower than NT$70 during the period of 3 months.

4. The Company’s 11th meeting of the 9th Board of Directors dated September 7, 2016 approved the Company to dispose the shares of TWi Biotechnology within the cap of 1,000,000 shares at the per share price of not lower than NT$70.

5. The Company’s 15th meeting of the 9th Board of Directors dated November 30, 2016 approved the Company to dispose the shares of TWi Biotechnology within the cap of 1,501,000 shares at the per share price of not lower than NT$80.

6. The Company’s 2nd meeting of the 10th Board of Directors dated June 26, 2018 approved the Company to abstain from the subscription of the Capital Increased by Cash of TWi Biotechnology.

195

V. Significant impact on shareholders' equity or securities prices in the events as set forth in subparagraph 2 of paragraph 2 of Article 36 of the Securities and Exchange Act in the most recent year and as of the date of publication of this Annual Report:

The Board of Directors of the Company dated April 19, 2019 approved the Company

to enter into the share conversion transaction with Calchen Pharmaceuticals, Inc. and to void the qualification as a public company. The Company’s common stock will be terminated to be traded on the TPEx and the qualification of the Company as a public company will be voided upon the record date for share conversion subject to the conditions that the share conversion is approved by this Shareholders’ Meeting of the Company and the Competent Authorities.

The record date for share conversion between the Company and Calchen Pharmaceuticals, Inc. is tentatively set as August 5, 2019, which is also the date from which the Company’s common stock will be terminated to be traded on the TPEx and the qualification of the Company as a public company will be voided. However, the actual record date is subject to the approval of the Competent Authorities.

196


Audit Committee’s Review Report

The proposals on FY2018 Business Report, consolidated and stand-alone financial

statements and Deficit Compensation Table etc. of the Company have been prepared

and submitted by Board of Directors of the Company, among them, the consolidated

and stand-alone financial statements have been audited by accountant Tseng, Hui-

Chin and Teng, Sheng-Wei from PwC Taiwan and audit report has been issued.

Proposals regarding the above Business Report, consolidated and stand-alone

financial statements and Deficit Compensation Table have been reviewed by Audit

Committee, and those proposals are appropriate. It is hereby proposed for supervision

pursuant to Article 14 of Securities Exchange Act and Article 219 of Company Act.


Convener of Audit Committee: Su, Yu-Hui

Member of Audit Committee: Sun, Ching-Feng

Member of Audit Committee: Lin, Dong-Han

March 15, 2019

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REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE

To TWi Pharmaceuticals, Inc. Opinion We have audited the accompanying consolidated balance sheets of TWi Pharmaceuticals, Inc. and its subsidiaries (the “Group”) as at December 31, 2017 and 2018, and the related consolidated statements of comprehensive income, of changes in equity and of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, based on our audits (refer to Other matter - Scope of the Audit section of our report), the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2017 and 2018, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission. Basis for opinion We conducted our audits in accordance with the “Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants” and generally accepted auditing standards in the Republic of China (ROC GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the Code of Professional Ethics for Certified Public Accountants in the Republic of China (the “Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. Based on our audits, we believe we have obtained sufficient and appropriate audit evidence to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole and, in forming our opinion thereon, we do not provide a separate opinion on these matters.

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Estimation of refund liabilities Description Refer to Note 4(26) for related accounting policy, and Notes 5 and 6(14)(21) for uncertainty of estimated refund liabilities and details of revenues. The Group’s sales revenue for the year ended December 31, 2018 amounted to $822,594 thousand. The Group’s main customers are US pharmaceutical wholesale distributors. In accordance with local practice, the Group first sells to the distributors at list price, afterwards, the Group grants different sales rebates to the distributors depending on the distributors’ ultimate end customers and their respective contract prices. The Group makes an estimate of refund liabilities based on historical data and prediction of the possible sales combination that the distributor will make upon sales to distributors. At the end of each quarter, the Group adjusts the refund liabilities based on actual data of the distributors' most recent sales combination. Given the uncertainty in the estimation of distributors’ future sales combinations and the resulting estimates materially influence the income statement, we consider the estimation of the Group’s refund liabilities a key audit matter. How our audit addressed the matter We performed the following audit procedures on the key audit matter mentioned above: 1. Selected samples and evaluated the reasonableness of the distributors' most recent actual sales

combination. 2. Obtained calculation of the refund liabilities at year end and selected samples for recalculation to

ensure that the adjustments made were based on the distributors' most recent actual sales combination.

3. Sampled estimation of refund and its entries and checked whether they have been properly reviewed and the calculations are in accordance with the contract terms.

Allowance for inventory valuation Description Refer to Note 4(13) for accounting policy on inventory valuation; Note 6(5) for the details on inventories and Note 5(2) for uncertainty of accounting estimates and assumptions in relation to inventory valuation. The Group is primarily engaged in manufacturing and sale of generic drugs. The industry is characterised by fierce competition and a limited storage period. Inventory valuation relies on subjective judgement when there is impairment resulting from expired or obsolete inventories. Thus, we consider allowance for inventory valuation a key audit matter because of its significant impact on financial statements.

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How our audit addressed the matter We performed the following audit procedures to address the abovementioned key audit matter: 1. Assessed the reasonableness of policies and procedures related to the provision of allowance for

inventory valuation based on our understanding of the Group’s operations and the characteristics of its industry.

2. Obtained the net realisable value statement of each inventory, selected samples of calculation logic and tested relevant parameters, including the original data for sales and purchases.

3. Obtained and tested a selection of expiration date information and supporting documentation to verify the reasonableness of the allowance provision.

Other matter – Parent company only financial reports We have audited and expressed an unmodified opinion on the parent company only financial statements of TWi Pharmaceuticals, Inc. as at and for the years ended December 31, 2017 and 2018. Responsibilities of management and those charged with governance for the consolidated financial statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance, including audit committee, are responsible for overseeing the Group’s financial reporting process. Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements

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as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ROC GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with ROC GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: 1. Identify and assess the risks of material misstatement of the consolidated financial statements,

whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

4. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

5. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

6. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain

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solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Teng, Sheng-Wei Audrey Tseng For and on behalf of PricewaterhouseCoopers, Taiwan March 15, 2019 ------------------------------------------------------------------------------------------------------------------------------------------------- The accompanying consolidated financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying consolidated financial statements and report of independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice. As the financial statements are the responsibility of the management, PricewaterhouseCoopers cannot accept any liability for the use of, or reliance on, the English translation or for any errors or misunderstandings that may derive from the translation.

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December 31, 2017 December 31, 2018 Assets Notes AMOUNT % AMOUNT %

Current assets

1100 Cash and cash equivalents 6(1) $ 1,247,155 20 $ 915,791 14

1110 Financial assets at fair value

through profit or loss - current 6(2) and 12(4)

5,848 - 623 -

1136 Financial assets at amortised cost,

net – current 6(3)

- - 2,736,677 43

1150 Notes receivable, net 6(4) 19,033 - 274 -

1170 Accounts receivable, net 6(4) and 12(4) 150,626 2 452,688 7

1200 Other receivables 6(32) 190,608 3 110,864 2

1220 Current income tax assets 11,873 - 1,835 -

130X Inventories 6(5) 188,297 3 325,196 5

1410 Prepayments 72,070 1 83,417 1

1476 Other current financial assets 6(6) 2,907,735 46 - -

11XX Total current assets 4,793,245 75 4,627,365 72

Non-current assets


through profit or loss - non-

current

6(2) and 12(4)

- - 12,098 -

1523 Available-for-sale financial assets

– non-current 12(4)

5,289 - - -

1527 Held-to-maturity financial assets


149,271 2 - -

1535 Non-current financial assets at

amortised cost, net 6(7)

- - 161,489 3

1600 Property, plant and equipment 6(8) and 8 1,163,273 18 1,151,453 18

1780 Intangible assets 6(9) 136,614 2 250,327 4

1840 Deferred income tax assets 4,211 - - -

1900 Other non-current assets 6(10)(15) 153,780 3 210,120 3

15XX Total non-current assets 1,612,438 25 1,785,487 28

1XXX Total assets $ 6,405,683 100 $ 6,412,852 100

(Continued)

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December 31, 2017 December 31, 2018 Liabilities and Equity Notes AMOUNT % AMOUNT %

Current liabilities

2100 Short-term borrowings 6(11) $ 215,000 3 $ 200,000 3

2110 Short-term notes and bills payable 6(12) 34,984 1 - -

2150 Notes payable 921 - 243 -

2170 Accounts payable 124,546 2 81,577 1

2200 Other payables 6(13) 234,385 4 246,825 4

2230 Current income tax liabilities 9,711 - 4,196 -

2399 Other current liabilities 6(14) 22,151 - 271,974 4

21XX Total current liabilities 641,698 10 804,815 12

Non-current liabilities

2570 Deferred income tax liabilities 6(27) 4,933 - 4,933 -

2600 Other non-current liabilities 6(15)(17) 42,147 1 35,089 1

25XX Total non-current liabilities 47,080 1 40,022 1

2XXX Total liabilities 688,778 11 844,837 13

Equity attributable to owners of

the parent

Share capital

3110 Common stock 6(18) 1,203,697 19 1,203,556 19

3140 Advance receipts for share capital 6(16) 427 - - -

Capital surplus 6(16)(19)(30)

3200 Capital surplus 7,905,992 124 8,084,659 126

Retained earnings (accumulated

deficit) 6(20)

3310 Legal reserve 1,199 - 1,199 -

3350 Accumulated deficit ( 3,363,045 ) ( 53 ) ( 3,871,598 ) ( 60 )

Other equity interest

3400 Other equity interest ( 103,700 ) ( 2 ) ( 47,246 ) ( 1 )

31XX Total equity attributable to

owners of the parent

5,644,570 88 5,370,570 84

36XX Non-controlling interest 72,335 1 197,445 3

3XXX Total equity 5,716,905 89 5,568,015 87

Commitments and contingent

liabilities 9

Significant events after the

reporting period 11

3X2X Total liabilities and equity $ 6,405,683 100 $ 6,412,852 100

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2017 2018

Items Notes AMOUNT % AMOUNT % 4000 Operating revenues 6(21), 7(2) and

12(5) $ 806,544 100 $ 822,495 100 5000 Operating costs 6(5)(25)(26) ( 486,085 ) ( 60 ) ( 759,998 ) ( 92 ) 5900 Gross Profit 320,459 40 62,947 8 Operating expenses 6(25)(26) and 7(3) 6100 Selling and marketing ( 87,993 ) ( 11 ) ( 73,512 ) ( 9 ) 6200 General and administrative ( 153,885 ) ( 19 ) ( 166,546 ) ( 20 ) 6300 Research and development ( 579,963 ) ( 72 ) ( 540,546 ) ( 66 ) 6000 Total operating expenses ( 821,841 ) ( 102 ) ( 780,604 ) ( 95 ) 6900 Operating loss ( 501,382 ) ( 62 ) ( 717,657 ) ( 87 ) Non-operating income and

expenses

7010 Other income 6(22) and 7(2) 131,468 16 84,398 10 7020 Other gains and losses 6(23) 121,348 15 107,751 13 7050 Finance costs 6(24) ( 538 ) - ( 2,119 ) - 7000 Total non-operating income

and expenses

252,278 31 190,030 23 7900 Loss before income tax ( 249,104 ) ( 31 ) ( 527,627 ) ( 64 ) 7950 Income tax benefit 6(27) ( 40,454 ) ( 5 ) ( 22,562 ) ( 3 ) 8200 Loss for the year ( $ 289,558 ) ( 36 ) ( $ 550,189 ) ( 67 )

Other comprehensive income (loss)

Other comprehensive income (loss) that will not be reclassified to profit or loss

8311 Actuarial gains (losses) on

defined benefit plans 6(15)

( $ 271 ) - $ 375 - Other comprehensive income

(loss) that may be reclassified subsequently to profit or loss

8361 Exchange differences on

translation of foreign financial statements

( 11,599 ) ( 1 ) 454 - 8362 Available-for-sale financial

assets

( 158 ) - - 8300 Other comprehensive income

(loss), net

( $ 12,028 ) ( 1 ) $ 829 -

8500 Total comprehensive loss for the year

( $ 301,586 ) ( 37 ) ( $ 549,360 ) ( 67 )

Loss attributable to: 8610 Owners of the parent ( $ 248,605 ) ( 31 ) ( $ 508,770 ) ( 62 ) 8620 Non-controlling interest ( 40,953 ) ( 5 ) ( 41,419 ) ( 5 ) ( $ 289,558 ) ( 36 ) ( $ 550,189 ) ( 67 )

Comprehensive loss attributable to:

8710 Owners of the parent ( $ 263,566 ) ( 32 ) ( $ 507,941 ) ( 62 ) 8720 Non-controlling interest ( 38,020 ) ( 5 ) ( 41,419 ) ( 5 ) ( $ 301,586 ) ( 37 ) ( $ 549,360 ) ( 67 )

Loss Per Share (in dollars) 6(29) 9750 Basic Loss Per Share ( $ 2.03 ) ( $ 4.23 )

9850 Diluted Loss Per Share ( $ 2.03 ) ( $ 4.23 )

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2017 Balance at January 1, 2017 $ 1,273,274 $ 2,038 $ 8,280,915 $ 1,199 ( $ 2,931,067 ) ( $ 33,143 ) $ - ( $ 56,770 ) ( $ 212,112 ) $ 6,324,334 $ 285,496 $ 6,609,830 Loss for the year - - - - ( 248,605 ) - - - - ( 248,605 ) ( 40,953 ) ( 289,558 ) Other comprehensive loss for the year - - - - ( 246 ) ( 14,557 ) ( 158 ) - - ( 14,961 ) 2,933 ( 12,028 ) Total comprehensive loss - - - - ( 248,851 ) ( 14,557 ) ( 158 ) - - ( 263,566 ) ( 38,020 ) ( 301,586 ) Compensation costs of employee stock options 6(16) - - 20,956 - - - - - - 20,956 - 20,956 Compensation costs of employee stock options from

subsidiaries 6(16) - - 2,947 - - - - - - 2,947 1,570 4,517 Compensation costs of resrticted stocks 6(16) - - - - - - - 928 - 928 - 928

Employee stock options exercised 6(16)(18) - 2,435 - - - - - - - 2,435 - 2,435 Advance receipts for share capital transferred 6(18) 843 ( 4,046 ) 3,203 - - - - - - - - -

Reacquisition of treasury shares 6(18) - - - - - - - - ( 442,829 ) ( 442,829 ) - ( 442,829 ) Retirement of treasury shares 6(18) ( 70,420 ) - ( 401,394 ) - ( 183,127 ) - - - 654,941 - - - Recognition of changes in equity of subsidiaries in

proportion to ownership change

- - ( 635 ) - - - - - - ( 635 ) 635 - Acquisition of the subsidiary - - - - - - - - - - 12,591 12,591 Disposal of a subsidiary - - - - - - - - - - ( 189,937 ) ( 189,937 )

Balance at December 31, 2017 $ 1,203,697 $ 427 $ 7,905,992 $ 1,199 ( $ 3,363,045 ) ( $ 47,700 ) ( $ 158 ) ( $ 55,842 ) $ - $ 5,644,570 $ 72,335 $ 5,716,905

(Continued)

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2018 Balance at January 1, 2018 $ 1,203,697 $ 427 $ 7,905,992 $ 1,199 ( $ 3,363,045 ) ( $ 47,700 ) ( $ 158 ) ( $ 55,842 ) $ - $ 5,644,570 $ 72,335 $ 5,716,905

Effects of retrospective application and retrospective restatement 12(4) - - - - ( 158 ) - 158 - - - - -

Balance at January 1 after adjustments 1,203,697 427 7,905,992 1,199 ( 3,363,203 ) ( 47,700 ) - ( 55,842 ) - 5,644,570 72,335 5,716,905 Loss for the year - - - - ( 508,770 ) - - - - ( 508,770 ) ( 41,419 ) ( 550,189 ) Other comprehensive income for the year - - - - 375 454 - - - 829 - 829 Total comprehensive loss - - - - ( 508,395 ) 454 - - - ( 507,941 ) ( 41,419 ) ( 549,360 ) Compensation costs of employee stock options 6(16) - - 8,424 - - - - - - 8,424 - 8,424 Compensation costs of employee stock options from

subsidiaries 6(16) - - 1,321 - - - - - - 1,321 786 2,107 Employee stock options exercised 6(16)(18) - 1,778 - - - - - - - 1,778 - 1,778

Compensation costs of restricted stocks 6(16) - - - - - - - 3,761 - 3,761 - 3,761 Advance receipts for share capital transferred 6(18) 459 ( 2,205 ) 1,746 - - - - - - - - - Retirement of restricted stocks 6(18) ( 600 ) - - - - - - - - ( 600 ) - ( 600 )

Forfeiture of employee restricted stock - - ( 52,081 ) - - - - 52,081 - - - - Recognition of changes in equity of subsidiaries in proportion to ownership change

6(30) - - 219,257 - - - - - - 219,257 ( 219,257 ) -

Increase in non-controlling interest for subsidiary capital increment

6(30) - - - - - - - - - - 385,000 385,000

Balance at December 31, 2018 $ 1,203,556 $ - $ 8,084,659 $ 1,199 ( $ 3,871,598 ) ( $ 47,246 ) $ - $ - $ - $ 5,370,570 $ 197,445 $ 5,568,015

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CASH FLOWS FROM OPERATING ACTIVITIES Loss before tax ( $ 249,104 ) ( $ 527,627 ) Adjustments Adjustments to reconcile profit (loss)

Loss (gain) on financial assets or liabilities at fair value through profit or loss

6(23) 8,130 ( 519 )

Compensation costs of employee stock options and restricted stocks

6(16) 26,401 14,292

Long-term deferred revenue (including current portion) transferred to revenue

6(17) ( 4,912 ) -

Gain from reversal of expected credit loss 6(4) - ( 15 ) Gain from reversal of bad debts ( 1,658 ) - Depreciation 6(25) 100,626 121,305 Amortisation 6(25) 56,298 31,429 Interest income 6(22) ( 63,544 ) ( 78,155 ) Interest expense 6(24) 538 2,119 Loss (gain) on disposal of property, plant and

equipment 6(23)

1 ( 73 ) Property, plant and equipment transferred to

expenses

- 195 Impairment loss 53,299 4,646 Gain on disposal of investments 6(23) ( 456,946 ) - Gain on disposal of assets 6(23) ( 9,733 ) - Bargain purchase gain 6(22) ( 59,368 ) - Changes in operating assets and liabilities Changes in operating assets Financial assets at fair value through profit or

loss - current

( 13,978 ) 5,219 Notes receivable, net ( 4,169 ) 18,759 Accounts receivable, net ( 24,482 ) ( 33,971 ) Accounts receivable - related parties, net 1 - Other receivables ( 25,454 ) ( 1,397 ) Inventories ( 66,311 ) ( 136,899 ) Prepayments ( 15 ) ( 26,867 ) Changes in operating liabilities Notes payable 921 ( 678 ) Accounts payable 24,192 ( 42,969 ) Other payables 108,229 7,005 Other current liabilities 24,561 ( 18,253 ) Accrued pension liabilities ( 432 ) - Other non-current liabilities ( 2,818 ) ( 4,157 ) Cash outflow generated from operations ( 579,727 ) ( 666,611 ) Interest received 46,813 74,447 Interest paid ( 443 ) ( 2,129 ) Income tax paid ( 68,026 ) ( 23,684 ) Net cash flows used in operating activities ( 601,383 ) ( 617,977 )

(Continued)

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CASH FLOWS FROM INVESTING ACTIVITIES Increase in other current financial assets ( $ 712,175 ) $ - Proceeds from disposal of subsidiary assets 6(32) 150,260 84,959 Acquisition of held-for-sale financial assets ( 5,447 ) - Acquisition of held-to-maturity financial assets ( 149,290 ) - Acquisition of property, plant and equipment 6(32) ( 132,175 ) ( 102,145 ) Increase in intangible assets 6(32) ( 66,408 ) ( 155,842 ) Proceeds from disposal of property, plant and equipment

- 417 Increase in other non-current assets ( 26,606 ) ( 43,896 ) Proceeds from disposal of subsidiary (including impact of cash due to changes in consolidated entities)

870,493 - Acquisition of subsidiary (excluding impact of cash from the subsidiary)

( 123,094 ) -

Decrease in financial assets at amortised cost- current

- 171,058 Increase in financial assets at fair value through profit or loss-non-current

- ( 6,284 ) Increase in financial assets at amortised cost- non-current

- ( 12,328 )

Net cash flows used in investing activities ( 194,442 ) ( 64,061 )

CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from short-term borrowings 30,898 - Repayment of short-term borrowings ( 15,000 ) Employee stock options exercised 6(16) 2,435 1,778 Decrease in short-term notes and bills payable - ( 34,984 ) Increase in other non-current liabilities 6(17) - 6,187

Reacquisition of treasury shares - ( 600 ) Purchase of treasury stocks 6(18) ( 442,829 ) -

Increase in non-controlling interest for subsidiary capital increment

- 385,000

Net cash flows (used in) from financing activities

( 409,496 ) 342,381

Effect of exchange rate changes on cash and cash equivalents

7,438 8,293

Net decrease in cash and cash equivalents ( 1,197,883 ) ( 331,364 ) Cash and cash equivalents at beginning of year 2,445,038 1,247,155

Cash and cash equivalents at end of year $ 1,247,155 $ 915,791

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TWi PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND 2018 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS OTHERWISE INDICATED)

1. HISTORY AND ORGANISATION

(1) TWi Pharmaceuticals Inc. (the Company), formerly Empax Pharma, Inc., was incorporated as a company limited by shares on December 1, 1997 with the approval of the Ministry of Economic Affairs, R.O.C. and began operations on the same day. The Company’s and its subsidiaries’ (collectively referred herein as the “Group”) main area of business is the research and development, contract manufacturing, and contract research of generic drugs.

(2) The Company, with September 1, 2006 as the acquisition date, absorbed Anchen International Pharmaceuticals Co., Ltd. and changed its name to Anchen Pharmaceuticals (Taiwan), Inc. after the merger. During April 2010, due to the Group’s organisational restructuring, the Company’s parent company was changed from Anchen Incorporated to TWi Pharmaceuticals Holding Inc. and the Company changed its name to TWi Pharmaceuticals, Inc. Because of the Group’s decision to use the Company as the main entity for public exchange listing, TWi Pharmaceuticals Holding Inc. gradually transferred its shares of the Company to its stockholders during July and August 2012. After the transfer, the Company no longer has an ultimate parent company. Also, during February and March 2013, the Company gradually acquired 100% ownership of U-Liang Co., Ltd., with March 28, 2013 as the acquisition date.

2. THE DATE OF AUTHORISATION FOR ISSUANCE OF THE CONSOLIDATED FINANCIAL STATEMENTS AND PROCEDURES FOR AUTHORISATION These consolidated financial statements were reported to the Board of Directors on March 15, 2019.

3. APPLICATION OF NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS (1) Effect of the adoption of new issuances of or amendments to International Financial Reporting

Standards (“IFRS”) as endorsed by the Financial Supervisory Commission (“FSC”) New standards, interpretations and amendments as endorsed by the FSC effective from 2018:

New Standards, Interpretations and Amendments

Effective date byInternationalAccounting

Standards BoardAmendments to IFRS 2, ‘Classification and measurement of share-based paymenttransactions’

January 1, 2018

Amendments to IFRS 4, ‘Applying IFRS 9, Financial instruments with IFRS 4,Insurance contracts’

January 1, 2018

IFRS 9, ‘Financial instruments’ January 1, 2018IFRS 15, ‘Revenue from contracts with customers’ January 1, 2018

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Except for the following, the above standards and interpretations have no significant impact to the Group’s financial condition and financial performance based on the Group’s assessment. A. IFRS 9, ‘Financial instruments’

(a) Classification of debt instruments is driven by the entity’s business model and the contractual cash flow characteristics of the financial assets, which would be classified as financial asset at fair value through profit or loss, financial asset measured at fair value through other comprehensive income or financial asset measured at amortised cost. Equity instruments would be classified as financial asset at fair value through profit or loss, unless an entity makes an irrevocable election at inception to present in other comprehensive income subsequent changes in the fair value of an investment in an equity instrument that is not held for trading.

(b) The impairment losses of debt instruments are assessed using an ‘expected credit loss’ approach. An entity assesses at each balance sheet date whether there has been a significant increase in credit risk on that instrument since initial recognition to recognise 12-month expected credit losses or lifetime expected credit losses (interest revenue would be calculated on the gross carrying amount of the asset before impairment losses occurred); or if the instrument that has objective evidence of impairment, interest revenue after the impairment would be calculated on the book value of net carrying amount (i.e. net of credit allowance). The Company shall always measure the loss allowance at an amount equal to lifetime expected credit losses for trade receivables that do not contain a significant financing component.

(c) In adopting the new standards endorsed by the FSC effective from 2018, the Group applied the new rules under IFRS 9 retrospectively from January 1, 2018, with the practical expedients permitted under the statement. i. In accordance with IFRS 9, the Group reclassified available-for-sale financial assets in the



Standards Board

Amendments to IFRS 15, ‘Clarifications to IFRS 15, Revenue from contracts withcustomers’

January 1, 2018

Amendments to IAS 7, ‘Disclosure initiative’ January 1, 2017Amendments to IAS 12, ‘Recognition of deferred tax assets for unrealised losses’ January 1, 2017Amendments to IAS 40, ‘Transfers of investment property’ January 1, 2018IFRIC 22, ‘Foreign currency transactions and advance consideration’ January 1, 2018Annual improvements to IFRSs 2014-2016 cycle - Amendments to IFRS 1, ‘First-time adoption of International Financial Reporting Standards’

January 1, 2018

Annual improvements to IFRSs 2014-2016 cycle - Amendments to IFRS 12, ‘Disclosure of interests in other entities’

January 1, 2017

Annual improvements to IFRSs 2014-2016 cycle - Amendments to IAS 28, ‘Investments in associates and joint ventures’

January 1, 2018

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amount of $5,289, by increasing financial assets at fair value through profit or loss, decreasing retained earnings and increasing other equity interest in the amount of $5,289, $158 and $158, respectively.

ii. In accordance with IFRS 9, the Group reclassified held-to-maturity financial assets of $149,271 to financial assets at amortised cost.

iii. Except for the adjustments listed above, the Group has assessed that IFRS 9 does not have any other significant effects on the consolidated financial statements as of January 1, 2018. Please refer to Note 12(4) for the effects on initial application of IFRS 9.

B. IFRS 15, ‘Revenue from contracts with customers’ IFRS 15, ‘Revenue from contracts with customers’ replaces IAS 11, ‘Construction contracts’, IAS 18, ‘Revenue’ and relevant interpretations. According to IFRS 15, revenue is recognised when a customer obtains control of promised goods or services. A customer obtains control of goods or services when a customer has the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset. The core principle of IFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognises revenue in accordance with that core principle by applying the following steps: Step 1: Identify contracts with customer. Step 2: Identify separate performance obligations in the contract(s). Step 3: Determine the transaction price. Step 4: Allocate the transaction price. Step 5: Recognise revenue when the performance obligation is satisfied. Further, IFRS 15 includes a set of comprehensive disclosure requirements that requires an entity to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Licenses Under IFRS 15, depending on the nature of licenses, they are either (1) a promise to provide a right to access to an entity’s intellectual property as it exists throughout the license period, or (2) a promise to provide a right to use an entity’s intellectual property as it exists at the point in time when the license is granted. Licenses that meet all of the following criteria provide access to an entity’s intellectual property, and revenue is recognised based on the performance obligation's progress towards completion: (a) The contract requires, or the customer reasonably expects, that the entity will undertake

activities that significantly affect the intellectual property to which the customer has rights; (b) The rights granted by the license directly expose the customer to any positive or negative

effects of the entity’s activities identified above; and (c) Those activities do not result in the transfer of a good or service to the customer as those

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activities occur. If licenses cannot meet all criteria listed above, the entity provides a right to use the entity's intellectual property. Revenue shall be recognised at the point in time at which the license is granted to the customer.

C. Amendments to IFRS 15, ‘Clarifications to IFRS 15 - Revenue from Contracts with Customers’ The amendments clarify how to identify a performance obligation (the promise to transfer a good or a service to a customer) in a contract; determine whether a company is a principal (the provider of a good or service) or an agent (responsible for arranging for the good or service to be provided); and determine whether the revenue from granting a license should be recognised at a point in time or over time. In addition to the clarifications, the amendments include two additional reliefs to reduce cost and complexity for a company when it first applies the new Standard. In adopting the new standards endorsed by the FSC effective from 2018, the Group adopted IFRS 15 using the modified retrospective approach. The significant effects of adopting the modified transition as of January 1, 2018 are summarised below: In line with IFRS 15 requirements, the Group changed the presentation of certain accounts in the balance sheet as follows: Under IFRS 15, liabilities in relation to expected volume discounts and refunds to customers are recognised as refund liabilities, but were previously presented as accounts receivable - allowance for sales returns and discounts in the balance sheet. On January 1, 2018, the balance of refund liabilities was $268,076. Please refer to Note 12(5) for other disclosures in relation to the first application of IFRS 15.

D. Amendments to IAS 7, ‘Disclosure initiative’ This amendment requires that an entity shall provide more disclosures related to changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes.

(2) Effect of new issuances of or amendments to IFRSs as endorsed by the FSC but not yet adopted by the Group New standards, interpretations and amendments endorsed by the FSC effective from 2019 are as follows:

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Except for the following, the above standards and interpretations have no significant impact to the Group’s financial condition and financial performance based on the Group’s assessment. IFRS 16, ‘Leases’ IFRS 16, ‘Leases’, replaces IAS 17, ‘Leases’ and related interpretations and SICs. The standard requires lessees to recognise a 'right-of-use asset' and a lease liability (except for those leases with terms of 12 months or less and leases of low-value assets). The accounting stays the same for lessors, which is to classify their leases as either finance leases or operating leases and account for those two types of leases differently. IFRS 16 only requires enhanced disclosures to be provided by lessors. The Group expects to recognise the lease contract of lessees in line with IFRS 16. However, the Group does not intend to restate the financial statements of prior period (referred herein as the “modified retrospective approach”). On January 1, 2019, it is expected that ‘right-of-use asset’ and lease liability will be increased by $345,676.

(3) IFRSs issued by IASB but not yet endorsed by the FSC New standards, interpretations and amendments issued by IASB but not yet included in the IFRSs as endorsed by the FSC are as follows:

The above standards and interpretations have no significant impact to the Group’s financial condition and financial performance based on the Group’s assessment.


Effective date byInternational Accounting

Standards BoardAmendments to IFRS 9, ‘Prepayment features with negativecompensation’

January 1, 2019

IFRS 16, ‘Leases’ January 1, 2019Amendments to IAS 19, ‘Plan amendment, curtailment or settlement’ January 1, 2019Amendments to IAS 28, ‘Long-term interests in associates and jointventures’

January 1, 2019

IFRIC 23, ‘Uncertainty over income tax treatments’ January 1, 2019Annual improvements to IFRSs 2015-2017 cycle January 1, 2019



Standards BoardAmendments to IAS 1 and IAS 8, ‘Disclosure Initiative-Definition ofMaterial’

January 1, 2020

Amendments to IFRS 3, ‘Definition of a business’ January 1, 2020Amendments to IFRS 10 and IAS 28, ‘Sale or contribution of assetsbetween an investor and its associate or joint venture’

To be determined byInternational Accounting

Standards BoardIFRS 17, ‘Insurance contracts’ January 1, 2021

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4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated. (1) Compliance statement

The consolidated financial statements of the Group have been prepared in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers”, International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the FSC (collectively referred herein as the “IFRSs”).

(2) Basis of preparation A. Except for the following item, the consolidated financial statements have been prepared under the

historical cost convention: (a) Defined benefit liabilities recognised based on the net amount of pension fund assets less

present value of defined benefit obligation. (b) Financial assets at fair value through profit or loss. (c) Available-for-sale financial assets measured at fair value.

B. The preparation of financial statements in conformity with International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the FSC (collectively referred herein as the “IFRSs”) requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 5.

C. In adopting IFRS 9 and IFRS 15 effective January 1, 2018, the Group has elected to apply modified retrospective approach whereby the cumulative impact of the adoption was recognised as retained earnings or other equity as of January 1, 2018 and the financial statements for the year ended December 31, 2017 were not restated. The financial statements for the year ended December 31, 2017 were prepared in compliance with International Accounting Standard 39 (‘IAS 39’), International Accounting Standard 11 (‘IAS 11’), International Accounting Standard 18 (‘IAS 18’) and related financial reporting interpretations. Please refer to Notes 12(4) and (5) for details of significant accounting policies and details of significant accounts.

(3) Basis of consolidation A. Basis for preparation of consolidated financial statements:

(a) All subsidiaries are included in the Group’s consolidated financial statements. Subsidiaries are all entities (including structured entities) controlled by the Group. The Group controls an entity when the Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Consolidation of subsidiaries begins from the date the Group obtains control of the subsidiaries

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and ceases when the Group loses control of the subsidiaries. (b) Inter-company transactions, balances and unrealised gains or losses on transactions between

companies within the Group are eliminated. (c) Profit or loss and each component of other comprehensive income are attributed to the owners

of the parent and to the non-controlling interests. Total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

(d) Changes in a parent’s ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary (transactions with non-controlling interests) are accounted for as equity transactions, i.e. transactions with owners in their capacity as owners. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity.

B. Subsidiaries included in the consolidated financial statements:

Note 1: The Company’s interest in TWi Biotechnology, Inc. decreased by 11.92% as it elected not

to acquire the new shares in proportion to its original ownership. Please refer to Note 6(30).

Note 2: The Company increased its investment of $225,995 in the subsidiary, TWi Pharmaceuticals USA, Inc., on October 1, 2018.

Note 3: During the April 26, 2016 meeting, the Board of Directors resolved to liquidate the subsidiary - TWi Pharmaceuticals Europe Limited. The subsidiary officially went into liquidation on July 27, 2017.

Note 4: The Company obtained 95.02% equity of Synpac-Kingdom Pharmaceutical Co., Ltd. on

Name of investor Name of subsidiary Main business

activitiesDecember31, 2017

December31, 2018 Note

TWiPharmaceuticals, Inc.

TWi Biotechnology,Inc.

New drug R&D 73.07 61.15 (1)


TWi PharmaceuticalsUSA Inc.

Consultingservicesand generic drugsales

100 100 (2)


TWi PharmaceuticalsEurope Limited

Consultingservicesand generic drugsales

100 100 (3)


Synpac-KingdomPharmaceutical Co.,Ltd.

Pharmaceuticalmanufacturingand distribution

95.02 95.02 (4)


TWi PharmaceuticalLtd.

Investment 100 100

TWi Pharmaceutical,Ltd.

TWi PharmaceuticalCayman Ltd.

Investment 100 100

Ownership (%)

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November 20, 2017.

C. Subsidiaries not included in the consolidated financial statements: None.

D. Adjustments for subsidiaries with different balance sheet dates: None.

E. Significant restrictions: None.

F. Subsidiaries that have non-controlling interests that are material to the Group: As of December 31, 2017 and 2018, non-controlling interest amounted to $72,335, and $197,445, respectively. The Group has no subsidiaries that have non-controlling interests that are material on December 31, 2017 and 2018.

