omniture

3SBio Inc. Announces Fourth Quarter And Fiscal Year 2006 Results

2007-04-03 11:57 971


- Q4 2006 net revenues grew 36.0%, as compared to Q4 2005, to US$4.5

million

- Q4 2006 operating income up 148.1%, as compared to Q4 2005, to US$1.1

million

- 2006 fiscal year net revenues increased 25.3% year-over-year to US$16.4

million

- 2006 fiscal year net income grew 89.9% year-over year to US$3.9 million

SHENYANG, China, April 3 /PXinhua-RNewswire-FirstCall/ -- 3SBio Inc.

(Nasdaq: SSRX), a leading China-based biotechnology company focused on

researching, developing, manufacturing and marketing biopharmaceutical

products, today announced its unaudited financial results for the fourth

quarter and fiscal year ended December 31, 2006.

Fourth Quarter 2006 Financial Highlights:

-- Total net revenues increased 36.0% over fourth quarter 2005 to RMB35.2

million (US$4.5 million).

-- Net revenue from our flagship injectable recombinant human

erythropoietin products, or EPO products, marketed under our EPIAO

brand, increased 28.8% over fourth quarter 2005 to RMB26.0 million

(US$3.3 million).

-- Net revenue from our protein-based therapeutic recombinant human

thrombopoietin products, or TPO products, marketed under our TPIAO

brand, increased 201.4% over fourth quarter 2005 to RMB5.9 million

(US$0.8 million).

-- Operating income increased 148.1% over fourth quarter 2005 to RMB8.7

million (US$1.1 million).

-- Net income increased 124.7% over fourth quarter 2005 to RMB7.1 million

(US$0.9 million).

-- Earnings per American Depositary Share ("ADS") for the fourth quarter

2006 were RMB0.50 (US$0.06), compared to RMB0.22 for the fourth quarter

2005.

Fiscal Year 2006 Financial Highlights:

Compared to fiscal year 2005 results,

-- Total net revenues increased 25.3% to RMB127.8 million (US$16.4

million).

-- Revenue from EPIAO increased 16.5% to RMB98.8 million (US$12.7 million)

-- Revenue from TPIAO increased 474.5% to RMB16.1 million (US$2.1 million)

-- Revenue from export sales increased 17.8% to RMB5.9 million (US$0.8

million).

-- Operating income increased 81.2% to RMB36.5 million (US$4.7 million).

-- Net income increased 89.9% to RMB30.5 million (US$3.9 million).

-- Earnings per ADS were RMB2.13 (US$0.27) in 2006, compared to RMB1.12

per ADS in 2005.

"We are very pleased with the growth of our earnings, and with our

continued strategic and operational progress," commented Dr. Jing Lou, chief

executive officer of 3SBio. "We achieved solid growth throughout our business,

especially with regard to our flagship EPO product, EPIAO, and our latest

internally developed TPO product, TPIAO. Our EPIAO products continued to be

the market leader both in terms of revenues and sales volume, with market

shares of 36% and 30%, respectively, for the fourth quarter 2006, according to

IMS Health and our internal data. Our TPIAO products continued to gain market

acceptance since launch, ending the fiscal year 2006 as our second biggest

revenue contributor, accounting for 12.6% of our total revenues for the year.

We continue to make steady progress in our robust development pipeline, and

just recently announced the addition to our product portfolio of our pre-

filled syringe EPIAO products. These developments further demonstrate our

focus on growth, margins and profitability through our proven R&D capabilities,

innovative and cost-effective manufacturing operations, established nationwide

sales and marketing network and market oriented management team."

Fourth Quarter and Fiscal Year 2006 Unaudited Financial Results

Net Revenues.

Our net revenues amounted to RMB35.2 million (US$4.5 million) in the

fourth quarter of 2006 compared to RMB35.6 million net revenues for third

quarter of 2006. Due to seasonality of our sales, the third quarter typically

represents the highest sales period for a year. The mitigation of seasonal

effects on our sales for the fourth quarter of 2006 was primarily due to the

quarter-over-quarter upward trend of our TPIAO products. Net revenues for

fourth quarter 2006 increased by 36.0%, over fourth quarter 2005.

