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China Sky One Medical Announces Fourth Quarter and Fiscal Year 2009 Results; Provides Earnings Guidance for 2010

Wednesday, March 17, 2010 Corporate News J E 4
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HARBIN, China, March 17 China Sky OneMedical, Inc. ("China Sky One Medical" or "the Company") (Nasdaq: CSKI), aleading fully integrated pharmaceutical company producing over-the-counterdrugs in the People's Republic of China ("PRC"), today announced financialresults for the fourth quarter and fiscal year ended December 31, 2009. TheCompany also announced its earnings guidance for full year 2010.

"The Company's record revenues in 2009 were primarily driven by positivecontribution from the strategic acquisitions that we completed in 2008,heightened consumer brand awareness and expansion of our sales network. Ourfull year net income was slightly below our expectations due to increasedoperating costs from several acquisitions in 2008 and our new corporateheadquarters and other non-cash expense items as previously discussed," saidMr. Yan-Qing Liu, Chairman and CEO of China Sky One Medical, Inc. "Lookingahead, the Company plans to make significant investment in the development ofhigh margin branded drugs to support long-term sustainable growth. With agrowing distribution network and a growing pipeline of SFDA License for drugbatch lots, China Sky One is well positioned to be a leading pharmaceuticalcompany in China."

Fourth Quarter 2009 results

In the fourth quarter of 2009, China Sky One's total revenues increased15.0% to $29.9 million comparing to $26.0 million in the same quarter lastyear. This increase was primarily attributable to the strong performance ofthe Company's sales network and the addition of direct territory managers andsales agents, as well as increased marketing and advertising activities. As ofDecember 31, 2009, China Sky One had 1,491 sales and marketing staff. The headcount included approximately 1,100 sales representatives stationed inpharmacies to educate consumers about the benefits of the Company's productsand to drive end users' buying decisions.

Sales of patch products were essentially flat year-over-year at $9.9million or 33.2% of revenue in the fourth quarter of 2009. Sales of ointmentswere down modestly in the 2009 fourth quarter to $5.3 million, accounting for17.8% of revenues, compared to $5.8 million or 22.3% of revenues in the yearago quarter. Sales of spray products increased by 56% to $4.0 million andaccounted for 13.4% of revenues, versus $2.5 million or 9.7% of revenues ayear ago. The increase in spray products was primarily due to increased salesof mouth sprays resulting from the outbreak of the H1N1 virus. Sales ofdiagnostic testing kits decreased to $0.8 million or 2.8% of revenues from$2.4 million or 9.1% of revenues a year ago. Sales of the Company's OtherProduct Category totaled $9.8 million or 32.8% of revenues, representing a133.5% increase from $4.2 million sales and 16.2% of revenues in 2008. Thehigher sales in this category were mainly due to an increase in diversifiedproducts from the acquisitions of Heilongjiang Tianlong Pharmaceutical, Inc.and Peng Lai Jin Chuang Pharmaceutical Company in 2008.

Gross profit rose 18.5% to $22.9 million in the fourth quarter of 2009.Gross margin increased to 76.6%, compared to 74.4% in the fourth quarter of2008, primarily reflecting the Company's better production cost control.

Operating expenses increased 32.9% to $13.8 million in the fourth quarterof 2009 comparing to the same period of 2008. The increase was principally dueto higher general and administrative expenses associated with the non-cashstock compensation expenses and registration rights liability. Depreciationand amortization expenses increased 170% year-over-year to $0.9 million due tothe increased amortization resulting from the Company's newly acquiredproprietary technologies in 2008 as well as the acquired proprietarytechnologies during the fourth quarter of 2009.

Operating income was $9.1 million, representing an operating margin of30.4%, as compared to $8.9 million, or 34.4% margin, a year ago.

During the fourth quarter of 2009, the Company recorded a $1.3 millionnon-cash registration rights liability. The Company recorded no such expensein the year ago period.

Provision for income taxes was $2.5 million in the fourth quarter of 2009,as compared to $2.1 million in the same period of last year.

Net income for the fourth quarter of 2009 was $5.3 million, compared to$6.9 million in the fourth quarter of 2008. Excluding the effect of recordingcertain non-cash expense items: (i) share-based compensation and (ii) theregistration rights liability expenses; the Company's pro forma non-GAAPadjusted net income was $7.9 million, or $0.47, as compared to $6.9 million or$0.45 per diluted share.

Full Year 2009 Results

For the full year 2009, total revenues were $130.1 million, up 41.7% from$91.8 million in 2008. Of the 91 products commercialized by China Sky OneMedical in 2009, patches, ointments, sprays and diagnostic kits accounted for31.3%, 22.2%, 14.2% and 7.9% of total revenues respectively.

