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Simcere Pharmaceutical Group Reports Unaudited Third Quarter 2008 Results and Announces Share Repurchase

Thursday, November 6, 2008 General News
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NANJING, China, Nov. 6 Simcere Pharmaceutical Group("Simcere" or the "Company') (NYSE: SCR), a leading manufacturer and supplierof branded generic pharmaceuticals and manufacturer of the patented anti-cancer biotech product Endu in China, today reported unaudited financialresults for the quarter ended September 30, 2008 and announced that its Boardof Directors has approved a share repurchase program.
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Mr. Jinsheng Ren, Chairman and CEO of Simcere Pharmaceutical Group,commented: "We are pleased to report solid year on year growth for the thirdquarter. We are encouraged by the continued growth of our edaravone products,although our Endu sales continued to be affected by the sales teamrestructuring and an expanded program to supply Endu free of charge inclinical studies. Our other branded generic products grew steadily thisquarter. In October, we successfully launched Anxin, our first-to-marketbiapenem for injection, which is used to treat serious infections."
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"Simcere is one of China's leading pharmaceutical companies with a uniquebusiness strategy and established distribution network. Combined with ourhealthy balance sheet and strong cash position, we are confident that Simcerewill benefit from the continued growth of China's healthcare industry, as wellas the long-term trend towards industry consolidation. Our share repurchaseprogram demonstrates Simcere's confidence in the long term growth andcommitment to maximize shareholder value. "

2008 Third Quarter Financial Results

Total revenue for the third quarter of 2008 was RMB443.4 million (US$65.3million), representing a growth of 37.1% from RMB323.4 million for the sameperiod in 2007. For the first nine months of 2008, total revenue wasRMB1,274.2 million (US$187.7 million), representing an increase of 31.4% fromRMB970.1 million for the same period in 2007.

Revenue from Endu, the Company's patented anti-cancer pharmaceuticallaunched in July 2006, totaled RMB54.4 million (US$8.0 million) in the thirdquarter of 2008, representing an increase of 3.0% from RMB52.8 million for thesame period in 2007. Endu sales growth slowed down this quarter due to therestructuring of the Endu sales force and an expanded program to supply Endufree of charge to existing and new patients participating in a series ofclinical studies. For the first nine months of 2008, revenue from Endutotaled RMB181.3 million (US$26.7 million), representing an increase of 19.2%from RMB152.2 million in the first nine months of 2007.

Revenue from first-to-market Edavarone injection products under the brandnames Bicun and Yidasheng totaled RMB158.8 million (US$23.4 million) in thethird quarter of 2008, representing an increase of 49.5% from RMB106.2 millionfor the same period in 2007. While more edaravone products enter the market,Simcere's Bicun and Yidasheng remain the most established brands and are themarket leaders in China. For the first nine months of 2008, revenue fromBicun and Yidasheng totaled RMB458.4 million (US$67.5 million), representingan increase of 54.6% from RMB296.5 million in the first nine months of 2007.

Revenue from other first-to-market products, Jiebaishu, a nedaplatinproduct and Sinofuan, a 5-FU sustained release implant for the treatment ofcancer, totaled RMB20.7 million (US$3.1 million) in the third quarter of 2008.There was no revenue generated from these two new products for the same periodin 2007. For the first nine months of 2008, revenue from Jiebaishu andSinofuan totaled RMB34.1 million (US$5.0 million).

Revenue from other branded generic products totaled RMB207.3 million(US$30.5 million) in the third quarter of 2008, representing an increase of26.9% from RMB163.4 million for the same period in 2007. For the first ninemonths of 2008, revenue from other branded generic products totaled RMB596.2million (US$87.8 million), representing an increase of 15.4% from RMB516.3million in the first nine months of 2007.

Gross margin for the third quarter of 2008 decreased to 78.3%, as comparedto 81.7% for the same period in 2007. The decrease was primarily due to alower margin contract sale transaction in the resale of drugs for otherpharmaceutical companies, which is now ceased. For the first nine months of2008, gross margin decreased to 80.9% compared to 82.4% for the first ninemonths of 2007.

Research and development expenses for the third quarter of 2008 totaledRMB21.1 million (US$3.1 million), an increase of 9.5% from RMB19.3 million forthe corresponding period a year ago. This was primarily due to the expansionin headcount of our research and development team. As a percentage of totalrevenue, research and development expenses were 4.8% compared to 6.0% for thesame period in 2007. For the first nine months of 2008, research anddevelopment expenses totaled RMB52.1 million (US$7.7 million), compared toRMB52.4 million for the same period in 2007.