Net revenues increased by 25.3% to RMB127.8 million (US$16.4 million) for

fiscal year 2006, from RMB102.0 million in 2005. This increase was primarily

attributable to the rapid market adoption of our TPIAO products, which

generated revenues of RMB16.1 million (US$2.1 million) in 2006, compared to

RMB2.8 million in 2005. TPIAO was our second largest revenue contributor in

2006, accounting for 12.6% of overall net revenues in the period. The

increase was also attributable to greater net revenues from our leading EPIAO

products, which increased by 16.5% from RMB84.8 million in 2005 to RMB98.8

million (US$12.7 million) in 2006.

Excluding revenues from our newly launched TPIAO, our overall rate of revenue

growth for 2006 was 12.6%, compared to 28.4% for 2005. This slowdown in

revenue growth rate was primarily attributable to a government sponsored anti-

corruption campaign, under which certain hospitals denied access to sales

representatives from pharmaceutical companies because the hospitals wanted to

avoid the perception of corruption, which in turn temporarily limited our

ability to expand into new hospitals in 2006. We support the government's

anti-corruption efforts and believe they will have a positive effect on the

pharmaceutical industry in China and on our business in the long run.

Gross Profit.

Gross profit increased 40.5% to RMB32.4 million (US$4.2 million) for the

fourth quarter 2006 from RMB23.1 million in the fourth quarter 2005.

Gross margin was 92.0% in the fourth quarter 2006, up slightly from 91.4%

in the third quarter 2006 and up from 89.1% in the fourth quarter 2005. In

fiscal 2006, cost of revenues decreased by 25.2% and gross margin improved

from 84.8% in 2005 to 90.9% in 2006. The improved margins were due to costs

reduction in fiscal 2006 primarily attributable to a decrease in depreciation

charges, reduced needs for provisions and charges such as inventory write-offs

and amortization of intangibles and an increased production yield for EPIAO in

2006.

Income from Operations.

Operating income for the fourth quarter of 2006 was RMB8.7 million

(US$1.1 million), representing a 21.2% decrease, compared to RMB11.1 million

in the third quarter of 2006, but up 148.1% from an operating income of RMB3.5

million in the fourth quarter of 2005. Operating margin for the fourth

quarter 2006 was 24.8%, lower than the 31.0% operating margin in the third

quarter of 2006, due to normal seasonality, but up from 13.6% in the fourth

quarter of 2005. The lower fourth quarter operating income and margin in 2006

as compared to the third quarter 2006 was mainly due to increased marketing

efforts in the fourth quarter of 2006 and the additional cost of RMB1.2

million (US$0.2 million) stock-based compensation associated with 312,504

restricted shares awarded in June 2006 and share options granted in October

2006 to purchase 1,060,000 ordinary shares.

Operating margin for 2006 was 28.6%, up from 19.8% for 2005, attributable

to continued operational improvements in our manufacturing and sales platforms

through increased product offerings and scale of operations.

Operating expenses.

Our total operating expenses increased by 20.0% from RMB66.4 million in

2005 to RMB79.6 million (US$10.2 million) in 2006. The increase was primarily

due to an increase in sales, marketing and distribution expenses.

-- Research and development expenses. Our research and development

expenses increased 90.9% to RMB6.1 million (US$0.8 million) for 2006

from RMB3.2 million for 2005. The increase was mainly attributable to

research and development expenses associated with TPIAO's phase IV

post-marketing clinical tests and the development of our EPIAO pipeline

products. The increase was also related to a one-time licensing fee

for the licensing and co-development of anti-TNF alpha monoclonal

antibody therapeutics with Epitomics Inc., and for continued

development of other pipeline products.

