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Please refer to the financial reconciliations provided in this newsrelease for a reconciliation of GAAP results to non-GAAP results for the threeand nine months periods ended September 30, 2008 and 2007.
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David Gao, Chief Executive Officer of BMP Sunstone, stated, "Once again,we delivered another quarter of strong growth from each division of ourCompany. During the quarter, we successfully completed the acquisition of63.3 percent of Rongheng, which provides us with direct access to the Shanghaimarket - the largest pharmaceutical market in China. We have taken stepstowards integrating Rongheng into our national distribution network and weintend to realize the sales potential of our proprietary products."
Mr. Gao continued, "In our existing businesses, both BMP China andSunstone generated solid growth in the third quarter. Sunstone hashistorically faced seasonal weakness in the third quarter given that asignificant portion of its sales are generated from its cold medicineportfolio. This year, during the third quarter, Sunstone's and Wanwei's saleswere also impacted by government restrictions in and around the Beijing areaduring the Summer Olympics. In our products businesses, Ferriprox has gainedsignificant traction in sales since its launch on June 28, 2008. We arepleased to see improvement demonstrated in both sales and operatingperformance."
Revenues for the third quarter of 2008 were $30.5 million, compared with$9.0 million in the third quarter of 2007. The majority of revenues at BMPSunstone are derived from two sources: branded OTC revenues from Sunstoneproducts, and revenue from the distribution of pharmaceutical products,including BMP China's licensed products, through subsidiaries Wanwei andRongheng, which was acquired on July 4, 2008. Sunstone contributed $15.5million in revenues during the third quarter of 2008, and was not yet acquiredin the prior year period. Revenues from distribution were $13.7 million inthe third quarter of 2008 compared to $8.0 million in the comparable period of2007. Revenues from licensed products were $1.3 million in the third quarterof 2008 as compared to $960,000 in the prior year period.
Non-GAAP gross profit increased to $13.9 million from $1.2 million in thethird quarter of 2007. Gross margin of 46%, up substantially from 13.1% inthe prior year period, reflects the higher margin revenue contribution fromSunstone and licensed products sales versus distribution revenue.
Non-GAAP operating income reached $3.5 million in the third quarter of2008 compared to a loss of $1.5 million in the prior year period, primarilyreflecting the significant increase in revenues contributed from acquiredbusinesses in the year over year period. Operating income performance alsoreflects a $525,000 reversal of an over-accrual for social taxes incurred inprior years.
Non-GAAP net income was $1.9 million, or $0.05 per diluted share, comparedto a net loss of $1.3 million, or ($0.05) per diluted share, in the thirdquarter of 2007.
Mr. Gao continued, "With the incorporation of Rongheng, we have built anational strategic distribution platform covering China's three toppharmaceutical markets in Beijing, Shanghai and Guangdong Province. ThroughWanwei, Rongheng, and our affiliate, Guangzhou Pharmaceuticals Corp., ourdistribution arm now covers more than 1,800 hospitals and 50,000 pharmaciesthroughout the country. Through continued investment in our product portfolioand national leading brands, we will continue to focus on revenue growth andmarket penetration of our current products. This includes expansion of ourproprietary in-licensed product portfolio at BMP China, solidification ofSunstone's market leader position, and integration of our nationaldistribution network."
"Organic growth at BMP China and Sunstone continues to be strong, despitea seasonally slow quarter. We have seen encouraging progress in integratingour distribution platform, and we are enthusiastic about the expected productlaunches during the remainder of the year. Furthermore, we expect to continueto enhance our distribution capabilities and realize synergies among existingand new Rx and OTC products and channels. Given this, we remain confident inour prior guidance for 2008. The Company expects revenue within the range of$110 to $120 million, with non-GAAP net income of $4.0 to 5.0 million,"concluded Mr. Gao.
Non-GAAP net income excludes stock based compensation, amortizationrelated to the acquisition of Sunstone and Wanwei and debt discountamortization and issuance cost related to $23 million in debt issued inNovember 2007. The Company's financial guidance also excludes any potentialor pending acquisitions, new product launches and distributions from AllianceBMP Limited.
