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Mr. Jinsheng Ren, Chairman and Chief Executive Officer of SimcerePharmaceutical Group, commented: "Our sales and gross profit margins remainedstable this quarter. However, lower sales in Endu, impacted by therestructuring of the sales team, and an increase in sales and marketingexpenses for new to market drugs like Anxin and Sinofuan, caused a significantdecrease in operating income.
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"Looking forward, we will maximize the commercial opportunities presentedby the upcoming changes in the national and local insurance catalogues, andcontinue our strategy of marketing existing key products within Simcere'sstrong product portfolio to drive mid-to-long term growth."
In October 2009, we increased our stake in Jiangsu Yanshen, a manufacturerof the Influenza A (H1N1) vaccine and became its controlling shareholder. Wealso acquired the manufacturing license of Rosuvastatin, an effective statinto treat high cholesterol and related conditions.
2009 Third Quarter Financial Results
Total revenue for the third quarter of 2009 was RMB443.7 million (US$65.0million), compared to RMB443.4 million for the same period in 2008. For thefirst nine months of 2009, total revenue was RMB1,310.6 million (US$192.0million), which represented an increase of 2.9% from RMB1,274.2 million forthe same period in 2008.
Revenue from Endu, the Company's patented anti-cancer biotech product,amounted to RMB21.6 million (US$3.2 million) in the third quarter of 2009,which was 4.9% of the Company's product revenue for the third quarter of 2009and represented a decrease of 60.2% from RMB54.4 million for the same periodin 2008. For the first nine months of 2009, revenue from Endu totaled RMB90.2million (US$13.2 million), which represented a decrease of 50.2% from RMB181.3million for the same period in 2008.
Revenue from edaravone injection products under the brand names Bicun andYidasheng totaled RMB191.1 million (US$28.0 million) for the third quarter of2009, which was 43.5% of the Company's product revenue for the third quarterof 2009, and represented an increase of 20.4% from RMB158.8 million for thesame period in 2008. For the first nine months of 2009, revenue from Bicun andYidasheng totaled RMB533.7 million (US$78.2 million), which represented anincrease of 16.4% from RMB458.4 million for the same period in 2008.
Revenue from Sinofuan, a 5-FU sustained release implant for the treatmentof cancer, amounted to RMB36.0 million (US$5.3 million) for the third quarterof 2009, which was 8.2% of the Company's product revenue for the third quarterof 2009, and represented an increase of 114.6% from RMB16.8 million for thesame period in 2008.
Revenue from other first-to-market products including Jiebaishu, anedaplatin product, and Anxin, a biapenem injection for the treatment ofserious infections, amounted to RMB8.7 million (US$1.3 million) for the thirdquarter of 2009, which was 2.0% of the Company's product revenue for the thirdquarter of 2009. For the first nine months of 2009, revenue from otherfirst-to-market products totaled RMB27.6 million (US$4.0 million).
Revenue from other branded generic products amounted to RMB181.6 million(US$26.5 million), which was 41.4% of the Company's product revenue for thethird quarter of 2009, and represented a decrease of 12.4% from RMB207.3million for the same period in 2008. For the first nine months of 2009,revenue from other branded generic products totaled RMB551.3 million (US$80.8million), which represented a decrease of 7.5% from RMB596.2 million for thesame period in 2008.
Gross margin for the third quarter of 2009 was 82.2%, increased from 78.4%for the same period in 2008. For the first nine months of 2009, gross marginwas 82.3%, increased from 81.0% for the same period in 2008.
Research and development expenses for the third quarter of 2009 totaledRMB32.8million (US$4.8 million), which represented an increase of 55.3% fromRMB21.1 million for the same period in 2008. This increase was primarily dueto increased research and development headcount as the Company continued toexpand its research and development activities. As a percentage of totalrevenue, research and development expenses were 7.4% for the third quarter of2009, compared to 4.8% for the same period in 2008. For the first nine monthsof 2009, research and development expenses totaled RMB82.9 million (US$12.1million), compared to RMB52.1 million for the same period in 2008.
Sales, marketing and distribution expenses for the third quarter of 2009were RMB247.2 million (US$36.2 million), which represented an increase of27.0% from RMB194.7 million for the same period in 2008. As a percentage oftotal revenue, sales, marketing and distribution expenses were 55.7% for thethird quarter of 2009, compared to 43.9% for the same period in 2008. Thisincrease was primarily due to higher expenses from Endu sales teamrestructuring and increased expenses for new to market drugs such as Anxin andSinofuan. For the first nine months of 2009, sales, marketing and distributionexpenses were RMB702.5 million (US$102.9 million), which represented anincrease of 26.1% from RMB557.2 million for the same period in 2008.
General and administrative expenses were RMB55.6 million (US$8.1 million)for the third quarter of 2009, which represented an increase of 24.6% fromRMB44.6 million for the same period in 2008. As a percentage of total revenue,general and administrative expenses increased to 12.5% for the third quarterof 2009 from 10.1% for the same period in 2008. For the first nine months of2009, general and administrative expenses were RMB165.8 million (US$24.3million), which represented an increase of 19.6% from RMB138.6 million for thesame period in 2008.
Share-based compensation expense, which was allocated to research anddevelopment expenses, sales, marketing and distribution expenses, and generaland administrative expenses, based on the nature of the work that the employeewas assigned to perform, totaled RMB5.8 million (US$0.8 million) for the thirdquarter of 2009. Share-based compensation expenses for the third quarter of2008 were RMB6.5 million. For the first nine months of 2009, share-basedcompensation expenses totaled RMB17.7 million (US$2.6 million), whichrepresented a decrease of 11.1% from RMB19.9 million for the same period in2008.