(4) Foreign currency translation Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in New Taiwan Dollars, which is the Company’s functional and the Group’s presentation currency. A. Foreign currency transactions and balances

(a) Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions are recognised in profit or loss in the period in which they arise.

(b) Monetary assets and liabilities denominated in foreign currencies at the period end are re-translated at the exchange rates prevailing at the balance sheet date. Exchange differences arising upon re-translation at the balance sheet date are recognised in profit or loss.

(c) All foreign exchange gains and losses are presented in the statement of comprehensive income within other gains and losses.

B. Translation of foreign operations The operating results and financial position of the foreign subsidiaries that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (a) Assets and liabilities for each balance sheet presented are translated at the closing exchange

rate at the date of that balance sheet; (b) Income and expenses for each statement of comprehensive income are translated at average

exchange rates of that period. (c) All resulting exchange differences are recognised in other comprehensive income.

(5) Classification of current and non-current items A. Assets that meet one of the following criteria are classified as current assets; otherwise they are

classified as non-current assets: (a) Assets arising from operating activities that are expected to be realised, or are intended to be

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sold or consumed within the normal operating cycle; (b) Assets held mainly for trading purposes; (c) Assets that are expected to be realised within twelve months from the balance sheet date; (d) Cash and cash equivalents, excluding restricted cash and cash equivalents and those that are to

be exchanged or used to settle liabilities more than twelve months after the balance sheet date. B. Liabilities that meet one of the following criteria are classified as current liabilities; otherwise they

are classified as non-current liabilities: (a) Liabilities that are expected to be settled within the normal operating cycle; (b) Liabilities arising mainly from trading activities; (c) Liabilities that are to be settled within twelve months from the balance sheet date; (d) Liabilities for which the repayment date cannot be extended unconditionally to more than

twelve months after the balance sheet date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

(6) Cash equivalents A. Cash equivalents refer to short-term highly liquid investments that are readily convertible to

known amounts of cash and which are subject to an insignificant risk of changes in value. Time deposits that meet the definition above and are held for the purpose of meeting short-term cash commitments in operations are classified as cash equivalents.

B. Time deposits that do not meet the definition of cash equivalents (listed under “Current financial assets at amortised cost”) are measured at the initial investment value, as they are held for a short period of time and the effect of discounting is insignificant.

(7) Financial assets at fair value through profit or loss A. Financial assets at fair value through profit or loss are financial assets that are not measured at

amortised cost or fair value through other comprehensive income. B. On a regular way purchase or sale basis, financial assets at fair value through profit or loss are

recognised and derecognised using trade date accounting. C. At initial recognition, the Group measures the financial assets at fair value and recognises the

transaction costs in profit or loss. The Group subsequently measures the financial assets at fair value, and recognises the gain or loss in profit or loss.

(8) Financial assets at amortised cost A. Financial assets at amortised cost are those that meet all of the following criteria:

(a) The objective of the Group’s business model is achieved by collecting contractual cash flows. (b) The assets’ contractual cash flows represent solely payments of principal and interest.

B. On a regular way purchase or sale basis, financial assets at amortised cost are recognised and derecognised using trade date accounting.

C. At initial recognition, the Group measures the financial assets at fair value plus transaction costs. Interest income from these financial assets is included in finance income using the effective

219

interest method. A gain or loss is recognised in profit or loss when the asset is derecognised or impaired.

D. The Group’s time deposits which do not fall under cash equivalents are those with a short maturity period and are measured at initial investment amount as the effect of discounting is immaterial.

(9) Accounts and notes receivable A. Accounts and notes receivable entitle the Group a legal right to receive consideration in exchange

for transferred goods or rendered services. B. The short-term accounts and notes receivable without bearing interest are subsequently measured

at initial invoice amount as the effect of discounting is immaterial. (10) Impairment of financial assets

For debt instruments measured at fair value through other comprehensive income and financial assets at amortised cost, at each reporting date, the Group recognises the impairment provision for 12 months expected credit losses if there has not been a significant increase in credit risk since initial recognition or recognises the impairment provision for the lifetime expected credit losses (ECLs) if such credit risk has increased since initial recognition after taking into consideration all reasonable and verifiable information that includes forecasts. On the other hand, for accounts receivable or contract assets that do not contain a significant financing component, the Group recognises the impairment provision for lifetime ECLs.

(11) Derecognition of financial assets The Group derecognises a financial asset when one of the following conditions is met: A. The contractual rights to receive cash flows from the financial asset expire. B. The contractual rights to receive cash flows from the financial asset. have been transferred and

the Group has transferred substantially all risks and reward of ownership of the financial asset. C. The contractual rights to receive cash flows from the financial asset. have been transferred and

the Group has not retained control of the financial asset.

(12) Lease receivables/ operating leases (lessor) Lease income from an operating lease (net of any incentives given to the lessee) is recognised in profit or loss on a straight-line basis over the lease term.

(13) Inventories Inventories are stated at the lower of cost and net realizable value. Cost is determined using the weighted-average method. The cost of finished goods and work in progress comprises raw materials, direct labor, other direct costs and related production overheads (allocated based on normal operating capacity). It excludes borrowing costs. The item by item approach is used in applying the lower of cost and net realisable value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and applicable variable selling expenses.

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(14) Property, plant and equipment A. Property, plant and equipment are initially recorded at cost. Borrowing costs incurred during the

construction period are capitalised. B. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as

appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.

C. Land is not depreciated. Other property, plant and equipment apply cost model and are depreciated using the straight-line method to allocate their cost over their estimated useful lives.

D. The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each financial year-end. If expectations for the assets’ residual values and useful lives differ from previous estimates or the patterns of consumption of the assets’ future economic benefits embodied in the assets have changed significantly, any change is accounted for as a change in estimate under IAS 8, ‘Accounting Policies, Changes in Accounting Estimates and Errors’, from the date of the change. The estimated useful lives of property, plant and equipment are as follows:

Buildings and structures 3 ~ 50 years Machinery and equipment 2 ~ 21 years Transportation equipment 5 years Office equipment 3 ~ 7 years Leasehold assets 3 ~ 5 years

(15) Leased assets/ operating leases (lessee) Payments made under an operating lease (net of any incentives received from the lessor) are recognised in profit or loss on a straight-line basis over the lease term.

(16) Investment property A. Use right

Intangible assets pertaining to the right of use are stated at cost and amortised on a straight-line basis over its estimated useful life of 5 to 10 years.

B. Patent Acquired patents are stated at cost and amortised on a straight-line basis over its estimated useful life of 10 years.

C. Computer software Computer software is stated at cost and amortised on a straight-line basis over its estimated useful life of 3 to 6 years.

(17) Impairment of non-financial assets The Group assesses at each balance sheet date the recoverable amounts of those assets where there

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is an indication that they are impaired. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell or value in use. When the circumstances or reasons for recognising impairment loss for an asset in prior years no longer exist or diminish, the impairment loss is reversed. The increased carrying amount due to reversal should not be more than what the depreciated or amortised historical cost would have been if the impairment had not been recognised.

(18) Borrowings A. Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings

are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest method.

B. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates.

(19) Notes and accounts payable Notes and accounts payable are obligations to pay for good or services that have been acquired in the ordinary course of business from suppliers. They are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. However, short-term accounts payable which are non-interest bearing are subsequently measured at initial invoice amount as the effect of discounting is immaterial.

(20) Derecognition of financial liabilities A financial liability is derecognised when the obligation specified in the contract is either discharged or cancelled or expires.

(21) Offsetting financial instruments Financial assets and liabilities are offset and reported in the net amount in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously.

(22) Employee benefits A. Short-term employee benefits

Short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in respect of service rendered by employees in a period and should be recognised as expensed in that period when the employees render service.

B. Pensions (a) Defined contribution plans

For defined contribution plans, the contributions are recognised as pension expenses when

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they are due on an accrual basis. Prepaid contributions are recognised as an asset to the extent of a cash refund or a reduction in the future payments.

(b) Defined benefit plans i. Net obligation under a defined benefit plan is defined as the present value of an amount of

pension benefits that employees will receive on retirement for their services with the Group in current period or prior periods. The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The net defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The rate used to discount is determined by using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability; when there is no deep market in high-quality corporate bonds, the Group uses interest rates of government bonds (at the balance sheet date) instead.

ii. Re-measurements arising on defined benefit plans are recognised in other comprehensive income in the period in which they arise and are recorded as retained earnings.

C. Employees’ bonus and directors’ and supervisors’ remuneration Employees’ bonus and directors’ and supervisors’ remuneration are recognised as expenses and liabilities, provided that such recognition is required under legal or constructive obligation and those amounts can be reliably estimated. However, if the accrued amounts for employees’ bonus and directors’ and supervisors’ remuneration are different from the actual distributed amounts as resolved by the stockholders at their stockholders’ meeting subsequently, the differences should be recognised based on the accounting for changes in estimates.

(23) Employee share-based payment A. For the equity-settled share-based payment arrangements, the employee services received are

measured at the fair value of the equity instruments granted at the grant date, and are recognised as compensation cost over the vesting period, with a corresponding adjustment to equity. The fair value of the equity instruments granted shall reflect the impact of market vesting conditions and non-market vesting conditions. Compensation cost is subject to adjustment based on the service conditions that are expected to be satisfied and the estimates of the number of equity instruments that are expected to vest under the non-market vesting conditions at each balance sheet date. Ultimately, the amount of compensation cost recognised is based on the number of equity instruments that eventually vest.

B. For the cash-settled share-based payment arrangements, the employee services received and the liability incurred are measured at the fair value of the liability to pay for those services, and are recognised as compensation cost and liability over the vesting period. The fair value of the liability shall be remeasured at each balance sheet date until settled at the settlement date, with any changes in fair value recognised in profit or loss.

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C. Restricted stocks issued by the Group to employees: (a) Restricted stocks issued to employees are measured at the fair value of the equity

instruments granted at the grant date, and are recognised as compensation cost over the vesting period. The Group sets the grant date as the same day the employee restricted stocks agreement is signed.

(b) For restricted stocks where those stocks do not restrict distribution of dividends to employees and employees are not required to return the dividends received if they resign during the vesting period, the Group recognises the fair value of the dividends received by the employees who are expected to resign during the vesting period as compensation cost at the date of dividend declaration.

(c) For restricted stocks where employees have to pay to acquire those stocks, if employees resign during the vesting period, they must return the stocks to the Group and the Group must refund their payments on the stocks, the Group recognises the payments from the employees who are expected to resign during the vesting period as liabilities at the grant date, and recognises the payments from the employees who are expected to be eventually vested with the stocks in ‘Capital reserve – restricted stocks’.

(24) Income tax A. The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or

loss, except to the extent that it relates to items recognised in other comprehensive income or items recognised directly in equity, in which cases the tax is recognised in other comprehensive income or equity.

B. An additional tax is levied on the unappropriated retained earnings and is recorded as income tax expense in the year the stockholders resolve to retain the earnings.

C. Deferred income tax is recognised, using the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated balance sheet. However, the deferred income tax is not accounted for if it arises from initial recognition of goodwill or of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates and laws that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

D. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. At each balance sheet date, unrecognised and recognised deferred income tax assets are reassessed.

E. Current income tax assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously.

F. The Group only recognises unused loss carryforward and tax credits (including those arising

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from equity investment) as deferred tax assets if there is significant probability of taxable income in a later period for the unused loss carryforward and investment tax credits to be used against.

(25) Share capital A. Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of

new shares or stock options are shown in equity as a deduction, net of tax, from the proceeds. B. Where the Company repurchases the Company’s equity share capital that has been issued, the

consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the Company’s equity holders. Where such shares are subsequently reissued, the difference between their book value and any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company’s equity holders.

(26) Revenue recognition A. Sales of goods

(a) The Group manufactures and sells generic drug products. Revenue is recognised when control over goods sold has been transferred to customers. When goods are delivered to the customers, the customers have right to dispose the goods and the Group has no unfulfilled obligation to affect their acception of the goods.

(b) Sales revenue is recognised based on the price specified in the contract, net of the estimated volume discounts or sales discounts and allowances. Accumulated experience is used to estimate and provide for the sales discounts and allowances provided to customers, using the expected value method, and revenue is only recognised to the extent that it is highly probable that a significant reversal will not occur. The estimation is subject to an assessment at each reporting date. A refund liability is recognised for expected sales discounts and allowances payable to customers in relation to sales made until the end of the reporting period. Because the period between the transfer of the promised goods or services to the customer and payment by the customer does not exceed one year, as a consequence, the Group does not adjust any of the transaction prices for the time value of money.

(c) A receivable is recognised when the goods are delivered as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due.

B. Sales of services The Group provides pharmaceutical research and development services. Revenue from providing services is recognised in the accounting period in which the services are rendered. For fixed-price contracts, revenue is recognised based on the actual service provided to the end of the reporting period as a proportion of the total services to be provided. This is determined based on costs incurred. The customer pays at the time specified in the payment schedule. If the services rendered exceed the payment, a contract asset is recognised. If the payments exceed the

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services rendered, a contract liability is recognised. C. Revenue from licensing intellectual property

(a) The Group entered into a contract with a customer to grant a license of development of medicine and right of sale to the customer. Given the license is distinct from other promised goods or services in the contract, the Group recognises the revenue from licensing when the license is transferred to a customer either at a point in time or over time based on the nature of the license granted. The nature of the Group’s promise in granting a license is a promise to provide a right to access the Group’s intellectual property if the Group undertakes activities that significantly affect the development of medicine and right of sale to which the customer has rights, the customer is affected by the Group’s activities and those activities do not result in the transfer of a good or a service to the customer as they occur. The royalties are recognised as revenue on a straight-line basis throughout the licensing period. In case the abovementioned conditions are not met, the nature of the Group’s promise in granting a license is a promise to provide a right to use the Group’s intellectual property and therefore the revenue is recognised when transferring the license to a customer at a point in time.

(b) For some customer contracts including licensing and services, since licensing and services are distinguishable, the performance obligations in the contracts are individually identified. It is therefore accounted for as a separate performance obligation. In this case, the transaction price will be allocated to each performance obligation based on the stand-alone selling prices. Where these are not directly observable, they are estimated based on expected cost plus margin.

(c) If customer contracts include variable consideration, the variable consideration will be included in the transaction price once the uncertainty of variable consideration has been eliminated and there is a high possibility that will not cause significant reversal of revenue.

(d) Some contracts of development of medicine and right of sale require a sales-based royalty in exchange for a license of intellectual property. The Group recognises revenue when the performance obligation has been satisfied and the subsequent sale occurs.

D. Financing components The Group does not expect to have any contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a consequence, the Group does not adjust any of the transaction prices for the time value of money.

(27) Government grants Government grants are recognised at their fair value only when there is reasonable assurance that the Group will comply with any conditions attached to the grants and the grants will be received. Government grants are recognised in profit or loss on a systematic basis over the periods in which the Group recognises expenses for the related costs for which the grants are intended to compensate.

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Government grants related to equipment are recognised as non-current liabilities and are amortised to profit or loss over the estimated useful lives of the related assets using the straight-line method.

(28) Business combinations A. The Group uses the acquisition method to account for business combinations. The consideration

transferred for an acquisition is measured as the fair value of the assets transferred, liabilities incurred or assumed and equity instruments issued at the acquisition date, plus the fair value of any assets and liabilities resulting from a contingent consideration arrangement. All acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. For each business combination, the Group shall measure at the acquisition date components of non-controlling interests in the acquiree that are present ownership interests and entitle their holders to the proportionate share of the entity’s net assets in the event of liquidation at either fair value or the present ownership instruments’ proportionate share in the recognised amounts of the acquiree’s identifiable net assets. All other non-controlling interests should be measured at the acquisition-date fair value.

B. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of any previous held equity interest in the acquiree over the fair value of the identifiable assets acquired and the liabilities assumed is recorded as goodwill at the acquisition date. If the total of consideration transferred, non-controlling interest in the acquiree recognised and the fair value of previously held equity interest in the acquiree is less than the fair value of the identifiable assets acquired and the liabilities assumed, the difference is recognised directly in profit or loss on the acquisition date.

(29) Operating segments Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments.

5. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND KEY SOURCES OF ASSUMPTION UNCERTAINTY The preparation of these consolidated financial statements requires management to make critical judgements in applying the Group’s accounting policies and make critical assumptions and estimates concerning future events. Assumptions and estimates may differ from the actual results and are continually evaluated and adjusted based on historical experience and other factors. Such assumptions and estimates have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year; and the related information is addressed below: Critical accounting estimates and assumptions A. Revenue recognition

The Group estimates sales discounts and returns based on historical results and other known factors.

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Provisions for such liabilities are recorded as a deduction item to sales revenues when the sales are recognised. The Group reassesses the reasonableness of estimates of discounts and returns periodically.

B. Evaluation of inventories As inventories are stated at the lower of cost and net realisable value, the Group must determine the net realisable value of inventories on balance sheet date using judgements and estimates. Due to the fierce market competition and limited validity, the Group evaluates the amounts of normal inventory consumption, obsolete inventories or inventories without market selling value on balance sheet date, and writes down the cost of inventories to the net realisable value. Such an evaluation of inventories is principally based on the demand for the products within the specified period in the future. Therefore, there might be material changes to the evaluation.

6. DETAILS OF SIGNIFICANT ACCOUNTS (1) Cash and cash equivalents

A. The Group associates with a variety of financial institutions all with high credit quality to disperse credit risk, so it expects that the probability of counterparty default is remote.

B. The Group has no cash and cash equivalents pledged to others. (2) Financial assets at fair value through profit or loss

A. The Group’s financial assets held for trading are valued using US Dollars and Japanese Yen. The

Group recognised net income (loss) (including currency exchange profit or loss) of $520 and ($8,130) on financial assets held for trading for the year ended December 31, 2018.

B. The Group has no financial assets at fair value through profit or loss pledged to others.

December 31, 2017 December 31, 2018Cash on hand and petty cash 558$ 580$ Checking accounts 37,471 44,405 Demand deposits 919,908 344,763 Time deposits 229,638 464,623

59,580 61,4201,247,155$ 915,791$

Cash equivalment-Repurchase bonds

December 31, 2017 December 31, 2018 Current items: Financial assets mandatorily measured at fair value through profit or loss Monetary fund 5,848$ 623$ Non-current items:

Financial assets mandatorily measured at fair value through profit or loss Venture capital fund -$ 12,098$

228

C. Please refer to Note 9(2)F for the information of the venture capital fund of commitment investment.

D. Information on December 31, 2017 is provided in Note 12(4). (3) Current financial assets at amortised cost

Please refer to Note 6(6) for details of time deposits with over three months maturity as at December 31, 2017.

(4) Notes and accounts receivable

A. The ageing analysis of accounts receivable that were past due but not impaired is as follows:

The above ageing analysis was based on past due date. B. The Group does not hold any collateral as security for accounts receivable. C. As at December 31, 2017 and 2018, without taking into account any collateral held or other credit

enhancements, the maximum exposure to credit risk in respect of the amount that best represents the Group’s notes and accounts receivable were its carrying amounts.

D. Information relating to credit risk is provided in Note 12(2).

Items December 31, 2018 Time deposit 2,736,677$

2018 Interest income 66,487$

December 31, 2017 December 31, 2018Notes receivable 19,033$ 274$ Accounts receivable 150,644$ 452,691$ Less: Allowance for bad debts 18)( 3)(

150,626$ 452,688$

Accounts receivable Notes receivable Accounts receivable Notes receivableNot past due 141,477$ 19,033$ 452,691$ 274$ Past due

Up to 30 days - - - - 31 to 60 days 65 - - - 61 to 90 days 9,102 - - -

150,644$ 19,033$ 452,691$ 274$

December 31, 2017 December 31, 2018

229

(5) Inventories

The cost of inventories recognised as expense for the year:

(6) Other current financial assets

The Group has no other current financial assets pledged to others.

(7) Non-current financial assets at amortised cost

A. The Group recognised interest income of $4,192 on non-current financial assets at amortised cost

for the year ended December 31, 2018.

Cost

Allowance forvaluation loss and

loss on obsolescence Book valueRaw materials 63,916$ 11,824)($ 52,092$ Supplies 47,597 5,800)( 41,797 Work in process 7,718 329)( 7,389 Finished goods 110,677 25,934)( 84,743 Inventory in transit 2,276 - 2,276

232,184$ 43,887)($ 188,297$

December 31, 2017

Cost


loss on obsolescence Book valueRaw materials 76,528$ 11,745)($ 64,783$ Supplies 62,830 10,663)( 52,167 Work in process 23,912 2,266)( 21,646 Finished goods 169,530 11,524)( 158,006 Inventory in transit 28,594 - 28,594

361,394$ 36,198)($ 325,196$

December 31, 2018

2017 2018Cost of goods sold and service costs 434,939$ 654,500$ Fixed overhead cost not allocated 18,162 80,591 Loss on obsolescence and market value decline 29,978 4,288 Disposal of inventory 3,170 19,820 (Gain) loss on physical inventory 164)( 799 Operating costs 486,085$ 759,998$

Years ended December 31,

Items December 31, 2017 Time deposit 2,907,735$

Items December 31, 2018 Corporate bonds 161,489$

230

B. The Group has no financial assets at amortised cost pledged to others. C. Information relating to credit risk is provided in Note 12(2). D. As at December 31, 2018, without taking into account any collateral held or other credit

enhancements, the maximum exposure to credit risk in respect of the amount that best represents the financial assets at fair value through other comprehensive income held by the Group was its carrying amount.

E. Information on December 31, 2017 is provided in Note 12(4).

231

(8) Property, plant and equipment

Land Buildings and

structures Machinery

Transportation

equipment Office

equipment Other

equipment Leasehold

improvements Equipment tobe inspected Total

At January 1, 2017Cost 386,542$ 307,522$ 505,746$ 1,815$ 25,494$ -$ 16,739$ -$ 1,243,858$ Accumulated depreciation - 117,067)( 184,049)( 695)( 7,759)( - 9,134)( - 318,704)(

386,542$ 190,455$ 321,697$ 1,120$ 17,735$ -$ 7,605$ -$ 925,154$ 2017Opening net book amount as at January 1 386,542$ 190,455$ 321,697$ 1,120$ 17,735$ -$ 7,605$ -$ 925,154$ Additions - 23,956 46,025 - 3,035 1,516 191 51,113 125,836 Acquired from businesscombinations - - 170,881 - - 6,229 - - 177,110 Transfers - 286 9,429 - - - 286)( 19,906 29,335 Depreciation charge - 20,583)( 65,475)( 272)( 3,961)( 264)( 3,461)( - 94,016)( Net exchange differences - - - - 146)( - - - 146)( Closing net book amount as at December 31 386,542$ 194,114$ 482,557$ 848$ 16,663$ 7,481$ 4,049$ 71,019$ 1,163,273$

At December 31, 2017Cost 386,542$ 291,792$ 814,470$ 1,286$ 27,766$ 18,084$ 14,983$ 71,019$ 1,625,942$ Accumulated depreciation - 97,678)( 331,913)( 438)( 11,103)( 10,603)( 10,934)( - 462,669)(

386,542$ 194,114$ 482,557$ 848$ 16,663$ 7,481$ 4,049$ 71,019$ 1,163,273$

232

A. Information about the property, plant and equipment pledged to others as collaterial is provided in Note 8. B. For assets acquired from business combinations, please refer to Note 6(31). C. The subsidiary, Synpac-Kingdom Pharmaceutical Co. Ltd., recognised $1,604 impairment loss on unusable and obsolete property, plant

and equipment.

Land Buildings and

structures Machinery

Transportation

equipment Office

equipment Other

equipment Leasehold


At January 1, 2018Cost 386,542$ 291,792$ 814,470$ 1,286$ 27,766$ 18,084$ 14,983$ 71,019$ 1,625,942$ Accumulated depreciation - 97,678)( 331,913)( 438)( 11,103)( 10,603)( 10,934)( - 462,669)(

386,542$ 194,114$ 482,557$ 848$ 16,663$ 7,481$ 4,049$ 71,019$ 1,163,273$ 2018Opening net book amount as at January 1 386,542$ 194,114$ 482,557$ 848$ 16,663$ 7,481$ 4,049$ 71,019$ 1,163,273$ Additions - 13,326 63,758 - 954 190 4,952 25,010 108,190 Disposals - - - - - - 344)( - 344)( Transfers - 12,969 60,906 - - - 124 70,819)( 3,180 Depreciation charge - 23,855)( 89,434)( 214)( 4,092)( 1,779)( 1,931)( - 121,305)( Impairment loss - 499)( - - 1,105)( - - 1,604)( Net exchange differences - - - - 63 - - - 63 Closing net book amount asat December 31 386,542$ 196,554$ 517,288$ 634$ 13,588$ 4,787$ 6,850$ 25,210$ 1,151,453$

At December 31, 2018Cost 386,542$ 313,774$ 903,378$ 1,286$ 28,286$ 18,274$ 10,372$ 25,210$ 1,687,122$ Accumulated depreciation - 117,220)( 386,090)( 652)( 14,698)( 13,487)( 3,522)( - 535,669)(

386,542$ 196,554$ 517,288$ 634$ 13,588$ 4,787$ 6,850$ 25,210$ 1,151,453$

233

(9) Intangible assets

Cost Accumulatedamortisation Total

Patent-Intellectual property and patents of diabetes (Note 1) 51,578 32,666)( 18,912

Software cost 14,323 2,562)( 11,761 Other intangible assets – use right__New drug A technology and right (Note 2) 7,121 3,027)( 4,094 __Generic A technology and right (Note 3) 18,292 12,739)( 5,553 __Generic B technology and right (Note 4) 160,425 86,780)( 73,645 __Generic C technology and right (Note 5) 29,964 18,925)( 11,039 __Generic D technology and right (Note 6) 15,145 3,537)( 11,608

296,848$ 160,236)($ 136,612$

January 1, 2017

Patent Software cost Other intangible

assets Total2017At January 1 18,912$ 11,761$ 105,939$ 136,612$ Additions-acquired separately - 6,917 83,323 90,240 Additions-acquired from business conbinations - 133 109,797 109,930 Disposal (Note 13) - - 108,934)( 108,934)( Impairment loss (Note 4) - - 53,299)( 53,299)( Amortisation charge 5,158)( 4,303)( 28,088)( 37,549)( Transfer - 150 - 150 Net exchange differences - 536)( - 536)( At December 31 13,754$ 14,122$ 108,738$ 136,614$

234


Patent-Intellectual property and patents of diabetes (Note 1) 51,578$ 37,824)($ 13,754$

Software cost 19,671 5,549)( 14,122 Other intangible assets – use right__New drug A technology and right (Note 2) 7,121 3,738)( 3,383 __Generic A technology and right (Note 3) 18,292 13,665)( 4,627 __Generic B technology and right (Note 4) 160,425 150,601)( 9,824 __Generic C technology and right (Note 5) 29,964 20,502)( 9,462 __Generic D technology and right (Note 6) 15,145 5,085)( 10,060 __Generic E technology and right (Note 7) 76,975 11,546)( 65,429 __Generic F technology and right (Note 8) 3,481 228)( 3,253 __Generic G technology and right (Note 9) 2,867 167)( 2,700 __New drug B technology and right (Note 10) 9,000 9,000)( -

394,519$ 257,905)($ 136,614$

December 31, 2017

Cost

Accumulatedamortisation and

impairment TotalPatent-

Intellectual property and patents of diabetes (Note 1) 51,578$ 37,824)($ 13,754$ Software cost 19,671 5,549)( 14,122 Other intangible assets – use right

__New drug A technology and right (Note 2) 7,121 3,738)( 3,383 __Generic A technology and right (Note 3) 18,292 13,665)( 4,627 __Generic B technology and right (Note 4) 160,425 160,425)( - __Generic C technology and right (Note 5) 29,964 20,502)( 9,462 __Generic D technology and right (Note 6) 15,145 5,085)( 10,060 __Generic E technology and right (Note 7) 76,975 11,546)( 65,429 __Generic F right of sale (Note 8) 3,481 228)( 3,253 __Generic G technology and right (Note 9) 2,867 167)( 2,700 __New drug B technology and right (Note 10) 9,000 9,000)( -

394,519$ 267,729)($ 126,790$

January 1, 2018

235

A. Details of amortisation on intangible assets are as follows:

Note 1: In August 2010, a subsidiary, TWi Biotechnology, Inc., paid $51,578 to purchase the

intellectual property and patents of diabetes from Anchen Laboratories Inc. The payments have been executed. TWi Biotechnology Inc. has been developing other indications such as Hereditary Epidermolysis Bullosa, Hemophilic Arthropathy and so on by applying

Other intangiblePatent Software cost assets Total

2018At January 1 (Note 4) 13,754$ 14,122$ 98,914$ 126,790$ Additions - acquired separately - 6,103 150,475 156,578 Impairment loss (Note 8) - - 3,042)( 3,042)( Amortisation charge 5,158)( 4,505)( 21,691)( 31,354)( Net exchange differences - 242 1,113 1,355 At December 31 8,596$ 15,962$ 225,769$ 250,327$

Cost


impairment TotalPatent-

Intellectual property and patents of diabetes (Note 1) 51,578$ 42,982)($ 8,596$ Software cost 25,165 9,203)( 15,962 Other intangible assets – use right__New drug A technology and right (Note 2) 7,121 4,450)( 2,671 __Generic A technology and right (Note 3) 18,292 14,590)( 3,702 __Generic B technology and right (Note 4) 160,425 160,425)( - __Generic C technology and right (Note 5) 29,964 22,079)( 7,885 __Generic D technology and right (Note 6) 15,145 6,632)( 8,513 __Generic E technology and right (Note 7) 76,975 26,941)( 50,034 __Generic F right of sale (Note 8) 3,481 3,481)( - __Generic G technology and right (Note 9) 2,867 454)( 2,413 __New drug B technology and right (Note 10) 9,000 9,000)( - __Generic H right of sale (Note 11) 64,491 - 64,491 __Generic I technology and right (Note 12) 87,097 1,037)( 86,060

551,601$ 301,274)($ 250,327$

December 31, 2018

2017 2018Operating costs 12,617$ 15,774$ Administrative expenses 3,717 3,622 Research and development expenses 21,215 11,958

37,549$ 31,354$


236

aforementioned intellectual property as the basis for researching combination inhibitors of inflammasome.

Note 2: TWi Biotechnology, Inc., a subsidiary, signed a Skin Disease New Drug Technology License Agreement with Company V in July 2012. TWi Biotechnology, Inc. is the only global licensee for this new drug, and TWi Biotechnology, Inc. is responsible for the development, clinical trial and the US FDA registration of this new drug. TWi Biotechnology, Inc. will pay milestone payment to Company V up to US$11,600 thousand on the occurrence of agreed R&D achievements and product approval of the new drug. TWi Biotechnology, Inc. will also pay a certain percentage of sales as royalty to Company V after the drug is launched. As of December 31, 2018, TWi Biotechnology, Inc. has paid license fee of $7,121 to Company V (listed under “Other intangible assets - use right”).

Note 3: The Company purchased a psychology drug-related asset from Anchen Incorporated in October 2011 for a purchase price of $18,292. The asset includes drug-related research and development technology and rights of production and distribution. The full amount had been paid.

Note 4: (1) The Company has entered into a collaboration and development agreement with Company Z for an undisclosed generic drug. Company Z is responsible for product development and technology transfer. The Company is responsible for submitting an ANDA to the US FDA. Company Z grants the Company an exclusive license to use, manufacture and distribute the generic product in the United States. The Company should pay Company Z milestone fees on the occurrence of agreed R&D achievements and product approval. The Company will also share a certain percentage of profit to Company Z after the product is launched.

(2) In March 2012, the Company, Company Z and Company A signed a tripartite agreement for the above generic drug. The Company grants the rights received from Company Z to Company A. Company A will be responsible for submitting an ANDA for the generic product to the US FDA. According to the agreement, Company A will pay the Company and Company Z milestone fees based on completion of development work and technology transfer. The Company will also pay Company Z additional milestone fees. Company A will share a certain percentage of profit to the Company and Company Z after the product is launched. The Company and Company Z may also receive an additional bonus if the product sales reach a certain level.

(3) The Company received a termination notice from Company A for the tripartite agreement in the third quarter of 2013. On November 11, 2013, the Company and Company Z signed a new collaboration and development agreement for the generic drug and has received an upfront payment of US$824 thousand. The Company grants rights of manufacturing and distribution in the United States to Company Z. The

237

Company will receive milestone fees from Company Z on occurrence of certain R&D achievements and drug license approval. Company Z will also share a certain percentage of profit to the Company until the aggregate amount reaches US$6,500 thousand.

(4) The Company has paid royalty fees (shown as “Other intangible asset-use right”) to Company Z in the amount of $160,425 as of December 31, 2018.

(5) Company Z notified the Company on its decision to push back on the American FDA ANDA submission, due to recent changes in ANDA submission guidelines. The Company evaluated that the delay in commercialization has a major effect on future revenue and market share, and therefore recorded impairment loss of $53,299 at the end of 2017. The balance of the asset after impairment equals to the balance of long-term deferred royalty revenue received from Company A (listed under “Other non-current liabilities”). On January 1, 2018, the deferred revenue was reclassified as revenue under IFRS 15, and the Company recognised intangible assets impairment loss at the same amount, thus, the Company’s retained earnings was not impacted.

Note 5: The Company and Anchen Incorporated signed a transfer agreement for the generic product’s technology and related rights in November 2011. Anchen Incorporated grants the Company exclusive right and license to register, manufacture and distribute the product in the United States. The Company has paid a total purchase price of $29,964.

Note 6: The Company entered into a Generic Technology and Rights Licensing Agreement with Company U in June 2014, under which Company U will be responsible for the research and development, testing, and documentation preparation of the generic drug while the Company seeks approval for the new drug application from the US regulatory body. Under the terms of the agreement, the Company has the exclusive right in the US for the development, production and sale of the generic drug intended for sale in the US market. Pursuant to the agreement, Company U is eligible to receive, based on agreed upon milestones in the application process, license fees to be paid in installments. When the product is commercialized, the Company will also pay Company U royalties based on a fixed percentage of net sales. As of December 31, 2018, license fees paid by the Company to Company U were $15,145. The highest unpaid amount is US$500 thousand.

Note 7: The Company and Company E signed a transfer agreement for the generic product’s technology and related rights in March 2017. Company E grants the Company exclusive right and license to manufacture and distribute the product in the United States. The total price amounts to US$2,500 thousand. As of December 31, 2018, the Company has paid US$1,700 thousand.

Note 8: The Company entered into a Co-Development Agreement with Company F in May 2017, under which Company F will be responsible for the product development and manufacturing while the Company is responsible for the distribution of the product.

238

Pursuant to the agreement, Company F is eligible to receive license fees of up to US$593 thousand based on milestone achievement. When the product is commercialized, the Company will also pay Company F royalties based on a fixed percentage of net sales. As of December 31, 2018, the Company paid milestone fee to Company F of US$593 thousand. The Company suspended the collaboration and development agreement with Company F in 2018 and recognised impairment loss of contract balance amounting to $3,042.

