3SBio Inc. Announces Third Quarter 2008 Results

Tuesday, November 11, 2008 General News
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SHENYANG, China, Nov. 10 3SBio Inc.(Nasdaq: SSRX) ("3SBio" or the "Company"), a leading China-based biotechnologycompany focused on researching, developing, manufacturing and marketingbiopharmaceutical products, today announced its unaudited financial resultsfor the third quarter ended September 30, 2008.

Dr. Jing Lou, Chief Executive Officer of 3SBio, commented, "During thethird quarter we delivered another quarter of solid top-line growth andfurther demonstrated our ability to consistently execute on our businessstrategy. As our core EPIAO and TPIAO products maintained their marketleading positions within their respective market segments, quarterly netrevenues grew 21.6% year-over-year and gross margin levels remained robust at91.3%."

"As we strive to position ourselves for sustainable long-term growth, wehave made significant headway on our research and development objectives setat the beginning of this year. Our 36,000 IU dosage formulation of EPIAO wassubmitted for SFDA approval in September and, once approved, is expected toprovide us with the distinct competitive advantage of offering a convenient,once-a-week treatment option to anemic chemotherapy patients. We alsosubmitted NuLeusin, our second generation IL-2 to treat late stage renalcancer, for regulatory approval. Upon SFDA approval, we believe NuLeusin willfurther expand our presence within China's growing oncology markets byproviding oncologists with a new treatment option for those cancer patientswho have exhausted their options. Additionally, we remain on track with ourSFDA submission of TPIAO ITP by the end of 2008. I am confident that theseenhancements to our pipeline and diversification to our product portfolio willnot only enhance future revenue and earnings growth, but also further solidifyour position as a market leader in the growing Chinese biotech industry."

"We believe our strong balance sheet and free cash flow provide us withsufficient resources to execute our strategic initiatives. Construction ofour new manufacturing facility is also on schedule and we look forward toincreasing our capacity to support our next phase of growth. Given our strongthird quarter operating results and the positive outlook of the Chinesepharmaceutical market, we reaffirm our full year revenue guidance in the rangeof US$34 to US$35 million and are well-poised to deliver on our commitment toenhance long-term shareholder value."

Third Quarter 2008 Unaudited Financial Results

Net Revenues. Net revenues amounted to RMB68.2 million (US$10.0 million)in the third quarter 2008, compared with RMB56.1 million in the third quarter2007, representing an increase of 21.6%. Net revenues from EPIAO increased by17.5% from RMB36.3 million in the third quarter 2007 to RMB42.7 million(US$6.3 million) in the third quarter 2008, primarily due to continued strongproduct demand and further penetration into the growing oncology andnephrology markets. Net revenues from TPIAO increased 39.3% year-over-yearfrom RMB14.2 million to RMB19.7 million (US$2.9 million). TPIAO remained thesecond largest revenue contributor, accounting for 29.0% of total net revenuesin the third quarter 2008 as compared with 25.3% in the third quarter 2007.Revenue from 3SBio's export business was RMB2.4 million (US$0.4 million), adecrease of 14.8% over the third quarter 2007. Revenue from the Company's in-licensed Iron Sucrose supplement was RMB1.7 million (US$0.3 million),representing a significant increase of 56.1% over the third quarter 2007.

Gross Profit. Gross profit increased 21.4% to RMB62.2 million (US$9.2million) in the third quarter 2008 from RMB51.3 million in the third quarter2007. Gross margin remained stable at 91.3% in the third quarter 2008,compared with 91.5% in the third quarter 2007.

Operating Expenses. Total operating expenses increased 21.4% to RMB41.5(US$6.1 million) in the third quarter 2008 from RMB34.2 million in the thirdquarter 2007, primarily attributable to increases in both sales, marketing anddistribution and general and administrative expenses. To a lesser extent,increases in research and development expenditures also contributed to therise in total operating expenses.

Research and development expenses, representing 6.2% of total netrevenues, increased 10.0% to RMB4.2 million (US$0.6 million) in the thirdquarter 2008 from RMB3.9 million in the third quarter 2007. This increase wasmainly attributable to expenses associated with our high dosage EPIAO, HPVvaccine and other research and development projects.

Sales, marketing and distribution expenses, representing 42.9% of totalnet revenues, increased 13.6% to RMB29.3 million (US$4.3 million) in the thirdquarter 2008 from RMB25.8 million in the third quarter 2007 primarily as aresult of increased personnel, travel, conference, promotional and advertisingcosts in line with the expansion of our sales and marketing team andgeographical network in China.

General and administrative expenses, representing 11.8% of total netrevenues, increased 74.5% to RMB8.0 million (US$1.2 million) in the thirdquarter 2008 from RMB4.6 million in the third quarter 2007 primarily as aresult of increased cost of personnel, investor relations and compliance withlisting and regulatory requirements for a public company.