Income from operations was RMB29.0 million (US$4.3 million) for the thirdquarter of 2009, which represented a decrease of 66.6% from RMB87.0 millionfor the same period in 2008. For the first nine months of 2009, operatingincome was RMB128.0 million (US$18.8 million), which represented a decrease of55.0% from RMB284.3 million for the same period in 2008.
Income tax expense for the third quarter of 2009 was RMB4.7 million(US$0.7 million), compared to RMB1.5 million for the same period in 2008. Theincrease in income tax expense for the third quarter of 2009 was primarily dueto the release of the valuation allowance utilized by the earnings of anoperating subsidiary in the same period of 2008. For the first nine months of2009, income tax expense was RMB8.8 million (US$1.3 million) compared toRMB36.3 million for the same period in 2008.
Net income attributable to Simcere was RMB16.4 million (US$2.4 million)for the third quarter of 2009, compared to RMB91.2 million for the same periodin 2008. Net income margin was 3.7% for the third quarter of 2009, compared to20.6% for the third quarter of 2008. For the first nine months of 2009, netincome was RMB101.8 million (US$14.9 million), which represented a decrease of65.9% from RMB298.4 million for the same period in 2008. Net margin for thefirst nine months of 2009 was 7.8% as compared to 23.4% for the same period in2008.
Basic and diluted earnings per American Depository Share ("ADS") for thethird quarter of 2009 were RMB0.29 (US$0.04) and RMB0.29 (US$0.04)respectively. Basic and diluted earnings per ADS for the first nine months of2009 were RMB1.75 (US$0.26) and RMB1.73 (US$0.25) respectively. One ADSrepresents two ordinary shares of the Company.
As of September 30, 2009, the Company had cash, cash equivalents andrestricted cash of RMB448.1 million (US$65.6 million), compared to RMB813.8million as of December 31, 2008.
Financial Statements
The unaudited condensed consolidated statements of income and balancesheets accompanying this press release have been prepared by management usingU.S. GAAP. These financial statements are not intended to fully comply withU.S. GAAP because they do not present all of the financial statements anddisclosures required by U.S. GAAP.
Safe Harbor Statement
This press release contains forward-looking statements. These statementsconstitute "forward-looking" statements within the meaning of Section 21E ofthe Securities Exchange Act of 1934, as amended, and as defined in the U.S.Private Securities Litigation Reform Act of 1995. These forward-lookingstatements can be identified by terminology such as "anticipate," "believe,""estimate," "expect," "forecast," "intend," "may," "plan," "project,""predict," "should" and "will" and similar expressions. In particular, thequotations from management in this press release and the section under"Financial Outlook" contain forward-looking statements. These forward lookingstatements are based upon management's current views and expectations withrespect to future events and are not a guarantee of future performance.Furthermore, these statements are, by their nature, subject to a number ofrisks and uncertainties that could cause actual performance and results todiffer materially from those discussed in the forward-looking statements as aresult of a number of factors. Further information regarding these and otherrisks is included in Simcere's filings 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 theCompany's results for the third quarter 2009 on Monday, November 16, 2009 at 8a.m. Eastern Time (Monday, November 16, at 9 p.m. Beijing/Hong Kong time). Themanagement team will be on the call to discuss the results for third quarter2009 and to answer questions.
Please ask to be connected to Simcere's Q3 2009 earnings call and providethe following passcode: 32750293. Simcere will also broadcast a live audiowebcast of the conference call. The broadcast will be available by visitingthe "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: 77133325. The telephone replayalso will be archived on the "Investor Relations" section of the Company's website for seven days following the earnings announcement.
About Simcere Pharmaceutical Group
Simcere Pharmaceutical Group (NYSE:SCR, Simcere) is a leadingpharmaceutical company specializing in the development, manufacturing, andmarketing of branded generic and proprietary pharmaceuticals in China. Inrecent years, Simcere has been focusing its strategy on the development ofinnovative pharmaceuticals and first-to-market generics, and has introduced aninnovative anti-cancer medication Endu, a first-to-market medication Sinofuan,and first-to-market generics such as Bicun and Anxin. Simcere manufactures andsells antibiotics, anti-cancer medication stroke management medication andbiopharmaceutical drugs such as vaccines. Simcere concentrates its researchand development efforts on the treatment of diseases with high incidenceand/or mortality rates and for which there is a clear demand for moreeffective pharmacotherapy such as cancer, strokes, orthopaedics and infectiousdiseases. For more information about Simcere Pharmaceutical Group, pleasevisit http://www.simcere.com .
Note: The conversions of Renminbi (RMB) into United States dollars (USD)as at the reporting dates are based on the noon buying rate of USD1.00 =RMB6.8262 on September 30, 2009 as set forth in the H. 10 statistical releaseof the Federal Reserve Board. No representation is intended to imply that theRMB amounts could have been, or could be, converted, realized or settled intoU.S. dollars at that rate on the reporting dates.Highlights -- Total revenue was RMB443.7 million (US$65.0 million) for the third quarter of 2009, compared to RMB443.4 million for the same period in 2008. -- Gross margin for the third quarter of 2009 was 82.2%, compared to 78.4% for the same period in 2008. -- Income from operations was RMB29.0 million (US$4.3 million) for the third quarter of 2009, a decrease of 66.6% from RMB87.0 million for the same period in 2008. -- Net income attributable to Simcere was RMB16.4 million (US$2.4 million) for the third quarter of 2009, a decrease of 82.0% from RMB91.2 million for the same period in 2008.
SOURCE Simcere Pharmaceutical Group