Note 9: The Company entered into a Co-Development Agreement with Company H in April 2017, under which Company H will be responsible for the product development and manufacturing while the Company is responsible for obtaining drug regulatory approval and distribution of the product in the USA. Company H authorised the Company exclusive distribution right in the USA. Pursuant to the agreement, based on agreed upon milestones in the application process, Company H is eligible to receive license fees of up to US$3 million. When the product is commercialized, the Company will also share profit with Company H based on a fixed percentage of net profit. As of December 31, 2018, the Company already paid milestone fee to Company H of US$100 thousand.

Note 10: The subsidiary– Synpac-Kingdom Pharmaceutical Co., Ltd. (“SK”) had obtained technology transfer right of 「 SN38 macromolecular nanocell anticancer drug formulation」 from the Industrial Technology Research Institute. According to the agreement, aside from the Group having to pay patent license fee of $9,000, the Group might also have to pay up to $21,000 based on the milestone schedule as well as pay royalties based on a fixed percentage of net sales. Before being consolidated into the Group, SK has evaluated that the future development position would not be focused on new drug development and has recorded impairment loss equal to its balance.

Note 11: The subsidiary, TWi Pharmaceuticals USA, Inc. (hereinafter refer to as TWi US), entered into a Product Co-Development Agreement with Company I in February, April and June, 2018, under which Company I will be responsible for the research and development and manufacturing while the TWi US owns exclusive sales rights in US market and is responsible for commercialization of the nine products. Pursuant to the agreement, based on agreed upon milestones in the application process, Company I is eligible to receive license fees of up to US$5,325 thousand. When the product is commercialized, TWi US will also pay Company I profit-sharing amounts based on a fixed percentage of net profit. As of December 31, 2018, license fees paid by TWi US to Company I amounted to US$1,900 thousand.

Note 12: In October 2018, the Company entered into a generic drug technology and rights transfer agreement with Company J and the Company obtained the rights of using relevant information and technology, materials and supplies (listed under “Inventories”), and the rights to manufacture and sell the generic drug. The purchase of aforementioned rights

239

was USD 3,500 thousand which has been paid in full. Note 13: On December 1, 2017, the subsidiary – Synpac-Kingdom Pharmaceutical Co., Ltd.

(“SK”) signed a Drug Approval Rights Transfer Agreement and an Inventory and Accounts Receivable Transfer Agreement with Synmosa Biopharma Corporation., SK sold the abovementioned drug approval, trademarks, patents and technical documents as well as related inventory and accounts receivable for $299,505 (VAT not included) to Synmosa Biopharma Corporation, resulting to a gain on disposal. Please see Note 6(23). As of December 31, 2017 and 2018, as per the agreements, a total of $149,245 and $64,286 (VAT not included) has not yet been received (listed under “Other Receivables”).

(10) Other non-current assets

Note: Information about the other non-current financial assets that were pledged to others as collateral is provided in Note 8.

(11) Short-term borrowings

Note: The borrowings of subsidiaries are guaranteed by the parent company.

(12) Short-term notes and bills payable

A. The abovementioned short-term notes and bills payable is guaranteed and accepted by financial

institutions such as banks and securities companies.

December 31, 2017 December 31, 2018Prepayment for equipment 22,315$ 66,077$ Prepayment for inventory 78,413 93,933 Investment return receivable 36,536 35,744 Guarantee deposits paid 13,332 10,510 Prepayment for pension 193 941 Other non-current financial assets (Note) 2,909 2,909 Others 82 6

153,780$ 210,120$

Type of borrowings December 31, 2017 Interest rateBank unsecured borrowings 215,000$ 1.10%~1.15%

Type of borrowings December 31, 2018 Interest rateBank secured borrowings (Note) 200,000$ 1.15%~1.16%

December 31, 2017Commercial paper payable 35,000$ Less: Unamortised discount 16)(

34,984$ Interest rate 1.10%Maturity date 2018/1/16

240

B. The Group has no short-term notes and bills payable as of December 31, 2018. (13) Other payables

(14) Other current liabilities

On January 1, 2018, upon initial application of IFRS 15, liabilities in relation to expected discounts, allowances and refunds to customers are recognised as refund liabilities (under “other current liabilities”.)

(15) Pensions A. (a) The Company and domestic subsidiary have a defined benefit pension plan in accordance

with the Labor Standards Act (the “LSA”), covering all regular employees’ service years prior to the enforcement of the Labor Pension Act on July 1, 2005 and service years thereafter of employees who chose to continue to be subject to the pension mechanism under the Act. Under the defined benefit pension plan, two units are accrued for each year of service for the first 15 years and one unit for each additional year thereafter, subject to a maximum of 45 units. Pension benefits are based on the number of units accrued and the average monthly salaries and wages of the last 6 months prior to retirement. The Company and domestic subsidiary contribute monthly an amount equal to 2% of the employees’ monthly salaries and wages to the retirement fund deposited with Bank of Taiwan, the trustee, under the name of the independent retirement fund committee. Also, the Company and domestic subsidiary would assess the balance in the aforementioned labor pension reserve account by December 31, every year. If the account balance is not enough to pay the pension calculated by the aforementioned method to the employees expected to qualify for retirement in the following year, the Company and domestic subsidiary will make contribution for the deficit by next March.

December 31, 2017 December 31, 2018Salary payable and annual bonus 51,891$ 40,198$ Service expenses 14,651 9,362 Payable for CRO expenses 33,762 16,614 Payable on equipment 18,223 24,268 Royalty payable 52,763 88,711 Payable for withholding tax 11,411 11,411 Business tax payable 11,501 - Others 40,183 56,261

234,385$ 246,825$

December 31, 2017 December 31, 2018Payable for collection and payment transfer 19,020$ -$ Refund liabilities - 269,292 Others 3,131 2,682

22,151$ 271,974$

241

(b) The amounts recognised in the balance sheet are as follows:

The Company: TWi Pharmaceuticals, Inc.

Subsidiary: Synpac-Kingdom Pharmaceutical Co., Ltd.

(c) Movements in net defined benefit liabilities (assets) are as follows: The Company: TWi Pharmaceuticals, Inc.

December 31, 2017 December 31, 2018Present value of defined benefit obligations 5,987$ 5,852$ Fair value of plan assets 6,180)( 6,792)( Net defined benefit asset 193)($ 940)($

December 31, 2017 December 31, 2018Present value of defined benefit obligations 8,601$ -$ Fair value of plan assets 3,924)( - Net defined benefit liability 4,677$ -$

Present value ofdefined benefit

obligations

Fair value ofplan

assetsNet defined

benefit liabilityYear ended December 31, 2017Balance at January 1 6,147$ 5,738)($ 409$ Interest expense (income) 105 98)( 7

6,252 5,836)( 416 Remeasurements:Return on plan assets (excluding amounts included in interest income or expense)

- 40 40

Change in financial assumptions 371 - 371 Experience adjustments 636)( - 636)(

265)( 40 225)( Pension fund contribution - 384)( 384)( Balance at December 31 5,987$ 6,180)($ 193)($

242

Subsidiary: Synpac-Kingdom Pharmaceutical Co. Ltd.


obligations

Fair value ofplan

assetsNet defined

benefit liabilityYear ended December 31, 2018Balance at January 1 5,987$ 6,180)($ 193)($ Interest expense (income) 78 80)( 2)(

6,065 6,260)( 195)( Remeasurements:Return on plan assets (excluding amounts included in interest income or expense)

- 162)( 162)(


213)( 162)( 375)( Pension fund contribution - 370)( 370)( Balance at December 31 5,852$ 6,792)($ 940)($


obligations

Fair value ofplan

assetsNet defined

benefit liabilityYear ended December 31, 2017Balance at November 20, 2017(Acquisition date) 8,130$ 3,893)($ 4,237$ Interest expense (income) 6 - 6

8,136 3,893)( 4,243 Remeasurements:Return on plan assets (excluding amounts included in interestincome or expense)

- 32 32

Change in demographic assumptions - - - Change in financial assumptions 126 - 126 Experience adjustments 339 - 339

465 32 497 Pension fund contribution - 63)( 63)( Paid pension - - -

- 63)( 63)( Balance at December 31 8,601$ 3,924)($ 4,677$

243

(d) The Bank of Taiwan was commissioned to manage the Fund of the Company’s and domestic subsidiary’s defined benefit pension plan in accordance with the Fund’s annual investment and utilisation plan and the “Regulations for Revenues, Expenditures, Safeguard and Utilisation of the Labor Retirement Fund” (Article 6: The scope of utilisation for the Fund includes deposit in domestic or foreign financial institutions, investment in domestic or foreign listed, over-the-counter, or private placement equity securities, investment in domestic or foreign real estate securitization products, etc.). With regard to the utilisation of the Fund, its minimum earnings in the annual distributions on the final financial statements shall be no less than the earnings attainable from the amounts accrued from two-year time deposits with the interest rates offered by local banks. If the earnings is less than aforementioned rates, government shall make payment for the deficit after being authorized by the Regulator. The Company and domestic subsidiary have no right to participate in managing and operating that fund and hence the Company and domestic subsidiary are unable to disclose the classification of plan assets fair value in accordance with IAS 19 paragraph 142. The composition of fair value of plan assets as of December 31, 2017 and 2018 is given in the Annual Labor Retirement Fund Utilisation Report announced by the government.


obligations

Fair value ofplan

assetsNet defined

benefit liabilityYear ended December 31, 2018Balance at January 1 8,601$ 3,924)($ 4,677$ Interest expense (income) 202 198)( 4

8,803 4,122)( 4,681 Remeasurements:Return on plan assets (excluding amounts included in interestincome or expense)

- - -

Change in demographic assumptions - - - Change in financial assumptions - - - Experience adjustments - - -

- - - Pension fund contribution - 4)( 4)( Paid pension 3,856)( 3,856 - Revenue on reversal of curtailments andsettlements 4,947)( 270 4,677)(

8,803)( 4,122 4,681)( Balance at December 31 -$ -$ -$

244

(e) The principal actuarial assumptions used were as follows:

Assumptions regarding future mortality experience are set based on actuarial valuation in accordance with published statistics and experience in the 5th version of Taiwan Standard Ordinary Experience Mortality Tables. Because the main actuarial assumption changed, the present value of defined benefit obligation is affected. The analysis was as follows:

The sensitivity analysis above was based on one assumption which changed while other conditions remain unchanged. In practice, more than one assumption may change all at once. The method of analysing sensitivity and the method of calculating net pension liability in the balance sheet are the same. The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous period.

(f) The subsidiary, Synpac-Kingdom Pharmaceutical Co. Ltd., has settled defined benefit pension plan on December 4, 2018.

(g) Expected contributions to the defined benefit pension plans of the Group for the year ending December 31, 2019 are $371.

B. (a) Effective July 1, 2005, the Company and its domestic subsidiaries have established a defined contribution pension plan (the “New Plan”) under the Labor Pension Act (the “Act”), covering all regular employees with the R.O.C. nationality. Under the New Plan, the Company and its domestic subsidiaries contribute monthly an amount based on 6% of the employees’ monthly salaries and wages to the employees’ individual pension accounts at the Bureau of Labor Insurance. The benefits accrued are paid monthly or in lump sum upon termination of employment.

(b) For overseas subsidiaries, except for a periodic contribution based on a certain percentage of the employees’ monthly salaries and wages in accordance with the local pension regulations, there is no further pension obligation.

Year endedDecember 31, 2017


Discount rate 1.25%~1.30% 1.10%Future salary increases 2.00%~4.00% 4.00%

Increase 0.25% Decrease 0.25% Increase 0.25% Decrease 0.25%December 31, 2017Effect on present value ofdefined benefit obligation 485)($ 506$ 478$ 462)($ December 31, 2018Effect on present value ofdefined benefit obligation 220)($ 231$ 209$ 201)($

Discount rate Future salary increases

245

(c) The pension costs under the defined contribution pension plans of the Group for the years ended December 31, 2017 and 2018 were $11,413 and $14,393, respectively

(16) Share-based payment A. As of December 31, 2018, the Group’s share-based payment arrangements were as follows:

Type ofarrangement Description Grant date

Beforeconversion

Afterconversion

Contractperiod

Vestingconditions

The company: Employee stock options-A

Note 1 2011.4.1 2,410,000 1,507,613 10 years 1~5 years'service

Employee stock options-B

" 2011.4.1 152,000 95,085 10 years 4 years' service

Employee stock options-C

" 2012.4.1 3,527,200 2,206,495 10 years 1~5 years'service

Employee stock options-D

" 2012.4.1 8,800 5,505 10 years 1~5 years'service

Employee stock options-E


Employee stock options-F

2013.5.1 187,231 8.75 years 2~3.75 years'service

Employee stock options-G

2013.5.1 1,693,800 10 years 2~3 years'service

Employee stock options-H

2014.4.1 962,500 10 years 2~3 years'service

Employee stock options-I


Employee stock options-J


Employee stock options-K


Employee stock options-L


Employee stock options-O


Employee stock options-P


Employee stock options-Q


Employee stock options-S


Restricted stocks to employees -G

Note 2 2015.9.1 50,000 5 years 1~5 years'service

Restricted stocks to employees -H

" 2016.3.22 50,000 5 years 1~5 years'service

Quantity granted(number of shares)

246

Note 1: The Company’s former ultimate parent company, TWi Pharmaceuticals Holding, Inc., has

granted employee stock options to employees of the Company during April 2011 and April 2012. Each unit of options may acquire l share of TWi Pharmaceuticals Holding, Inc. In 2012, because the Group decided to use the Company as the main entity for public exchange listing, through a Board of Directors’ resolution on July l, 2012, TWi Pharmaceuticals Holding, Inc. converted the target of the abovementioned employee stock option into the Company’s stock using a ratio of 1:0.6255655.

Note 2: The restricted stocks issued by the Company cannot be transferred during the vesting period, but voting right and dividend right are not restricted on these stocks. Employees are required to return the stocks but not required to return the dividends received if they resign during the vesting period.

Note 3: Had been terminated by agreement on March 31, 2017.


Beforeconversion

Afterconversion

Contractperiod

Vestingconditions

Subsidiary: Employee stock options-M

Note 3 2014.10.1 97,000 3.5 year 0.25~3.5 year'sservice

Employee stock options-N

" 2015.2.5 1,534,400 10 year 1~5 years'service

Employee stock options-R

" 2016.6.1 500,000 10 year 1~2 years'service

Share capitalincrease by cashreserved foremployees

" 2018.7.3 1,100,000 Notapplicable

Vestedimmediately


247

B. Details of the share-based payment arrangements are as follows: The Company: (a) Employee stock options- A~E

Note: The 28 and 37 thousand shares of employee stock options exercised during the years ended December 31, 2017 and 2018, respectively, had been converted to common stocks. However, as of December 31, 2017 and 2018, the amendment of paid-in capital registration for 9 thousand and 0 shares amounting to $427 and $0, respectively, is still in progress, and is part of “Advance receipt for share capital”.

(b) Employee stock options- F~L, O~Q and S

No. of options

Weighted-average

exercise price(in dollars) No. of options

Weighted-average

exercise price(in dollars)

Options outstanding at beginning of the year 157,498 48$ 128,860 48$ Options exercised (Note) 28,336)( 48 37,029)( 48 Options forfeited 302)( 48 - 48 Options outstanding at end of the year 128,860 48 91,831 48 Options exercisable at end of the year 127,584 48 91,431 48

Year ended December 31, 2017 Year ended December 31, 2018

No. of shares

Weighted-average

exercise price(in dollars) No. of shares

Weighted-average


Options outstanding at beginning of the year 2,874,009 212$ 3,862,993 174.2$ Options granted 1,472,000 97.4 - - Options exercised (Note) 22,400)( 48 - - Options forfeited 460,616)( 170 472,057)( 152.6 Options outstanding at end of the year 3,862,993 174 3,390,936 177.2 Options exercisable at end of the year 1,953,737 221 1,982,887 216.6

Year ended December 31, 2017 Year ended December 31, 2018

248

Note: The 22 thousand and 0 shares of employee stock options exercised during the years ended December 31, 2017 and 2018, respectively, had been converted to common stocks.

(c) Restricted stocks-G~H

Subsidiary:

i. Employee stock options-M~N

ii. Employee stock options-R

C. The weighted-average stock price of stock options at exercise dates for the years ended December

31, 2017 and 2018 were $91.11 (in dollars) and $67.30 (in dollars), respectively.

2017 2018Quantity Quantity

(number of shares) (number of shares) At January 1 90,000 30,000 Share expired 40,000)( 20,000)( Restrictions removed during the year 20,000)( 10,000)( At December 31 30,000 -


Weighted-averageexercise price (in dollars)

Options outstanding at beginning of the year 281,880 0.43US$ Options redeemed 281,880)( 0.43US$ Options outstanding at end of the year - -

Year ended

No. of shares

December 31, 2017

Weighted-average Weighted-averageexercise price exercise price (in dollars) (in dollars)

Options outstanding at__beginning of the yearOptions forfeited 80,000)( 35 - - Options outstanding at end of the year 420,000 35 420,000 35

500,000 35$ 420,000 35$

Year ended Year endedDecember 31, 2017 December 31, 2018

No. of shares No. of shares

249

D. The expiry date and exercise price of stock options outstanding at balance sheet date are as follows:

E. The fair value of stock options is measured using the Black-Scholes option-pricing model.

Relevant information is as follows: (a) Employee stock options A~E

Before conversion:

No. of shares Exercise price No. of shares Exercise priceExpiry date (in thousands) (in dollars) (in thousands) (in dollars)

The Company:_2012.4.1 2022.3.31 129 48$ 92 48$ _2013.5.1 2022.1.31 7 48 7 48 _2013.5.1 2023.4.30 995 218.5 950 218.5 _2014.4.1 2024.3.31 548 240 518 240 _2015.6.1 2025.5.31 796 201 641 201 _2015.9.1 2025.8.31 32 203 29 203 _2015.11.17 2025.11.16 185 165 185 165 _2016.4.26 2026.4.25 5 108 5 108 _2017.1.12 2027.1.11 1,295 97.4 1,056 97.4

Subsidiary:_2014.10.1 2018.3.31 - - - - _2015.2.5 2025.2.4 - - - - _2016.6.1 2026.5.31 420 35 420 35


Issue date approved

Type ofarrangement

Grantdate

Stock price(in dollars)

Exerciseprice

(in dollars)

Expectedprice

volatilityExpectedoption life

Expecteddividendsyield rate

Risk-freeinterest

rate

Fair valueper unit

(in dollars)The company:Employee stock options-A

2011.4.1 Note 10$ 26.67% 6.35 years 0% 1.17% $1.16~1.53


2011.4.1 " " 26.67% 7 years " 1.21% 1.44


2012.4.1 " 30 30.11% 2.70 years " 0.92% 10.53~11.56


2012.4.1 " " 30.11% 2.70 years " 0.92% 10.53~11.56


2012.4.1 " " 30.11% 2.70 years " 0.92% 10.53~11.56

250

After conversion:

Note: Both the Company’s former parent company’s and the Company’s shares were not publicly

traded when granting employee stock options, therefore the weighted-average price of $7.3~36.91 (in dollars) was estimated using industry stock price and capitalised cash flow method taking into account liquidity discount.

(b) Employee stock options F to S and restricted stocks:

Type ofarrangement

Grantdate


Exerciseprice

(in dollars)

Expectedprice



Risk-freeinterest

rate

Fair valueper unit


2011.4.1 Note 16$ 26.67% 6.35 years 0% 1.17% $1.85~2.45


2011.4.1 " " 26.67% 7 years " 1.21% 2.30


2012.4.1 " 48 30.11% 2.70 years " 0.92% 16.83~18.48


2012.4.1 " " 30.11% 2.70 years " 0.92% 16.83~18.48


2012.4.1 " " 30.11% 2.70 years " 0.92% 16.83~18.48

Type ofarrangement

Grantdate

Stockprice

(in dollars)

Exerciseprice

(in dollars)

Expectedprice

volatility

Expectedoption

life


Risk-freeinterest

rate

Fair valueper unit

(in dollars)


2013.5.1 153.74$ 48$ 52.66% 2.5~4.25years

2.9% 0.80%~0.89%

$96.20~98.62

Employee stock 2013.5.1 153.74 218.5 " 2.5~3.5 " 0.80%~ 27.60~ options-G (Note) years 0.85% 34.41 Employee stock 2014.4.1 245.5 240 30.22%~ 2.5~3.5 0% 0.73%~ 51.27~ options-H (Note) 32.29% years 0.93% 57.79 Employee stock 2014.8.1 242 237 30.45%~ 2.5~3.5 " 0.81%~ 49.77~ options-I (Note) 31.63% years 0.99% 57.56 Employee stock 2014.9.1 247 241.5 30.94%~ 2.5~3.5 " 0.83%~ 50.47~ options-J (Note) 31.38% years 1.01% 59.66

Employee stock 2014.12.1 270 261.5 30.82%~ 2.5~3.5 " 0.79%~ 54.15~ options-K (Note) 31.54% years 0.95% 66.13 Employee stock 2015.6.1 201.5 201 30.08%~ 2.5~5.5 " 0.74%~ 39.40~ options-L (Note) 35.57% years 1.15% 69.51 Employee stock 2015.9.1 204 203 30.94%~ 2.5~5.5 " 0.61%~ 40.68~ options-O (Note) 35.68% years 0.95% 69.79 Employee stock options-P

2015.11.17 165 165 31.51%~35.60%

2.5~5.5years " 0.52%~

0.91%33.33~56.21


2016.4.26 108 108 31.98%~36.40%

2.5~5.5years " 0.45%~

0.67%22.05~37.03


2017.1.12 97.4 97.4 33.14%~36.15%

2.5~5.5years " 0.67%~

0.97%20.78~33.74

251

Note: As resolved by the Board of Directors, the exercise prices of employee stock options

were adjusted due to issuance of global depository receipts. F. Expenses incurred on share-based payment transactions are shown below:

(17) Other non-current liabilities

Note 1: As described in the generic drug development contract signed with Company A and

Company Z, the Company has received royalty of US$2 million in the second half of 2012 and has deferred recognition of the revenue over the development period. For the year ended December 31, 2017, the Company has recognised $4,912 (shown as “Operating revenues”). For the information of deferred revenue reclassified as revenue under IFRS 15 on January 1, 2018, please refer to the fourth note of Note 6(9).

Note 2: Represents payable for Generic E technology and right. Please refer to Note 6(9).

Type ofarrangement

Grantdate

Stockprice

(in dollars)

Exerciseprice

(in dollars)

Expectedprice

volatility

Expectedoption

life


Risk-freeinterest

rate

Fair valueper unit

(in dollars)

Restricted stocks-G

2015.9.1 204 10$ 30.34%~41.39%

1~5years 0% 0.50%~

0.88%140.89~165.17

Restricted stocks-H 2016.3.22 144.5 10 31.08%~

35.70%1~5

years " 0.39%~0.57%

95.92~120.88

Subsisiary:

Employee stock options-M 2014.10.1 0.011US$ 0.01US$ 25.08%~

28.51%0.25~3.5

years " 0.50%~1.12%

US$0.001~US$0.003

Employee stock options-N 2015.2.5 0.2US$ 0.5US$ 28.22%~

34.77%5.5~7.5

years " 1.17%~1.41%

US$0.009~US$0.029

Employee stock options-R 2016.6.1 26.56$ 35$ 49.60% 5.5~6

years " 0.67%~0.71%

$9.90~$10.45

Share capital increase bycash reserved for employees

2018.7.3 26.26$ 35$ 38.97% 0.09years " 0.60% 0

2017 2018Equity-settled 26,401$ 14,292$


December 31, 2017 December 31, 2018Long-term deferred revenue (Note 1) 9,824$ -$ Accrued pension liabilities 4,677 - Payable on intangible assets (Note 2) 23,832 24,568 Guarantee deposits received 3,556 9,743 Others 258 778

42,147$ 35,089$

252

(18) Common stock A. As of December 31, 2018, the Company’s authorised capital was $2,000,000, consisting of 200

million shares of common stock, and the paid-in capital was $1,203,556 with a par value of $10 (in dollars) per share. All proceeds from shares issued have been collected.

B. Movements in the number of the Company’s common stock outstanding are as follows (in thousands of shares):

C. On June 29, 2015, the Board of Directors of the Company adopted a resolution that allowed stockholders to issue 14.4 million units of global depository receipts (GDRs), represented by 14.4 million shares of common stock (deposited shares), with one unit of GDR representing 1 share of outstanding common stock. After obtaining approval from the Securities and Futures Bureau of the Financial Supervisory Commission, these GDRs were listed on the Securities Exchange of Luxembourg on September 22, 2015, with total proceeds of US$87,088 thousand. The main terms and conditions of the GDRs are as follows: (a) Voting rights

Except as required by law, GDR holders may, pursuant to the depositary agreement and the relevant laws and regulations of the R.O.C., exercise the voting rights pertaining to the underlying common shares represented by the GDRs.

(b) Redemption of GDRs For sales and redemption of the underlying common shares represented by the GDRs when the holders of the GDRs request the depositary to redeem the GDRs in accordance with the relevant R.O.C. regulations and the provisions in the depositary agreement, the depositary may deliver the underlying common shares represented by the GDRs to the GDR holders, or sell the underlying common shares represented by the GDRs in the R.O.C. stock market on behalf of the GDR holder. The payment of proceeds from such sale shall be made subject to the relevant R.O.C. laws and regulations and the provisions in the depositary agreement.

(c) Distribution of dividends, preemptive rights and other rights Except as otherwise stated in the depositary agreement, distribution of dividends, preemptive rights and other rights and interests of GDR units bear the same rights as common shares.

(d) After considering cash capital increases, as of December 31, 2018, there were no units outstanding.

D. During its meeting on June 2, 2015, the stockholders adopted a resolution to issue restricted

2017 2018At January 1 125,320 120,369 Employee stock options exercised 84 46 Purchase of treasury share 5,035)( - Retirement of restricted stocks - 60)( At December 31 120,369 120,355


253

stocks (please refer to Note 6 (16)) with the effective date set on September 1, 2015 and March 22, 2016. The subscription price is $10 (in dollars) per share. Restricted stocks issued are subject to certain transfer restrictions before their vesting conditions are met. Other than these restrictions, the rights and obligations of these stocks issued are the same as other issued common stocks.

E. Employee restricted stocks of 60 thousand shares distributed to certain employees did not meet the vesting conditions in accordance with the terms of restricted shares, however, the Board of Directors has resolved to buy back the restricted shares as of March 19, 2018 and November 12, 2018 and has completed the registration of the retirement of shares on April 16, 2018 and December 17, 2018.

F. Treasury shares Pursuant to the R.O.C. Securities and Exchange Law, treasury shares to enhance the Company’s credit rating and the stockholders’ equity should be retired within six months of acquisition. The Company executed its second treasury share reacquisition from May 15, 2017 to July 14, 2017, and completed the registration of the retirement of 4,764 thousand shares on September 4, 2017.

(19) Capital reserve A. Pursuant to the R.O.C. Company Act, capital surplus arising from paid-in capital in excess of par

value on issuance of common stocks and donations can be used to cover accumulated deficit or to issue new stocks or cash to shareholders in proportion to their share ownership, provided that the Company has no accumulated deficit. Further, the R.O.C. Securities and Exchange Law requires that the amount of capital surplus to be capitalised mentioned above should not exceed 10% of the paid-in capital each year. Capital surplus should not be used to cover accumulated deficit unless the legal reserve is insufficient.

B. Regarding capital reserve - employee stock option, capital reserve - restricted stock to employees and transactions with non-controlling interests, please refer to Note 6(16) and (30).

254

Additionalpaid-incapital

Employeestock

options

Restrictedstock to

employees

Differencebetween

considerationand carrying

amount ofsubsidiariesacquired or

disposed

Changes inownershipinterests insubsidiaries

Premiumfrom

merger TotalAt January 1 7,295,864$ 98,564$ 53,353$ 464,841$ 361,770$ 6,523$ 8,280,915$ Amortisation oncompensation costsof employee stockoptions

- 20,956 - - - - 20,956

Amortisation oncompensation costsof employeestock options fromsubsidiaries

- 2,947 - - - - 2,947

Employee stockoptions exercised

2,824 2,824)( - - - - -

Advance receipts forshare capitaltransferred

3,203 - - - - - 3,203

Retirement oftreasury share

401,394)( - - - - - (401,394)

Recognition ofchanges in equity ofsubsidiaries inproportion toownership percentage

- - - - 635)( - (635)

Restricted stockvested 2,856 - 2,856)( - - - - At December 31 6,903,353$ 119,643$ 50,497$ 464,841$ 361,135$ 6,523$ 7,905,992$

Year ended December 31, 2017

255

(20) Retained earnings (accumulated deficit)

A. According to the amended Articles of Incorporation of the Company, when there is any profit for distribution for each financial year, the Company shall first pay all applicable taxes and offset losses from previous years, and then set aside no less than ten percent (10%) of the remaining profits of the Company for the relevant financial year as a legal reserve(s). Special reserve shall be set aside or reversed in accordance with related regulations or Competent Authority. The remaining amount, if any, along with the accumulated unappropriated earnings from prior years is accumulated distributable earnings. The appropriation of the accumulated distributable earnings, less an appropriate portion for the operational needs, shall be proposed by the Board of Directors and resolved by the shareholders as bonus to shareholders.

B. The dividends to stockholders shall be no less than ten percent (10%) of the net profit after tax


Employeestock

options

Restrictedstock to

employees

Differencebetween

considerationand carrying

amount ofsubsidiariesacquired or

disposed


Premiumfrom

merger TotalAt January 1 6,903,353$ 119,643$ 50,497$ 464,841$ 361,135$ 6,523$ 7,905,992$ Amortisation oncompensation costsof employee stockoptions

- 8,424 - - - - 8,424

Amortisation oncompensation costsof employeestock options fromsubsidiaries

- 1,321 - - - - 1,321


640 640)( - - - - -

Advance receipts forshare capitaltransferred

1,746 - - - - - 1,746

Employee restictedstocks removed

- - 52,081)( - - - (52,081)

Recognition ofchanges in equity ofsubsidiaries inproportion toownershippercentage

- - - - 219,257 - 219,257

Restricted stockadjusted 1,584)( - 1,584 - - - - At December 31 6,904,155$ 128,748$ -$ 464,841$ 580,392$ 6,523$ 8,084,659$


256

of the relevant financial year. The cash dividends shall comprise no less than ten percent (10%) of the aggregate of the cash and stock dividends declared in such year; provided that if the cash dividend per share is less than NT$0.1, the dividends shall be issued in the form of stock dividends in lieu of the cash dividend. The ratio of distribution may be adjusted by taking into consideration the Company's future revenues and cash flow. If there is any significant capital expenditure and R&D plan in the future, subject to the approval of the stockholders at the stockholders’ meeting, the dividends may only be distributed in the form of stock dividends. The Company shall not pay any dividends or bonuses if it does not have earnings.

C. Under the R.O.C. Company Act, when the accumulated deficit exceeds 50% of the paid-in capital, the Board of Directors should convene a stockholders’ meeting and report the situation.

D. Except for covering accumulated deficit or issuing new stocks or cash to stockholders in proportion to their stock ownership, the legal reserve shall not be used for any other purpose. The use of legal reserve for the issuance of stocks or cash to stockholders in proportion to their stock ownership is permitted, provided that the distribution of the reserve is limited to the portion in excess of 25% of the Company’s paid-in capital.

E. In accordance with the regulations, the Company shall set aside special reserve from the debit balance on other equity items at the balance sheet date before distributing earnings. When debit balance on other equity items is reversed subsequently, the reversed amount could be included in the distributable earnings.

F. For information on employees’ compensation (bonus) and directors’ and supervisors’ remuneration, please see Note 6(26).

(21) Operating revenue

Year ended December 31, 2018Sales revenue 822,594$ Service revenue 37 Royalties revenue 314

822,945$

257

Disaggregation of revenue from contracts with customers The Group derives revenue from the transfer of goods and services over time and at a point in time in the following major product lines and geographical regions:

For the year ended December 31, 2017, please refer to Note 12(5) B. for disclosures related to operating income under initial application of IFRS 15.

(22) Other income

Note 1: The Group’s former subsidiary, Visum Pharmaceutical Co., Ltd., entered into R&D-related grant programs with the Hainan Province government for the period from 2012 to 2013.

Note 2: Regarding the bargain purchase gain arising from an acquisition transaction, please see Note 6(31).

Year endedDecember 31, 2018 Sales revenue Service revenue Licenses revenue TotalNorth America 741,893$ -$ 314$ 742,207$ Taiwan 80,701 37 - 80,738

822,594$ 37$ 314$ 822,945$ Timing of revenuerecognition

At a point in time 822,594$ -$ -$ 822,594$ Over time - 37 314 351

822,594$ 37$ 314$ 822,945$

2017 2018Government grants revenue (Note 1) 541$ -$ Interest income:

Interest income from bank deposits 15,100 7,453 Interest income from financial assets at amortised cost

- 70,679

Interest income from financial assets other than financial assets at fair value through profit or loss

48,364 -

Other interest income 80 23 Bargain purchase gain (Note 2) 59,368 - Other income 8,015 6,243

131,468$ 84,398$


258

(23) Other gains and losses

Note 1: Regarding impairment loss on property, plant and equipment, please refer to Note 6(8);

regarding impairment loss on intangible assets, please refer to Note 6(9). Note 2: Regarding the asset disposal transaction made by subsidiary– Synpac–Kingdom

Pharmaceutical Co. Ltd. (“SK Co.”), please see Note 6(9). (24) Finance costs

(25) Expenses by nature

Note 1: Includes depreciation belonging to asset classified under “Non-current assets held for sale-

net” of $6,610 for the year ended December 31, 2017. Note 2: Includes amortisation belonging to asset classified under “Non-current assets held for sale-

net” of $18,188 and “Other non-current assets” of $561 for the year ended December 31, 2017.

2017 2018Gain on disposal of investment 456,946$ -$ Net currency exchange (loss) gain 283,562)( 111,810 Impairment loss (Note 1) 53,299)( 4,646)( Gain on disposal of assets (Note 2) 9,733 - (Loss) gain on financial assets (liabilities) at fair value through profit or loss 8,130)( 519 Gain on disposal of property, plant and equipment 1)( 73 Others 339)( 5)(

121,348$ 107,751$


2017 2018Interest expense-Bank borrowings 538$ 2,119$


2017 2018Employee benefit expense 333,378$ 399,316$ Depreciation on property, plant and equipment(Note 1) 100,626$ 121,305$ Amortisation expense (Note 2) 56,298$ 31,429$


259

(26) Employee benefit expense

A. According to the amended Articles of Incorporation of the Company, a ratio of the pre-tax income

before distribution of employees’ compensation and directors’ and supervisors’ remuneration, after covering accumulated losses, shall be distributed as employees’ compensation and directors’ and supervisors’ remuneration. The ratio shall be 1%~10% for employees’ compensation and shall not be higher than 5% for directors’ and supervisors’ remuneration.

B. The Company had an accumulated deficit as of December 31, 2017 and 2018, thus, the Company did not accrue employees’ compensation and directors’ and supervisors’ remuneration.

C. Information about employees’ compensation and directors’ and supervisors’ remuneration of the Company as resolved by the Board of Directors during its meeting will be posted in the “Market Observation Post System” at the website of the Taiwan Stock Exchange.