Sales, marketing and distribution expenses for the third quarter of 2008were RMB194.7 million (US$28.7 million), an increase of 32.9% from RMB146.6million for the corresponding period a year ago. As a percentage of totalrevenue, sales, marketing and distribution expenses, were 43.9% compared to45.3% for the same period in 2007. For the first nine months of 2008, salesand marketing expenses were RMB557.2 million (US$82.1 million), an increase of26.1% from RMB441.7 million in the first nine months of 2007.

General and administrative expenses were RMB44.6 million (US$6.6 million)for the third quarter of 2008, representing an increase of 16.7% from RMB38.2million for the third quarter of 2007. The increase was primarily due to theincreased headcount and the professional service fees associated with thecompliance work on Section 404 of the Sarbanes-Oxley Act of 2002. However,general and administrative expenses, as a percentage of total revenue,decreased to 10.1% in the third quarter of 2008 from 11.8% in the same periodof 2007 as a result of increased economies of scale. For the first ninemonths of 2008, general and administrative expenses were RMB138.6 million(US$20.4 million), an increase of 20.2% from RMB115.3 million in thecorresponding period in 2007.

Share-based compensation expenses, which were allocated to research anddevelopment expenses, sales, marketing and distribution expenses, and generaland administrative expenses, based on the nature of the work the Company'semployees were assigned to perform, totaled RMB6.5 million (US$1.0 million)for the third quarter of 2008. Share-based compensation expenses for thethird quarter of 2007 were RMB7.5 million. For the first nine months of 2008,share-based compensation expenses totaled RMB19.9 million (US$2.9 million), adecrease of 9.8% from RMB22.0 million for the first nine months of 2007.

Operating income was RMB87.0 million (US$12.8 million) for the thirdquarter of 2008, representing an increase of 44.4% as compared to RMB60.2million for the corresponding period of 2007. For the first nine months of2008, operating income was RMB284.3 million (US$41.9 million), an increase of49.1% as compared to RMB190.7 million in the corresponding period in 2007.

Income tax expense for the third quarter of 2008 totaled RMB1.5 million(US$0.2 million) compared to an income tax credit of RMB0.3 million for thecorresponding period of 2007. For the first nine months of 2008, income taxexpense was RMB36.3 million (US$5.4 million) compared to an income tax benefitof RMB2.8 million for the first nine months of 2007. In addition to theoverall increase in taxable income, the increased income tax expense in 2008was primarily due to the expiration of tax holidays enjoyed by two PRCsubsidiaries.

Net income was RMB91.2 million (US$13.4 million) for the third quarter of2008, compared to RMB73.1 million in the corresponding period a year ago andrepresenting growth of 24.7%. The Company's net income margin was 20.6% forthe third quarter of 2008 compared to 22.6% for the third quarter of 2007.For the first nine months of 2008, net income was RMB298.4 million (US$44.0million), an increase of 33.7% as compared to RMB223.2 million for the firstnine months of 2007. Net margin for the first nine months of 2008 was 23.4%as compared to 23.0% for the first nine months of 2007.

Basic earnings per share for the third quarter of 2008 and the first ninemonths of 2008 were RMB0.73 (US$0.11) and RMB2.39 (US$0.35) respectively, anddiluted earnings per share for the third quarter of 2008 and the first ninemonths of 2008 were RMB0.72 (US$0.11) and RMB2.37 (US$0.35) respectively. OneAmerican Depository Share (ADS) represents two ordinary shares. Basicearnings per ADS for the third quarter of 2008 and the first nine months of2008 were RMB1.46 (US$0.21) and RMB4.77 (US$0.70) respectively, and dilutedearnings per ADS for the third quarter of 2008 and the first nine months of2008 were RMB1.44 (US$0.21) and RMB4.73 (US$0.70) respectively.

As of September 30, 2008, the Company had cash and cash equivalents(including pledged bank deposits), and short term investments of RMB831.3million (US$122.4 million) compared to RMB968.3 million as of December 31,2007.

Financial Outlook

Based on its first nine months performance, the Company maintains itstargeted total revenue for the full year 2008 to be in the range betweenRMB1.7 billion and RMB1.8 billion. The Company also maintains its targetednet income for the full year 2008 to be in the range between RMB390.0 millionand RMB400.0 million.

The above targets are based on the Company's current views on theoperating and marketing conditions which are subject to change.