Income from Operations. Operating income for the third quarter 2008 wasRMB20.7 million (US$3.1 million), representing a 21.4% year-over-year increasefrom RMB17.1 million. Operating margin for the third quarter 2008 was flatyear-over-year at 30.4%.

Other Income/Expenses Net. Net other expenses was RMB14.6 million (US$2.2million) in the third quarter of 2008 as compared to other income of RMB9.4million in the third quarter of 2007 primarily due to the one-time impairmentloss as described below and in more detail in our third quarter preliminaryresults press release dated October 31, 2008.

Impairment Loss. 3SBio recognized a one-time impairment loss ofapproximately RMB19.1 million (US$2.8 million) related to US$3.0 millionaggregate principal amount of Floating Rate Credit Linked Notes due on January21, 2009 held by the Company. The remainder of the Company's investmentportfolio is primarily made up of investment grade bonds with an expectedaggregate fair market value of approximately RMB58.7 million (US$8.6 million)as of September 30, 2008.

Interest income. Interest income decreased 42.6% to RMB5.5 million(US$0.8 million) in the third quarter 2008, as compared with RMB9.5 million inthe third quarter 2007, primarily attributable to a decrease in cash deposits,lower interest rates relating to the Company's deposits and the depreciationof the U.S. dollar against the Renminbi.

Income before Income Tax Expense and Minority Interests. As a result ofthe foregoing, income before income tax expense and minority interestsdecreased 77.1% from RMB26.5 million in the third quarter 2007 to RMB6.1million (US$0.9 million) in the third quarter 2008.

Income Tax Expense. Income tax expense increased 91.3% to RMB4.3 million(US$0.6 million) in the third quarter 2008 from RMB2.2 million in the thirdquarter 2007. The rise in tax expense was primarily attributable to anincrease in the enterprise income tax rate for a major operating subsidiary inChina from 15% to 18% effective from January 1, 2008, and a decrease ininterest income from 3SBio Inc., incorporated in Cayman Islands, that is notsubject to tax. The effective tax rate was 70.5% for the third quarter 2008,as compared with 8.4% for the prior year period, due to the one-timeimpairment loss on investment securities that does not qualify for tax relief.

Net Income. Net income decreased 92.3% to RMB1.9 million (US$0.3 million)in the third quarter 2008 from RMB24.1 million in third quarter 2007, mainlyattributable to the one-time impairment loss.

Nine months ended September 30, 2008 Unaudited Financial Results

Net revenues. Net revenues increased 36.2% to RMB183.2 million (US$27.0million) in the nine months ended September 30, 2008 from RMB134.5 millionduring the same period of 2007, supported by increased sales from our coreEPIAO and TPIAO products. Net revenue from EPIAO was RMB115.2 million(US$17.0 million), representing an increase of 26.1% from RMB91.4 million inthe nine months ended September 30, 2007. Net revenue from TPIAO increased63.3% to RMB51.2 million (US$7.5 million) for the first nine months of 2008from RMB31.4 during the same period in 2007. In addition, revenue from ourexport business was RMB7.1 million (US$1.1 million), representing an increaseof 38.4% over the first nine months of 2007, while revenue from the in-licensed Iron Sucrose supplement was RMB5.2 million (US$0.8 million),representing an increase of 132.0% over the first nine months of 2007.

Income from Operations. For the nine months ended September 30, 2008,operating income increased by 18.1% to RMB50.1 million (US$7.4 million),compared with RMB42.4 million in the same period last year. Operating marginfor the first nine months in 2008 was 27.3% as compared with 31.5% for thefirst nine months in 2007.

Net Income. Net income for the nine months ended September 30, 2008decreased 35.6% to RMB41.0 million (US$6.0 million) compared with RMB63.6million for the same period in 2007. Net margin for the first nine months in2008 was 22.4% as compared with 47.3% for the same period in 2007. Thedecrease in net margin was primarily attributable to the decline in net incomecaused by the one-time impairment loss in the third quarter 2008.Additionally, lower interest income and higher income tax expense due to theincrease in the enterprise income tax rate for a major operating subsidiary inChina from 15% to 18% effective from January 1, 2008 also contributed to thedownward pressure on net margin. Net income per ADS for the first nine monthsof 2008 decreased to RMB1.89 (US$0.28) from RMB3.08 (US$0.41) in thecorresponding period in 2007.

Statement Regarding Unaudited Financial Information

The unaudited financial information set forth above is subject toadjustments that may be identified when audit work is performed on theCompany's year-end financial statements, which could result in significantdifferences from this unaudited financial information.

Currency Convenience Translation

For the convenience of readers, certain RMB amounts have been translatedinto US dollars at the rate of RMB6.7899 to US$1.00, the noon buying rate forUS dollars in effect on September 30, 2008 for cable transfers of RMB per USdollar as certified for customs purposes by the Federal Reserve Bank of NewYork.