(27) Income tax A. Components of income tax expense:

2017 2018Wages and salaries 297,890$ 353,136$ Labour and health insurance fees 18,942 24,650 Pension costs 11,426 14,395 Other personnel expenses 5,120 7,135

333,378$ 399,316$


2017 2018Current tax: Current tax on profits for the year 8,367$ 297$ Adjustments in respect of prior years 36,504 8,106 Prior year income tax underestimation 18,008 9,948 Total current tax 62,879$ 18,351$ Deferred tax: Origination and reversal of temporary differences 22,425)( 4,211 Total deferred tax 22,425)( 4,211 Income tax expense 40,454$ 22,562$


260

B. Reconciliation between income tax expense and accounting profit

Note: The computation of applicable tax rate is based on the rates applicable in their respective

countries where the Group entities are registered.

Year ended Year ended December 31, 2017 December 31, 2018

Tax calculated based on loss before taxand statutory tax rate (Note)

51,420)($ 141,768)($

Foreign tax credit not applied 36,504 8,106 Temporary differences not recognisedas deferred tax assets

59,510 36,968

Taxable loss not recognised as deferredtax assets

29,434 127,100

Effect of expenses disallowed by taxregulation

19,221 41,762

Effect of expenses exempted fromincome tax calculation

10,093)( 54,817)(

Dividend income from subsidiary 35,572 - Prior year income tax underestimation 18,008 7,926 Effect of deferred income tax liabilitiesarising from business combination

23,196)( -

Impact of change in the tax rate ontemporary differences between currentyear and the year realised

- 1,100)(

Change in assessment of realisation ofdeferred tax assets

73,086)( 1,615)(

Income tax expense 40,454$ 22,562$

261

C. Amounts of deferred tax assets or liabilities as a result of temporary differences are as follows:

January 1

Acquired frombusiness

combinations Recognised inprofit or loss December 31

Deferred tax assets: Loss on inventory -$ 881$ 191$ 1,072$ Allowance for doubtful accounts over the statutory limit - 529 247)( 282 Pensions - 1,836 10)( 1,826 Others - 1,736 705)( 1,031

- 4,982 771)( 4,211

Deferred tax liabilities: Deferred income tax liabilities arising from business combination - (18,665) 18,665 - Land revaluation increment 4,933)( - - 4,933)(

4,933)( (18,665) 18,665 4,933)( 4,933)($ 13,683)($ 17,894$ 722)($

2017

January 1 Recognised in profit

or loss December 31Deferred tax assets: Loss on inventory 1,072$ 1,072)($ -$ Allowance for dobutful accounts over the statutory limit 282 282)( - Pensions 1,826 1,826)( - Others 1,031 1,031)( -

4,211 4,211)( -

Deferred tax liabilities: Land revaluation increment 4,933)( - 4,933)(

722)($ 4,211)($ 4,933)($

2018

262

D. Details of the investment tax credits and unrecognised deferred tax assets are as follows:.

Note: In accordance with the Ministry of Economic Affairs (MOEA) Jing-Shou-Gong-Zi Letter

No. 10020425350 dated December 16, 2011, the subsidiary - TWi Biotechnology, Inc. (TWi Biotech) was approved as a biotech pharmaceuticals company. The Company made an additional investment in TWi Biotech on April 25, 2012 and April 17, 2013 and continually held the shares for more than three years and was approved by the Ministry of Finance that the above listed investment tax credit can be used to offset against the Company’s income tax within five years from the year in which the Company starts to have income tax payable.

E. In accordance with the Ministry of Economic Affairs (MOEA) Jing-Shou-Gong-Zi Letter No. 10020425350 dated December 16, 2011, the subsidiary - TWi Biotechnology, Inc. was approved as a biotech pharmaceuticals company for the next five years. The subsidiary has reapplied in the year 2016 and the renewed approval notice ‒Ministry of Economic Affairs (MOEA) Jing-Shou-Gong-Zi Letter No. 10620402920‒ was dated February 8, 2017. Accordingly, TWi Biotechnology, Inc. is eligible for investment tax credits under the Statute for Development of Biotech New Pharmaceuticals Industry. Relevant investment tax credits can be used to offset against the subsidiary’s income tax within five years from the year in which the subsidiary starts to have income tax payable. As of December 31, 2017 and 2018, investment tax credits of the subsidiary, TWi Biotechnology, Inc., which was not recognised as deferred tax assets are $93,984 and $108,815, respectively.

Qualifying items Unused tax

credits

Unrecogniseddeferred tax

assets Expiry yearBiotech and New Pharmaceuticals investment - stockholder investments tax credit 56,000$ 56,000$

December 31, 2017

Note


credits


assets Expiry yearBiotech and New Pharmaceuticals investment - stockholder investments tax credit 56,000$ 56,000$

December 31, 2018

Note

263

F. Expiration dates of unused tax losses and amounts of unrecognised deferred tax assets are as follows:

Note: On November 20, 2017, the Group acquired 95.02% of the share capital of Synpac-

Kingdom Pharmaceutical Co., Ltd., ("SK"). Before the acquisition, SK underwent a split up which qualifies as a division under the Business Mergers and Acquisitions Act. According to Article 38 of Business Mergers and Acquisitions Act and Ministry of Finance Decree No. 0920454432, the dissolved company shall file an annual tax return if applicable to 5-year tax loss carryforwards pursuant to Article 75 Section I of the Income Tax Act. The newly incorporated or surviving company can deduct the tax loss from the subsequent 5 years against taxable income since current year, which the tax loss allocation amount is calculated by using the approved tax loss by the Tax Authority multiplying the proportion of share split ratio under the division and the share ownership ratio of the newly incorporated or surviving company after the division.

Year incurred Amount filed/

assessed Unused amount Unrecognised

deferred tax assets Expiry year2010 191,312$ 191,312$ 191,312$ 20202011 353,940 353,940 353,940 20212012 548,835 548,835 548,835 20222013 498,412 498,412 498,412 20232014 764,712 760,750 760,750 20242015 327,307 327,307 327,307 20252016 152,299 152,299 152,299 20262017 162,675 162,675 162,675 2027

2,999,492$ 2,995,530$ 2,995,530$

December 31, 2017



deferred tax assets Expiry year2010 191,312$ 191,312$ 191,312$ 20202011 353,940 353,940 353,940 20212012 548,835 548,835 548,835 20222013 498,412 498,412 498,412 20232014 764,712 760,750 760,750 20242015 327,307 327,307 327,307 20252016 152,299 152,299 152,299 20262017 162,675 162,675 162,675 20272018 635,501 635,501 635,501 2028

3,634,993$ 3,631,031$ 3,631,031$

December 31, 2018

264

G. The amounts of deductible temporary differences that were not recognised as deferred tax assets are as follows:

H. The Company’s income tax returns through 2016 have been assessed and approved by the Tax Authority. The subsidiary-TWi Biotechnology, Inc.’s income tax returns through 2016 have been assessed and approved by the Tax Authority. The subsidiary - Synpac-Kingdom Pharmaceutical Co. Ltd.’s income tax returns through 2016 have been assessed and approved by the Tax Authority.

I. Under the amendments to the Income Tax Act which was promulgated by the President of the Republic of China on February 7, 2018, the Company’s applicable income tax rate was raised from 17% to 20% effective from January 1, 2018.

(28) Government grants A. The subsidiary, Visum Pharmaceutical Co., Ltd., entered into R&D-related grant programs with

the Hainan Province government. Please refer to Note 6(22) for details. B. The Company and its subsidiary recognised income from government grant of $541 (shown as

“Other income”) for the year ended December 31, 2017. C. For the year ended December 31, 2018, the Group did not receive revenue from grants of

government. (29) Loss per share

Note: Options and restricted stocks issued to employees do not have dilutive effect.

December 31, 2017 December 31, 2018Deductible temporary differences 59,510$ 36,968$

Amountafter tax

Weighted averagenumber of common stock

outstanding(shares in thousands)

Loss pershare

(in dollars)Basic loss per share (Note) Loss attributable to the parent 248,605)($ 122,632 2.03)($


Amountafter tax

Weighted averagenumber of common stock

outstanding(shares in thousands)

Loss pershare

(in dollars)Basic loss per share (Note) Loss attributable to the parent 508,770)($ 120,324 4.23)($


265

(30) Transactions with non-controlling interests On June 26, 2018, the Board of Directors resolved to forfeit the Company’s priority subscription rights to new shares issued by subsidiary, TWi Biotechnology, Inc., in connection with its capital increase. The shares forfeited by the Company must first be offered to the stockholders of the Company in proportion to their share ownership in the Company. Shares forfeited by the Company’s stockholders, as well as fractional shares, are then offered by TWi Biotechnology to its employees, to the employees of the Company, its subsidiaries and its affiliates, and to strategic or financial investors. On August 14, 2018, the subsidiary, TWi Biotechnology, Inc., issued new common shares for $385,000 as part of its capital increase. The Company’s ownership percentage in TWi Biotechnology, Inc. decreased by 11.92% as it elected not to acquire the new shares in proportion to its original ownership. This transaction resulted in the increase in non-controlling interests by $165,743 and the increase of equity attributable to the owners of parent by $219,257. The effect of the changes in the equity of TWi Biotechnology, Inc. on the equity attributable to owners of the parent for the year ended December 31, 2018 is summarised as follows:

(31) Business combinations A. On November 20, 2017, the Group acquired 95.02% of the share capital of Synpac-Kingdom

Pharmaceutical Co. Ltd. ("SK Co.") from China Synthetic Rubber Corporation and Zhongcheng Development Investment Co., Ltd. for $12.69 per share, totaling $180,866, thus gaining control of SK Co. The Company is mainly engaged in ophthalmic medicine manufacturing and distribution, and the acquisition is expected to increase the Group’s sterile ophthalmic medicine supply.

B. The following table summarises the consideration paid for Synpac-Kingdom Pharmaceutical Co. Ltd. ("SK Co.") and the fair values of the assets acquired and liabilities assumed at the acquisition date, as well as the non-controlling interest’s proportionate share of the recognised amounts of acquiree’s identifiable net assets at the acquisition date:


Cash 385,000$ Capital surplus - recognition of changes in equity of subsidiaries 219,257)( Increase in the carrying amount of non-controlling interest 165,743$

266

Note：SK Co. was divided and sold from its original Group due to the seller’s strategy to cut out

the pharmaceuitcal non-core business operation, thus a purchase bargain was formed. C. The operating revenue and profit before income tax since acquisition date of November 20, 2017

contributed by SK Co. was $26,114 and ($15,938), respectively. Had SK Co. been consolidated from January 1, 2017, the consolidated statement of comprehensive income would show operating revenue of $327,907 and loss before income tax of ($97,769).

(32) Supplemental cash flow information A. Investing activities with partial cash payments:

Note: Includes property, plant and equipment belonging to asset classified under “Non-current assets held for sale-net” of $1,787 for the year ended December 31, 2017.

November 20, 2017Purchase consideration Cash paid 180,866$ A share of non-controlling interest of identifiable assets 12,591

193,457 Fair value of the identifiable assets acquired and liabilities assumed Cash 57,772 Other current assets 252,874 Property, plant and equipment 177,110 Intangible assets-drug certificate 109,797 Intangible assets-software 133 Other non-current assets 22,039 Current liabilities 342,623)( Deferred tax liabilities 18,665)( Other non-current liabilities 5,612)( Total identifiable net assets 252,825 Bargain purchase gain (Note) 59,368)($

2017 2018Acquisition of property, plant and equipment (Note) 127,623$ 108,190$ Add: Opening balance of payable on equipment 19,092 18,223 Add: Opening balance of payable on equipment -acquired from business combinations

11,300 -

Less: Ending balance of payable on equipment (Listed under "Liabilties directly relating to non-current assets held for sale) 25,840)( 24,268)( Cash paid during the year 132,175$ 102,145$


267

Details on sale of assets of the subsidiary, Synpac-Kingdom Pharmaceutical Co. Ltd., are provided in Note 6(9).

B. Investing activities with partial cash payments: The Group sold 100% of shares in the subsidiary - Visum Pharmaceutical Co., Ltd. on April 18, 2017 and accordingly, lost control over the subsidiary. The details of the consideration received from the transaction (including cash and cash equivalents) and assets and liabilities relating to the subsidiary are as follows:

2017 2018Purchase of intangible assets 90,240$ 156,578$ Add: Opening balance of payable on intangible assets - 23,832 Less: Ending balance of payable on intangible assets 23,832)( 24,568)( Cash paid during the year 66,408$ 155,842$


2017 2018Disposal of assets 299,505$ -$ Add: Opening balance of other payables - 149,245 Less: Ending balance of other payables 149,245)( 64,286)( Cash paid during the year 150,260$ 84,959$


268

Note: On December 31, 2016, the cash balance of Visum Pharmaceutical Co., Ltd. of $11,458 was accounted as non-current available-for-sale assets, thus the effect on net cash flow from non-current available-for-sale assets was $956.

C. On November 20, 2017, the Group acquired 95.02% of the share capital of Synpac-Kingdom Pharmaceutical Co. Ltd. Please refer to Note 6(31). The details of the consideration paid for the transaction (including cash and cash equivalents) and assets and liabilities relating to the subsidiary are as follows:

April 18, 2017Consideration received Cash 869,537$ Assets and liabilities carrying amount of Visum Pharmaceutical Co., Ltd. Cash (Note) 10,502$ Other receivables 17,626 Inventories 3,546 Prepayments 7,666 Other current assets 22,935 Property, plant and equipment 275,091 Intangible assets 525,257 Other non-current assets 23,952 Short-term borrowings 30,898)( Payable on machinery and equipment 7,617)( Other payables 69,774)( Other payables to related parties Advance receipts 15,869)( Other current liabilities 11,406)( Non-current liabilities 37,290)( Deferred tax liabilities 111,193)( Non-controlling interest 189,937)( Total net assets 412,591$

269

(33) Changes in liabilities from financing activities

7. RELATED PARTY TRANSACTIONS (1) Names of related parties and relationship

(2) Significant related party transactions

November 20, 2017Purchase consideration

Cash and cash equivalments 57,772$ Notes receivable and accounts receivable, net 82,613 Other receivables 640 Inventories 152,844 Prepayments 16,777 Property, plant and equipment 177,110 Intangible assets 109,930 Other non-current assets 17,057 Deferred income tax assets 4982Short-term borrowings 215,000)( Short-term notes and bills payable 34,889)( Accounts payable 45,178)( Other payables 27,157)( Payable on equipment 11,300)( Other current liabilities 9,099)( Deferred income tax liabilities 18,665)( Accured pension liabilities 4,237)( Other non-current liabilities 1,375)(

252,825 Less: Acquistion of cash and cah equivalents from subsidiary 57,772)( Less: Bargain purchase gain 59,368)( Less: Non-controlling interest 12,591)( Cash paid during the year 123,094$

Short-termborrowings Notes payable

Liabilities from financingactivities-gross

At January 1, 2018 215,000$ 34,984$ 249,984$ Changes in cash flow from financing activities

15,000)( 34,984)( 49,984)(

At December 31, 2018 200,000$ -$ 200,000$

Names of related parties Relationship with the CompanyNoratech Pharmaceuticals, Inc. Same Chairman as the Company (hereinafter refer to as "Noratech")HBT Pharmaceuticals, Inc. Related party in substance (hereinafter refer to as "HBT")

270

A. Operating revenue:

Service revenue arises from providing related parties with contract research and administration and management services. For the transaction price and payment terms, there are no other comparable transactions to be compared with, thus are executed at the terms that both parties agreed upon.

B. Other income:

Other income pertains to the sale of research and development supplies.

C. The subsidiary, TWi Biotechnology, Inc., entered into a cooperative development agreement with Noratech in 2016, whereby Noratech will assist the Group in developing and researching pro-drugs. If pro-drugs are successfully developed, the Group would grant exclusive license to other related party for further use in development of the research results and related rights of the pro-drugs in Mainland China (including Hong Kong and Macao). If other related party sold any oral products which are made from the pro-drugs in China, they shall pay royalties at a certain percentage of net profit from sales of the oral products to the Group. However, if other related party fails to meet the requirements within a certain period as stated in the agreement, the obligation to grant the license would be automatically terminated. Because of the strategy adjustment in product development, the subsidiary, TWi Biotechnology, Inc., signed the termination agreement of cooperative development with Noratech Pharmaceuticals, which was approved by the Board of Directors on September 26, 2018.

(3) Key management compensation

8. PLEDGED ASSETS

The Group’s assets pledged as collateral are as follows:

2017 2018Service revenue:

Noratech -$ 37$ HBT 115 - Others 60 -

175$ 37$


2017 2018Noratech 25$ -$


2017 2018Salaries and other short-term employee benefits 71,628$ 80,154$ Post-employment benefits 1,964 1,712 Share-based payments 8,748 585)(

82,340$ 81,281$


271

9. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNISED CONTRACT

COMMITMENTS In addition to the contingent license fees as explained in Note 6(9), the Group’s other significant contingent liabilities and unrecognised contract commitments are as follows: (1) Contingencies

When the Company submits ANDAs to the US FDA with Paragraph IV certifications claiming that the Company’s generic products do not infringe the listed Orange Book patents or such patents are not valid, NDA holders and patent owners may sue the Company, requesting an order enjoining the Company from commercial sale of the generic products before the expiration date of the Orange Book patents. This is a common type of patent litigation in the pharmaceutical industry. Before launching generic products, there would be no concern about compensation for damages. The Company’s lawsuits associated with Paragraph IV certifications are as follows: Biogen: The Company submitted its ANDA for a generic version of Tecfidera of Biogen to the US FDA with Paragraph IV certifications. Consequently, Biogen sued the Company for alleged patent infringement in July 2017. This is a common and typical Paragraph IV patent infringement litigation.

(2) Commitments A. Capital expenditures contracted for at the balance sheet date but not yet incurred are as follows:

B. Operating lease arrangements

The Group leases offices and cars with lease terms of less than 5 years, and the majority of lease agreements are renewable at the end of the lease period at market rate. The future aggregate minimum lease payments under non-cancellable operating leases are as follows:

C. The Company and Company C entered into an agreement in July 2014. Under the agreement, the

Company terminated Company C’s distribution right for a certain drug, and in exchange, the

Pledged asset December 31, 2017 December 31, 2018 Purpose

Land (including revaluation increment) 386,542$ 386,542$ Long term and short-

term borrowingsBuildings 194,114 196,554 ″Other non-current financial assets 2,909 2,909 Performance Bond

583,565$ 586,005$

Book value

December 31, 2017 December 31, 2018Property, plant and equipment 62,385$ 98,069$

December 31, 2017 December 31, 2018Up to 12 months 49,826$ 50,675$ Later than one year but not later than five years 182,774 183,597 Later than five years 167,390 142,442

399,990$ 376,714$

272

Company needs to pay Company C a certain percentage of net profit from sales of the drug once it begins to commercially distribute the drug.

D. The Group entered into various contract research agreements, which shall be paid in accordance with the payment schedules in the agreements. As of December 31, 2018, research expenses that will be incurred in the future amount to $74,286.

E. The Group entered into various contract development and manufacturing agreements which shall be paid in accordance with the payment schedules in the agreements. As of December 31, 2018, expenses that will be incurred in the future amount to $1,270.

F. In July 2017, the Company signed an Agreement for Investment Limited Partnership for Axil Life Science & Healthcare Fund, promising to invest 100 units, at 1 million yen per unit. As of December 31, 2018, the Company has paid 43.48% of the total investment fund plus fees (listed as financial assets at fair value through profit or loss), and the remaining balance of the investment not yet paid amounts to 56.51 million yen plus fees.

G. In September 2017, the Company’s subsidiary, TWi Pharmaceuticals USA, Inc. (TWi US), and Company G entered into a License, Supply & Distribution Agreement. According to the contract, Company G grants TWi US an exclusive license to distribute certain Company G manufactured products in the US territories, and when TWi US commercially distributes the products in the future, it will share a certain percentage of the net profit with Company G. Before distribution, TWi US must prepay upfront fee of US$250 thousand, which can be used to offset part of the profit-sharing amount. As of December 31, 2018, upfront fee that TWi US has not yet paid is US$125 thousand.

H. In December 2015, the Company’s subsidiary, TWi Biotechnology, Inc. (the “TWi Biotechnology”), entered into a new drugs R&D contract with Castle Creek Pharmaceuticals, LLC. (the “CCP”). CCP grants licenses from TWi Biotechnology to develop and sell the new drug and submit a NDA in the Asian market (excluding Australia and New Zealand). TWi Biotechnology sells the product which has completed the toxicity studies based on the CCP’s requirements. CCP pays the milestone fees based on completion of development work and technology transfer and share a certain percentage of profit after the product is launched to TWi Biotechnology. In addition, TWi Biotechnology should share a certain percentage of profit to CCP if TWi Biotechnology uses CCP’s intangible assets.

10. SIGNIFICANT DISASTER LOSS None.

11. SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE The Board of Directors of the Company’s subsidiary, TWi Biotech, resolved to enter into a non-legal binding letter of intent for a merger with AnnJ, Pharmaceutical Co., Ltd. on March 15, 2019.

273

12. OTHERS (1) Capital management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for stockholders and to maintain an optimal capital structure to reduce the cost of capital, and in the future, when the Company's operations have generated a profit, to provide steady returns for stockholders. In order to achieve the above goals, the Group will maintain or adjust the capital structure using the following methods, including but not limited to: raising additional capital, borrowing from the bank, issuing company debt, disposing assets in order to repay debt or replenish operational capital, issuing dividends, and reducing capital, etc. The Group uses the gearing ratio to monitor and manage capital, the ratio is calculated by dividing "net liabilities" by "total equity". "Net liabilities" is calculated by "total liabilities" subtracted by cash and cash equivalents. "Total equity" is the amount listed in the consolidated balance sheets as "total equity".

(2) Financial instruments A. Financial instruments by category

December 31, 2017 December 31, 2018Financial assets Financial assets at fair value through profit or loss Financial assets at fair value through profut or loss -$ 12,721$ Financial assets held for trading

5,848 -

Available-for-sale financial assets

5,289 -

Financial assets at amortised cost/ Loans and receivables Cash and cash equivalents 1,247,155 915,791 Financial assets at amortised cost

- 2,898,166

Held-to-maturity financial assets 149,271 - Notes receivable 19,033 274 Accounts receivable 150,626 452,688 Other receivables 190,608 110,864 Guarantee deposits paid 13,332 10,510 Other financial assets 2,910,644 2,909

4,691,806$ 4,403,923$

274

B. Financial risk management policies

The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial position and financial performance.

C. Significant financial risks and degrees of financial risks (a) Market risk

Foreign exchange risk i. The Group operates internationally and is exposed to foreign exchange risk arising from

the transactions of the Company and its subsidiaries used in various functional currency, primarily with respect to the USD. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities.

ii. The Group’s businesses involve some non-functional currency operations (the Company’s and certain subsidiaries’ functional currency: NTD; other certain subsidiaries’ functional currency: USD and RMB). The information on assets and liabilities denominated in foreign currencies whose values would be materially affected by the exchange rate fluctuations is as follows:

December 31, 2017 December 31, 2018Financial liabilities Financial liabilities at amortised cost Short-term borrowings 215,000$ 200,000$ Short-term notes and bills payable

34,984 -

Notes payable 921 243 Accounts payable 124,546 81,577 Other accounts payable 234,385 246,825 Guarantee deposits received 3,556 9,743

613,392$ 538,388$

275

Note: This includes book value of investment accounted for under the equity method that

are negative. iii. The realised and unrealised exchange (loss) gain arising from significant foreign exchange

variation on the monetary items held by the Group amounted to ($283,562) and $111,810 for the years ended December 31, 2017 and 2018, respectively.

iv. Analysis of foreign currency market risk arising from significant foreign exchange variation:

Foreign currencyamount Book value

(In thousands) Exchange rate (NTD) (Foreign currency: functional currency)Financial assets Monetary items USD:NTD 121,866$ 29.790 3,630,397$ RMB:NTD 41,955 4.567 191,609 Non-monetary items USD:NTD 3,928 29.790 117,020 RMB:NTD 8,325 4.567 38,021 JPY:NTD 20,012 0.264 5,289 Financial liabilities Monetary items USD:NTD 4,066$ 29.790 121,129$ RMB:NTD 8,000 4.567 36,536

December 31, 2017

Foreign currencyamount Book value

(In thousands) Exchange rate (NTD) (Foreign currency: functional currency)Financial assets Monetary items USD:NTD 107,791$ 30.710 3,310,217$ Non-monetary items USD:NTD 11,424 30.710 350,862 RMB:NTD 8,266 4.468 36,933 JPY:NTD 43,488 0.278 12,098 Financial liabilities Monetary items USD:NTD 3,897$ 30.710 119,687$

December 31, 2018

276

Price risk The Group is exposed to equity securities price risk because of investments held by the Group and classified on the consolidated balance sheet as financial assets at fair value through profit or loss. To manage the price risk of investing in financial instruments, the Group monitors the price changes at all times, and also sets stop-loss at the proper time.

(b) Credit risk i. Credit risk refers to the risk of financial loss to the Group arising from default by the

clients or counterparties of financial instruments on the contract obligations. The main factor is that counterparties could not repay in full the accounts receivable based on the agreed terms, and the contract cash flows of debt instruments stated at amortised cost.

Degree ofvariation

Effect on profit or loss

Effect on other comprehensive

income(Foreign currency: functionalcurrency)Financial assets Monetary items USD:NTD 1% 36,304$ -$ RMB:NTD 1% 1,916 - Financial liabilities Monetary items USD:NTD 1% 1,211$ -$ RMB:NTD 1% 365 -

Year ended December 31, 2017 Sensitivity analysis

Degree ofvariation

Effect on profit or loss

Effect on other comprehensive

income(Foreign currency: functionalcurrency)Financial assets Monetary items USD:NTD 1% 33,102$ -$ Financial liabilities Monetary items USD:NTD 1% 1,197$ -$


277

ii. The Group manages their credit risk taking into consideration the entire group’s concern. According to the Group’s credit policy, each local entity in the Group is responsible for managing and analyzing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. Internal risk control assesses the credit quality of the customers, taking into account their financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the Board of Directors. The utilization of credit limits is regularly monitored.

iii. The Group adopts the following assumptions under IFRS 9 to assess whether there has been a significant increase in credit risk on that instrument since initial recognition: (i) If the contract payments were past due over 30 days based on the terms, there has

been a significant increase in credit risk on that instrument since initial recognition. (ii) If any external credit rating agency rates these bonds as investment grade, the credit

risk of these financial assets is low. iv. If the credit rating grade of an investment target degrades two scales, there has been a

significant increase in credit risk on that instrument since initial recognition. v. The Group adopts the assumption under IFRS 9, that is, the default occurs when the

contract payments are past due over 90 days. vi. The Group classifies customer’s accounts receivable in accordance with credit rating of

customer. The Group applies the modified approach using loss rate methodology to estimate expected credit loss under the provision matrix basis.

vii. The following indicators are used to determine whether the credit impairment of debt instruments has occurred: (i) It becomes probable that the issuer will enter bankruptcy or other financial

reorganization due to their financial difficulties; (ii) The disappearance of an active market for that financial asset because of financial

difficulties; (iii) Default or delinquency in interest or principal repayments; (iv) Adverse changes in national or regional economic conditions that are expected to

cause a default. viii. The Group used the forecastability of Basel II to adjust historical and timely information

to assess the default possibility of notes receivable and accounts receivable. On December 31, 2018, the loss rate methodology is as follows:

278

ix. Movements in relation to the Group applying the modified approach to provide loss allowance for accounts receivable is as follows:

For provisioned loss for the year ended December 31, 2018, the impairment losses arising from reversal of accounts receivable by customers’ contracts amounted to $15.

x. Credit risk information for the year ended December 31, 2017 is provided in Note 12(4). (c) Liquidity risk

i. Cash flow forecasting is performed in the operating entities of the Group and aggregated by Group treasury. Group treasury monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs.

ii. The table below analyses the Group’s non-derivative financial liabilities and net-settled or gross-settled derivative financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date for non-derivative financial liabilities and to the expected maturity date for derivative financial liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows.

Group A Group B TotalAt December 31, 2018Expected loss rate 0.03%~0.068% 100%Total book value (including related parties) 452,695$ -$ 452,695$

Loss allowance 3$ -$ 3$

2018Accounts receivable

At January 1_IAS 39 18$ Adjustments under new standards - At January 1_IFRS 9 - Reversal of impairment loss 15)( At December 31 3$

279

(3) Fair value information

A. The different levels that the inputs to valuation techniques are used to measure fair value of financial and non-financial instruments have been defined as follows: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the

entity can access at the measurement date. A market is regarded as active where a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The fair value of the Group’s investment in monetary funds is included in Level 1

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3: Unobservable inputs for the asset or liability. The fair value of the Group’s investment in venture capital fund is included in Level 3.

B. Financial instruments not measured at fair value Except for those listed in the table below, the carrying amounts of cash and cash equivalents, notes receivable, accounts receivable, other receivables, short-term borrowings, notes payable, accounts payable and other payables are approximate to their fair values.

December 31, 2017 Less than 1 year Between 1 and

2 years Over 2 years Non-derivative financial liabilities Short-term borrowings 215,122$ -$ -$ Short-term notes and bills payable 34,984 - - Notes payable 921 - - Accounts payable 124,546 - - Other payables 234,385 - -

609,958$ -$ -$

December 31, 2018 Less than 1 year Between 1 and

2 years Over 2 years Non-derivative financial liabilities Short-term borrowings 200,202$ -$ -$ Notes payable 243 - - Accounts payable 81,577 - - Other payables 246,825 - -

528,847$ -$ -$

280

C. The related information of financial and non-financial instruments measured at fair value by level

on the basis of the nature, characteristics and risks of the assets and liabilities are as follows:

Book value Level 1 Level 2 Level 3 Financial assets:

Held-to-maturity financialassets

Corporate bonds 149,271$ 148,457$ -$ -$

December 31, 2017Fair value

Book value Level 1 Level 2 Level 3 Financial assets: Financial assets at amortised cost Corporate bonds 161,489$ 160,282$ -$ -$


281

(a) The related information of the nature of the assets and liabilities is as follows:

(b)The methods and assumptions the Group used to measure fair value are as follows:

The Group used market quoted prices as their fair values (that is, Level 1). The Group measured fair value for the open-end fund using the current net asset value.

D. For the years ended December 31, 2017 and 2018, there was no transfer between Level 1 and Level 2.

E. The following chart is the movement of Level 3 for the years ended December 31, 2017 and 2018:

F. For the years ended December 31, 2017 and 2018, there was no transfer into or out from Level

3. G. The Finance & Accounting Department is in charge of valuation procedures for fair value

measurements being categorised within Level 3, which is to verify independent fair value of financial instruments. Such assessment is to ensure the valuation results are reasonable by applying independent information to make results close to current market conditions, confirming the resource of information is independent, reliable and in line with other resources and

December 31, 2017 Level 1 Level 2 Level 3 TotalAssetsRecurring fair value measurementsFinancial assets at fair value through profit or loss　 Monetary Fund 5,848$ -$ -$ 5,848$ Available-for-sale financial assets　 Equity securities - - 5,289 5,289

5,848$ -$ 5,289$ 11,137$

December 31, 2018 Level 1 Level 2 Level 3 TotalAssetsRecurring fair value measurementsFinancial assets at fair value through profit or loss　 Monetary Fund 623$ -$ -$ 623$ 　 Equity securities - - 12,098 12,098

623$ -$ 12,098$ 12,721$

December 31, 2017 December 31, 2018 Debt instrument Debt instrument

At January 1 -$ 5,289$ Gains and losses recognised in profit or loss (Note) 158)( 525 Acquired during the year 5,447 6,284 At December 31 5,289$ 12,098$

282

represented as the exercisable price, and frequently calibrating valuation model, performing back-testing, updating inputs used to the valuation model and making any other necessary adjustments to the fair value.

H. The following is the qualitative information of significant unobservable inputs and sensitivity analysis of changes in significant unobservable inputs to valuation model used in Level 3 fair value measurement:

I. The Group has carefully assessed the valuation models and assumptions used to measure fair value. However, use of different valuation models or assumptions may result in different measurement. The following is the effect of profit or loss or of other comprehensive income from financial assets and liabilities categorised within Level 3 if the inputs used to valuation models have changed:

Fair value atDecember 31,

2017 Valuationtechnique

Significantunobservable

input

Range(weightedaverage)

Relationship ofinputs to fair value

Non-derivativeequity instrument:Venture capitalfund

5,289$ Net assetvalue

Net asset value - The higher the netasset value,the higher the fairvalue




input


Relationship ofinputs to fair value

Debt instrumentVenture capitalfund



Input

Change Favourable

change

Unfavourable

change Favourable

change

Unfavourable

changeFinancial assets Equity instrument

Net assetsvalue

±1% -$ -$ 53$ 53)($

December 31, 2017

Recognised in profit orloss

Recognised in othercomprehensive income

283

(4) Effects on initial application of IFRS 9

A. Summary of significant accounting policies adopted in 2017: (a) Financial assets at fair value through profit or loss

i. They are financial assets held for trading or financial assets designated as at fair value through profit or loss on initial recognition. Financial assets are classified in this category of held for trading if acquired principally for the purpose of selling in the short-term.

ii. On a regular way purchase or sale basis, financial assets at fair value through profit or loss are recognised and derecognised using trade date accounting.

iii. Financial liabilities at fair value through profit or loss are initially recognised at fair value. Related transaction costs are expensed in profit or loss. These financial liabilities are subsequently re-measured and stated at fair value, and any changes in the fair value of these financial liabilities are recognised in profit or loss.

(b) Available for sale financial assets i. They are non-derivatives that are either designated in this category or not classified in any

of the other categories. ii. On a regular way purchase or sale basis, available-for-sale financial assets are recognised

and derecognised using trade date accounting. iii. They are initially recognised at fair value plus transaction costs. These financial assets are

subsequently re-measured and stated at fair value, and any changes in the fair value of these financial assets are recognised in other comprehensive income.

(c) Held-to-maturity financial assets i. They are non-derivative financial assets with fixed or determinable payments and fixed

maturity date that the Group has the positive intention and ability to hold to maturity other than those that meet the definition of loans and receivables and those that are designated as at fair value through profit or loss or as available-for-sale on initial recognition.

ii. If the Group has sold or reclassified more than an insignificant amount of held-to-maturity investments before the maturity date during the current or the two preceding financial years, then any financial assets should not be classified as held-to-maturity financial assets and all of its remaining held-to-maturity investments must be reclassified as available-for-sale.

Input

Change Favourable

change

Unfavourable

change Favourable

change

Unfavourable


Net assetsvalue

±1% 120$ 120)($ -$ -$

December 31, 2018

Recognised in profit orloss

Recognised in othercomprehensive income

284

iii. On a regular way purchase or sale basis, held-to-maturity financial assets are recognised and derecognised using trade date accounting.

iv. They are initially recognised at fair value on the trade date plus transaction costs and subsequently measured at amortised cost using the effective interest method, less provision for impairment. Amortisation of a premium or a discount on such assets is recognised in profit or loss.

(d) Loans and receivables Accounts receivable are loans and receivables originated by the entity. They are created by the entity by selling goods or providing services to customers in the ordinary course of business. They are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. However, short-term accounts receivable without bearing interest are subsequently measured at initial invoice amount as the effect of discounting is immaterial.