-- Sales, marketing and distribution expenses. Our sales, marketing and

distribution expenses increased 24.5% to RMB61.3 million (US$7.9

million) for 2006 from RMB49.2 million for 2005. The increase was

primarily attributable to higher staff costs and bonuses as well as the

increase in marketing and promotion costs for our TPIAO and higher

sales activities in general. Sales, marketing and distribution expenses

as a percentage of net revenues remained stable at around 48%.

-- General and administrative expenses. Our general and administrative

expenses decreased 12.1% from RMB14.0 million for 2005 to RMB12.3

million (US$1.6 million) for 2006. The decrease was primarily

attributable to the reduced requirement for bad debt provision and

depreciation, partially offset by an increase in stock-based

compensation charge. General and administrative expenses as a

percentage of net revenues decreased from 13.7% in 2005 to 9.6% in

2006.

Other expense, net.

Net other expense decreased 65.6% from RMB2.5 million for 2005 to RMB0.9

million (US$0.1 million) for 2006. The decrease was primarily due to lower

interest expenses resulting from reduced average bank borrowings in 2006.

Income before income tax expense and minority interests.

As a result of the foregoing, our income before income tax expense and

minority interests increased 101.9%, from RMB17.7 million for 2005 to RMB35.7

million (US$4.6 million) for 2006.

Income tax expense.

Our income tax expense increased 196.1% from RMB1.8 million for 2005 to

RMB5.2 million (US$0.7 million) for 2006, and our effective tax rate was 14.6%

for 2006, compared to 10.0% for 2005, primarily attributable to the effects of

non-deductible share-based compensation expenses in 2006 and increase in

applicable tax rate for our major operating subsidiary from 10% in 2005 to 15%

in 2006 due to the expiration of a tax holiday.

Net income.

As a result of the foregoing, our net income increased 89.9%, from RMB16.1

million for 2005 to RMB30.5 million (US$3.9 million) for 2006.

Statement Regarding Unaudited Financial Information

The unaudited financial information set forth above is preliminary and

subject to adjustments. The audit of the financial statements and related

notes to be included in our annual report on Form 20-F for the year ended

December 31, 2006 is still in progress. Adjustments to the financial

statements may be identified when audit work is completed, which could result

in significant differences from this preliminary unaudited financial

information.

Currency Convenience Translation

For the convenience of readers, certain RMB amounts have been translated

into US dollars at the rate of RMB7.8041 to US$1.00, the noon buying rate for

US dollars in effect on December 29, 2006 for cable transfers of RMB per US

dollar as certified for customs purposes by the Federal Reserve Bank of New

York.

Related Party Transaction

The collaboration partner for our development of TNF alpha monoclonal

antibody is a related party, Epitomics Inc., the Chief Executive Officer of

which is an immediate family member of the Company's CSO. The collaboration

between the two companies is to combine 3SBio's development capabilities and

Epitomics' approach for generating large panel of therapeutic leads for the

purpose of the identification of best-in-class drug candidates for anti-TNF

therapy. Research and development fees of RMB0.4 million were payable to

Epitomics as of the year ended December 31, 2006. Under the terms of the

agreement Epitomics may receive royalties on any potential future products

sold in China.

Business Highlights

Pre-filled Syringe EPO -- On March 20, 2007, 3SBio Inc. announced that the

Company has received approval from China's State Food and Drug Administration

("SFDA") for licenses to produce and sell pre-filled syringe EPO products in

2,000 IU, 3,000 IU, 4,000 IU and 10,000 IU strengths under its brand name

EPIAO. The Company plans to launch pre-filled syringe EPIAO products within

2007.

TPIAO Launch -- In January 2006, 3SBio launched its newest internally

developed protein-based therapeutic product, TPIAO. TPIAO is a thrombopoietin,

or TPO, indicated for the treatment of chemotherapy-induced thrombocytopenia,

or platelet deficiency. TPIAO is the first protein-based therapeutic of its

type approved for thrombocytopenia in China. Since launch, TPIAO has become

3SBio's fastest growing product and second highest revenue contributor behind

EPIAO, representing 12.6% of sales revenues for the fiscal year 2006. With

market exclusivity in China until 2010, TPIAO represents a key growth driver

in 3SBio's market leading portfolio.