Share Repurchase Program

Under the terms of the share repurchase program approved by the board ofdirectors, Simcere Pharmaceutical Group may purchase up to US$50 million worthof its issued and outstanding ADSs. The repurchases will be made from time totime on the open market at prevailing market prices or in block trades andsubject to restrictions relating to volume, price and timing. The Company mayeffect buyback transactions pursuant to Rule 10b5-1 under the SecuritiesExchange Act of 1934, as amended. The timing and extent of any purchases willdepend upon market conditions, the trading price of its ADSs and other factors.The Company expects to implement this share repurchase program over the courseof the next 12 months, in a manner consistent with market conditions and theinterest of the shareholders. The Company's board of directors will reviewthe share repurchase program periodically, and may authorize adjustment of itsterms and size accordingly. The Company plans to fund repurchases made underthis program from its available cash balance.

Safe Harbor Statement

This press release contains forward-looking statements. These statementsconstitute "forward-looking" statements within the meaning of Section 27A ofthe Securities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended, and as defined in the U.S. PrivateSecurities Litigation Reform Act of 1995. These forward-looking statementscan be identified by terminology such as "anticipate," "believe," "estimate,""expect," "forecast," "intend," "may," "plan," "project," "predict," "should"and "will" and similar expressions. In particular, the quotations frommanagement in this press release and the section under "Financial Outlook"contain forward-looking statements. These forward looking statements arebased upon management's current views and expectations with respect to futureevents and are not a guarantee of future performance. Furthermore, thesestatements are, by their nature, subject to a number of risks anduncertainties that could cause actual performance and results to differmaterially from those discussed in the forward-looking statements as a resultof a number of factors. Further information regarding these and other risksis included in Simcere's filing with the U.S. Securities and ExchangeCommission at http://www.sec.gov . Simcere does not undertake any obligationto update any forward-looking statement, except as required under applicablelaw.

Conference Call

Simcere Pharmaceutical Group will host a conference call to discuss thethird quarter 2008 earnings on Thursday, November 6, at 8 a.m. Eastern Time(Thursday, November 6 at 9 p.m. Beijing/Hong Kong time). The management teamwill be on the call to discuss quarterly results and highlights and to answerquestions.

Please ask to be connected to Simcere's third quarter 2008 earnings calland provide the following passcode: 91351092. Simcere also will broadcast alive audio webcast of the conference call. The broadcast will be availableby visiting the "Investor Relations" section of the Company's Web site athttp://www.simcere.com .

Following the earnings conference call, an archive of the call will beavailable by dialing:

United States toll-free dial-in number: +1 888 286 8010

The passcode for replay participants is: 53343092. The telephone replayalso will be archived on the "Investor Relations" section of the Company's Website at http://www.simcere.com for seven days following the earningsannouncement.

About Simcere Pharmaceutical Group

Simcere Pharmaceutical Group (NYSE:SCR, Simcere) is a leading manufacturerand supplier of branded generic pharmaceuticals and manufacturer of thepatented anti-cancer biotech product Endu in the rapidly growing China market.In recent years, Simcere has been focusing its strategy on the development offirst-to-market generic and innovative pharmaceuticals, and has introduced afirst-to-market generic stroke management medication under the brand nameBicun and an innovative anti-cancer medication under the brand name Endu.Simcere currently manufactures and sells more than 50 pharmaceutical productsincluding antibiotics, anti-cancer medication and stroke management medicationand is the exclusive distributor of three additional pharmaceuticals that aremarketed under its brand names. Simcere concentrates its research anddevelopment efforts on the treatment of diseases with high incidence and/ormortality rates and for which there is a clear demand for more effectivepharmacotherapy such as cancer, strokes, osteoporosis and infectious diseasesand currently has more than 12 pipeline products. For more information aboutSimcere Pharmaceutical Group, please visit http://www.simcere.com .Highlights -- Total revenue increased to RMB443.4 million (US$65.3 million) for the third quarter, representing a 37.1% year-over-year growth; -- Net income was RMB91.2 million (US$13.4 million) for the third quarter, representing a 24.7% year-over-year growth; -- Gross margin was 78.3% for the third quarter, which was impacted by a one-off contract sale transaction involving the resale of generic drugs for other pharmaceutical companies, which is now ceased; and -- The board of directors has approved a share repurchase program under which Simcere Pharmaceutical Group may purchase up to US$50 million worth of its issued and outstanding American depositary shares ("ADSs") in the following twelve months.

SOURCE Simcere Pharmaceutical Group
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