(e) Impairment of financial assets i. The Group assesses at each balance sheet date whether there is objective evidence that a

financial asset or a group of financial assets is impaired as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

ii. The criteria that the Group uses to determine whether there is objective evidence of an impairment loss is as follows: (i) Significant financial difficulty of the issuer or debtor; (ii) A breach of contract, such as a default or delinquency in interest or principal

payments; (iii) The Group, for economic or legal reasons relating to the borrower’s financial

difficulty, granted the borrower a concession that a lender would not otherwise consider;

(iv) It becomes probable that the borrower will enter bankruptcy or other financial reorganisation;

(v) The disappearance of an active market for that financial asset because of financial difficulties;

(vi) Observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial asset in the group, including adverse changes in the payment status of borrowers in the group or national or local economic conditions that correlate with defaults on the assets in the group;

(vii) Information about significant changes with an adverse effect that have taken place

285

in the technology, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in the equity instrument may not be recovered;

(viii) A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.

iii. When the Group assesses that there has been objective evidence of impairment and an impairment loss has occurred, accounting for impairment is made for financial assets at amortised cost that the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate, and is recognised in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset does not exceed its amortised cost that would have been at the date of reversal had the impairment loss not been recognised previously. Impairment loss is recognised and reversed by adjusting the carrying amount of the asset through the use of an impairment allowance account.

B. The reconciliations of carrying amount of financial assets transferred from December 31, 2017, IAS 39, to January 1, 2018, IFRS 9, were as follows:

(a) Under IAS 39, because the cash flows of debt instruments, which were classified as available-

for-sale financial assets, amounting to $5,289, do not meet the condition that it is intended to settle the principal and interest on the outstanding principal balance, they were reclassified as "financial assets at fair value through profit or loss" amounting to $5,289, and accordingly, retained earnings was decreased and other equity interest was increased in the amount of $158 on initial application of IFRS 9.

(b) Under IAS 39, because the cash flows of debt instruments, which were classified as held-to-

Available-for-sale-equity

Held-to-maturity

Measured atfair value

through othercomprehensiveincome-equity

Measured atamortised cost Total

Retainedearnings

Othersequity

IAS 39 5,848$ 5,289$ 149,271$ 160,408$ -$ 158)($

Transferred into andmeasured at fair valuethrough profit or loss 5,289 5,289)( - - 158)( 158 IFRS 9 11,137$ -$ 149,271$ 160,408$ 158)($ -$

Measured

at fairvalue

throughprofit or

loss

Effects

286

maturity financial assets, amounting to $149,271, met the condition that it is intended to settle the principal and interest on the outstanding principal balance, they were reclassified as "financial assets at amortised cost" amounting to $149,271 on initial application of IFRS 9.

C. The significant accounts as and for the year ended December 31, 2017 are as follows: (a) Financial assets at fair value through profit or loss

i. The Group recognised net loss (including foreign exchange loss) amounting to $8,130 on

financial assets held for trading for the year ended December 31, 2017. ii. The Group has no financial assets at fair value through profit or loss pledged to others.

(b) Available-for-sale financial assets - non-current

i. The Group recognised $158 in other comprehensive income for fair value change and

reclassified $0 from equity to profit or loss for the year ended December 31, 2017. ii. The Group has no financial assets at fair value through profit or loss pledged to others.

(c) Held-to-maturity financial assets - non-current

D. Credit risk information for the year ended December 31, 2017 is as follows:

(a) Credit risk refers to the risk of financial loss to the Group arising from default by the clients or counterparties of financial instruments on the contract obligations. According to the Group’s credit policy, each local entity in the Group is responsible for managing and analysing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. Internal risk control assesses the credit quality of the customers, taking into account their financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the Board of Directors. The utilisation of credit limits is regularly monitored. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to wholesale and retail customers, including outstanding receivables. For banks and financial institutions, only independently rated parties with a minimum rating of 'A' are accepted.

(b) For the year ended December 31, 2017, no credit limits were exceeded during the reporting periods, and management does not expect any significant losses from non-performance by

Items December 31, 2017 Current items: Financial assets held for trading Monetary Fund 5,848$

Items December 31, 2017Non-current items: Venture capital fund 5,289$

Items December 31, 2017Non-current items: Corporate bonds 149,271$

287

these counterparties. (c) The credit quality information of financial assets that are neither past due nor impaired is as

follows:

Group A: Rating of customer’s credit limit is above 90 points. Group B: Rating of customer’s credit limit stands between 70~89 points. Group C: Rating of customer’s credit limit is above 69 points. Group D: The customer has been dissolved, has incurred bad debt before or no more

transaction of related products occurred. (d) The ageing analysis of financial assets that were past due but not impaired is as follows:

(e) Movements in the provision for impairment of accounts receivable:

i. As of December 31, 2017, the Group’s accounts receivable that were impaired amounted to $18.

ii. Movements in the provision for impairment of accounts receivable are as follows:

(5) Effects of initial application of IFRS 15

A. The significant accounting policies applied on revenue recognition for the year ended December 31, 2017 are set out below. (a) Sales of goods

The Group manufactures and sells genetic drugs. Revenue is measured at the fair value of the consideration received or receivable taking into account of business tax, returns, rebates and discounts for the sale of goods to external customers in the ordinary course of the Group’s activities. Revenue arising from the sales of goods is recognised when the Group has

December 31, 2017Group A -$ Group B 141,188 Group C 271

141,459$

December 31, 2017Up to 30 days -$ 31 to 90 days 65 91 to 180 days 9,102

9,167$

Individual provision Group provision TotalAt January 1 -$ 210$ 210$ Acquired from businesscombination 1,466 1,466 Reversal of impairment - 1,658)( 1,658)( AtDecember 31 -$ 18$ 18$

2017

288

delivered the goods to the customer, the amount of sales revenue can be measured reliably and it is probable that the future economic benefits associated with the transaction will flow to the entity. The delivery of goods is completed when the significant risks and rewards of ownership have been transferred to the customer, the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold, and the customer has accepted the goods based on the sales contract or there is objective evidence showing that all acceptance provisions have been satisfied.

(b) Sales of services The Group provides new drugs development services. Revenue from delivering services is recognised under the percentage-of-completion method when the outcome of services provided can be estimated reliably. The stage of completion of a service contract is measured by the percentage of the actual services performed as of the financial reporting date to the total services to be performed by the proportion of contract costs incurred for services performed as of the financial reporting date to the estimated total costs for the service contract. If the outcome of a service contract cannot be estimated reliably, contract revenue should be recognised only to the extent that contract costs incurred are likely to be recoverable.

(c) License revenue If the licensing contract does not simultaneously fulfil the following criteria, royalty revenue will be recognised based on a reasonable and systematic method over the licensing period: (i) The amount of licensing fee is fixed or non-refundable. (ii) The contract is irrevocable. (iii) Relevant rights may be at the licensee’s disposition. (iv) The licensor has no further obligations after passing on the rights to the authorized party. If the licensing contract does not simultaneously fulfil the following criteria, royalty revenue will be recognised based on a reasonable and systematic method over the licensing period, it cannot be recognised all at once. Also under certain circumstances, receiving licensing fee or royalty payments is dependent on future events, therefore revenue should only be recognised when the payment is actually received or very likely to be received.

B. The revenue recognised by using above accounting policies for the year ended December 31, 2017 are as follows:

C. The effects and description of current balance sheet and comprehensive income statement if the

Group continues adopting above accounting policies are as follows:

Year ended December 31, 2017Sales revenue 778,122$ Service revenue 756 Royalties revenue 27,666

806,544$

289

Note: Statement of comprehensive income was not affected. 13. SUPPLEMENTARY DISCLOSURES

(1) Significant transactions information A. Loans to others: Please refer to table 1. B. Provision of endorsements and guarantees to others: Please refer to table 2. C. Holding of marketable securities at the end of the period (not including subsidiaries, associates

and joint ventures): Please refer to table 3. D. Acquisition or sale of the same security with the accumulated cost exceeding $300 million or

20% of the Company’s paid-in capital: None. E. Acquisition of real estate reaching $300 million or 20% of paid-in capital or more: None. F. Disposal of real estate reaching $300 million or 20% of paid-in capital or more: None. G. Purchases or sales of goods from or to related parties reaching $100 million or 20% of paid-in

capital or more: Please refer to table 4. H. Receivables from related parties reaching $100 million or 20% of paid-in capital or more: Please

refer to table 5. I. Trading in derivative instruments undertaken during the reporting periods: None. J. Significant inter-company transactions during the reporting periods: Please refer to table 6.

(2) Information on investees Names, locations and other information of investee companies (not including investees in Mainland China): Please refer to table 7.

(3) Information on investments in Mainland China A. Basic information: None. B. Significant transactions conducted with investees in Mainland China directly or indirectly

through other companies in the third areas: No material transactions. 14. SEGMENT INFORMATION

(1) General information The Group’s main areas of business are generic drug and new drug research and development, transferring, and providing drug regulatory approval and marketing information consultation services. Therefore, the Group’s chief operating decision-makers evaluate performance and allocate

Balance sheet itemsBalance by using

IFRS 15

Balance by usingprevious

accountingpolicies

Effects fromchanges in

accounting policyAssets

Accounts receivable $ 452,688 $ 183,396 269,292)($ Liabilities

Other current liabilities 271,974 2,682 269,292)(

December 31, 2018

290

resources by viewing generic drug and new drug as two separate operating segments. (2) Measurement of segment information

The Group’s accounting policies for the operating segments are the same as those listed in Note 4. The Group’s chief operating decision-maker uses the after-tax net income (loss) as the basis for assessing the performance of the Group’s operating segments.

(3) Information about segment profit or loss, assets and liabilities The segment information provided to the chief operating decision-maker for the reportable segments is as follows: Year ended December 31, 2017

Generic DrugDepartment

New DrugDepartment

Eliminatedtransactions duringthe consolidation Total

Revenue from external customers 731,573$ 74,971$ -$ 806,544$

Inter-segment revenue 52,691 - 52,691)( - Total segment revenue 784,264$ 74,971$ 52,691)($ 806,544$ Inter-segment loss 184,806)($ 104,752)($ -$ 289,558)($ Segment income (loss) :Depreciation and amortisation

149,492$ 7,432$ -$ 156,924$

Interest income 61,239$ 2,305$ -$ 63,544$ Financial costs 538$ -$ -$ 538$ Income tax expense 33,697$ 6,757$ -$ 40,454$ Segment assets 6,134,710$ 274,535$ 3,562)($ 6,405,683$ Segment liabilities 652,026$ 40,314$ 3,562)($ 688,778$

291


(4) Reconciliation for segment income (loss)

The operating segments’ assets, liabilities, after-tax net loss reported to the chief operating decision-makers are measured in a manner consistent with the balance sheet and the statement of comprehensive income. As a result, reconciliation is not needed.

(5) Information on products and services The Group’s main sources of revenue are sales of pharmaceutical products, providing technical services and license revenue. Revenues consist of the following:

Generic DrugDepartment

New DrugDepartment

Eliminatedtransactions duringthe consolidation Total

Revenue from external customers 797,108$ 25,837$ -$ 822,945$

Inter-segment revenue 28,279 - 28,279)( - Total segment revenue 825,387$ 25,837$ 28,279)($ 822,945$ Inter-segment loss 437,673)($ 112,516)($ -$ 550,189)($ Segment income (loss) :Depreciation and amortisation

144,513$ 8,221$ -$ 152,734$

Interest income 76,642$ 1,513$ -$ 78,155$ Financial costs 2,119$ -$ -$ 2,119$ Income tax expense 22,562$ -$ -$ 22,562$ Segment assets 5,880,341$ 542,007$ 9,496)($ 6,412,852$ Segment liabilities 819,818$ 34,515$ 9,496)($ 844,837$

Year ended Year ended December 31, 2017 December 31, 2018

Pharmaceutical sales revenue 778,122$ 822,594$ Technical service revenue 756 37 Royalities revenue 27,666 314

806,544$ 822,945$

292

(6) Geographical information Geographical information for the years ended December 31, 2017 and 2018 is as follows:

(7) Major customer information

Details of sales to individual customers reaching 10% of the Group’s revenue for the years ended December 31, 2017 and 2018 are as follows:

Revenue Non-current

assets Revenue Non-current

assetsTaiwan 45,811$ 1,389,085$ 80,738$ 1,488,372$ America 759,921 11,613 742,207 73,424 China 812 - - -

806,544$ 1,400,698$ 822,945$ 1,561,796$

Year ended December 31, 2018Year ended December 31, 2017

Revenue Segment Revenue Segment

Customer A 64,783$ Generic Drug Department

21,897$ Generic Drug Department

Customer C 101,051 '' 140,723 ''Customer D 150,145 '' 131,645 ''

315,979$ 294,265$

Year ended December 31, 2018Year ended December 31, 2017

293

REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE

To the Board of Directors and Shareholders of TWi Pharmaceuticals, Inc. Opinion We have audited the accompanying parent company only balance sheets of TWi Pharmaceuticals, Inc. (“the Company”) as at December 31, 2017 and 2018, and the related parent company only statements of comprehensive income, of changes in equity and of cash flows for the years then ended, and notes to the parent company only financial statements, including a summary of significant accounting policies. In our opinion, the accompanying parent company only financial statements present fairly, in all material respects, the parent company only financial position of the Company as at December 31, 2017 and 2018, and its parent company only financial performance and its parent company only cash flows for the years then ended in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission. Basis for opinion We conducted our audits in accordance with the “Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants” and generally accepted auditing standards in the Republic of China (ROC GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Parent Company Only Financial Statements section of our report. We are independent of The Company in accordance with the Code of Professional Ethics for Certified Public Accountants in the Republic of China (the “Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe we have obtained sufficient and appropriate audit evidence to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the parent company only financial statements of the current period. These matters were addressed in the context of our audit of the parent company only financial statements as a whole and, in forming our opinion thereon, we do not provide a separate opinion on these matters.

301

Key audit matters for the Company parent company only financial statements of the current period are stated as follows:

Estimation of refund liabilities - investments accounted for using equity method - subsidiaries Description The Comapny’s wholly-owned subsidiary, TWi Pharmaceuticals USA, Inc. (hereinafter referred to as TWi USA), primarily transacts with US pharmaceutical wholesale distributors. In accordance with local practice, TWi USA first sells to the distributors at list price, afterwards, TWi USA grants different sales rebates to the distributors depending on the distributors’ ultimate end customers and their respective contract prices. TWi USA makes an estimate of refund liabilities based on historical data and prediction of the possible sales combination that the distributor will make upon sales to distributor’s end customers. At the end of each quarter, TWi USA adjusts the refund liabilities based on actual data of the distributors' most recent sales combination. Given the uncertainty in the estimation of distributors’ future sales combinations and the resulting estimates materially influence the income statement, we consider the estimation of TWi USA’s refund liabilities (shown as investments accounted for using equity method) a key audit matter. How our audit addressed the matter We performed the following audit procedures on the key audit matter mentioned above: 1. Selected samples and evaluated the reasonableness of the distributors' most recent actual sales

combination. 2. Obtained calculation of the refund liabilities at year end and selected samples for recalculation to

ensure that the adjustments made were based on the distributors' most recent actual sales combination.

3. Sampled estimation of refund and its entries and checked whether they have been properly reviewed and the calculations are in accordance with the contract terms.

Allowance for inventory valuation Description Refer to Note 4(11) for accounting policy on inventory valuation; Note 6(5) for the details of inventories and Note 5 for uncertainty of accounting estimates and assumptions in relation to inventory valuation. The Company is primarily engaged in the manufacturing and sale of generic drugs. The industry is characterised by fierce competition and a limited storage period. Inventory valuation relies on subjective judgements in determining whether there is impairment resulting from expired or obsolete inventories. Thus, we consider allowance for inventory valuation a key audit matter because of its significant impact

302

on the financial statements. How our audit addressed the matter We performed the following audit procedures to address the abovementioned key audit matter: 1. Assessed the reasonableness of policies and procedures related to the provision of allowance for

inventory valuation based on our understanding of the Company’s operations and the characteristics of its industry.

2. Obtained the net realisable value statement of each inventory, selected samples of calculation logic and tested relevant parameters, including the original data for sales and purchases.

3. Obtained and tested a selection of expiration date information and supporting documentation to verify the reasonableness of the allowance provision.

Responsibilities of management and those charged with governance for the parent company only financial statements Management is responsible for the preparation and fair presentation of the parent company only financial statements in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission, and for such internal control as management determines is necessary to enable the preparation of parent company only financial statements that are free from material misstatement, whether due to fraud or error. In preparing the parent company only financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance, including audit committee [or supervisors], are responsible for overseeing the Company’s financial reporting process. Auditor’s responsibilities for the audit of the parent company only financial statements Our objectives are to obtain reasonable assurance about whether the parent company only financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ROC GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions

303

of users taken on the basis of these parent company only financial statements. As part of an audit in accordance with ROC GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: 1. Identify and assess the risks of material misstatement of the parent company only financial

statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

4. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the parent company only financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

5. Evaluate the overall presentation, structure and content of the parent company only financial statements, including the disclosures, and whether the parent company only financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

6. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within TWi Pharmaceuticals, Inc. to express an opinion on the parent company only financial statements. We are responsible for the direction, supervision and performance of the company audit. We remain solely responsible for our audit opinion.

304

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the parent company only financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Teng, Sheng-Wei Audrey Tseng

For and on behalf of PricewaterhouseCoopers, Taiwan March 15, 2019 ------------------------------------------------------------------------------------------------------------------------------------------------- The accompanying parent company only financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying parent company only financial statements and report of independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice. As the financial statements are the responsibility of the management, PricewaterhouseCoopers cannot accept any liability for the use of, or reliance on, the English translation or for any errors or misunderstandings that may derive from the translation.

305

December 31, 2017 December 31, 2018 Assets Notes AMOUNT % AMOUNT %

Current assets

1100 Cash and cash equivalents 6(1) $ 819,497 14 $ 583,524 10


through profit or loss - current 6(2)

5,848 - 623 -

1136 Current financial assets at

amortised cost 6(3)

- - 2,434,014 43

1150 Notes receivable, net 6(4) 1,820 - 274 -

1170 Accounts receivable, net 6(4) 5,323 - 1,925 -

1180 Accounts receivable - related

parties 7(2)

322,863 5 251,101 4

1200 Other receivables 32,612 1 43,199 1

1210 Other receivables - related parties 7(2) 1,203 - 853 -

130X Inventory 6(5) 69,591 1 169,797 3

1410 Prepayments 7(2) 46,094 1 42,280 1

1476 Other current financial assets 6(6) 2,844,945 48 - -

11XX Total current assets 4,149,796 70 3,527,590 62

Non-current assets


through profit or loss - non-

current

6(2) and 12(4)

- - 12,098 -

1523 Available-for-sale financial assets


5,289 - - -

1527 Held-to-maturity financial assets


149,271 2 - -

1535 Non-current financial assets at

amortised cost, net 6(7)

- - 161,489 3

1550 Investments accounted for under

equity method 6(8)

454,326 8 660,979 12

1600 Property, plant and equipment 6(9) and 8 973,001 16 969,585 17

1780 Intangible assets 6(10) 109,299 2 162,519 3

1900 Other non-current assets 6(11)(13) 102,856 2 160,350 3

15XX Total non-current assets 1,794,042 30 2,127,020 38

1XXX Total assets $ 5,943,838 100 $ 5,654,610 100

(Continued)

306

December 31, 2017 December 31, 2018 Liabilities and Equity Notes AMOUNT % AMOUNT %

Current liabilities

2150 Notes payable $ 565 - $ 55 -

2170 Accounts payable 76,919 2 56,179 1

2200 Other payables 6(12) 130,757 2 183,792 3

2230 Current income tax liabilities 9,505 - 4,063 -

2300 Other current liabilities 1,085 - 708 -

21XX Total current liabilities 218,831 4 244,797 4

Non-current liabilities

2570 Deferred income tax liabilities 6(25) 4,933 - 4,933 -

2600 Net defined benefit liability –

non-current

6(8)(15)

75,504 1 34,310 2

25XX Total non-current liabilities 80,437 1 39,243 2

2XXX Total liabilities 299,268 5 284,040 6

Equity

Share capital 6(16)

3110 Share capital - common stock 1,203,697 20 1,203,556 21

3140 Advance receipts for share capital 427 - - -

Capital surplus 6(14)(17)(28)

3200 Capital surplus 7,905,992 133 8,084,659 142

Retained earnings 6(18)

3310 Legal reserve 1,199 - 1,199 -

3350 Accumulated deficit ( 3,363,045 ) ( 56 ) ( 3,871,598 ) ( 68 )

Other equity interest

3400 Other equity interest ( 103,700 ) ( 2 ) ( 47,246 ) ( 1 )

3XXX Total equity 5,644,570 95 5,370,570 94

Commitments and contingent

liabilities

9

Significant events after the

reporting period

11

3X2X Total liabilities and equity $ 5,943,838 100 $ 5,654,610 100

307

2017 2018

Items Notes AMOUNT % AMOUNT % 4000 Sales revenue 6(19) and 7(2) $ 653,734 100 $ 559,895 100 5000 Operating costs 6(5)(13)(14)(23)(2

4) ( 458,614 ) ( 70 ) ( 527,916 ) ( 94 ) 5900 Gross Profit 195,120 30 31,979 6 5910 Unrealised profit from sales ( 34,614 ) ( 5 ) ( 42,679 ) ( 8 ) 5920 Realised profit on from sales 31,623 5 34,614 6 5950 Net gross profit 192,129 30 23,914 4 Operating expenses 6(13)(14)(23)(24)

and 7(2) 6100 Selling and marketing ( 17,386 ) ( 3 ) ( 17,774 ) ( 3 ) 6200 General and administrative ( 80,875 ) ( 12 ) ( 88,735 ) ( 16 ) 6300 Research and development ( 444,042 ) ( 68 ) ( 410,829 ) ( 73 ) 6000 Total operating expenses ( 542,303 ) ( 83 ) ( 517,338 ) ( 92 ) 6900 Operating loss ( 350,174 ) ( 53 ) ( 493,424 ) ( 88 ) Non-operating income and

expenses

7010 Other income 6(20) and 7(2) 126,078 19 77,654 14 7020 Other gains and losses 6(21) ( 343,088 ) ( 53 ) 107,805 19 7050 Finance costs 6(22) ( 12 ) - ( 29 ) - 7070 Share of profit (loss) of

associates and joint ventures accounted for using equity method, net

6(8)

350,477 54 ( 192,669 ) ( 34 ) 7000 Total non-operating income

and expenses

133,455 20 ( 7,239 ) ( 1 ) 7900 Loss before income tax ( 216,719 ) ( 33 ) ( 500,663 ) ( 89 ) 7950 Income tax expense 6(25) ( 31,886 ) ( 5 ) ( 8,107 ) ( 2 ) 8200 Profit loss for the year ( $ 248,605 ) ( 38 ) ( $ 508,770 ) ( 91 )

Other comprehensive income Other comprehensive income

(loss) that will not be reclassified to profit or loss

8311 Actuarial gains (losses) on

defined benefit plans 6(13)

( $ 246 ) - $ 375 - Other comprehensive income

(loss) that may be reclassified subsequently to profit or loss

8361 Exchange differences on

translation

( 14,557 ) ( 2 ) 454 - 8362 Available-for-sale financial

assets

( 158 ) - - - 8300 Other comprehensive (loss)

income for the year, net of tax

( $ 14,961 ) ( 2 ) $ 829 -

8500 Total comprehensive loss for the year

( $ 263,566 ) ( 40 ) ( $ 507,941 ) ( 91 )

Loss per share (in dollars) 6(26) 9750 Basic loss per share ( $ 2.03 ) ( $ 4.23 )

9850 Diluted loss per share ( $ 2.03 ) ( $ 4.23 )

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2017 Balance at January 1, 2017 $ 1,273,274 $ 2,038 $ 8,280,915 $ 1,199 ( $ 2,931,067 ) ( $ 33,143 ) $ - ( $ 56,770 ) ( $ 212,112 ) $ 6,324,334 Loss for the year - - - - ( 248,605 ) - - - - ( 248,605 ) Other comprehensive loss for the year 6(13) - - - - ( 246 ) ( 14,557 ) ( 158 ) - - ( 14,961 ) Total comprehensive loss - - - - ( 248,851 ) ( 14,557 ) ( 158 ) - - ( 263,566 ) Compensation costs of employee stock options 6(14)(17) - - 20,956 - - - - - - 20,956 Compensation costs of employee stock options from

subsidiaries 6(14)(17)

- - 2,947 - - - - - - 2,947 Compensation costs of restricted stocks 6(14) - - - - - - - 928 - 928 Employee stock options exercised 6(14)(17) - 2,435 - - - - - - - 2,435 Advance receipts for share capital transferred 6(14)(17) 843 ( 4,046 ) 3,203 - - - - - - - Purchase of treasury shares 6(16) - - - - - - - - ( 442,829 ) ( 442,829 ) Retirement of treasury shares 6(16) ( 70,420 ) - ( 401,394 ) - ( 183,127 ) - - - 654,941 - Recognition of changes in equity of subsidiaries in

proportion to ownership

- - ( 635 ) - - - - - - ( 635 ) Balance at December 31, 2017 $ 1,203,697 $ 427 $ 7,905,992 $ 1,199 ( $ 3,363,045 ) ( $ 47,700 ) ( $ 158 ) ( $ 55,842 ) $ - $ 5,644,570

2018 Balance at January 1, 2018 $ 1,203,697 $ 427 $ 7,905,992 $ 1,199 ( $ 3,363,045 ) ( $ 47,700 ) ( $ 158 ) ( $ 55,842 ) $ - $ 5,644,570 Effects of retrospective application and restatement - - - - ( 158 ) - 158 - - - Balance at January 1 after adjustments 1,203,697 427 7,905,992 1,199 ( 3,363,203 ) ( 47,700 ) - ( 55,842 ) - 5,644,570 Loss for the year - - - - ( 508,770 ) - - - - ( 508,770 ) Other comprehensive income for the year 6(13) - - - - 375 454 - - - 829 Total comprehensive loss - - - - ( 508,395 ) 454 - - - ( 507,941 ) Compensation costs of employee stock options 6(14)(17) - - 8,424 - - - - - - 8,424 Compensation costs of employee stock options from

subsidiaries 6(14)(17)

- - 1,321 - - - - - - 1,321 Compensation costs of restricted stocks 6(14) - - - - - - - 3,761 - 3,761 Employee stock options exercised 6(14)(17) - 1,778 - - - - - - - 1,778 Advance receipts for share capital transferred 6(14)(17) 459 ( 2,205 ) 1,746 - - - - - - - Retirement of restricted stocks ( 600 ) - - - - - - - - ( 600 ) Forfeiture of employee restricted stock - - ( 52,081 ) - - - - 52,081 - - Recognition of changes in equity of subsidiaries in

proportion to ownership percentage 6(28)

- - 219,257 - - - - - - 219,257 Balance at December 31, 2018 $ 1,203,556 $ - $ 8,084,659 $ 1,199 ( $ 3,871,598 ) ( $ 47,246 ) $ - $ - $ - $ 5,370,570

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CASH FLOWS FROM OPERATING ACTIVITIES Loss before tax ( $ 216,719 ) ( $ 500,663 ) Adjustments Adjustments to reconcile profit (loss) Loss (gain) on financial assets at fair value through

profit or loss-current

8,130 ( 519 ) Impairment loss 6(10)(21) 53,299 3,042 Compensation costs of employee stock options and

restricted stocks 6(14)

21,884 12,185 Long-term deferred revenue (including current

portion) transferred to revenue

( 4,912 ) - Interest income 6(20) ( 60,335 ) ( 76,388 ) Depreciation 6(9)(23) 89,496 101,454 Amortisation 6(23) 28,336 22,654 Interest expense 6(22) 12 29 Gain on disposal of property, plant and equipment 6(21) - ( 12 ) Share of (profit) loss of associates and joint

ventures accounted for using equity method 6(8)

( 350,477 ) 192,669 Property, plant and equipment transferred to

expenses

- 194 Provision (reversal of provision) for bad debts

expense 6(4)

- ( 15 ) Gain from reversal of bad debts ( 192 ) - Unrealised loss from sales 2,991 8,065 Bargain purchase gain 6(27) ( 59,368 ) - Changes in operating assets and liabilities Changes in operating assets (Gain) loss on financial assets at fair value

through profit or loss

( 13,978 ) 5,219 Notes receivable, net ( 1,299 ) 1,546 Accounts receivable, net 30,849 3,413 Accounts receivable - related parties ( 103,092 ) 71,762 Other receivables ( 675 ) ( 6,767 ) Other receivables due from related parties ( 1,152 ) 350 Inventory ( 8,812 ) ( 100,206 ) Prepayments 10,592 ( 11,706 ) Changes in operating liabilities Notes payable 565 ( 510 ) Accounts payable 23,539 ( 20,740 ) Other payables 19,115 46,633 Other payables - related parties ( 65,918 ) - Other current liabilities 641 ( 377 ) Accrued pension liabilities ( 376 ) - Other non-current liabilities 1,643 7,533 Cash outflow generated from operations ( 596,213 ) ( 241,155 ) Interest received 43,663 72,679 Interest paid ( 12 ) ( 29 ) Income tax paid ( 22,381 ) ( 13,548 ) Net cash flows used in operating activities ( 574,943 ) ( 182,053 )

(Continued)

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CASH FLOWS FROM INVESTING ACTIVITIES Decrease in other receivables due from related parties 7(2) $ 80,694 $ - Increase in other current financial assets 6(6) ( 780,945 ) - Acquisition of property, plant and equipment 6(29) ( 116,097 ) ( 89,101 ) Proceeds from disposal of property, plant and equipment - 356 Increase in intangible assets 6(29) ( 60,537 ) ( 87,930 ) Acquisition of investments accounted for using equity

method

( 180,866 ) ( 225,995 ) Proceeds from capital reduction of investments accounted

for using equity method

655,595 - Decrease in refundable deposits 3,207 500 Increase in other non-current assets ( 22,013 ) ( 45,247 ) Increase in financial assets at amortised cost - 410,931 Increase in financial assets at fair value through profit or

loss-non-current

- ( 6,284 ) Acquisition of held-for-sale financial assets ( 5,447 ) - Acquisition of held-to-maturity financial assets ( 149,290 ) - Increase in financial assets at amortised cost - ( 12,328 ) Dividends received 6(8) 209,252 -

Net cash flows used in investing activities ( 366,447 ) ( 55,098 )

CASH FLOWS FROM FINANCING ACTIVITIES Employee stock options exercised 2,435 1,778 Retirement of restricted stocks - ( 600 ) Reacquisition of treasury shares 6(16) ( 442,829 ) -

Net cash flows (used in) from financing

activities

( 440,394 ) 1,178

Net decrease in cash and cash equivalents ( 1,381,784 ) ( 235,973 ) Cash and cash equivalents at beginning of year 2,201,281 819,497

Cash and cash equivalents at end of year $ 819,497 $ 583,524

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TWi PHARMACEUTICALS, INC. NOTES TO THE PARENT COMPANY ONLY FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND 2018 (EXPRESSED IN THOUNSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS OTHERWISE INDICATED)

1. HISTORY AND ORGANISATION (1) TWi Pharmaceuticals Inc. (the Company), formerly Empax Pharma, Inc., was incorporated as a

company limited by shares on December 1, 1997 with the approval of the Ministry of Economic Affairs, R.O.C. and began operations on the same day. The Company’s and its subsidiaries’ (collectively referred herein as the “Group”) main area of business is the research and development, contract manufacturing, and contract research of generic drugs.

(2) The Company, with September 1, 2006 as the acquisition date, absorbed Anchen International Pharmaceuticals Co., Ltd. and changed its name to Anchen Pharmaceuticals (Taiwan), Inc. after the merger. During April 2010, due to the Group’s organisational restructuring, the Company’s parent company was changed from Anchen Incorporated to TWi Pharmaceuticals Holding Inc. and the Company changed its name to TWi Pharmaceuticals, Inc. Because of the Group’s decision to use the Company as the main entity for public exchange listing, TWi Pharmaceuticals Holding Inc. gradually transferred its shares of the Company to its stockholders during July and August 2012. After the transfer, the Company no longer has an ultimate parent company. Also, during February and March 2013, the Company gradually acquired 100% ownership of U-Liang Co., Ltd., with March 28, 2013 as the acquisition date.

2. THE DATE OF AUTHORISATION FOR ISSUANCE OF THE PARENT COMPANY ONLY FINANCIAL STATEMENTS AND PROCEDURES FOR AUTHORISATION These parent company only financial statements were authorised for issuance by the Board of Directors on March 15, 2019.

3. APPLICATION OF NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS (1) Effect of the adoption of new issuances of or amendments to International Financial Reporting

Standards (“IFRS”) as endorsed by the Financial Supervisory Commission (“FSC”) New standards, interpretations and amendments endorsed by FSC effective from 2018 are as follows:



Standards BoardAmendments to IFRS 2, ‘Classification and measurement of share-based paymenttransactions’

January 1, 2018

Amendments to IFRS 4, ‘Applying IFRS 9, Financial instruments with IFRS 4,Insurance contracts’

January 1, 2018

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Except for the following, the above standards and interpretations have no significant impact to the Company’s financial condition and financial performance based on the Company’s assessment. A. IFRS 9, ‘Financial instruments’

(a) Classification of debt instruments is driven by the entity’s business model and the contractual cash flow characteristics of the financial assets, which would be classified as financial asset at fair value through profit or loss, financial asset measured at fair value through other comprehensive income or financial asset at amortised cost. Equity instruments would be classified as financial asset at fair value through profit or loss, unless an entity makes an irrevocable election at inception to present subsequent changes in the fair value of an investment in an equity instrument that is not held for trading in other comprehensive income.

(b) The impairment losses of debt instruments are assessed using an ‘expected credit loss’ approach. An entity assesses at each balance sheet date whether there has been a significant increase in credit risk on that instrument since initial recognition to recognise 12-month expected credit losses or lifetime expected credit losses (interest revenue would be calculated on the gross carrying amount of the asset before impairment losses occurred); or if the instrument has objective evidence of impairment, interest revenue after the impairment would be calculated on the book value of net carrying amount (i.e. net of credit allowance). The Company shall always measure the loss allowance at an amount equal to lifetime expected credit losses for trade receivables that do not contain a significant financing component.

