Simcere Pharmaceutical Group Reports Preliminary Unaudited Third Quarter 2012 Results

NANJING, China, November 15, 2012 /PRNewswire/ -- Simcere Pharmaceutical Group ("Simcere" or the "Company") (NYSE: SCR), a leading pharmaceutical company specializing in the development, manufacturing, and marketing of branded generic and proprietary pharmaceuticals in China, today reported preliminary unaudited financial results for the quarter ended September 30, 2012.

Highlights

• Total revenue was RMB526.5 million (US$83.8 million) for the third quarter of 2012, compared to RMB501.0 million for the same period in 2011, representing an increase of 5.1%. For the first nine months of 2012, total revenue was RMB1,542.8 million (US$245.5 million), representing an increase of 0.9% from RMB1,529.5 million for the same period in 2011.
• Gross margin for the third quarter of 2012 was 83.6%, compared to 84.6% for the same period in 2011. For the first nine months of 2012, gross margin was 83.2%, compared to 84.5% for the first nine months of 2011.
• Income from operations was RMB32.9 million (US$5.2 million) for the third quarter of 2012, compared to RMB32.4 million for the same period in 2011, representing an increase of 1.6%. For the first nine months of 2012, income from operations was RMB117.7 million (US$18.7 million), which represented a decrease of 17.1% from RMB141.9 million for the same period in 2011.
• Net income attributable to Simcere was RMB22.2 million (US$3.5 million) for the third quarter of 2012, a decrease of 34.8% from RMB34.0 million for the same period in 2011. For the first nine months of 2012, net income attributable to Simcere was RMB77.8 million (US$12.4 million), which represented a decrease of 42.7% from RMB135.6 million for the same period in 2011.

"In the third quarter of 2012, Simcere's revenue and gross margin fundamentally remained stable," commented Mr. Jinsheng Ren, Chairman of Simcere Pharmaceutical Group. "While sales of edaravone continued to face challenges, we were encouraged to see growth from our generic drugs such as Zailin. I am also pleased that Hongquan Liu, our new Chief Executive Officer, is leading Simcere's management team to improve Simcere's overall operations. I am confident that Simcere will benefit from Hongquan's experience and leadership."

Mr. Hongquan Liu, Executive Director and Chief Executive Officer of Simcere Pharmaceutical Group, commented, "With Simcere's robust product portfolio and leading R&D capabilities, I am confident that Simcere has significant potential for future growth. Moving forward, in order to improve profitability, Simcere's strategic priorities will include focusing on key products, optimizing our sales and marketing organization, strengthening cost control, and in particular reducing sales and marketing expense as a percentage of revenue."

2012 Third Quarter Financial Results

Total revenue for the third quarter of 2012 was RMB526.5 million (US$83.8 million), compared to RMB501.0 million for the same period in 2011, representing an increase of 5.1%. For the first nine months of 2012, total revenue was RMB1,542.8 million (US$245.5 million), representing an increase of 0.9% from RMB1,529.5 million for the same period in 2011.

The tables below set forth the Company's top 10 products by revenue for the three months ended September 30, 2012 and nine months ended September 30, 2012:

For more information about the above products, please visit our corporate website: www.simcere.com.

Gross margin for the third quarter of 2012 was 83.6%, compared to 84.6% for the same period in 2011. For the first nine months of 2012, gross margin was 83.2%, compared to 84.5%for the first nine months of 2011.

Research and development expenses for the third quarter of 2012 totaled RMB65.3 million (US$10.4 million) which represented an increase of 43.7% from RMB45.4 million for the same period in 2011. This increase was due primarily to the increased expenditure on on-going research and development projects, as well as a reduction of RMB13.6 million in government research and development grants recognized compared to the same period in 2011. As a percentage of total revenue, research and development expenses increased to 12.4% for the third quarter of 2012 from 9.1% for the same period in 2011. For the first nine months of 2012, research and development expenses totaled RMB168.5 million (US$26.8 million), compared to RMB128.1 million for the same period in 2011.

Sales, marketing and distribution expenses for the third quarter of 2012 were RMB306.1 million (US$48.7 million), which represented an increase of 5.1% from RMB291.3 million for the same period in 2011. As a percentage of total revenue, sales, marketing and distribution expenses was 58.1%, which was almost equal to the same period in 2011. For the first nine months of 2012, sales, marketing and distribution expenses were RMB856.3 million (US$136.2 million), which represented an increase of 1.4% from RMB844.5 million for the same period in 2011.

General and administrative expenses were RMB60.8 million (US$9.7 million) for the third quarter of 2012, which represented a decrease of 12.6% from RMB69.6 million for the same period in 2011. As a percentage of total revenue, general and administrative expenses decreased to 11.5% for the third quarter of 2012 from 13.9% for the same period in 2011. For the first nine months of 2012, general and administrative expenses were RMB181.6 million (US$28.9 million), which represented a decrease of 14.5% from RMB212.4 million for the same period in 2011.