Balance Sheet
As of September 30, 2008, the Company had cash and cash equivalents of$3.8 million and notes receivable of $15.5 million, totaling $19.3 million.Notes receivables are notes received from customers for the settlement oftrade receivable balances. All notes receivables are guaranteed byestablished banks in China and have maturities of six months or less.
On October 14, 2008, pursuant to a registered direct public offering, theCompany issued 433,000 shares of the Company's Common Stock at $5.00 pershare. Net proceeds from the offering amounted to approximately $2.0 million.A majority of the proceeds will be used for capital infusion into Rongheng'sand Sunstone's operations.
Third Quarter 2008 Business Update
On August 18, 2008, BMP Sunstone announced that Sunstone received aproduction license from the Chinese State Food and Drug Administration("SFDA") to manufacture and market GoodBaby Multivitamin Granules, amultivitamin formula for infants and children in China. The Company expectsto launch the product at the end of the fourth quarter of 2008.
On July 18, 2008, BMP Sunstone signed a non-binding letter of intent toacquire 75 percent of Zhangjiakou Shengda Pharmaceutical Co., Ltd ("Shengda")for up to RMB 30.0 million (approximately $4.4 million). The Companycontinues to expect to complete the transaction by the end of the fourthquarter of 2008. Terms of the acquisition are not yet finalized, ascompletion is subject to a number of conditions, including finalization of duediligence and definitive documentation. The Company intends to use the cashand notes receivable available at Sunstone to fund the acquisition. Theletter of intent also includes a six-month exclusivity clause.
On July 4, 2008, the Company completed its acquisition of 63.3 percent ofRongheng, a pharmaceutical distribution company which distributes over 400pharmaceutical products to more than 140 top-tier hospitals and 1,000 retailpharmacies in Shanghai. Through this acquisition, BMP Sunstone gained directcoverage of 80 percent of the top-tier hospitals and 40 percent of the retailpharmacies in Shanghai. Rongheng was co-founded in 1999 by OrientInternational (Holding) Co., one of the largest foreign trade enterprises inChina.
On June 20, 2008, BMP Sunstone received a letter from the SFDA approvingthe new brand name for 0.8mm Propess, which has wider usage than the 1.1 mmformulation. Earlier in the quarter, the Company had announced that itreceived an Import Drug License from the SFDA to market the new applicator inChina.
Conference Call
The Company will hold a conference call at 9:00 am ET on Tuesday, November11, 2008, to discuss third quarter 2008 results. Listeners may access thecall by dialing 1-888-713-4215 or 1-617-213-4867 for international callers,access code: 56085093. Preregistration and a webcast will also be availablethrough the Company's website at http://www.bmpsunstone.com . A replay of thecall will be available through November 20, 2008. Listeners may access thereplay by dialing 1-888-286-8010 or 1-617-801-6888 for international callers,access code: 34717463.
Use of Non-GAAP Financial Measures
To supplement BMP Sunstone's consolidated financial statements presentedin accordance with GAAP, this press release includes the following measuresdefined as non-GAAP financial measures by the SEC: non-GAAP gross profit, non-GAAP operating income, non-GAAP net income and non-GAAP diluted earnings pershare. The presentation of this financial information is not intended to beconsidered in isolation or as a substitute for the financial informationprepared and presented in accordance with GAAP. In addition, the non-GAAPfinancial measures included in this press release may be different from, andtherefore not comparable to, similar measures used by other companies.Although certain non-GAAP financial measures used in this release excludesstock based compensation, amortization related to the acquisition of Sunstoneand Wanwei and debt discount amortization and issuance costs related to the$23 million debt issued in November 2007, these non-GAAP measures should notbe relied upon independently as they ignore the contribution these expenseshave to our operating results. For more information on these non-GAAPfinancial measures, please see the non-GAAP data included at the end of thisrelease. This data has more details of the GAAP financial measures that aremost directly comparable to non-GAAP financial measures and the relatedreconciliations between these financial measures.