In-Licensed Products -- 3SBio complemented its portfolio of internally

developed products in 2006 with the addition of two in-licensed products,

Tietai Iron Sucrose Supplement and Baolijin, our recombinant human granulocyte

colony-stimulating factor or G-CSF, in-licensed in May and August 2006,

respectively. The in-licensing agreements for both products include five-year

exclusive distribution rights, and bolster the Company's market leading

portfolio of products focused on the oncology and nephrology therapeutic end

markets.

Development of Export Sales -- Throughout 2006, 3SBio received Good

Manufacturing Practice (GMP) approval from a growing list of countries,

further diversifying its export business. These included: Sri Lanka (March),

Trinidad & Tobago (July), Republic of Yemen (August), Guatemala (September),

and Colombia (November). While exports constitute a small percentage (4.6%)

of 3SBio's total sales for fiscal 2006, they represent a growing opportunity

which 3SBio intends to continue to develop in the future.

Awards for Excellence -- Further highlighting its goal to continually

strive for scientific and operational excellence, 3SBio received numerous

science and technology awards in 2006. These include:

-- first prize for Progress in Science and Technology awarded by the

government of Shenyang;

-- third prize for Transformation of Science and Technology Achievements,

awarded by the Science and Technology Department of Liaoning Province;

-- Team Award for Science and Technology Innovation during the Tenth

"Five-Year Plan", awarded by the Science and Technology Bureau of

Shenyang; and

-- the Individual Award for Science and Technology Innovation during the

Tenth "Five-Year Plan", presented to 3SBio CEO Dr. Jing Lou by the

Science and Technology Bureau of Shenyang.

Initial Public Offering - On February 7, 2007, 3SBio became the first

Chinese biotech company to list on the NASDAQ Global Market in an initial

public offering of 7.7 million ADSs. Including the exercised over-allotment

option of an additional 252,634 ADSs, the Company successfully raised

approximately US$105.7 million from this offering. As of the date of this

release, there were 152,084,155 shares of common stock outstanding, of which

the number of ADSs issued and available for trading is 8,452,140 ADSs.

Conference Call

3SBio senior management will host a conference call at 5:00 am (Pacific) /

8:00 am (Eastern) / 8:00 pm (Beijing/Hong Kong) on Tuesday, April 3, 2007 to

discuss its fourth quarter and fiscal year 2007 financial results and recent

business activity. The conference call may be accessed by calling (US)

+1 480 629 9564 / (UK) +44 (0)20 8515 2301 / (HK) +852 3009 5027. A telephone

replay will be available shortly after the call until April 16, 2007 at (US)

+1 303 590 3030 / (UK) +44 (0)20 7154 2833, Passcode: 3714705; and (HK)

+852 2287 4304, Passcode: 095110#.

A live webcast of the conference call and replay will be available on the

investor relations page of 3SBio's website at www.3sbio.com.

About 3SBio Inc.

3SBio Inc. is a leading, fully integrated biotechnology company focused on

researching, developing, manufacturing and marketing biopharmaceutical

products, primarily in China. For more information, please visit 3SBio on the

web at www.3sbio.com.