The Company's top 10 products, including Sumei Slim Patch, HemorrhoidsOintment, Compound Camphor Cream, Stomatitis Spray, AMI Diagnostic Kit andNaftopidil Dispersible Tablet, together accounted for approximately 68% oftotal revenues. Sales from export were $10.1 million, representing 7.8% oftotal revenues.

Gross profit was $98.4 million, an increase of 41.8% from $69.4 million in2008. Gross margin was little changed at 75.7% and 75.6% in 2009 and 2008,respectively.

Operating income was $46.3 million, up 29.7% from $35.7 million in 2008.Operating margin was 35.6% in 2009 versus 38.8% in 2008.

Net income for 2009 rose 19.4% to $34.5 million, or a net profit margin of26.5%, from $28.9 million or a 31.4% net margin. The decrease in net marginwas primarily attributable to higher selling and R&D expenses incurred in 2009.Excluding the effect of recording certain expense items: (i) share-basedcompensation and (ii) the registration rights liability; the Company's proforma non-GAAP basis adjusted net income was $37.0 million, or $2.22 perdiluted share, as compared to $29.2 million or $1.89 per diluted share.

Financial Condition

As of December 31, 2009, China Sky One had $52.8 million in cash andequivalents, with a quick ratio of 7.9. Average Days Sales Outstandingincrease to 51.6 days from 45.5 days principally due to the increased averageaccounts receivable balances on September 30 and December 31 and less increaseof average daily sales during the fourth quarter of 2009 comparing to the sameperiod in 2008. Working capital was approximately $67.0 million. Stockholders'equity at December 31, 2009, was $131.0 million, a 38.0% increase over the$94.9 million recorded at December 31, 2008.

The Company generated $33.4 million in net cash flow from operatingactivities in 2009, up from $27.5 million in 2008.

Recent Events

As of January 4, 2010, China Sky One Medical's common shares were listedon the NASDAQ Global Select Market.

Also in January, the Company completed its two office buildings andrelocated its headquarters to Harbin Song Bei New Development District andconsolidated administration, research and development, accounting and salesfunctions to streamline operations and improve efficiency. Following the moveof its headquarters, the Company also received local government-supportedpreferential policies, such as discounted land transfer fees and green channelto expedite project permits, which are expected to facilitate more costeffective expansion in the future.

In addition, the Company's AMI Diagnostic Kit was recently recognized bythe National Development and Reform Commission as a "National InnovationProject," a designation given to innovative projects in key high technologyindustries.

2010 Outlook and Guidance

The Company's top priority in 2010 is to further optimize its distributionchannels by locating and cooperating with more reputable distributors withextensive market coverage.

"We are confident in our 2010 outlook and plan to focus on enhancing andbroadening our product portfolio to include proprietary new drugs so as tosupport sustainable long-term growth," said Mr. Yan-Qing Liu, Chairman and CEOof China Sky One Medical, Inc. "Our financial guidance assumes only organicgrowth and does not reflect any potential acquisitions or other strategicdeals in 2010. The Company is committed to delivering shareholder value andwill pursue opportunities to acquire new proprietary drugs, advancedtechnologies or companies that can increase our growth potential."

For the full year 2010, the Company expects net revenue growth ofapproximately 20% or $156 million. Management developed the revenue guidancebased upon a careful review of sales and marketing plans submitted by oursales team, as well as detailed analysis of each product's growth outlook andmarketing plan. The sales forecast is calculated mainly based on the factorsof sales plans submitted by the Company's sales agents, the estimate ofincrease and decrease of certain products managed on our internal sales andmarketing force rather than through distributors or agents, and the estimateof promotion or discontinuance of sales of certain current products. The grossmargin guidance is 68%, below historical levels due to our potential lowersales price to support our new sales model, as well as anticipated increasesin raw materials costs and related overhead costs. Net income is anticipatedto approximate $39 million, representing a net profit margin of 25%. Theexpected decline in net margin primarily reflects the increase in R&D spendingwhich is expected to be 15% of total revenue for the year of 2010. We arededicated to advancing our major research and development projects in thecurrent R&D pipeline and also shifting our focus to Cardiovascular medicineand antibiotic drugs.

Conference Call

China Sky One Medical will conduct a conference call at 8:00 a.m. EasternDaylight Time (EDT) on Wednesday, March 17, 2010, to discuss the fourthquarter and full year 2009 financial results. To participate on the live call,please dial the following number five to ten minutes prior to the scheduledconference call time: 877-585-2309. International callers should dial706-902-4207. The Conference ID for this call is 61931973.