BMP Sunstone's management believes that these non-GAAP financial measuresprovide meaningful supplemental information regarding our performance byexcluding certain expenses and expenditures that may not be indicative of ourcore business operating results. BMP Sunstone believes that both managementand investors benefit from referring to these non-GAAP financial measures inassessing BMP Sunstone's performance and when planning, forecasting andanalyzing future periods. These non-GAAP financial measures also facilitatemanagement's internal comparisons to BMP Sunstone's historical performance andour competitors' operating results. BMP Sunstone believes that these non-GAAPmeasures are useful to investors in allowing for greater transparency withrespect to supplemental information used by management in its financial andoperational decision-making.
About BMP Sunstone Corporation
BMP Sunstone Corporation is a specialty pharmaceutical company that isbuilding a proprietary portfolio of branded pharmaceutical and healthcareproducts in China. Currently this portfolio includes eight products underexclusive multi-year licenses for China, primarily focused on women's healthand pediatrics. The Company also owns Sunstone Pharmaceutical Co. Ltd., whichmanufactures leading pediatric and women's health products, including two ofChina's most recognized brands, "Hao Wawa" and "Confort," sold throughapproximately 50,000 pharmacies in China. The Company also providespharmaceutical distribution services through its subsidiaries in Beijing andShanghai, and through its affiliate, Guangzhou Pharmaceuticals Corp. TheCompany has its main office in Beijing, with a US office in Plymouth Meeting,PA. For more information, please visit http://www.bmpsunstone.com .
Safe Harbor Statement
This news release contains forward-looking statements as defined by thePrivate Securities Litigation Reform Act of 1995. Forward-looking statementsinclude statements concerning plans, objectives, goals, strategies, futureevents or performance, and underlying assumptions and other statements thatare other than statements of historical facts, including but not limited tostatements about the timing of the completion and terms of the proposedacquisition of 75% of Shengda, the Company's revenue and net income guidancefor 2008, the timing of the launch of GoodBaby Multivitamin Granules or anyother Company products, use of proceeds from the registered direct offering,the possibility of completing any future acquisitions or receiving profitsfrom Alliance BMP Limited, the ability to successfully integrate the Company'sdistribution platform, the ability to realize synergies among existing and newRx and OTC products and channels, future investment in the Company's productportfolio and national leading brands, the focus of the Company on revenuegrowth and market penetration of the Company's current products, expansion ofthe Company's product portfolio at BMP China, and solidification of Sunstone'smarket leader position. These statements are subject to uncertainties andrisks including, but not limited to, negotiating definitive terms anddefinitive agreements regarding the proposed acquisition, satisfying theconditions in such definitive agreements, regulatory review, sales andmarketing, operating performance, general financial, economic, and politicalconditions affecting the biotechnology and pharmaceutical industries and theChinese pharmaceutical market, the ability to timely manufacture anddistribute the Company's products, the need to use cash for unexpectedreasons, the results of Alliance BMP Limited operations are less than expectedor Alliance BMP Limited decides not to make a distribution of profits to itsequityholders, and other risks contained in reports filed by the Company withthe Securities and Exchange Commission. In addition, the Company disclaimsany obligation to update any forward- looking statements to reflect events orcircumstances after the date hereof.Financial Highlights as of September 30, 2008: -- Record third quarter revenues were $30.5 million, a 240% increase from $9.0 million in the third quarter of 2007. -- Non-GAAP operating income, as defined below, was $3.5 million for the quarter, improving from a loss of $1.5 million in the prior year period. Non-GAAP operating income for the nine-month period was $7.1 million. -- Non-GAAP net income, as defined below, was $1.9 million for the quarter and $3.5 million for the nine-month period. -- Non-GAAP EPS was $0.05 for the quarter and $0.09 for the nine-month period. -- Non-GAAP operating income, net income, and earnings per share exclude stock based compensation expense, amortization related to acquisitions, and amortization of debt discount and issuance cost.
SOURCE BMP Sunstone Corporation