Safe Harbor Statement

Statements in this release regarding certain anticipated business

prospects resulting from the approval constitute "forward-looking" statements

within the meaning of Section 27A of the Securities Act of 1933, as amended,

and Section 21E of the Securities Exchange Act of 1934, as amended, and as

defined in the Private Securities Litigation Reform Act of 1995. These

statements are based upon 3SBio management's current expectations, and actual

results could differ materially. Among the factors that could cause 3SBio's

actual results to differ from what the company currently anticipates may

include competition from other domestic and foreign pharmaceutical companies;

the expected market growth for pharmaceutical products in China; market

acceptance of 3SBio products; expected hospital or patient demand for our

products; 3SBio's ability to expand its production, sales and distribution

network and other aspects of its operations; its ability to effectively

protect its intellectual property; changes in the healthcare industry in China,

including changes in the healthcare policies and regulations of the PRC

government and changes in the healthcare insurance sector in the PRC; and

fluctuations in general economic and business conditions in China. For

additional information on these and other factors that may affect the 3SBio's

financial results, please refer to the company's filings with the Securities

and Exchange Commission at www.sec.gov. 3SBio undertakes no obligation to

update or revise these forward-looking statements, whether as a result of new

information, future events or otherwise, after the date of this press release.

Contact:

Investor Contact:

Clara Mak, CFO

3SBio Inc.

No.3 A1, Road 10,

Shenyang Development Zone

Shenyang, China 110027

+86 (24) 2581 1820

IR@3sbio.com

www.3SBio.com

Investor Relations (HK):

Ruby Yim, Managing Director

Taylor Rafferty

Suite 2003-5 Vicwood Plaza

199 Des Voeux Road Central

Hong Kong, China

+852 3196 3712

3sbio@taylor-rafferty.com

www.taylor-rafferty.com

Investor Relations (US):

Mahmoud Siddig, Director

Taylor Rafferty

205 Lexington Avenue

8th Floor

New York, NY 10016

+1 (212) 889-4350

3sbio@taylor-rafferty.com

www.taylor-rafferty.com

Media Contact:

John Dooley

Taylor Rafferty

205 Lexington Avenue

8th Floor

New York, NY 10016

+1 (212) 889-4350

3sbio@taylor-rafferty.com

www.taylor-rafferty.com

3SBio Inc. and subsidiaries

Unaudited consolidated balance sheets

(expressed in thousands)

December 31,

2005(1) 2006 2006

RMB RMB US$

Assets

Current assets

Cash and cash equivalents 25,746 25,372 3,251

Accounts receivable, less allowance

for doubtful accounts:

December 31, 2005 - RMB5,892;

Dec. 31, 2006 - RMB4,871 (US$624) 34,376 37,402 4,793

Inventories 6,450 8,682 1,112

Prepaid expenses and other receivables 6,927 14,872 1,906

Amount due from shareholder 19,675 - -

Income tax prepaid 121 - -

Deferred tax assets 2,717 2,154 276

Total current assets 96,012 88,482 11,338

Property, plant and equipment, net 42,472 43,142 5,528

Lease prepayments 9,953 9,600 1,230

Deferred tax assets 2,124 1,251 160

Total assets 150,561 142,475 18,256

Liabilities

Current liabilities

Short-term bank loans 89,000 15,000 1,922

Accounts payable 1,336 1,769 227

Deferred grant income 924 611 78

Accrued expenses and other payables 11,039 16,708 2,141

Income tax payable - 1,167 150

Amount due to a director - 3,835 491

Amount due to investee company 1,813 - -

Other current liabilities 139 92 12

Total current liabilities 104,251 39,182 5,021

Long-term bank loans - 25,000 3,203

Deferred grant income 4,511 3,900 500

Other liabilities 677 585 75

Total liabilities 109,439 68,667 8,799

Commitments and contingencies

Minority interests 502 474 60

Shareholders' equity

Share capital - ordinary shares US$0.0001

par value, 500,000,000 shares authorized,

100,000,998 shares issued and outstanding

as of Dec. 31, 2006 - 80 10

Registered capital 62,974 - -

Additional paid-in capital 15,167 80,286 10,288

Statutory reserves 2,266 4,017 515

Accumulated losses (39,787) (11,049) (1,416)

Total shareholders' equity 40,620 73,334 9,397

Total liabilities and shareholders' equity 150,561 142,475 18,256

1 Derived from audited financial statements included in the Company's

registration statement on Form F-1 filed with the U.S. Securities and

Exchange Commission on February 7, 2007.