Share-based compensation expenses, which were allocated to research and development expenses, sales, marketing and distribution expenses, and general and administrative expenses, based on the nature of the work that the relevant employee was assigned to perform, totaled RMB3.9 million (US$0.6 million) for the third quarter of 2012. Share-based compensation expenses for the third quarter of 2011 were RMB7.9 million. The decrease was primarily due to the expiration of the first and second batches of restricted shares. For the first nine months of 2012, share-based compensation expenses totaled RMB10.5 million (US$1.7 million), which represented a decrease of 54.5% from RMB23.0 million for the same period in 2011.

Income from operations was RMB32.9 million (US$5.2 million) for the third quarter of 2012, representing an increase of 1.6% from RMB32.4 million for the same period in 2011. The Company recorded other operating income of RMB24.8 million (US$3.9 million) in the third quarter of 2012 in connection with gain arising from the disposal of the controlling interest on one of our subsidiaries as part of the establishment of our equity joint venture with Merck. For the first nine months of 2012, income from operations was RMB117.7 million (US$18.7 million), which represented a decrease of 17.1% from RMB141.9 million for the same period in 2011.

Income tax expense for the third quarter of 2012 was RMB3.4 million (US$0.5 million), compared to income tax expense of RMB0.7 million for the same period in 2011. The increase was primarily attributable to the effect of the tax rate change on deferred tax assets of one of our subsidiaries which in the third quarter 2012 renewed the Advanced and New Technology Enterprises qualification for an additional three years retrospectively from January 1, 2012. For the first nine months of 2012, income tax expense was RMB6.3 million (US$1.0 million), compared to RMB6.5 million for the same period in 2011.

Net income attributable to Simcere was RMB22.2 million (US$3.5 million) for the third quarter of 2012, compared to RMB34.0 million for the same period in 2011. Net margin, representing net income attributable to Simcere divided by total revenue, was 4.2% for the third quarter of 2012, compared to 6.8% for the same period in 2011. For the first nine months of 2012, net income attributable to Simcere was RMB77.8 million (US$12.4 million), which represented a decrease of 42.7% from RMB135.6 million for the same period in 2011. Net margin for the first nine months of 2012 was 5.0%, compared to 8.9% for the same period in 2011.

Basic and diluted earnings per American Depository Share ("ADS") for the third quarter of 2012 were RMB 0.42(US$0.07) and RMB 0.42(US$0.07), respectively. Basic and diluted earnings per ADS for the first nine months of 2012 were RMB1.45 (US$0.23) and RMB 1.44 (US$0.23), respectively. One ADS represents two ordinary shares of the Company.

As of September 30, 2012, the Company had cash, cash equivalents and restricted cash of RMB152.3 million (US$24.2 million), compared to RMB262.6 million as of December 31, 2011.

Financial Information

The preliminary unaudited condensed consolidated statements of income and balance sheets accompanying this press release have been prepared by management using U.S. GAAP. This preliminary financial information is not intended to fully comply with U.S. GAAP because it does not present all of the financial information and disclosures required by U.S. GAAP.

Safe Harbor Statement

This press release contains forward-looking statements. These statements constitute "forward-looking" statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements 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, the quotations from management in this press release contain forward-looking statements. These forward looking statements are based upon management's current views and expectations with respect to future events and are not a guarantee of future performance. Furthermore, these statements are, by their nature, subject to a number of risks and uncertainties that could cause actual performance and results to differ materially from those discussed in the forward-looking statements as a result of a number of factors. Further information regarding these and other risks is included in Simcere's filings with the U.S. Securities and Exchange Commission at www.sec.gov. Simcere does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

Conference Call

Simcere Pharmaceutical Group will host a conference call to discuss the Company's results for the third quarter of 2012 on Thursday, November 15, at 8:00 a.m. Eastern Time (Thursday, November 15 at 9:00 p.m. Beijing/Hong Kong time). The management team will be on the call to discuss the results for the third quarter of 2012 and to answer questions.

To access the conference call, please dial:

Please ask to be connected to Q3 2012 Simcere Pharmaceutical Group Earnings Conference Call and provide the following passcode: 57347315.

Simcere will also broadcast a live audio webcast of the conference call. The broadcast will be available by visiting the "Investor Relations" section of the company's web site at www.simcere.com.

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

The passcode for replay participants is 57347315. The telephone replay also will be archived on the "Investor Relations" section of the company's web site for seven days following the earnings announcement.

About Simcere Pharmaceutical Group

Simcere Pharmaceutical Group (NYSE:SCR, Simcere) is a leading pharmaceutical company specializing in the development, manufacturing, and marketing of branded and proprietary pharmaceuticals in China. Simcere concentrates its research and development efforts on the treatment of diseases with high incidence and/or mortality rates and for which there is a clear demand for more effective pharmacotherapy such as cancer, strokes, cardiovascular disease, infectious diseases and pain. For more information about Simcere Pharmaceutical Group, please visit www.simcere.com.

* Other operating income in the third quarter amounting to RMB24.8 million (US$3.9 million) represents gain arising from the disposal of the controlling interest on one of our subsidiaries as part of the establishment of our equity joint venture with Merck. The gain recognized is subject to the completion of the valuation work and may be adjusted.

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 = RMB6.2848 on September 30, 2012 as set forth in the H. 10 statistical release of the Federal Reserve Board. No representation is intended to imply that the RMB amounts could have been, or could be, converted, realized or settled into U.S. dollars at that rate on the reporting dates.