Share Repurchase Program

As previously announced, the Company's board of directors has approved ashare repurchase program in March 2008, authorizing the Company to purchase upto US$20.0 million worth of its outstanding ADSs from time to time in the openmarket over a period of 12 months commencing from March 21, 2008. In thethird quarter 2008, the Company repurchased a total of 217,600 ADSs(equivalent to 1,523,200 ordinary shares) from the open market at an averageprice of US$9.7319 per ADS, totaling approximately US$2.1 million (RMB14.5million). The management will continue to evaluate market conditions and takeappropriate steps accordingly to best serve the Company's interest and that ofits shareholders.

2008 Full Year Guidance

Based on current market and operating conditions, 3SBio maintains itstotal net revenue target for the full year 2008 of US$34 to US$35 million.

Conference Call

3SBio senior management will host a conference call at 5:00 am (Pacific) /8:00 am (Eastern) / 9:00 pm (Beijing/Hong Kong) on Tuesday, November 11, 2008to discuss its 2008 third quarter financial results and recent businessactivity. The conference call may be accessed by calling (US) +1 480-629-1990/ (UK) +44 20-8515-2302 / (HK) +852 3009-5027. A telephone replay will beavailable shortly after the call until November 25, 2008 at (US) +1 303-590-3030 / (UK) +44 207-154-2833, Passcode: 3932898#; and (HK) +852 2287-4304,Passcode: 133110#.

A live webcast of the conference call and replay will be available on theinvestor relations page of 3SBio's website athttp://www.3sbio.com/en/News/xShowInfo_nnnn1.aspx?ID=129.

About 3SBio Inc.

3SBio Inc. is a leading, fully integrated biotechnology company focused onresearching, developing, manufacturing and marketing biopharmaceuticalproducts, primarily in China. For more information, please visit 3SBio on theweb at http://www.3sbio.com

Safe Harbor Statement

Statements in this release may contain "forward-looking" statements withinthe meaning of Section 27A of the Securities Act of 1933, as amended, andSection 21E of the Securities Exchange Act of 1934, as amended, and as definedin the Private Securities Litigation Reform Act of 1995. These statements arebased upon 3SBio management's current expectations, and actual results coulddiffer materially. Among the factors that could cause 3SBio's actual resultsto differ from what the company currently anticipates may include competitionfrom other domestic and foreign pharmaceutical companies; the expected marketgrowth for pharmaceutical products in China; market acceptance of 3SBioproducts; expected hospital or patient demand for our products; the completionof 3SBio's ongoing clinical trials as planned; receipt and timing ofregulatory approvals for 3SBio's new products and uses; 3SBio's ability toexpand its production, sales and distribution network and other aspects of itsoperations; its ability to effectively protect its intellectual property;changes in the healthcare industry in China, including changes in thehealthcare policies and regulations of the PRC government and changes in thehealthcare insurance sector in the PRC; and fluctuations in general economicand business conditions in China. For additional information on these andother factors that may affect the 3SBio's financial results, please refer tothe company's filings with the Securities and Exchange Commission athttp://www.sec.gov. 3SBio undertakes no obligation to update or revise theseforward-looking statements, whether as a result of new information, futureevents or otherwise, after the date of this press release.Third Quarter 2008 Financial Highlights: -- Total net revenues increased 21.6% over the third quarter 2007 to RMB68.2 million (US$10.0 million). -- Net revenue from recombinant human erythropoietin ("EPO") products, marketed under the EPIAO brand, increased 17.5% over the third quarter 2007 to RMB42.7 million (US$6.3 million). -- Net revenue from protein-based therapeutic recombinant human thrombopoietin ("TPO") products, marketed under the TPIAO brand increased 39.3% over the third quarter 2007 to RMB19.7 million (US$2.9 million). -- Operating income increased 21.4% over the third quarter 2007 to RMB20.7 million (US$3.1 million). -- One-time impairment loss of approximately RMB19.1 million (US$2.8 million) for the third quarter 2008. This impairment loss was related to a US$3.0 million aggregate principal amount of Floating Rate Notes, which are linked to the credit of Lehman Brothers Holdings Inc. and mature on January 21, 2009, subject to certain conditions. -- Net income decreased 92.3% over the third quarter 2007 to RMB1.9 million (US$0.3 million). -- Net income per American depositary share ("ADS") for the third quarter 2008 was RMB0.09 (US$0.01) compared with RMB1.11 (US$0.15) for the third quarter 2007. Nine Months Ended September 30, 2008 Financial Highlights: -- Total net revenues increased 36.2% over the nine months ended September 30, 2007 to RMB183.2 million (US$27.0 million). -- Net revenue from EPIAO increased 26.1% over the nine months ended September 30, 2007 to RMB115.2 million (US$17.0 million). -- Net revenue from TPIAO increased 63.3% over the nine months ended September 30, 2007 to RMB51.2 million (US$7.5 million). -- Net income decreased 35.6% over the nine months ended September 30, 2007 to RMB41.0 million (US$6.0 million). -- Net income per ADS was RMB1.89 (US$0.28) compared with RMB3.08 (US$0.41) for the nine months ended September 30, 2007.

SOURCE 3SBio Inc.


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