(c) In adopting the new standards endorsed by the FSC effective from 2018, the Company applied the new rules under IFRS 9 retrospectively from January 1, 2018, with the practical expedients



Standards Board

IFRS 9, ‘Financial instruments’ January 1, 2018IFRS 15, ‘Revenue from contracts with customers’ January 1, 2018Amendments to IFRS 15, ‘Clarifications to IFRS 15, Revenue from contractswith customers’

January 1, 2018

Amendments to IAS 7, ‘Disclosure initiative’ January 1, 2017Amendments to IAS 12, ‘Recognition of deferred tax assets for unrealised losses’ January 1, 2017Amendments to IAS 40, ‘Transfers of investment property’ January 1, 2018IFRIC 22, ‘Foreign currency transactions and advance consideration’ January 1, 2018Annual improvements to IFRSs 2014-2016 cycle - Amendments to IFRS 1, ‘First-time adoption of International Financial Reporting Standards’

January 1, 2018

Annual improvements to IFRSs 2014-2016 cycle - Amendments to IFRS 12, ‘Disclosure of interests in other entities’

January 1, 2017

Annual improvements to IFRSs 2014-2016 cycle - Amendments to IAS 28, ‘Investments in associates and joint ventures’

January 1, 2018

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permitted under the statement. Please refer to Note 12(4) for the effects on initial application of IFRS 9. i. In accordance with IFRS 9, the Company reclassified available-for-sale financial assets in

the amount of $5,289, by increasing financial assets at fair value through profit or loss, decreasing retained earnings and increasing other equity interest in the amount of $5,289, $158 and $158, respectively.

ii. In accordance with IFRS 9, the Company reclassified held-to-maturity financial assets of $149,271 to financial assets at amortised cost.

iii. Except for the adjustments listed above, the Company evaluates that IFRS 9 does not have any other significant effects on the parent company only financial statements as of January 1, 2018. Please refer to Note 12(4) for the effects on initial application of IFRS 9.

B. IFRS 15, ‘Revenue from contracts with customers’ and amendments IFRS 15, ‘Revenue from contracts with customers’ replaces IAS 11, ‘Construction contracts’, IAS 18, ‘Revenue’ and relevant interpretations. According to IFRS 15, revenue is recognised when a customer obtains control of promised goods or services. A customer obtains control of goods or services when a customer has the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset. The core principle of IFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognises revenue in accordance with that core principle by applying the following steps: Step 1: Identify contracts with customer. Step 2: Identify separate performance obligations in the contract(s). Step 3: Determine the transaction price. Step 4: Allocate the transaction price. Step 5: Recognise revenue when the performance obligation is satisfied. Further, IFRS 15 includes a set of comprehensive disclosure requirements that requires an entity to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Licenses Under IFRS 15, depending on the nature of licenses, they are either (1) a promise to provide a right to access to an entity’s intellectual property as it exists throughout the license period, or (2) a promise to provide a right to use an entity’s intellectual property as it exists at the point in time when the license is granted. Licenses that meet all of the following criteria provide access to an entity’s intellectual property, and revenue is recognised based on the performance obligation's progress towards completion: (a) The contract requires, or the customer reasonably expects, that the entity will undertake

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activities that significantly affect the intellectual property to which the customer has rights; (b) The rights granted by the license directly expose the customer to any positive or negative

effects of the entity’s activities identified above; and (c) Those activities do not result in the transfer of a good or service to the customer as those

activities occur. If licenses cannot meet all criteria listed above, the entity provides a right to use the entity's intellectual property. Revenue shall be recognised at the point in time at which the license is granted to the customer. Contract modification

Contract modifications cause changes in the scope of performance or (and) prices. IFRS 15 states that an entity accounts for a contract modification as a separate contract if the scope of the contract increases because of the addition of distinct goods or services, and the price of the contract increases by an amount of consideration that reflects the entity’s standalone selling prices of the additional promised goods or services and any appropriate adjustments to that price to reflect the circumstances of the particular contract.

If a modification does not meet the above criteria, an entity should determine whether the remaining goods or services (including the increase of scope from the contract modification) are distinct from the goods or services transferred before the modification. If they are distinct, an entity shall account for the modification prospectively. If the remaining goods or services in the modification are not distinct, an entity accounts for a modification through a cumulative catch-up adjustment. The effect that the modification has on the transaction price, and the measure of progress towards complete satisfaction of the performance obligation, is recognised as an adjustment to revenue at the date of modification.

C. Amendments to IFRS 15, ‘Clarifications to IFRS 15 - Revenue from Contracts with Customers’ The amendments clarify how to identify a performance obligation (the promise to transfer a good or a service to a customer) in a contract; determine whether a company is a principal (the provider of a good or service) or an agent (responsible for arranging for the good or service to be provided); and determine whether the revenue from granting a license should be recognised at a point in time or over time. In addition to the clarifications, the amendments include two additional reliefs to reduce cost and complexity for a company when it first applies the new Standard. In adopting the new standards endorsed by the FSC effective from 2018, the Company adopted IFRS 15 using the modified retrospective approach. There are no significant effects on the parent company only financial statements as of January 1, 2018 relative to the adoption of IFRS 15.

(2) Effect of new issuances of or amendments to IFRSs as endorsed by the FSC but not yet adopted by the Company New standards, interpretations and amendments endorsed by the FSC effective from 2019 are as follows:

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Except for the following, the above standards and interpretations have no significant impact to the Company’s financial condition and financial performance based on the Company’s assessment. IFRS 16, ‘Leases’ IFRS 16, ‘Leases’, replaces IAS 17, ‘Leases’ and related interpretations and SICs. The standard requires lessees to recognise a 'right-of-use asset' and a lease liability (except for those leases with terms of 12 months or less and leases of low-value assets). The accounting stays the same for lessors, which is to classify their leases as either finance leases or operating leases and account for those two types of leases differently. IFRS 16 only requires enhanced disclosures to be provided by lessors. The Company expects to recognise the lease contract of lessees in line with IFRS 16. However, the Company does not intend to restate the financial statements of prior period (referred herein as the “modified retrospective approach”). On January 1, 2019, it is expected that ‘right-of-use asset’ and lease liability will be increased by $38,469.

(3) IFRSs issued by IASB but not yet endorsed by the FSC New standards, interpretations and amendments issued by IASB but not yet included in the IFRSs as endorsed by the FSC are as follows:

The above standards and interpretations have no significant impact to the Company’s financial condition and financial performance based on the Company’s assessment.



Standards BoardAmendments to IFRS 9, ‘Prepayment features with negativecompensation’

January 1, 2019

IFRS 16, ‘Leases’ January 1, 2019Amendments to IAS 19, ‘Plan amendment, curtailment or settlement’ January 1, 2019

Amendments to IAS 28, ‘Long-term interests in associates and jointventures’

January 1, 2019

IFRIC 23, ‘Uncertainty over income tax treatments’ January 1, 2019Annual improvements to IFRSs 2015-2017 cycle January 1, 2019



Standards BoardAmendments to IAS 1 and IAS 8, ‘Disclosure Initiative-Definition ofMaterial’

January 1, 2020

Amendments to IFRS 3, ‘Definition of a business’ January 1, 2020Amendments to IFRS 10 and IAS 28, ‘Sale or contribution of assetsbetween an investor and its associate or joint venture’

To be determined byInternational Accounting

Standards BoardIFRS 17, ‘Insurance contracts’ January 1, 2021

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4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies applied in the preparation of these parent company only financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated. (1) Compliance statement

The parent company only financial statements of the Company have been prepared in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers”, International Financial Reporting Standards, International Accounting Standard, IFRIC Interpretations, and SIC Interpretations as endorsed by the FSC (collectively reffered herenin as the “IFRSs”).

(2) Basis of preparation A. Except for the following items, the parent company only financial statements have been prepared

under the historical cost convention: (a) Defined benefit liabilities recognised based on the net amount of pension fund assets less

present value of defined benefit obligation. (b) Financial assets at fair value through profit or loss. (c) Available-for-sale financial assets measured at fair value.

B. The preparation of financial statements in conformity with International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the FSC (collectively referred herein as the “IFRSs”) requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 5.

C. In adopting IFRS 9 and IFRS 15 effective January 1, 2018, the Company has elected to apply modified retrospective approach whereby the cumulative impact of the adoption was recognised as retained earnings or other equity as of January 1, 2018 and the financial statements for the year ended December 31, 2017 were not restated. The financial statements for the year ended December 31, 2017 were prepared in compliance with International Accounting Standard 39 (‘IAS 39’), International Accounting Standard 11 (‘IAS 11’), International Accounting Standard 18 (‘IAS 18’) and related financial reporting interpretations. Please refer to Notes 12(4) and (5) for details of significant accounting policies.

(3) Foreign currency translation Items included in the parent company only financial statements of each of the Company’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The parent company only financial statements are presented in New Taiwan dollars, which is the Company’s functional and presentation currency. Foreign currency transactions and balances

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(a) Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions are recognised in profit or loss in the period in which they arise.

(b) Monetary assets and liabilities denominated in foreign currencies at the period end are re-translated at the exchange rates prevailing at the balance sheet date. Exchange differences arising upon re-translation at the balance sheet date are recognised in profit or loss.

(c) All foreign exchange gains and losses are presented in the statement of comprehensive income within ‘other gains and losses’.

(4) Classification of current and non-current items A. Assets that meet one of the following criteria are classified as current assets; otherwise they are

classified as non-current assets: (a) Assets arising from operating activities that are expected to be realised, or are intended to be

sold or consumed within the normal operating cycle; (b) Assets held mainly for trading purposes; (c) Assets that are expected to be realised within twelve months from the balance sheet date; (d) Cash and cash equivalents, excluding restricted cash and cash equivalents and those that are

to be exchanged or used to settle liabilities more than twelve months after the balance sheet date.

B. Liabilities that meet one of the following criteria are classified as current liabilities; otherwise they are classified as non-current liabilities: (a) Liabilities that are expected to be settled within the normal operating cycle; (b) Liabilities arising mainly from trading activities; (c) Liabilities that are to be settled within twelve months from the balance sheet date; (d) Liabilities for which the repayment date cannot be extended unconditionally to more than

twelve months after the balance sheet date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

(5) Cash equivalents A. Cash equivalents refer to short-term, highly liquid investments that are readily convertible to

known amounts of cash and which are subject to an insignificant risk of changes in value. Time deposits that meet the definition above and are held for the purpose of meeting short-term cash commitment in operations are classified as cash equivalents.

B. Time deposits that do not meet the definition of cash equivalents (listed under “Current financial assets at amortised cost”) are measured at the initial investment value, as they are held for a short period of time and the effect of discounting is insignificant.

(6) Financial assets at fair value through profit or loss A. Financial assets at fair value through profit or loss are financial assets that are not measured at

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amortised cost or fair value through other comprehensive income. B. On a regular way purchase or sale basis, financial assets at fair value through profit or loss are

recognised and derecognised using trade date accounting. C. At initial recognition, the Company measures the financial assets at fair value and recognises the

transaction costs in profit or loss. The Company subsequently measures the financial assets at fair value, and recognises the gain or loss in profit or loss

(7) Financial assets at amortised cost A. Financial assets at amortised cost are those that meet all of the following criteria:

(a) The objective of the Company’s business model is achieved by collecting contractual cash flows.

(b) The assets’ contractual cash flows represent solely payments of principal and interest. B. On a regular way purchase or sale basis, financial assets at amortised cost are recognised and

derecognised using trade date accounting. C. At initial recognition, the Company measures the financial assets at fair value plus transaction

costs. Interest income from these financial assets is included in finance income using the effective interest method. A gain or loss is recognised in profit or loss when the asset is derecognised or impaired.

D. Time deposits that do not meet the definition of cash equivalents are measured at the initial investment value, as they are held for a short period of time and the effect of discounting is insignificant.

(8) Accounts and notes receivable A. Accounts and notes receivable entitle the Company a legal right to receive consideration in

exchange for transferred goods or rendered services. B. The short-term accounts and notes receivable without bearing interest are subsequently measured

at initial invoice amount as the effect of discounting is immaterial. (9) Impairment of financial assets

For debt instruments measured at fair value through other comprehensive income and financial assets at amortised cost, at each reporting date, the Company recognises the impairment provision for 12 months expected credit losses if there has not been a significant increase in credit risk since initial recognition or recognises the impairment provision for the lifetime expected credit losses (ECLs) if such credit risk has increased since initial recognition after taking into consideration all reasonable and verifiable information that includes forecasts. On the other hand, for accounts receivable or contract assets that do not contain a significant financing component, the Company recognises the impairment provision for lifetime ECLs.

(10) Derecognition of financial assets The Company derecognises a financial asset when one of the following conditions is met: A. The contractual rights to receive cash flows from the financial asset expire. B. The contractual rights to receive cash flows from the financial asset have been transferred and the

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Company has transferred substantially all risks and rewards of ownership of the financial asset. C. The contractual rights to receive cash flows from the financial asset have been transferred and the

Company has not retained control of the financial asset. (11) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted-average method. The cost of finished goods and work in process comprises raw materials, direct labor, other direct costs and related production overheads (allocated based on normal operating capacity). It excludes borrowing costs. The item by item approach is used in applying the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and applicable variable selling expenses.

(12) Investments accounted for using equity method/ subsidiaries A. Subsidiaries are all entities (including structured entities) controlled by the Company. The

Company controls an entity when the Company is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

B. Inter-company transactions, balances and unrealised gains or losses on transactions between companies within the Company are eliminated. Accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the policies adopted by the Company.

C. The Company’s share of its subsidiaries’ post-acquisition profits or losses is recognised in profit or loss, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income. When the Company’s share of losses in a subsidiary equals or exceeds its interest in the subsidiary, the Company continues to recognise the losses in proportion to the ownership.

D. Changes in a parent’s ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary (transactions with non-controlling interests) are accounted for as equity transactions, i.e. transactions with owners in their capacity as owners. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity.

E. Pursuant to the “Rules Governing the Preparation of Financial Statements by Securities Issuers,” profit (loss) of the current period and other comprehensive income in the parent company only financial statements shall equal to the amount attributable to owners of the parent in the consolidated financial statements. Owners’ equity in the parent company only financial statements shall equal to equity attributable to owners of the parent in the consolidated financial statements.

(13) Property, plant and equipment A. Property, plant and equipment are initially recorded at cost. Borrowing costs incurred during the

construction period are capitalised. B. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as

appropriate, only when it is probable that future economic benefits associated with the item will

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flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.

C. Land is not depreciated. Other property, plant and equipment apply cost model and are depreciated using the straight-line method to allocate their cost over their estimated useful lives.

D. The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each financial year-end. If expectations for the assets’ residual values and useful lives differ from previous estimates or the patterns of consumption of the assets’ future economic benefits embodied in the assets have changed significantly, any change is accounted for as a change in estimate under IAS 8, ‘Accounting Policies, Changes in Accounting Estimates and Errors’, from the date of the change. The estimated useful lives of property, plant and equipment are as follows:

Buildings and structures 5 ~ 50 years Machinery and equipment 7 ~ 8 years Transportation equipment 5 years Office equipment 3 ~ 7 years Leasehold improvements 5 years

(14) Operating leases (lessee) Payments made under an operating lease (net of any incentives received from the lessor) are recognised in profit or loss on a straight-line basis over the lease term.

(15) Intangible assets A. Use right

Intangible assets pertaining to the right of use are stated at cost and amortised on a straight-line basis over its estimated useful life of 6 to 10 years.

B. Computer software Computer software is stated at cost and amortised on a straight-line basis over its estimated useful life of 3 years.

(16) Impairment of non-financial assets The Company assesses at each balance sheet date the recoverable amounts of those assets where there is an indication that they are impaired. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell or value in use. When the circumstances or reasons for recognising impairment loss for an asset in prior years no longer exist or diminish, the impairment loss is reversed. The increased carrying amount due to reversal should not be more than what the depreciated or amortised historical cost would have been if the impairment had not been recognised.

(17) Notes and accounts payable Notes and accounts payable are obligations to pay for goods or services that have been acquired in

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the ordinary course of business from suppliers. They are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. However, short-term accounts payable which are non-interest bearing are subsequently measured at initial invoice amount as the effect of discounting is immaterial.

(18) Derecognition of financial liabilities A financial liability is derecognised when the obligation under the liability specified in the contract is discharged or cancelled or expires.

(19) Offsetting financial instruments Financial assets and liabilities are offset and reported in the net amount in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.

(20) Employee benefits A. Short-term employee benefits

Short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in respect of service rendered by employees in a period and should be recognised as expenses in that period when the employees render service.

B. Pensions (a) Defined contribution plan

For defined contribution plan, the contributions are recognised as pension expenses when they are due on an accrual basis. Prepaid contributions are recognised as an asset to the extent of a cash refund or a reduction in the future payments.

(b) Defined benefit plan i. Net obligation under a defined benefit plan is defined as the present value of an amount of

pension benefits that employees will receive on retirement for their services with the Company in current period or prior periods. The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The net defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The rate used to discount is determined by using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability; when there is no deep market in high-quality corporate bonds, the Company uses interest rates of government bonds (at the balance sheet date) instead.

ii. Remeasurements arising on defined benefit plan are recognised in other comprehensive income in the period in which they arise and are recorded as retained earnings.

C. Employees’ bonus and directors’ and supervisors’ remuneration Employees’ bonus and directors’ and supervisors’ remuneration are recognised as expenses and liabilities, provided that such recognition is required under legal or constructive obligation and

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those amounts can be reliably estimated. However, if the accrued amounts for employees’ bonus and directors’ and supervisors’ remuneration are different from the actual distributed amounts as resolved by the stockholders at their stockholders’ meeting subsequently, the differences should be recognised based on the accounting for changes in estimates.

(21) Employee share-based payment A. For the equity-settled share-based payment arrangements, the employee services received are

measured at the fair value of the equity instruments granted at the grant date, and are recognised as compensation cost over the vesting period, with a corresponding adjustment to equity. The fair value of the equity instruments granted shall reflect the impact of market vesting conditions and non-market vesting conditions. Compensation cost is subject to adjustment based on the service conditions that are expected to be satisfied and the estimates of the number of equity instruments that are expected to vest under the non-market vesting conditions at each balance sheet date. Ultimately, the amount of compensation cost recognised is based on the number of equity instruments that eventually vest.

B. For the cash-settled share-based payment arrangements, the employee services received and the liability incurred are measured at the fair value of the liability to pay for those services, and are recognised as compensation cost and liability over the vesting period. The fair value of the liability shall be remeasured at each balance sheet date until settled at the settlement date, with any changes in fair value recognised in profit or loss.

C. Restricted stocks issued by the Company to employees: (a) Restricted stocks issued to employees are measured at the fair value of the equity instruments

granted at the grant date, and are recognised as compensation cost over the vesting period. The Company sets the grant date as the same day the employee restricted stocks agreement is signed.

(b) For restricted stocks where those stocks do not restrict distribution of dividends to employees and employees are not required to return the dividends received if they resign during the vesting period, the Company recognises the fair value of the dividends received by the employees who are expected to resign during the vesting period as compensation cost at the date of dividend declaration.

(c) For restricted stocks where employees have to pay to acquire those stocks, if employees resign during the vesting period, they must return the stocks to the Company and the Company must refund their payments on the stocks, the Company recognises the payments from the employees who are expected to resign during the vesting period as liabilities at the grant date, and recognises the payments from the employees who are expected to be eventually vested with the stocks in ‘Capital reserve – restricted stocks’.

(22) Income tax A. The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or

loss, except to the extent that it relates to items recognised in other comprehensive income or

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items recognised directly in equity, in which cases the tax is recognised in other comprehensive income or equity.

B. An additional tax is levied on the unappropriated retained earnings and is recorded as income tax expense in the year the stockholders resolve to retain the earnings.

C. Deferred income tax is recognised, using the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated balance sheet. However, the deferred income tax is not accounted for if it arises from initial recognition of goodwill or of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates and laws that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

D. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. At each balance sheet date, unrecognised and recognised deferred income tax assets are reassessed.

E. Current income tax assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. Deferred income tax assets and liabilities are offset on the balance sheet when the entity has the legally enforceable right to offset current tax assets against current tax liabilities and they are levied by the same taxation authority on either the same entity or different entities that intend to settle on a net basis or realise the asset and settle the liability simultaneously.

F. The Company only recognises unused loss carryforward and tax credits (including those arising from equity investment) as deferred tax assets if there is significant probability of taxable income in a later period for the unused loss carryforward and investment tax credits to be used against.

(23) Share capital A. Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new

shares or stock options are shown in equity as a deduction, net of tax, from the proceeds. B. Where the Company repurchases the Company’s equity share capital that has been issued, the

consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the Company’s equity holders. Where such shares are subsequently reissued, the difference between their book value and any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company’s equity holders.

(24) Revenue recognition A. Sales of goods

The Company manufactures and sells generic drug products. Revenue is recognised when control over goods sold has been transferred to customers. When goods are delivered to the customers,

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the customers have right to dispose the goods and the Company has no unfulfilled obligation to affect their acception of the goods.

B. Sales of services The Company provides pharmaceutical research and development services. Revenue from providing services is recognised in the accounting period in which the services are rendered. For fixed-price contracts, revenue is recognised based on the actual service provided to the end of the reporting period as a proportion of the total services to be provided. This is determined based on costs incurred. The customer pays at the time specified in the payment schedule. If the services rendered exceed the payment, a contract asset is recognised. If the payments exceed the services rendered, a contract liability is recognised.

C. Revenue from licensing intellectual property (a) The Company entered into a contract with a customer to grant a license of development of

medicine and right of sale to the customer. Given the license is distinct from other promised goods or services in the contract, the Company recognises the revenue from licensing when the license is transferred to a customer either at a point in time or over time based on the nature of the license granted. The nature of the Company’s promise in granting a license is a promise to provide a right to access the Company’s intellectual property if the Company undertakes activities that significantly affect the development of medicine and right of sale to which the customer has rights, the customer is affected by the Company’s activities and those activities do not result in the transfer of a good or a service to the customer as they occur. The royalties are recognised as revenue on a straight-line basis throughout the licensing period. In case the abovementioned conditions are not met, the nature of the Company’s promise in granting a license is a promise to provide a right to use the Company’s intellectual property and therefore the revenue is recognised when transferring the license to a customer at a point in time.

(b) For some customer contracts including licensing and services, since licensing and services are distinguishable, the performance obligations in the contracts are individually identified. It is therefore accounted for as a separate performance obligation. In this case, the transaction price will be allocated to each performance obligation based on the stand-alone selling prices. Where these are not directly observable, they are estimated based on expected cost plus margin.

(c) If customer contracts include variable consideration, the variable consideration will be included in the transaction price once the uncertainty of variable consideration has been eliminated and there is a high possibility that will not cause significant reversal of revenue.

(d) Some contracts of development of medicine and right of sale require a sales-based royalty in exchange for a license of intellectual property. The Company recognises revenue when the performance obligation has been satisfied and the subsequent sale occurs.

D. Financing components The Company does not expect to have any contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a

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consequence, the Company does not adjust any of the transaction prices for the time value of money.

(25) Business combinations A. The Company uses the acquisition method to account for business combinations. The

consideration transferred for an acquisition is measured as the fair value of the assets transferred, liabilities incurred or assumed and equity instruments issued at the acquisition date, plus the fair value of any assets and liabilities resulting from a contingent consideration arrangement. All acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. For each business combination, the Company shall measure at the acquisition date components of non-controlling interests in the acquiree that are present ownership interests and entitle their holders to the proportionate share of the entity’s net assets in the event of liquidation at either fair value or the present ownership instruments’ proportionate share in the recognised amounts of the acquiree’s identifiable net assets. All other non-controlling interests should be measured at the acquisition-date fair value.

B. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of any previous held equity interest in the acquiree over the fair value of the identifiable assets acquired and the liabilities assumed is recorded as goodwill at the acquisition date. If the total of consideration transferred, non-controlling interest in the acquiree recognised and the fair value of previously held equity interest in the acquiree is less than the fair value of the identifiable assets acquired and the liabilities assumed, the difference is recognised directly in profit or loss on the acquisition date.

5. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND KEY SOURCES OF ASSUMPTION UNCERTAINTY The preparation of these parent company only financial statements requires management to make critical judgements in applying the Company’s accounting policies and make critical assumptions and estimates concerning future events. Assumptions and estimates may differ from the actual results and are continually evaluated and adjusted based on historical experience and other factors. Such assumptions and estimates have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year; and the related information is addressed below: Critical accounting estimates and assumptions Evaluation of inventories As inventories are stated at the lower of cost and net realisable value, the Company must determine the net realisable value of inventories on balance sheet date using judgements and estimates. Due to fierce market competition and limited validity, the Company evaluates the amounts of normal inventory consumption, obsolete inventories or inventories without market selling value on balance sheet date, and writes down the cost of inventories to the net realisable value. Such an evaluation of inventories is principally based on the demand for the products within the specified period in the future. Therefore,

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there might be material changes to the evaluation.

6. DETAILS OF SIGNIFICANT ACCOUNTS (1) Cash and cash equivalents

A. The Company transacts with a variety of financial institutions all with high credit quality to

disperse credit risk, so it expects that the probability of counterparty default is remote. B. The Company has no cash and cash equivalents pledged to others.

(2) Financial assets at fair value through profit or loss

A. The Company’s financial assets held for trading are valued using US Dollars and Japanese Yen.

The Company recognised net income (loss) (including currency exchange profit or loss) of ($8,130) and $520 on financial assets held for trading for the years ended December 31, 2017 and 2018, respectively.

B. The Company has no financial assets at fair value through profit or loss pledged to others. C. Please refer to Note 9(2)F for the information on the venture capital fund of commitment

investment. D. The Company adopts modified retrospective adjustment on the initial application of IFRS 9.

Information on December 31, 2017 is provided in Note 12(4). (3) Current financial assets at amortised cost

Amounts recognised in profit or loss in relation to financial assets at amortised cost are listed below:

December 31, 2017 December 31, 2018Cash on hand and petty cash 535$ 535$ Checking accounts 3,360 1,828 Demand deposits 576,442 181,931 Three months time deposits 179,580 337,810 Cash equivalents-Repurchase bonds 59,580 61,420

819,497$ 583,524$

December 31, 2017 December 31, 2018 Current items: Financial assets mandatorily measured at fair value through profit or loss Monetary fund 5,848$ 623$ Non-current items: Financial assets mandatorily measured at fair value through profit or loss Venture capital fund -$ 12,098$

Items December 31, 2018 Time deposits 2,434,014$

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Please refer to Note 6(6) for details of time deposits with over three months maturity as at December 31, 2017.

(4) Notes and accounts receivable

A. The ageing analysis of accounts receivable that were past due but not impaired is as follows:

The above ageing analysis was based on past due date.

B. The Company does not hold any collateral as security for accounts receivable.

C. As at December 31, 2017 and 2018, without taking into account any collateral held or other credit enhancements, the maximum exposure to credit risk in respect of the amount that best represents the Company’s notes and accounts receivable were its carrying amounts.

D. Information relating to credit risk is provided in Note 12(2). (5) Inventories

2018Interest income 65,578$

December 31, 2017 December 31, 2018Notes receivable 1,820$ 274$ Accounts receivable 5,341$ 1,928$ Less: Allowance for bad debts 18)( 3)(

5,323$ 1,925$

Accounts Accountsreceivable Notes receivable receivable Notes receivable

Not past due 5,276$ 1,820$ 1,928$ 274$ Past due Up to 30 days - - - - 31 to 60 days 65 - - - 61 to 90 days - - - -

5,341$ 1,820$ 1,928$ 274$


Cost


loss on obsolescence Book valueRaw materials 32,744$ 6,376)($ 26,368$ Supplies 30,239 4,834)( 25,405 Work in progress 4,844 329)( 4,515 Finished goods 26,929 13,626)( 13,303

94,756$ 25,165)($ 69,591$

December 31, 2017

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Items December 31, 2017

Time deposits

2,844,945 $

The cost of inventories recognised as expense for the year:

Note: Gain on reversal resulted from inventories sold or used.

(6) Other current financial assets

The Company has no other current financial assets pledged to others. (7) Non-current financial assets at amortised cost

A. The Company recognised interest income of $4,192 on financial assets at amortised cost for the

year ended December 31, 2018. B. The Company has no financial assets at amortised cost pledged to others. C. Information relating to credit risk is provided in Note 12(2). D. As at December 31, 2018, without taking into account any collateral held or other credit

enhancements, the maximum exposure to credit risk in respect of the amount that best represents the financial assets at fair value through other comprehensive income held by the Company was its carrying amount.

E. Information on December 31, 2017 is provided in Note 12(4).

Cost


loss on obsolescence Book valueRaw materials 55,853$ 2,852)($ 53,001$ Supplies 52,536 8,856)( 43,680 Work in progress 22,936 2,266)( 20,670 Finished goods 31,831 - 31,831 Inventory in transit 20,615 - 20,615

183,771$ 13,974)($ 169,797$

December 31, 2018

2017 2018Cost of goods sold and service costs 437,758$ 519,309$ Loss on obsolescence (gain on reversal) and market price decline (Note) 20,896 11,192)( Scrapped inventory - 19,820 Gain on physical inventory 40)( 21)( Operating costs 458,614$ 527,916$


Items December 31, 2018Corporate bonds 161,489$

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(8) Investments accounted for using equity method

A. Subsidiary (1) Please refer to Note 4(3) in the consolidated financial statements for the year ended December

31, 2018 for the information on the Company’s subsidiaries. (2) On November 20, 2017, the Company acquired 95.02% of the share capital of Synpac-

Kingdom Pharmaceutical Co. Ltd. ("SK Co.") from China Synthetic Rubber Corporation ( "CS Co.") and Zhongcheng Development Investment Co., Ltd.( "Z Co.") for $12.69 per share, totaling $180,866, thus gaining control of SK Co. As mutually agreed-upon prior to the acquisition, the acquiree, SK Co., Ltd. intends to purchase 4.98% equity from its dissenting shareholder, China Life Insurance Co., Ltd. In accordance with the equity acquisition agreement, either CS Co. or Z Co. will compensate the Company for the consideration exceeding $12.69 (in dollars) per share per final negotiation or court rulings should any loss incurred. Yet the purchase price for dissenting shares has not been confirmed as of March 15, 2019. Please refer to Note 6(27) for details about gain from bargain purchase in this acquisition.

(3) The subsidiaries, TWi Pharmaceutical Ltd. and TWi Pharmaceuticals Europe Limited, handled a total of $655,595 in capital reductions in 2017.

(4) The cash dividends distributed by the subsidiaries were $209,252 in 2017. B. The investment interests (losses) recognised by the equity method of the Company are as follows:

December 31, 2017 December 31, 2018TWi Biotechnology, Inc. 173,938$ 316,284$ TWi Pharmaceuticals USA, Inc. 39,639)( 187,115 TWi Pharmaceuticals Europe Limited 1,540 1,635 TWi Pharmaceutical Ltd. 38,021 36,933 Synpac-Kingdom Pharmaceutical Co.,Ltd. 240,827 119,012

414,687 660,979 Add：Transfer to other non-current liabilities 39,639 -

$ 454,326 $ 660,979

December 31, 2017 December 31, 2018TWi Biotechnology, Inc. 76,542)($ 77,481)($ TWi Pharmaceuticals USA, Inc. 12,745$ 6,847$ TWi Pharmaceuticals Europe Limited 703)( 47 TWi Pharmaceutical Ltd. 413,912 268)( Synpac-Kingdom Pharmaceutical Co.,Ltd. 1,065 121,814)(

350,477$ 192,669)($

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(9) Property, plant and equipment

Land Buildings

and structures Machinery Transportation

equipment Office

equipment Leasehold

improvements Equipment to be inspected Total

At January 1, 2017Cost 386,542$ 307,522$ 504,507$ 1,816$ 22,580$ 12,402$ -$ 1,235,369$ Accumulated depreciation - 117,068)( 183,908)( 695)( 7,244)( 8,176)( - 317,091)(

386,542$ 190,454$ 320,599$ 1,121$ 15,336$ 4,226$ -$ 918,278$ 2017Opening net book amount as at January 1 386,542$ 190,454$ 320,599$ 1,121$ 15,336$ 4,226$ -$ 918,278$ Additions - 23,957 40,451 - 1,473 191 49,931 116,003 Reclassifications - 286 - - - 286)( - - Transfers - - 8,309 - - - 19,907 28,216 Depreciation charge - 20,583)( 62,724)( 273)( 3,178)( 2,738)( - 89,496)( Net exchange differences 386,542$ 194,114$ 306,635$ 848$ 13,631$ 1,393$ 69,838$ 973,001$

At December 31, 2017Cost 386,542$ 291,792$ 549,781$ 1,286$ 23,478$ 10,646$ 69,838$ 1,333,363$ Accumulated depreciation - 97,678)( 243,146)( 438)( 9,847)( 9,253)( - 360,362)(

386,542$ 194,114$ 306,635$ 848$ 13,631$ 1,393$ 69,838$ 973,001$

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Information about the property, plant and equipment pledged to others as collaterial is provided in Note 8.

Land Buildings

and structures Machinery Transporation

equipment Office

equipment Leasehold


At January 1, 2018Cost 386,542$ 291,792$ 549,781$ 1,286$ 23,478$ 10,646$ 69,838$ 1,333,363$ Accumulated depreciation - 97,678)( 243,146)( 438)( 9,847)( 9,253)( - 360,362)(

386,542$ 194,114$ 306,635$ 848$ 13,631$ 1,393$ 69,838$ 973,001$ 2018Opening net book amount as at January 1 386,542$ 194,114$ 306,635$ 848$ 13,631$ 1,393$ 69,838$ 973,001$ Additions - 16,826 53,530 - 855 974 23,318 95,503 Disposals - - - - - 344)( - 344)( Transfers - 9,469 63,047 - - - 69,637)( 2,879 Depreciation charge - 23,855)( 73,192)( 215)( 3,269)( 923)( - 101,454)( Closing net book amount 386,542$ 196,554$ 350,020$ 633$ 11,217$ 1,100$ 23,519$ 969,585$

At December 31, 2018Cost 386,542$ 313,774$ 633,023$ 1,286$ 23,794$ 1,932$ 23,519$ 1,383,870$ Accumulated depreciation - 117,220)( 283,003)( 653)( 12,577)( 832)( - 414,285)(

386,542$ 196,554$ 350,020$ 633$ 11,217$ 1,100$ 23,519$ 969,585$

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(10) Intangible assets


Software cost 6,874$ 2,378)($ 4,496$ Other intangible assets – use right__New drug A technology and right (Note 1 ) 18,292 12,740)( 5,552 __New drug B technology and right (Note 2 ) 160,425 86,781)( 73,644 __New drug C technology and right (Note 3 ) 29,964 18,925)( 11,039 __New drug D technology and right (Note 4 ) 15,145 3,536)( 11,609

230,700$ 124,360)($ 106,340$

January 1, 2017

Other intangibleSoftware cost assets Total

2017At January 1 4,496$ 101,844$ 106,340$ Additions - acquired separately 1,046 83,323 84,369 Transfers 150 - 150 Amortisation charge 1,749)( 26,512)( 28,261)( Impairment loss (Note 2) - 53,299)( 53,299)( At December 31 3,943$ 105,356$ 109,299$


Software cost 6,626$ 2,683)($ 3,943$ Other intangible assets – use right__New drug A technology and right (Note 1 ) 18,292 13,665)( 4,627 __New drug B technology and right (Note 2 ) 160,425 150,600)( 9,825 __New drug C technology and right (Note 3 ) 29,964 20,502)( 9,462 __New drug D technology and right (Note 4 ) 15,145 5,085)( 10,060 __New drug E technology and right (Note 5 ) 76,975 11,546)( 65,429 __New drug F technology and right (Note 6 ) 3,481 228)( 3,253 __New drug G technology and right (Note 7 ) 2,867 167)( 2,700

313,775$ 204,476)($ 109,299$

December 31, 2017

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Cost


impairment TotalSoftware cost 6,626$ 2,683)($ 3,943$ Other intangible assets – use right__New drug A technology and right (Note 1 ) 18,292 13,665)( 4,627 __New drug B technology and right (Note 2 ) 160,425 160,425)( - __New drug C technology and right (Note 3 ) 29,964 20,502)( 9,462 __New drug D technology and right (Note 4 ) 15,145 5,085)( 10,060 __New drug E technology and right (Note 5 ) 76,975 11,546)( 65,429 __New drug F technology and right (Note 6 ) 3,481 228)( 3,253 __New drug G technology and right (Note 7 ) 2,867 167)( 2,700

313,775$ 214,301)($ 99,474$

January 1, 2018

Software cost Other intangible

assets Total2018At January 1 3,943$ 95,531$ 99,474$ Additions - acquired separately 1,569 87,097 88,666 Amortisation charge 1,599)( 20,980)( 22,579)( Impairment loss (Note 6) - 3,042)( 3,042)( At December 31 3,913$ 158,606$ 162,519$


Software cost 7,366 3,453)( 3,913 Other intangible assets – use right__New drug A technology and right (Note 1 ) 18,292 14,590)( 3,702 __New drug B technology and right (Note 2 ) 160,425 160,425)( - __New drug C technology and right (Note 3 ) 29,964 22,078)( 7,886 __New drug D technology and right (Note 4 ) 15,145 6,632)( 8,513 __New drug E technology and right (Note 5 ) 76,975 26,942)( 50,033 __New drug F technology and right (Note 6 ) 3,481 3,481)( - __New drug G technology and right (Note 7 ) 2,867 455)( 2,412 __New drug I technology and right (Note 8 ) 87,097 1,037)( 86,060

401,612$ 239,093)($ 162,519$

December 31, 2018

334

Details of amortisation on intangible assets are as follows:

Note 1: The Company purchased a psychology drug-related asset from Anchen Incorporated in

October 2011 for a purchase price of $18,292. The asset includes drug-related research and development technology and rights of production and distribution. The full amount had been paid.