If you are unable to participate in the call at this time, a replay willbe available for two weeks starting on Wednesday, March 17, 2010 at 10:00 a.m.EDT. To access the replay, dial 800-642-1687, international callers dial706-645-9291. The Conference Replay Passcode is 61931973.

Use of Non GAAP Financial Measures

GAAP results for the three and twelve month periods ended December 31,2009 include non-cash items of share-based compensation and registrationrights liability expenses. To supplement the Company's consolidated financialstatements presented on a GAAP basis, the Company has provided pro forma non-GAAP adjusted financial information which excludes the impact of these itemsin this release. The Company's management believes that these adjustedmeasures provide investors with a better understanding of how the resultsrelate to the Company's historical performance. A reconciliation ofadjustments to GAAP results appears in the tables accompanying this pressrelease. This additional adjusted information is not meant to be considered inisolation or as a substitute for GAAP financials. The adjusted financialinformation that the Company provides also may differ from the adjustedinformation provided by other companies.

About China Sky One Medical, Inc.

China Sky One Medical, Inc., a Nevada corporation, is a holding company.The Company engages in the manufacturing, marketing and distribution ofpharmaceutical, medicinal and diagnostic products. Through its wholly-ownedsubsidiaries, Harbin Tian Di Ren Medical Science and Technology Company("TDR"), Harbin First Bio-Engineering Company Limited ("First"), HeilongjiangTianlong Pharmaceutical, Inc. ("Tianlong") and Peng Lai Jin ChuangPharmaceutical Company ("Jin Chuang") the Company manufactures and distributesover-the-counter pharmaceutical products, which make up its major revenuesource. For more information, visit http://www.cski.com.cn .

Safe Harbor Statement

Certain of the statements made in the press release constituteforward-looking statements within the meaning of the Private SecuritiesLitigation Reform Act of 1995. These statements can be identified by the useof forward-looking terminology such as "believe," "expect," "may," "will,""should," "project," "plan," "seek," "intend," or "anticipate" or the negativethereof or comparable terminology. Such statements typically involve risks anduncertainties and may include financial projections or business development.Actual results could differ materially from the expectations reflected in suchforward-looking statements as a result of a variety of factors, including therisks associated with the effect of changing economic conditions in PRC, theability to achieve guidance, the announcement or execution of any acquisitionsor other strategic deals, the success of any pipeline projects, variations incash flow, reliance on collaborative retail partners and on new productdevelopment, variations in new product development, risks associated withrapid technological change, and the potential of introduced or undetectedflaws and defects in products, and other risk factors detailed in reportsfiled with the Securities and Exchange Commission from time to time.Fourth Quarter 2009 Highlights -- Total revenues increased 15.0% year-over-year to $29.9 million -- Gross profit rose 18.5% to $22.9 million -- Operating income increased 1.8% to $9.1 million -- Net income decreased 23.6% year-over-year to $5.3 million, or $0.32 per diluted share -- Excluding the effect of recording certain non-cash expense items; (i) share-based compensation of $1.2 million and (ii) a registration rights liability of $1.3 million (" the registration rights liability") due to the Company's failure to cause a registration statement covering the warrant shares to be declared effective as set forth in the Registration Rights Agreement of the Company's January 2008 private placement, our pro forma non-GAAP basis adjusted net income amounted to $7.9 million, or $0.47 per diluted share, as compared to $6.9 million or $0.45 per diluted share a year ago -- Engaged a new sales agent to distribute the Company's Sumei Slim Patch in the U.S. -- Signed Guangdong Mediacy Kind Medical Devices Industry Service Company as exclusive sales agent for AMI Diagnostic Kit and Human Urinary Albumin Elisa Kit in Southeast Asia -- Had 30 medicines included in the 2009 Edition of the National Basic Medical Insurance Directory -- Completed first phase of construction for new headquarters in Harbin Song Bei New Development District, Harbin, China. Full Year 2009 Highlights -- Total revenues increased 41.7% to $130.1 million, in-line with management guidance -- Gross profit grew 41.8% to $98.4 million -- Operating income rose 29.7% to $46.3 million -- Net income increased 19.4% to $34.5 million, or $2.07 per diluted share -- Excluding the effect of recording certain non-cash expense items: (i) shared-based compensation and (ii) the registration rights liability; the Company's pro forma non-GAAP basis adjusted net income increased 28.3% to $37.0 million, or $2.22 per diluted share -- Received SFDA final approval for nine new drugs -- Signed agreement with Taiwan Golden Biotechnology Corporation for the development of new anti-cancer drug Antroquinonol, which was approved by the U.S. FDA to enter into first stage clinical trials

SOURCE China Sky One Medical, Inc.
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