Note 2: (1) The Company has entered into a collaboration and development agreement with Company Z for an undisclosed generic drug. Company Z is responsible for product development and technology transfer. The Company is responsible for submitting an ANDA to the US FDA. Company Z grants the Company an exclusive license to use, manufacture and distribute the generic product in the United States. The Company should pay Company Z milestone fees on the occurrence of agreed R&D achievements and product approval. The Company will also share a certain percentage of profit to Company Z after the product is launched.

(2) In March 2012, the Company, Company Z and Company A signed a tripartite agreement for the above generic drug. The Company grants the rights received from Company Z to Company A. Company A will be responsible for submitting an ANDA for the generic product to the US FDA. According to the agreement, Company A will pay the Company and Company Z milestone fees based on completion of development work and technology transfer. The Company will also pay Company Z additional milestone fees. Company A will share a certain percentage of profit to the Company and Company Z after the product is launched. The Company and Company Z may also receive an additional bonus if the product sales reach a certain level.

(3) The Company received a termination notice from Company A for the tripartite agreement in the third quarter of 2013. On November 11, 2013, the Company and Company Z signed a new collaboration and development agreement for the generic drug and has received an upfront payment of US$824 thousand. The Company grants rights of manufacturing and distribution in the United States to Company Z. The Company will receive milestone fees from Company Z on occurrence of certain R&D achievements and drug license approval. Company Z will also share a certain percentage of profit to the Company until the aggregate amount reaches US$6,500 thousand.

(4) The Company has paid royalty fees (shown as “Other intangible asset-use right”) to Company Z in the amount of $160,425 as of December 31, 2018.

(5) Company Z notified the Company on its decision to push back on the American FDA

2017 2018Operating costs 11,753$ 15,675$ Administrative expenses 1,163 903 Research and development expenses 15,345 6,001

28,261$ 22,579$


335

ANDA submission, due to recent changes in ANDA submission guidelines. The Company evaluated that the delay in commercialization has a major effect on future revenue and market share, and therefore recorded impairment loss of $53,299 at the end of 2017. The balance of the asset after impairment equals to the balance of long-term deferred royalty revenue received from Company A (listed under “Other non-current liabilities”). On January 1, 2018, the deferred revenue was reclassified as revenue under IFRS 15, and the Company recognised intangible assets impairment loss at the same amount, thus, the Company’s retained earnings was not impacted.

Note 3: The Company and Anchen Incorporated signed a transfer agreement for the generic product’s technology and related rights in November 2011. Anchen Incorporated grants the Company exclusive right and license to register, manufacture and distribute the product in the United States. The Company has paid a total purchase price of $29,964.

Note 4: The Company entered into a Generic Technology and Rights Licensing Agreement with Company U in June 2014, under which Company U will be responsible for the research and development, testing, and documentation preparation of the generic drug while the Company seeks approval for the new drug application from the US regulatory body. Under the terms of the agreement, the Company has the exclusive right in the US for the development, production and sale of the generic drug intended for sale in the US market. Pursuant to the agreement, Company U is eligible to receive, based on agreed upon milestones in the application process, license fees to be paid in installments. When the product is commercialized, the Company will also pay Company U royalties based on a fixed percentage of net sales. As of December 31, 2018, license fees paid by the Company to Company U were $15,145. The highest unpaid amount is US$500 thousand.

Note 5: The Company and Company E signed a transfer agreement for the generic product’s technology and related rights in March 2017. Company E grants the Company exclusive right and license to manufacture and distribute the product in the United States. The total price amounts to US$2,500 thousand. As of December 31, 2018, the Company has paid US$1,700 thousand.

Note 6: The Company entered into a Co-Development Agreement with Company F in May 2017, under which Company F will be responsible for the product development and manufacturing while the Company is responsible for the distribution of the product. Pursuant to the agreement, Company F is eligible to receive license fees of up to US$593 thousand based on milestone achievement. When the product is commercialized, the Company will also pay Company F royalties based on a fixed percentage of net sales. As of December 31, 2018, the Company paid milestone fee to Company F of US$116 thousand. The company suspended the Co-Development Agreement with Company F in 2018 and recognised impairment loss of $3,042 on the balance.

Note 7: The Company entered into a Co-Development Agreement with Company H in April 2017,

336

under which Company H will be responsible for the product development and manufacturing while the Company is responsible for obtaining drug regulatory approval and distribution of the product in the USA. Company H authorized the Company exclusive distribution right in the USA. Pursuant to the agreement, based on agreed upon milestones in the application process, Company H is eligible to receive license fees of up to US$3 million. When the product is commercialized, the Company will also share profit with Company H based on a fixed percentage of net profit. As of December 31, 2018, the Company already paid milestone fee to Company H of US$100 thousand.

Note 8: In October 2018, the Company entered into a generic drug technology and rights transfer agreement with Company J and the Company obtained the rights of using relevant information and technology, materials and supplies (listed under “Inventories”), and the rights to manufacture and sell the generic drug. The purchase of aforementioned rights was USD 3,500 thousand and paid in full.

(11) Other non-current assets

(12) Other payables

(13) Pensions

A.(a) The Company has a defined benefit pension plan in accordance with the Labor Standards Act (the “LSA”), covering all regular employees’ service years prior to the enforcement of the Labor Pension Act on July 1, 2005 and service years thereafter of employees who chose to continue to be subject to the pension mechanism under the Act. Under the defined benefit pension plan, two units are accrued for each year of service for the first 15 years and one unit for each additional year thereafter, subject to a maximum of 45 units. Pension benefits are based on the number of units accrued and the average monthly salaries and wages of the last 6 months prior to retirement. The Company contributes monthly an amount equal to 2% of the employees’ monthly salaries and wages to the retirement fund deposited with Bank of Taiwan,

December 31, 2017 December 31, 2018Prepayment for inventory 78,413$ 93,933$ Prepayment for equipment 22,014 63,814 Guarantee deposits paid 2,155 1,655 Prepayment for pension 193 940 Others 81 8

102,856$ 160,350$

December 31, 2017 December 31, 2018Salary payable and annual bonus 23,851$ 27,586$ Payable service expenses 18,036 11,635 Royalty payable 52,763 88,711 Payable for CRO expenses 7,625 4,830 Payable on equipment 6,014 12,416 Non-leaving payable 990 2,050 Others 21,478 36,564

130,757$ 183,792$

337

the trustee, under the name of the independent retirement fund committee. Also, the Company would assess the balance in the aforementioned labor pension reserve account by December 31, every year. If the account balance is not enough to pay the pension calculated by the aforementioned method to the employees expected to qualify for retirement in the following year, the Company will make contribution for the deficit by next March.

(b) The amounts recognised in the balance sheet are as follows:

(c) Movements in net defined benefit liabilities are as follows:

December 31, 2017 December 31, 2018Present value of defined benefit obligations 5,987$ 5,852$ Fair value of plan assets 6,180)( 6,792)( Net defined benefit assets 193)($ 940)($


obligations

Fair value ofplan

assetsNet definedbenefit asset

Year ended December 31, 2017Balance at January 1 6,147$ 5,738)($ 409$ Interest expense (income) 105 98)( 7

6,252 5,836)( 416 Remeasurements: Return on plan assets (excluding amounts included in interest income or expense)

- 40 40


265)( 40 225)( Pension fund contribution - 384)( 384)( Balance at December 31 5,987$ 6,180)($ 193)($

338

(d) The Bank of Taiwan was commissioned to manage the Fund of the Company’s defined benefit

pension plan in accordance with the Fund’s annual investment and utilisation plan and the “Regulations for Revenues, Expenditures, Safeguard and Utilisation of the Labor Retirement Fund” (Article 6: The scope of utilisation for the Fund includes deposit in domestic or foreign financial institutions, investment in domestic or foreign listed, over-the-counter, or private placement equity securities, investment in domestic or foreign real estate securitization products, etc.). With regard to the utilisation of the Fund, its minimum earnings in the annual distributions on the final financial statements shall be no less than the earnings attainable from the amounts accrued from two-year time deposits with the interest rates offered by local banks. If the earnings is less than aforementioned rates, government shall make payment for the deficit after being authorized by the Regulator. The Company has no right to participate in managing and operating that fund and hence the Company is unable to disclose the classification of plan assets fair value in accordance with IAS 19 paragraph 142. The composition of fair value of plan assets as of December 31, 2017 and 2018 is given in the Annual Labor Retirement Fund Utilisation Report announced by the government.

(e) The principal actuarial assumptions used were as follows:

Assumptions regarding future mortality experience are set based on actuarial valuation in accordance with published statistics and experience in the 5th version of Taiwan Standard Ordinary Experience Mortality Tables. Because the main actuarial assumption changed, the present value of defined benefit


obligations

Fair value ofplan

assetsNet definedbenefit asset

Year ended December 31, 2018Balance at January 1 5,987$ 6,180)($ 193)($ Interest expense (income) 78 80)( 2)(

6,065 6,260)( 195)( Remeasurements:Return on plan assets (excluding amounts included in interest income or expense)

- 162)( 162)(


213)( 162)( 375)( Pension fund contribution - 370)( 370)( Balance at December 31 5,852$ 6,792)($ 940)($



Discount rate 1.3% 1.1%Future salary increases 4.00% 4.00%

339

obligation is affected. The analysis was as follows:

The sensitivity analysis above was based on one assumption which changed while other conditions remain unchanged. In practice, more than one assumption may change all at once. The method of analysing sensitivity and the method of calculating net pension liability in the balance sheet are the same. The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous period.

(f) Expected contributions to the defined benefit pension plans of the Company for the year ending December 31, 2019 are $371.

B. (a) Effective July 1, 2005, the Company has established a defined contribution pension plan (the “New Plan”) under the Labor Pension Act (the “LPA”), covering all regular employees with R.O.C. nationality. Under the New Plan, the Company contributes monthly an amount based on 6% of the employees’ monthly salaries and wages to the employees’ individual pension accounts at the Bureau of Labor Insurance. The benefits accrued are paid monthly or in lump sum upon termination of employment.

(b) The pension costs under the defined contribution pension plan of the Company for the years ended December 31, 2017 and 2018 were $7,503 and $8,801, respectively.

Increase 0.25%Decrease 0.25%Increase 0.25%Decrease 0.25%December 31, 2017Effect on present value ofdefined benefit obligation 235)($ 246$ 225$ 216)($ December 31, 2018Effect on present value ofdefined benefit obligation 220)($ 231$ 209$ 201)($

Discount rate Future salary increases

340

(14) Share-based payment A. For the years ended December 31, 2018, the Company’s share-based payment arrangements were

as follows:


Beforeconversion

Afterconversion

Contractperiod

Vestingconditions

The company: Employee stock options-A

Note 1 2011.4.1 2,410,000 1,507,613 10 years 1~5 years'service


" 2011.4.1 152,000 95,085 10 years 4 years' service


" 2012.4.1 3,527,200 2,206,495 10 years 1~5 years'service



















The company: Restricted stocks to employees -G

Note 2 2015.9.1 50,000 5 years 1~5 years'service

Restricted stocks to employees -H

" 2016.3.22 50,000 5 years 1~5 years'service


341

Note 1: The Company’s former ultimate parent company, TWi Pharmaceuticals Holding, Inc., has

granted employee stock options to employees of the Company during April 2011 and April 2012. Each unit of options may acquire l share of TWi Pharmaceuticals Holding, Inc. In 2012, because the Group decided to use the Company as the main entity for public exchange listing, through a Board of Directors’ resolution on July l, 2012, TWi Pharmaceuticals Holding, Inc. converted the target of the abovementioned employee stock option into the Company’s stock using a ratio of 1:0.6255655.

Note 2: The restricted stocks issued by the Company cannot be transferred during the vesting period, but voting right and dividend right are not restricted on these stocks. Employees are required to return the stocks but not required to return the dividends received if they resign during the vesting period.


Contractperiod

Vestingconditions

Subsidiary: Employee stock options-F






Employee stock options-I


Employee stock options-J


Employee stock options-K











342

B. Details of the share-based payment arrangements are as follows: The Company: (a) Employee stock options- A~E

Note: A total of 28 thousand and 37 thousand shares of employee stock options were

exercised during the years ended December 31, 2017 and 2018, respectively. However, as of December 31, 2017 and 2018, the amendment of paid-in capital registration for 9 thousand and 0 shares amounting to $427 and $0, respectively, is still in progress, and is part of “Advance receipts for share capital”.

No. ofoptions

Weighted-average


No. ofoptions

Weighted-average


Options outstanding at beginning of the year 157,498 48$ 128,860 48$ Options exercised (Note) 28,336)( 48 37,029)( 48 Options forfeited 302)( 48 - 48 Options outstanding at end of the year 128,860 48 91,831 48 Options exercisable at end of the year 127,584 48 91,431 48

Years ended December 31, 2017 2018

343

(b) Employee stock options- F~L, O~S

Note: The 22 thousand and 0 shares of employee stock options exercised during the years

ended December 31, 2017 and 2018, respectively, had been converted to common stock.

(c) Restricted stocks-G~H

C. The weighted-average stock prices of stock options at exercise date for the years ended December 31, 2017 and 2018 were $91.11 (in dollars) and $67.30 (in dollars),respectively.

D. The expiry date and exercise price of stock options outstanding at balance sheet date are as follows:

No. of shares

Weighted-average

exercise price(in dollars) No. of shares

Weighted-average


Options outstanding at beginning of the year 2,874,009 212.0$ 3,862,993 174.2$ Options granted 1,472,000 97.4 - - Options exercised (Note) 22,400)( 48.0 - - Options forfeited 460,616)( 170.0 472,057)( 152.6 Options outstanding at end of the year 3,862,993 174.0 3,390,936 177.2 Options exercisable at end of the year 1,953,737 221.0 1,982,887 216.6

Years ended December 31, 2017 2018

2017 2018Quantity Quantity

(number of shares) (number of shares) At January 1 90,000 30,000 Share expired 40,000)( 20,000)( Restrictions removed for the period 20,000)( 10,000)( At December 31 30,000 -


344

E. The fair value of stock options is measured using the Black-Scholes option-pricing model.

Relevant information is as follows: (a) Employee stock options A~E

Before conversion:

After conversion:

No. of shares Exercise price No. of shares Exercise priceExpiry date (in thousands) (in dollars) (in thousands) (in dollars)

The Company:_2012.4.1 2022.3.31 129 48$ 92 48$ _2013.5.1 2022.1.31 7 48 7 48 _2013.5.1 2023.4.30 995 218.5 950 218.5 _2014.4.1 2024.3.31 548 240 518 240 2015.6.1 2025.5.31 796 201 641 201 2015.9.1 2025.8.31 32 203 29 203 2015.11.17 2025.11.16 185 165 185 165 2016.4.26 2026.4.25 5 108 5 108 2017.1.12 2027.1.11 1,295 97.4 1,056 97.4

December 31, 2017 December 31, 2018Issue dateapproved

Type ofarrangement

Grantdate


Exerciseprice

(in dollars)

Expectedprice



Risk-freeinterest

rate

Fair valueper unit


2011.4.1 Note 10$ 26.67% 6.35 years 0% 1.17% $1.16~1.53


2011.4.1 " " 26.67% 7 years " 1.21% 1.44


2012.4.1 " 30 30.11% 2.70 years " 0.92% 10.53~11.56


2012.4.1 " " 30.11% 2.70 years " 0.92% 10.53~11.56


2012.4.1 " " 30.11% 2.70 years " 0.92% 10.53~11.56

Type ofarrangement

Grantdate


Exerciseprice

(in dollars)

Expectedprice



Risk-freeinterest

rate

Fair valueper unit


2011.4.1 Note 16$ 26.67% 6.35 years 0% 1.17% $1.85~2.45


2011.4.1 " " 26.67% 7 years " 1.21% 2.30


2012.4.1 " 48 30.11% 2.70 years " 0.92% 16.83~18.48


2012.4.1 " " 30.11% 2.70 years " 0.92% 16.83~18.48


2012.4.1 " " 30.11% 2.70 years " 0.92% 16.83~18.48

345

Note: Both the Company’s former parent company’s and the Company’s shares were not publicly traded when granting employee stock options, therefore the weighted-average price of $7.3~36.91 (in dollars) was estimated using industry stock price and capitalized cash flow method taking into account liquidity discount.

(b) Employee stock options F to S and restricted stocks:

Note: As resolved by the Board of Directors, the exercise prices of employee stock options were

adjusted due to issuance of global depository receipts. F. Expenses incurred on share-based payment transactions are shown below:

Type of arrangementGrantdate

Stockprice

(in dollars)

Exerciseprice

(in dollars)

Expectedprice

volatility

Expectedoption

life


Risk-freeinterest

rate

Fair valueper unit

(in dollars)The company: Employee stock options-F

2013.5.1 153.74$ 48$ 52.66% 2.5~4.25years

2.9% 0.80%~0.89%

$96.20~98.62

Employee stock 2013.5.1 153.74 218.5 " 2.5~3.5 " 0.80%~ 27.60~ options-G (Note) years 0.85% 34.41 Employee stock 2014.4.1 245.5 240 30.22%~ 2.5~3.5 0% 0.73%~ 51.27~ options-H (Note) 32.29% years 0.93% 57.79 Employee stock 2014.8.1 242 237 30.45%~ 2.5~3.5 " 0.81%~ 49.77~ options-I (Note) 31.63% years 0.99% 57.56 Employee stock 2014.9.1 247 241.5 30.94%~ 2.5~3.5 " 0.83%~ 50.47~ options-J (Note) 31.38% years 1.01% 59.66 Employee stock 2014.12.1 270 261.5 30.82%~ 2.5~3.5 " 0.79%~ 54.15~ options-K (Note) 31.54% years 0.95% 66.13 Employee stock 2015.6.1 201.5 210 30.08%~ 2.5~5.5 " 0.74%~ 39.40~ options-L (Note) 35.57% years 1.15% 69.51 Employee stock 2015.9.1 204 203 30.94%~ 2.5~5.5 " 0.61%~ 40.68~ options-O (Note) 35.68% years 0.95% 69.79 Employee stock options-P

2015.11.17 165 165 31.51%~35.60%

2.5~5.5years " 0.52%~

0.91%33.33~56.21


2016.4.26 108 108 31.98%~36.40%

2.5~5.5years " 0.45%~

0.67%22.05~37.03


2017.1.12 97.4 97.4 33.14%~36.15%

2.5~5.5years " 0.67%~

0.97%20.78~33.74

Restricted stocks -G

2015.9.1 204 10 30.34%~41.39% 1~5 years " 0.50%~

0.88%140.89~165.17

Restricted stocks -H

2016.3.22 144.5 10 31.08%~35.70% 1~5 years " 0.39%~

0.57%95.92~120.88

2017 2018Equity-settled 21,884$ 12,185$


346

(15) Other non-current liabilities

Note 1:As described in the generic drug development contract signed with Company A and

Company Z, the Company has received royalty of US$2 million in the third half of 2012 and has deferred recognition of the revenue over the development period. For the information on deferred revenue reclassified as revenue under IFRS 15, refer to Note 6(10).

Note 2: Represents payable for Generic E technology and right. Please refer to Note 6(10). (16) Common stock

A. As of December 31, 2018, the Company’s authorised capital was $2,000,000, consisting of 200 million shares of common stock, and the paid-in capital was $1,203,556 with a par value of $10 (in dollars) per share. All proceeds from shares issued have been collected.

B. Movements in the number of the Company’s common stock outstanding are as follows (in thousands of shares):

C. On June 29, 2015, the Board of Directors of the Company adopted a resolution that allowed

stockholders to issue 14.4 million units of global depository receipts (GDRs), represented by 14.4 million shares of common stock (deposited shares), with one unit of GDR representing 1 share of outstanding common stock. After obtaining approval from the Securities and Futures Bureau of the Financial Supervisory Commission, these GDRs were listed on the Securities Exchange of Luxembourg on September 22, 2015, with total proceeds of US$87,088 thousand. The main terms and conditions of the GDRs are as follows: (a) Voting rights

Except as required by law, GDR holders may, pursuant to the depositary agreement and the relevant laws and regulations of the R.O.C., exercise the voting rights pertaining to the underlying common shares represented by the GDRs.

(b) Redemption of GDRs For sales and redemption of the underlying common shares represented by the GDRs when the holders of the GDRs request the depositary to redeem the GDRs in accordance with the

December 31, 2017 December 31, 2018Long-term deferred revenue (Note 1) 9,824$ -$ Payable on intangible assets (Note 2) 23,832 24,568 Credit balance of investments accounted for using equity method

39,639 -

Others 2,209 9,742 75,504$ 34,310$

2017 2018At January 1 125,320 120,369 Employee stock options exercised 84 46 Purchase of treasury share 5,035)( - Retirement of restricted stocks - 60)( At December 31 120,369 120,355

347

relevant R.O.C. regulations and the provisions in the depositary agreement, the depositary may deliver the underlying common shares represented by the GDRs to the GDR holders, or sell the underlying common shares represented by the GDRs in the R.O.C. stock market on behalf of the GDR holder. The payment of proceeds from such sale shall be made subject to the relevant R.O.C. laws and regulations and the provisions in the depositary agreement.

(c) Distribution of dividends, preemptive rights and other rights Except as otherwise stated in the depositary agreement, distribution of dividends, preemptive rights and other rights and interests of GDR units bear the same rights as common shares.

(d) After considering cash capital increases, as of December 31, 2018, there were no units outstanding.

D. During its meeting on June 2, 2015, the stockholders adopted a resolution to issue restricted stocks (please refer to Note 6 (14)) with the effective date set on September 1, 2015 and March 22, 2016. The subscription price is $10 (in dollars) per share. Restricted stocks issued are subject to certain transfer restrictions before their vesting conditions are met. Other than these restrictions, the rights and obligations of these stocks issued are the same as other issued common stocks.

E. Employee restricted stocks of 40 thousand shares distributed to certain employees did not meet the vesting conditions in accordance with the terms of restricted shares, however, the Board of Directors has resolved to buy back the restricted shares as of March 19, 2018 and November 12, 2018, respectively, and has completed the registration of the retirement of shares on April 16, 2018 and December 17, 2018.

F. Treasury shares Pursuant to the R.O.C. Securities and Exchange Law, treasury shares to enhance the Company’s credit rating and the stockholders’ equity should be retired within six months of acquisition. The Company executed its second treasury share reacquisition from May 15, 2017 to July 14, 2017, and completed the registration of the retirement of 4,764 thousand shares on September 4, 2017.

(17) Capital reserve A. Pursuant to the R.O.C. Company Act, capital surplus arising from paid-in capital in excess of par

value on issuance of common stocks and donations can be used to cover accumulated deficit or to issue new stocks or cash to shareholders in proportion to their share ownership, provided that the Company has no accumulated deficit. Further, the R.O.C. Securities and Exchange Law requires that the amount of capital surplus to be capitalized mentioned above should not exceed 10% of the paid-in capital each year. Capital surplus should not be used to cover accumulated deficit unless the legal reserve is insufficient.

B. Regarding capital reserve - employee stock option, capital reserve - restricted stock to employees and transactions with non-controlling interests, please refer to Notes 6(14) and (28).

348


Employeestock

options

Restrictedstock to

employees

Differencebetween

considerationand carryingamount of

subsidiariesacquired or

disposed


Premiumfrom

merger TotalAt January 1 7,295,864$ 98,564$ 53,353$ 464,841$ 361,770$ 6,523$ 8,280,915$ Amortisation oncompensationcosts of employeestock options

- 20,956 - - - - 20,956

Amortisation oncompensationcosts of employeestock options fromsubsidiaries

- 2,947 - - - - 2,947


2,824 2,824)( - - - - -

Advance receiptsfor share capitaltransferred

3,203 - - - - - 3,203

Retirement oftreasury share

401,394)( - - - - - 401,394)(

Recognition ofchanges in equityof subsidiaries inproportion toownershippercentage

- - - - 635)( - 635)(

Restricted stockvested 2,856 - 2,856)( - - - -

At December 31 6,903,353$ 119,643$ 50,497$ 464,841$ 361,135$ 6,523$ 7,905,992$


349

(18) Retained earnings (accumulated deficit) A. According to the amended Articles of Incorporation of the Company, when there is any profit for

distribution for each financial year, the Company shall first pay all applicable taxes and offset losses from previous years, and then set aside no less than ten percent (10%) of the remaining profits of the Company for the relevant financial year as a legal reserve(s). Special reserve shall be set aside or reversed in accordance with related regulations or Competent Authority. The remaining amount, if any, along with the accumulated unappropriated earnings from prior years is accumulated distributable earnings. The appropriation of the accumulated distributable earnings, less an appropriate portion for the operational needs, shall be proposed by the Board of Directors and resolved by the shareholders as bonus to shareholders.


Employeestock

options

Restrictedstock to

employees

Differencebetween

considerationand carryingamount of

subsidiariesacquired or

disposed


Premiumfrom

merger TotalAt January 1 6,903,353$ 119,643$ 50,497$ 464,841$ 361,135$ 6,523$ 7,905,992$ Amortisation oncompensationcosts of employeestock options

- 8,424 - - - - 8,424

Amortisation oncompensationcosts of employeestock options fromsubsidiaries

- 1,321 - - - - 1,321


640 640)( - - - - -

Advance receiptsfor share capitaltransferred

1,746 - - - - - 1,746

Employeerestrictedstock removed

- - 52,081)( - - - 52,081)(

Recognition ofchanges in equityof subsidiaries inproportion toownershippercentage

- - - - 219,257 - 219,257

Restricted stockadjusted 1,584)( - 1,584 - - - -

At December 31 6,904,155$ 128,748$ -$ 464,841$ 580,392$ 6,523$ 8,084,659$


350

B. The dividends to stockholders shall be no less than ten percent (10%) of the net profit after tax of the relevant financial year. The cash dividends shall comprise no less than ten percent (10%) of the aggregate of the cash and stock dividends declared in such year; provided that if the cash dividend per share is less than NT$0.1, the dividends shall be issued in the form of stock dividends in lieu of the cash dividend. The ratio of distribution may be adjusted by taking into consideration the Company's future revenues and cash flow. If there is any significant capital expenditure and R&D plan in the future, subject to the approval of the stockholders at the stockholders’ meeting, the dividends may only be distributed in the form of stock dividends.The Company shall not pay any dividends or bonuses if it does not have earnings.

C. Under the R.O.C. Company Act, when the accumulated deficit exceeds 50% of the paid-in capital, the Board of Directors should convene a stockholders’ meeting and report the situation.

D. Except for covering accumulated deficit or issuing new stocks or cash to stockholders in proportion to their stock ownership, the legal reserve shall not be used for any other purpose. The use of legal reserve for the issuance of stocks or cash to stockholders in proportion to their stock ownership is permitted, provided that the distribution of the reserve is limited to the portion in excess of 25% of the Company’s paid-in capital.

E. In accordance with the regulations, the Company shall set aside special reserve from the debit balance on other equity items at the balance sheet date before distributing earnings. When debit balance on other equity items is reversed subsequently, the reversed amount could be included in the distributable earnings.

F. For information on employees’ compensation (bonus) and directors’ and supervisors’ remuneration, please see Note 6(24).

(19) Operating revenue

Disaggregation of revenue from contracts with customers The Company derives revenue from the transfer of goods and services over time and at a point in time in the following major product lines and geographical regions:

2017 2018Sales revenue 564,272$ 504,255$ Service revenue 52,867 28,317 Royalties revenue 36,595 27,323

653,734$ 559,895$

Years end December 31,

351

For the years ended December 31, 2017 please refer to Note 12(5) B. for disclosures related to operating income under initial application of IFRS 15.

(20) Other income

Note: Regarding the bargain purchase gain arising from an acquisition transaction, please see Note

6(27). (21) Other gains and losses


Salesrevenue

Servicerevenue

Licenserevenue Total

North America 490,492$ -$ 27,323$ 517,815$ Taiwan 13,763 28,317 - 42,080

504,255$ 28,317$ 27,323$ 559,895$ Timing of revenue recognition

At a point in time 504,255$ -$ -$ 504,255$ Over time - 28,317 27,323 55,640

504,255$ 28,317$ 27,323$ 559,895$

2017 2018Interest income: Interest income from bank deposits 11,343$ 6,596$ Interest income from financial assets measured at amortised cost

- 69,770

Interest income from financial assets other than financial assets at fair value through profit or loss

48,364 -

Loan to related parties 590 - Other interest income 38 23 Bargain purchase gain (Note) 59,368 - Other income-others 6,375 1,265

126,078$ 77,654$


2017 2018Net currency exchange (loss) gain 281,638)($ 110,316$ Gain on disposal of property, plant and equipment - 12 Others 21)( - Impairment loss 53,299)( 3,042)( (Loss) gain on financial assets at fair value through profit or loss 8,130)( 519

343,088)($ 107,805$


352

(22) Finance costs

(23) Expenses by nature

(24) Employee benefit expense

A. According to the amended Articles of Incorporation of the Company, a ratio of the pre-tax income

before distribution of employees’ compensation and directors’ and supervisors’ remuneration, after covering accumulated losses, shall be distributed as employees’ compensation and directors’ and supervisors’ remuneration. The ratio shall be 1%~10% for employees’ compensation and shall not be higher than 5% for directors’ and supervisors’ remuneration.

B. The Company had an accumulated deficit for the years ended December 31, 2017 and 2018, thus, the Company did not recognize employees’ bonus and directors’ and supervisors’ remuneration.

C. Information about employees’ compensation (bonus) and directors’ and supervisors’ remuneration of the Company as resolved by the Board of Directors during its meeting will be posted in the “Market Observation Post System” at the website of the Taiwan Stock Exchange.

(25) Income tax A. Income tax expense

2017 2018Interest expense - Imputed interest on deposits 12$ 29$


2017 2018Employee benefit expense 220,737$ 252,176$ Depreciation on property, plant and equipment 89,496$ 101,454$ Amortisation 28,336$ 22,654$


2017 2018Wages and salaries 194,091$ 222,740$ Labour and health insurance fees 13,465 15,965 Pension costs 7,510 8,799 Directors’ remuneration 2,400 1,921 Other personnel expenses 3,271 2,751

220,737$ 252,176$


2017 2018Current tax: Foreign tax credit 10,096$ 8,107$ Prior year income tax underestimation 21,790 - Total current tax 31,886 8,107 Total deferred tax - - Income tax expense 31,886$ 8,107$


353

B. Reconciliation between income tax expense and accounting profit

C. Amounts of deferred tax assets or liabilities as a result of temporary differences are as follows:

2017 2018Tax calculated based on loss before tax andstatutory tax rate 36,842)($ 100,133)($ Change in assessment of realisation ofdeferred tax assets 72,412)( 1,325)( Effect of expense exempted from income tax calculation 10,093)( 49,360)( Foreign tax not applied 10,096 8,107 Dividend income from subsidiary 35,573 - Effect of expenses disallowed by tax regulation 14,641 41,422 Temporary differences not recognised as deferred tax assets 56,036 29,636 Taxable loss not recognised as deferred tax assets 13,097 79,760 Prior year income tax underestimation 21,790 - Income tax expense 31,886$ 8,107$


January 1

Recognisedin profit or

loss

Recognisedin other

comprehensiveincome

Recognised

in equity December 31

Deferred tax liabilities:

Land revaluation increment 4,933)($ -$ -$ -$ 4,933)($

2017

January 1

Recognisedin profit or

loss

Recognisedin other

comprehensiveincome

Recognised

in equity December 31Deferred tax liabilities: Land revaluation increment 4,933)($ -$ -$ -$ 4,933)($

2018

354

D. Details of the investment tax credits and unrecognised deferred tax assets are as follows:

Note: In accordance with the Ministry of Economic Affairs (MOEA) Jing-Shou-Gong-Zi Letter

No. 10020425350 dated December 16, 2011, the subsidiary - TWi Biotechnology, Inc. (TWi Biotech) was approved as a biotech pharmaceuticals company. The Company made an additional investment in TWi Biotech on April 25, 2012 and April 17,2013 and continually held the shares for more than three years and was approved by the Ministry of Finance that the above listed investment tax credit can be used to offset against the Company’s income tax within five years from the year in which the Company starts to have income tax payable.

E. Expiration dates of unused tax losses and amounts of unrecognised deferred tax assets are as follows:


credits


assets Expiry yearBiotech and New Pharmaceuticals investment- stockholder investment tax credit 56,000$ 56,000$

Note

December 31, 2017


credits


assets Expiry yearBiotech and New Pharmaceuticals investment- stockholder investment tax credit 56,000$ 56,000$

Note

December 31, 2018



deferred tax assets Expiry year2010 156,690$ 156,690$ 156,690$ 20202011 183,318 183,318 183,318 20212012 422,751 422,751 422,751 20222013 402,298 402,298 402,298 20232014 634,551 634,551 634,551 20242015 208,309 208,309 208,309 20252016 35,712 35,712 35,712 20262017 77,049 77,049 77,049 2027

2,120,678$ 2,120,678$ 2,120,678$

December 31, 2017

355

F. The amounts of deductible temporary differences that were not recognised as deferred tax assets

are as follows:

G. The Company’s income tax returns through 2016 have been assessed and approved by the Tax

Authority. H. Under the amendments to the Income Tax Act which was promulgated by the President of the

Republic of China in February, 2018, the Company’s applicable income tax rate was raised from 17% to 20% effective from January 1, 2018. The Company has assessed the impact of the change in income tax rate.

(26) Loss per share

Note: Options and restricted stocks issued to employees do not have dilutive effect.



deferred tax assets Expiry year2010 156,690$ 156,690$ 156,690$ 20202011 183,318 183,318 183,318 20212012 422,751 422,751 422,751 20222013 402,298 402,298 402,298 20232014 634,551 634,551 634,551 20242015 208,309 208,309 208,309 20252016 35,712 35,712 35,712 20262017 58,297 58,297 58,297 20272018 398,798 398,798 398,798 2028

2,500,724$ 2,500,724$ 2,500,724$

December 31, 2018

December 31, 2017 December 31, 2018Deductible temporary differences 56,036$ 29,636$

Weighted averagenumber of ordinaryshares outstanding Loss per share

Amount after tax (shares in thousands) (in dollars)Basic loss per share (Note) Loss attributable to the parent 248,605)($ 122,632$ 2.03)($


Weighted averagenumber of ordinaryshares outstanding Loss per share

Amount after tax (shares in thousands) (in dollars)Basic loss per share(Note) Loss attributable to the parent 508,770)($ 120,324$ 4.23)($


356

(27) Business combinations A. On November 20, 2017, the Company acquired 95.02% of the share capital of Synpac-Kingdom

Pharmaceutical Co. Ltd. ("SK Co.") from China Synthetic Rubber Corporation and Zhongcheng Development Investment Co., Ltd. for $12.79 per share, totaling $180,866, thus gaining control of SK Co. The Company is mainly engaged in ophthalmic medicine manufacturing and distribution, and the acquisition is expected to increase the Company’s sterile ophthalmic medicine supply.

B. The following table summarises the consideration paid for Synpac-Kingdom Pharmaceutical Co. Ltd. ("SK Co.") and the fair values of the assets acquired and liabilities assumed at the acquisition date, as well as the non-controlling interest’s proportionate share of the recognised amounts of acquiree’s identifiable net assets at the acquisition date:

Note：SK Co. was divided and sold from its original Group due to the seller’s strategy to cut

out the pharmaceuitcal non-core business operation, thus a purchase bargain was formed. C. The operating revenue and profit before income tax since acquisition date of November 20, 2017

contributed by SK Co. was $26,114 and ($15,938), respectively. Had SK Co. been consolidated from January 1, 2017, the consolidated statement of comprehensive income would show operating revenue of $327,907 and loss before income tax of ($97,769).

(28) Transactions with non-controlling interest On June 26, 2018, the Board of Directors resolved to forfeit the Company’s priority subscription rights to new shares issued by subsidiary, TWi Biotechnology, Inc., in connection with its capital increase. The shares forfeited by the Company must first be offered to the stockholders of the Company in proportion to their share ownership in the Company. Shares forfeited by the Company’s stockholders, as well as fractional shares, are then offered by TWi Biotechnology to its employees,

November 20, 2017Purchase consideration Cash paid 180,866$ A share of non-controlling interest of identifiable assets 12,591

193,457 Fair value of the identifiable assets acquired and liabilities assumed Cash 57,772 Other current assets 252,874 Property, plant and equipment 178,230 Intangible assets-drug certificate 109,797 Intangible assets-software 133 Other non-current assets 20,919 Current liabilities 342,623)( Deferred tax liabilities 18,665)( Other non-current liabilities 5,612)( Total identifiable net assets 252,825 Bargain purchase gain (Note) 59,368)($

357

to the employees of the Company, its subsidiaries and its affiliates, and to strategic or financial investors. On August 14, 2018, the subsidiary, TWi Biotechnology, Inc., issued new common shares for $385,000 as part of its capital increase. The Company’s ownership percentage in TWi Biotechnology, Inc. decreased by 11.92% as it elected not to acquire the new shares in proportion to its original ownership. This transaction resulted in the increase of non-controlling interests by $165,743 and the increase of equity attributable to the owners of parent by $219,257. The effect of the changes in the equity of TWi Biotechnology, Inc. on the equity attributable to owners of the parent for the year ended December 31, 2018 is summarised as follows:

(29) Supplemental cash flow information

Investing activities with partial cash payments


Cash 385,000$ Capital surplus- recognition of changes in equity of subsidiaries 219,257)( Increase in the carrying amount of non-controlling interest 165,743$

2017 2018Acquisition of property, plant and equipment 116,003$ 95,503$ Add: Opening balance of payable on equipment 6,108 6,014 Less: Ending balance of payable on equipment 6,014)( 12,416)( Cash paid during the year 116,097$ 89,101$


2017 2018Acquisition of intangible assets 84,369$ 88,666$ Add: Opening balance of payable on intangible assets - 23,832 Less: Ending balance of payable on intangible assets 23,832)( 24,568)( Cash paid during the year 60,537$ 87,930$


358

7. RELATED PARTY TRANSACTIONS (1) Names of related parties and relationship

Note 1: Visum Pharmaceutical Co., Ltd. ceased to be a related party since the subsidiary has disposed all of its shares on April 18, 2017.

Note 2: Formerly HBT Labs, Inc. (2) Significant related party transactions

A. Operating revenue: Sales of goods

It consisted of revenue arising from sales of drugs. Prices and credit terms are based on mutual agreement due to lack of comparative transactions.

B. Service Revenue (listed under “operating revenue”) (1) Research development and processing services

It refers to pharmaceutical research and development and processing services for the subsidiaries as well as other related parties. The Company charges reasonable fees based on the actual costs incurred. Credit term is 60 days after the receipt of invoice that is billed within one month after the completion of service provision. For transactions with other related parties,

Names of related parties Relationship with the CompanyTWi Biotechnology, Inc. SubsidiaryTWi Pharmaceuticals USA, Inc. "TWi Pharmaceuticals Europe Limited "TWi Pharmaceutical Ltd "Synpac-KingdomPharmaceutical Co. Ltd. "

TWi Pharmaceutical Cayman Ltd. "Visum Pharmaceutical Co., Ltd. (Visum) Subsidiary (Note 1)eGen Pharmaceutical Co., Ltd Subsidiary of Visum (Note 1)Versatile Tech Co., Ltd Related party in substance of Visum( Note 1)Noratech Pharmaceuticals, Inc. Same Chairman as the CompanyAllgenesis Biotherapeutics, Inc. "Nanjing Noratech Pharmaceutical Co., Ltd. Related party in substanceHBT Pharmaceuticals, Inc. (Note 2) "

2017 2018TWi Pharmaceuticals USA, Inc. 450,750$ 471,130$


2017 2018TWi Biotechnology, Inc. 52,498$ 28,064$ Others - 21

52,498$ 28,085$


359

prices and credit terms are based on mutual agreement due to a lack of comparative transactions.

(2) Management service income

It refers to administrative resource and management services for the subsidiaries as well as other related parties. The Company charges reasonable fees based on the actual costs incurred. Credit term is 60 days after the receipt of invoice that is billed upon the completion of service provision. For transactions with other related parties and associates, prices and credit terms are based on mutual agreement due to lack of comparative transactions.

C. Licensing revenue (listed under “operating revenue”)

The above arose from licensing the subsidiaries’ sale right of drugs in the US market. Prices and credit terms are based on mutual agreement due to lack of comparative transactions.

D. Rent income (listed under “other income”)

E. Other income

F. Receivables from related parties:

2017 2018TWi Biotechnology, Inc. 193$ 215$ HBT Pharmaceuticals, Inc. 115 - Others 60 16

368$ 231$


2017 2018TWi Pharmaceuticals USA, Inc. 31,682$ 27,030$


2017 2018TWi Biotechnology, Inc. 30$ -$


2017 2018TWi Biotechnology, Inc. -$ 26$ Noratech Pharmaceuticals, Inc. 25 -

25$ 26$


360

Other receivables-financing:

There was no loan to related parties in 2018. Note: It refers to actual amount drawn down. The ageing analysis of accounts receivable-related parties that were past due but not impaired is as follows:

Receivables due from related parties mainly consisted of sales of drugs, custodial receipts and payments and financing. There were neither collateral nor provisions for the receivables.

G. Endorsements and guarantees provided to related parties:

December 31, 2017 December 31, 2018Accounts receivable: TWi Pharmaceuticals USA, Inc. 320,503$ 242,458$ TWi Biotechnology, Inc. 2,360 8,643

322,863$ 251,101$

TWi Biotechnology, Inc. 1,203 853 324,066$ 251,954$

Other receivables－ collections and payment transfer:

Maximumbalance (Note)

Endingbalance (Note)

Interestrate

Amount ofinterest

Ending balanceof

interest payableTWi Pharmaceuticals USA, Inc. 148,950$ -$ 2.39% 143$ -$ Visum Pharmaceutical Co., Ltd. 68,505$ -$ 5.00% 447$ -$

December 31, 2017

December 31, 2017 December 31, 2018Not past due 260,907$ 238,201$ Past due Up to 30 days 16,195 12,900 31-60 days 35,465 - 61-90 days 10,296 -

322,863$ 251,101$

Guarantee amounts Actual amount

drawn downTWi Pharmaceuticals USA, Inc. 148,950$ 148,950$ Synpac-KingdomPharmaceutical Co. Ltd. 200,000 -

348,950$ 148,950$

December 31, 2017

361

H. Prepayments:

I.The Company increased its investment of $225,995 in the subsidiary, TWi Pharmaceuticals USA,

Inc., on October 1, 2018, the proceed of the investment has been fully paid. (C ) Key management compensation

8. PLEDGED ASSETS

The Company’s assets pledged as collateral are as follows:

9. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNISED CONTRACT

COMMITMENTS In addition to the contingent license fees as explained in Note 6(10), the Company’s other significant contingent liabilities and unrecognised contract commitments are as follows:

(1) Contingencies When the Company submits ANDAs to the US FDA with Paragraph IV certifications claiming that the Company’s generic products do not infringe the listed Orange Book patents or such patents are not valid, NDA holders and patent owners may sue the Company, requesting an order enjoining the Company from commercial sale of the generic products before the expiration date of the Orange Book patents. This is a common type of patent litigation in the pharmaceutical industry. Before launching generic products, there would be no concern about compensation for damages. The Company’s lawsuits associated with Paragraph IV certifications are as follows:

Guarantee amounts Actual amount

drawn downSynpac-KingdomPharmaceutical Co. Ltd. 200,000$ 200,000$

December 31, 2018

December 31, 2017 December 31, 2018Synpac-KingdomPharmaceutical Co. Ltd. -$ 400$

2017 2018Salaries and other short-term employee benefits 37,664$ 37,399$ Post-employment benefits 405 351 Termination benefits - - Share-based payments 5,925 2,073)(

43,994$ 35,677$


Pledged asset December 31, 2017 December 31, 2018 PurposeLand (includingrevaluation 386,542$ 386,542$ Credit limit

Buildings and structures 194,114 196,554 "580,656$ 583,096$

Book value

362

Biogen: The Company submitted its ANDA for a generic version of Tecfidera of Biogen to the US FDA with Paragraph IV certifications. Consequently, Biogen sued the Company for alleged patent infringement in July 2017. This is a common and typical Paragraph IV patent infringement litigation.

(2) Commitments A. Capital expenditures contracted for at the balance sheet date but not yet incurred are as follows:

B. Operating lease arrangements

The Company leases offices and cars with lease terms of less than 5 years, and the majority of lease agreements are renewable at the end of the lease period at market rate. The future aggregate minimum lease payments under non-cancellable operating leases are as follows:

C. The Company and Company C entered into an agreement in July 2014. Under the agreement, the

Company terminated Company C’s distribution right for a certain drug, and in exchange, the Company needs to pay Company C a certain percentage of net profit from sales of the drug once it begins to commercially distribute the drug.

D. The Company entered into various contract research agreements, which shall be paid in accordance with the payment schedules in the agreements. As of December 31, 2018, research expenses that will be incurred in the future amount to $46,441.

E. In July 2017, the Company signed an Agreement for Investment Limited Partnership for Axil Life Science & Healthcare Fund, promising to invest 100 units, at 1 million yen per unit. As of December 31, 2018, the Company has paid 43.48% of the total investment fund plus fees (listed as financial assets at fair value through profit or loss), and the remaining balance of the investment not yet paid amounts to 56.51 million yen plus fees.

10. SIGNIFICANT DISASTER LOSS None.

11. SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE The Board of Directors of the Company’s subsidiary, TWi Biotechnology, Inc., resolved to enter into a non-legal binding letter of intention for a merger with AnnJi Pharmaceutical Co., Ltd. on March 15, 2019.

12. OTHERS (1) Capital management

December 31, 2017 December 31, 2018Property, plant and equipment 62,385$ 89,726$

December 31, 2017 December 31, 2018Up to 12 months 10,938$ 10,609$ Later than one year but not later than five years 39,969 30,469

Over five years - 43 50,907$ 41,121$

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The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide returns for stockholders and to maintain an optimal capital structure to reduce the cost of capital, and in the future, when the Company's operations have generated a profit, to provide steady returns for stockholders. In order to achieve the above goals, the Company will maintain or adjust the capital structure using the following methods, including but not limited to: raising additional capital, borrowing from the bank, issuing company debt, disposing assets in order to repay debt or replenish operational capital, issuing dividends, and reducing capital, etc. The Company uses the gearing ratio to monitor and manage capital, the ratio is calculated by dividing "net liabilities" by "total equity". "Net liabilities" is calculated by "total liabilities" less cash and cash equivalents. "Total equity" is the amount listed in the balance sheets as "total equity".

(2) Financial instruments A. Financial instruments by category

B. Financial risk management policies

The Company’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk. The Company’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Company’s financial position and financial performance.

December 31, 2017 December 31, 2018Financial assets Financial assets at fair value through profit or loss

Financial assets mandatorily measured at fairvalue through profit or loss

-$ 12,721$

Financial assets held for trading 5,848 - Available-for-sale financial assets 5,289 - Financial assets at amortised cost/Loans and receivables Cash and cash equivalents 819,497 583,524 Financial assets at amortised cost - 2,595,503 Held-to-maturity financial assets 149,271 - Notes receivable 1,820 274 Accounts receivable 328,186 253,026 Other receivables 33,815 44,052 Other financial assets 2,847,100 1,655

4,190,826$ 3,490,755$ December 31, 2017 December 31, 2018

Financial liabilities Notes payable 565$ 55$ Accounts payable 76,919 56,179 Other accounts payable 130,757 183,792

364

C. Significant financial risks and degrees of financial risks (a) Market risk

Foreign exchange risk i. The Company operates internationally and is exposed to foreign exchange risk arising from

the transactions of the Company and its subsidiaries in various functional currency, primarily with respect to the USD and RMB. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities.

ii.The Company’s businesses involve some non-functional currency operations (the Company’s and certain subsidiaries’ functional currency: NTD; other certain subsidiaries’ functional currency: USD and RMB). The information on assets and liabilities denominated in foreign currencies whose values would be materially affected by the exchange rate fluctuations is as follows:

Foreign currency amount

(In thousands) Exchange rate Book value

(NTD)(Foreign currency: functionalcurrency)Financial assets Monetary items USD:NTD 119,526$ 29.79 3,560,667$ RMB:NTD 41,955 4.567 191,609 Non-monetary items USD:NTD(Note) 3,928 29.79 117,020 RMB:NTD 8,325 4.567 38,021 JPY:NTD 20,011 0.264 5,289 Financial liabilities Monetary items USD:NTD 3,805$ 29.79 113,351$ RMB:NTD 8,000 4.567 36,536

December 31, 2017

365

Note: This includes book value of investment accounted for under the equity method

that are negative. iii.The realised and unrealised exchange (loss) gain arising from significant foreign

exchange variation on the monetary items held by the Company amounted to ($281,638) and $111,316 for the years ended December 31, 2017 and 2018, respectively.

iv. Analysis of foreign currency market risk arising from significant foreign exchange variation:

Foreign currency amount

(In thousands) Exchange rate Book value

(NTD)(Foreign currency: functionalcurrency)Financial assets Monetary items USD:NTD 105,445$ 30.710 3,238,207$ Non-monetary items USD:NTD 11,424 30.710 350,862 RMB:NTD 8,266 4.468 36,933 JPY:NTD 43,488 0.278 12,098

Financial liabilities Monetary items USD:NTD 4,167$ 30.710 127,956$

December 31, 2018

Degree ofvariation

Effect onprofit or loss

Effect on othercomprehensive

income(Foreign currency: functionalcurrency)Financial assets Monetary items USD:NTD 1% 35,606$ -$ RMB:NTD 1% 1,916 - Financial liabilities Monetary items USD:NTD 1% 1,134$ -$ RMB:NTD 1% 365 -


366

Price risk The Company is exposed to equity securities price risk because of investments held by the Company and classified on the balance sheet as financial assets at fair value through profit or loss. To manage the price risk of investing in financial instruments, the Company monitors the price changes at all times, and also sets stop-loss at the proper time.

(b) Credit risk i. Credit risk refers to the risk of financial loss to the Company arising from default by the

clients or counterparties of financial instruments on the contract obligations. The main factor is that counterparties could not repay in full the accounts receivable based on the agreed terms, and the contract cash flows of debt instruments stated at amortised cost.

ii. The Company manages their credit risk taking into consideration the entire group’s concern. According to the Company’s credit policy, each local entity in the Company is responsible for managing and analysing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. Internal risk control assesses the credit quality of the customers, taking into account their financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the Board of Directors. The utilisation of credit limits is regularly monitored.

iii. The Company adopts the following assumptions under IFRS 9 to assess whether there has been a significant increase in credit risk on that instrument since initial recognition: (i) If the contract payments were past due over 30 days based on the terms, there has

been a significant increase in credit risk on that instrument since initial recognition. (ii) If any external credit rating agency rates these bonds as investment grade, the credit

risk of these financial assets is low. iv. If the credit rating grade of an investment target degrades two scales, there has been a

significant increase in credit risk on that instrument since initial recognition. v. The Company adopts the assumption under IFRS 9, that is, the default occurs when the

Degree ofvariation

Effect onprofit or loss

Effect on othercomprehensive

income(Foreign currency: functionalcurrency)Financial assets Monetary items USD:NTD 1% 32,382$ -$ Financial liabilities Monetary items USD:NTD 1% 1,280$ -$


367

contract payments are past due over 90 days. vi. The Company classifies customer’s accounts receivable in accordance with credit rating

of customer. The Company applies the modified approach using loss rate methodology to estimate expected credit loss under the provision matrix basis.

vii. The following indicators are used to determine whether the credit impairment of debt instruments has occurred: (i) It becomes probable that the issuer will enter bankruptcy or other financial

reorganization due to their financial difficulties; (ii) The disappearance of an active market for that financial asset because of financial

difficulties; (iii) Default or delinquency in interest or principal repayments; (iv) Adverse changes in national or regional economic conditions that are expected to

cause a default. viii. The Company used the forecastability of Basel II to adjust historical and timely

information to assess the default possibility of notes receivable and accounts receivable. On December 31, 2018, the loss rate methodology is as follows:

ix. Movements in relation to the Company applying the modified approach to provide loss allowance for accounts receivable is as follows:

x. Credit risk information for the year ended December 31, 2017 is provided in Note 12(4). (c) Liquidity risk

i. Cash flow forecasting is performed in the operating entities of the Group and aggregated by Group treasury. Group treasury monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs.

ii. The table below analyses the Company’s non-derivative financial liabilities and net-settled or gross-settled derivative financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date

Group A Group B TotalAt December 31, 2018Expected loss rate 0.03%~0.068% 100%Total book value (Including related parties) 253,303$ -$ 253,303$

Loss allowance 3$ -$ 3$

2018Accounts receivable

At January 1_IAS 39 18$ Adjustments under new standards - At January 1_IFRS 9 - Reversal of loss allowance 15)( At December 31 3$

368

for non-derivative financial liabilities and to the expected maturity date for derivative financial liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows.

(3) Fair value information

A. The different levels that the inputs to valuation techniques are used to measure fair value of financial and non-financial instruments have been defined as follows: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the

entity can access at the measurement date. A market is regarded as active where a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The fair value of the Group’s investment in monetary funds is included in Level 1

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3: Unobservable inputs for the asset or liability. The fair value of the Group’s investment in venture capital fund is included in Level 3.

B. Financial instruments not measured at fair value Except for those listed in the table below, the carrying amounts of cash and cash equivalents, notes receivable, accounts receivable, other receivables, short-term borrowings, notes payable, accounts payable and other payables are approximate to their fair values.

December 31, 2017 Less than 1

year Between 1 and

2 years Over 2 yearsNon-derivative financial liabilities Notes payable 565$ -$ -$ Accounts payable 76,919 - - Other payables 130,757 - -

208,241$ -$ -$

December 31, 2018 Less than 1

year Between 1 and

2 years Over 2 yearsNon-derivative financial liabilities Notes payable 55$ -$ -$ Accounts payable 56,179 - - Other payables 183,792 - -

240,026$ -$ -$

369

C. The related information of financial and non-financial instruments measured at fair value by level on the basis of the nature, characteristics and risks of the assets and liabilities are as follows: (a) The related information of the nature of the assets and liabilities is as follows:

(b)The methods and assumptions the Company used to measure fair value are as follows: The Company used market quoted prices as their fair values (that is, Level 1). The Company measured fair value for the open-end fund using the current net asset value.

Book value Level 1 Level 2 Level 3 Financial assets: Financial assets at amortised cost Corporate bonds 149,271$ 148,457$ -$ -$


Book value Level 1 Level 2 Level 3 Financial assets: Held-to-maturity financial assets Corporate bonds 161,489$ 160,282$ -$ -$


December 31, 2017 Level 1 Level 2 Level 3 TotalAssetsRecurring fair value measurementsFinancial assets at fair value through profit or loss　 Monetary Fund 5,848$ -$ -$ 5,848$ Available-for-sale financial assets　 Equity securities - - 5,289 5,289

5,848$ -$ 5,289$ 11,137$

December 31, 2018 Level 1 Level 2 Level 3 TotalAssetsRecurring fair value measurementsFinancial assets at fair value through profit or loss Monetary Fund 623$ -$ -$ 623$ 　 Equity securities - - 12,098 12,098

623$ -$ 12,098$ 12,721$

370

D. For the years ended December 31, 2017 and 2018, there was no transfer between Level 1 and Level 2.

E. The following chart is the movement of Level 3 for the years ended December 31, 2017 and 2018:

Note: Shown as unrealised gains (losses) on valuation of available-for-sale financial assets.

F. For the years ended December 31, 2017 and 2018, there was no transfer into or out from Level 3.

G. The Finance & Accounting Department is in charge of valuation procedures for fair value measurements being categorised within Level 3, which is to verify independent fair value of financial instruments. Such assessment is to ensure the valuation results are reasonable by applying independent information to make results close to current market conditions, confirming the resource of information is independent, reliable and in line with other resources and represented as the exercisable price, and frequently calibrating valuation model, performing back-testing, updating inputs used to the valuation model and making any other necessary adjustments to the fair value.

H. The following is the qualitative information of significant unobservable inputs and sensitivity analysis of changes in significant unobservable inputs to valuation model used in Level 3 fair value measurement:

December 31, 2017 December 31, 2018 Non-derivativeequity instrument Debt instrument

At January 1 -$ 5,289$ Gains and losses recognised in other comprehensive income (Note) 158)( 525 Acquired in the period 5,447 6,284 At December 31 5,289$ 12,098$




input


Relationship ofinputs to fair

value

Venture capitalfund



Non-derivativeequity instrument:

371

I. The Company has carefully assessed the valuation models and assumptions used to measure fair value. However, use of different valuation models or assumptions may result in different measurement. The following is the effect of profit or loss or of other comprehensive income from financial assets and liabilities categorised within Level 3 if the inputs used to valuation models have changed:

(4) Effects on initial application of IFRS 9

A. Summary of significant accounting policies adopted in 2017: (a) Financial assets at fair value through profit or loss

i. They are financial assets held for trading or financial assets designated as at fair value through profit or loss on initial recognition. Financial assets are classified in this category of held for trading if acquired principally for the purpose of selling in the short-term.

ii. On a regular way purchase or sale basis, financial assets at fair value through profit or loss are recognised and derecognised using trade date accounting.

iii. Financial liabilities at fair value through profit or loss are initially recognised at fair value. Related transaction costs are expensed in profit or loss. These financial liabilities are




input


Relationship ofinputs to fair

valueDebt instrument:Venture capitalfund



Input Change Favourable

change Unfavourable

change Favourable

change Unfavourable


Net assetsvalue

±1% -$ -$ 53$ 53)($

December 31, 2017

Recognised in profit or loss Recognised in other

comprehensive income

Input Change Favourable

change Unfavourable

change Favourable

change Unfavourable

changeFinancial assets Debt instrument

Net assetsvalue

±1% 120$ 120)($ -$ -$

December 31, 2018

Recognised in profit or loss Recognised in other

comprehensive income

372

subsequently re-measured and stated at fair value, and any changes in the fair value of these financial liabilities are recognised in profit or loss.

(b) Available for sale financial assets i. They are non-derivatives that are either designated in this category or not classified in

any of the other categories. ii. On a regular way purchase or sale basis, available-for-sale financial assets are recognised

and derecognised using trade date accounting. iii. They are initially recognised at fair value plus transaction costs. These financial assets

are subsequently re-measured and stated at fair value, and any changes in the fair value of these financial assets are recognised in other comprehensive income.

(c) Held-to-maturity financial assets i. They are non-derivative financial assets with fixed or determinable payments and fixed

maturity date that the Group has the positive intention and ability to hold to maturity other than those that meet the definition of loans and receivables and those that are designated as at fair value through profit or loss or as available-for-sale on initial recognition.

ii. If the Company has sold or reclassified more than an insignificant amount of held-to-maturity investments before the maturity date during the current or the two preceding financial years, then any financial assets should not be classified as held-to-maturity financial assets and all of its remaining held-to-maturity investments must be reclassified as available-for-sale.

iii. On a regular way purchase or sale basis, held-to-maturity financial assets are recognised and derecognised using trade date accounting.

iv. They are initially recognised at fair value on the trade date plus transaction costs and subsequently measured at amortised cost using the effective interest method, less provision for impairment. Amortisation of a premium or a discount on such assets is recognised in profit or loss.

(d) Loans and receivables Accounts receivable are loans and receivables originated by the entity. They are created by the entity by selling goods or providing services to customers in the ordinary course of business. They are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. However, short-term accounts receivable without bearing interest are subsequently measured at initial invoice amount as the effect of discounting is immaterial.

(e) Impairment of financial assets i. The Company assesses at each balance sheet date whether there is objective evidence

that a financial asset or a group of financial assets is impaired as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

373

ii. The criteria that the Company uses to determine whether there is objective evidence of an impairment loss is as follows: (i) Significant financial difficulty of the issuer or debtor; (ii) A breach of contract, such as a default or delinquency in interest or principal

payments; (iii) The Company, for economic or legal reasons relating to the borrower’s financial

difficulty, granted the borrower a concession that a lender would not otherwise consider;

(iv) It becomes probable that the borrower will enter bankruptcy or other financial reorganisation;

(v) The disappearance of an active market for that financial asset because of financial difficulties;

(vi) Observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial asset in the group, including adverse changes in the payment status of borrowers in the group or national or local economic conditions that correlate with defaults on the assets in the group;

(vii) Information about significant changes with an adverse effect that have taken place in the technology, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in the equity instrument may not be recovered;

(viii) A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.

iii. When the Company assesses that there has been objective evidence of impairment and an impairment loss has occurred, accounting for impairment is made for financial assets at amortised cost that the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate, and is recognised in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset does not exceed its amortised cost that would have been at the date of reversal had the impairment loss not been recognised previously. Impairment loss is recognised and reversed by adjusting the carrying amount of the asset through the use of an impairment allowance account.

B. The reconciliations of carrying amount of financial assets transferred from December 31, 2017, IAS 39, to January 1, 2018, IFRS 9, were as follows:

374

(a) Under IAS 39, because the cash flows of debt instruments, which were classified as available-

for-sale financial assets, amounting to $5,289, do not meet the condition that it is intended to settle the principal and interest on the outstanding principal balance, they were reclassified as "financial assets at fair value through profit or loss" amounting to $5,289, and accordingly, retained earnings was decreased and other equity interest was increased in the amount of $158 on initial application of IFRS 9.

(b) Under IAS 39, because the cash flows of debt instruments, which were classified as held-to-maturity financial assets, amounting to $149,271, met the condition that it is intended to settle the principal and interest on the outstanding principal balance, they were reclassified as "financial assets at amortised cost" amounting to $149,271 on initial application of IFRS 9.

C. The significant accounts as of and for the year ended December 31, 2017 are as follows: (a) Financial assets at fair value through profit or loss

i. The Company recognised net loss (including foreign exchange loss) amounting to $8,130

on financial assets held for trading for the year ended December 31, 2017. ii. The Company has no financial assets at fair value through profit or loss pledged to others.

(b) Available-for-sale financial assets - non-current

i. The Company recognised $158 in other comprehensive income for fair value change and reclassified $0 from equity to profit or loss for the year ended December 31, 2017.

ii. The Company has no financial assets at fair value through profit or loss pledged to others.

Available-for-sale-equity

Held-to-maturity

Measured atfair value

through othercomprehensiveincome-equity

Measuredat

amortisedcost Total

Retainedearnings

Othersequity

IAS 39 5,848$ 5,289$ 149,271$ 160,408$ -$ 158)($ Transferred into andmeasured at fairvalue through profitor loss 5,289 5,289)( - - 158)( 158

IFRS 9 11,137$ -$ 149,271$ 160,408$ 158)($ -$

Measuredat fairvalue

throughprofit or

loss

Effects

Items December 31, 2017 Current items: Financial assets held for trading Monetary Fund 5,848$

Items December 31, 2017Non-current items: Venture capital fund 5,289$

375

(c) Held-to-maturity financial assets - non-current

D. Credit risk information for the year ended December 31, 2017 is as follows: (a) Credit risk refers to the risk of financial loss to the Company arising from default by the

clients or counterparties of financial instruments on the contract obligations. According to the Company’s credit policy, each local entity in the Company is responsible for managing and analysing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. Internal risk control assesses the credit quality of the customers, taking into account their financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the Board of Directors. The utilisation of credit limits is regularly monitored. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to wholesale and retail customers, including outstanding receivables. For banks and financial institutions, only independently rated parties with a minimum rating of 'A' are accepted.

(b) For the year ended December 31, 2017, no credit limits were exceeded during the reporting periods, and management does not expect any significant losses from non-performance by these counterparties.

(c) The credit quality information of financial assets that are neither past due nor impaired is as follows:

Group A: Rating of customer’s credit limit is above 90 points. Group B: Rating of customer’s credit limit stands between 70~89 points. Group C: Rating of customer’s credit limit is above 69 points. Group D: The customer has been dissolved, has incurred bad debt before or no more

transaction of related products occurred.

(d) The ageing analysis of financial assets that were past due but not impaired is as follows:

Items December 31, 2017Non-current items: Corporate bonds 149,271$

December 31, 2017Group A -$ Group B 4,987 Group C 271

5,258$

December 31, 2017Up to 30 days -$ 31 to 90 days 65 91 to 180 days -

65$

376

(e) Movements in the provision for impairment of accounts receivable: i. As of December 31, 2017, the Company’s accounts receivable that was impaired

amounted to $18. ii. Movements in the provision for impairment of accounts receivable are as follows:

(5) Effects of initial application of IFRS 15 A. The significant accounting policies applied on revenue recognition for the year ended December

31, 2017 are set out below. (a) Sales of goods

The Company manufactures and sells genetic drugs. Revenue is measured at the fair value of the consideration received or receivable taking into account of business tax, returns, rebates and discounts for the sale of goods to external customers in the ordinary course of the Company’s activities. Revenue arising from the sales of goods is recognised when the Company has delivered the goods to the customer, the amount of sales revenue can be measured reliably and it is probable that the future economic benefits associated with the transaction will flow to the entity. The delivery of goods is completed when the significant risks and rewards of ownership have been transferred to the customer, the Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold, and the customer has accepted the goods based on the sales contract or there is objective evidence showing that all acceptance provisions have been satisfied.

(b) Sales of services

The Company provides new drugs development services. Revenue from delivering services is recognised under the percentage-of-completion method when the outcome of services provided can be estimated reliably. The stage of completion of a service contract is measured by the percentage of the actual services performed as of the financial reporting date to the total services to be performed by the proportion of contract costs incurred for services performed as of the financial reporting date to the estimated total costs for the service contract. If the outcome of a service contract cannot be estimated reliably, contract revenue should be recognised only to the extent that contract costs incurred are likely to be recoverable.

(c) License revenue

If the licensing contract does not simultaneously fulfil the following criteria, royalty revenue will be recognised based on a reasonable and systematic method over the licensing period:

(a) The amount of licensing fee is fixed or non-refundable.

Individual provision Group provision TotalAt January 1 -$ 210$ 210$ Reversal of impairment - 192)( 192)(

At December 31 -$ 18$ 18$

2017

377

(b) The contract is irrevocable.

(c) Relevant rights may be at the licensee’s disposition.

(d) The licensor has no further obligations after passing on the rights to the authorized party.

If the licensing contract does not simultaneously fulfil the following criteria, royalty revenue will be recognised based on a reasonable and systematic method over the licensing period, it cannot be recognised all at once.

Also under certain circumstances, receiving licensing fee or royalty payments is dependent on future events, therefore revenue should only be recognised when the payment is actually received or very likely to be received.

B. The revenue recognised by using above accounting policies for the year ended December 31, 2017 are as follows:

C. The effects and description of current balance sheet and comprehensive income statement for the

year ended December 31, 2018 if the Company continues adopting above accounting policies are not significant.

13. SUPPLEMENTARY DISCLOSURES (1) Significant transactions information

A. Loans to others: Please refer to table 1.

B. Provision of endorsements and guarantees to others: Please refer to table 2.

C. Holding of marketable securities at the end of the period (not including subsidiaries, associates and joint ventures): Please refer to table 3.

D. Acquisition or sale of the same security with the accumulated cost exceeding $300 million or 20% of the Company’s paid-in capital: None.

E. Acquisition of real estate reaching $300 million or 20% of paid-in capital or more: None.

F. Disposal of real estate reaching $300 million or 20% of paid-in capital or more: None.

G. Purchases or sales of goods from or to related parties reaching $100 million or 20% of paid-in capital or more: Please refer to table 4.

H. Receivables from related parties reaching $100 million or 20% of paid-in capital or more: Please refer to table 5.

I. Trading in derivative instruments undertaken during the reporting periods: None.

J. Significant inter-company transactions during the reporting periods: Please refer to table 6.

(2) Information on investees


Sales revenue 564,272$ Service revenue 52,867 Royalties revenue 36,595

653,734$

378

Names, locations and other information of investee companies (not including investees in Mainland China): Please refer to table 7.

(3) Information on investments in Mainland China A. Basic information: None.

B. Significant transactions conducted with investees in Mainland China directly or indirectly through other companies in the third areas: No material transactions.

14. SEGMENT INFORMATION Not applicable.

379


Chairman: Chih-Ming Chen

Address : 4F., No.41, Ln. 221, Gangqian Rd., Neihu Dist., Taipei City

Tel: (02)2657-3350 Fax: (02)2657-3391

twi pharmaceuticals, inc. · second-degree of kinship. ..... 81 ix. information on the number of...

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