3SBio Inc. and subsidiaries

Unaudited quarterly consolidated statements of income

(expressed in thousands, except per share , per ADS and other share

and ADS data)

Three-month period ended

Dec. 31, 2005 Sept. 30,2006 Dec. 31, 2006

RMB RMB RMB US$

Net Revenues:

EPIAO 20,179 27,777 25,984 3,325

TPIAO 1,951 5,218 5,880 754

Intefen 1,501 1,064 1,527 195

Inleusin 228 199 310 40

Export 1,803 1,077 1,209 155

Others 221 308 298 43

Total 25,883 35,643 35,208 4,512

Cost of revenues (2,833) (3,060) (2,819) (361)

Gross profit 23,050 32,583 32,389 4,151

Operating expenses

Research and development

costs (885) (2,166) (2,346) (301)

Sales, marketing and

distribution expenses (14,072) (16,717) (17,832) (2,285)

General and administrative

expenses (4,578) (2,636) (3,491) (447)

Total operating expenses (19,535) (21,519) (23,669) (3,033)

Operating income 3,515 11,064 8,720 1,118

Other (expense)/income, net

Interest income 62 175 127 16

Interest expense (1,305) (875) (858) (110)

Grant income 1,008 1,145 732 94

Others (18) (3) (9) (1)

Total other (expense)/

income, net (253) 442 (8) (1)

Income before income

tax expense and minority

interests 3,262 11,506 8,712 1,117

Income tax expense (94) (1,397) (1,643) (211)

Income before minority

interests 3,168 10,109 7,069 906

Minority interests,

net of tax (9) (15) 27 3

Net income 3,159 10,094 7,096 909

Net income per share:

Basic and diluted 0.03 0.10 0.07 0.01

Weighted average

number of shares

outstanding 100,000,998 100,000,998 100,000,998 100,000,998

Net income per ADS:

Basic and diluted 0.22 0.71 0.50 0.06

Weighted average number

of ADSs outstanding 14,285,857 14,285,857 14,285,857 14,285,857

3SBio Inc. and subsidiaries

Unaudited consolidated statements of income

(expressed in thousands, except per share per ADS and other share and

ADS data)

Year ended December 31,

2004(1) 2005(1) 2006 2006

RMB RMB RMB US$

Net Revenues:

EPIAO 64,937 84,804 98,836 12,665

TPIAO - 2,795 16,056 2,057

Intefen 7,680 6,827 4,995 640

Inleusin 2,738 1,606 1,132 145

Export 1,736 4,990 5,878 753

Others 157 991 883 113

Total 77,248 102,013 127,780 16,373

Cost of revenues (15,027) (15,497) (11,598) (1,486)

Gross profit 62,221 86,516 116,182 14,887

Operating expenses

Research and

development costs (3,699) (3,196) (6,100) (782)

Sales, marketing

and distribution

expenses (38,762) (49,205) (61,280) (7,852)

General and

administrative

expenses (13,600) (13,956) (12,269) (1,572)

Total operating expenses (56,061) (66,357) (79,649) (10,206)

Operating income 6,160 20,159 36,533 4,681

Other income/(expense), net

Interest income 81 144 436 56

Interest expense (6,029) (5,551) (4,245) (544)

Grant income 6,442 3,771 3,146 403

Others - (850) (192) (25)

Total other income/

(expense), net 494 (2,486) (855) (110)

Income before income

tax expense

and minority interests 6,654 17,673 35,678 4,571

Income tax expense (226) (1,762) (5,217) (668)

Income before minority

interests 6,428 15,911 30,461 3,903

Minority interests,

net of tax 182 144 28 4

Net income 6,610 16,055 30,489 3,907

Net income per share:

Basic and diluted 0.07 0.16 0.30 0.04

Weighted average

number of

shares outstanding 100,000,998 100,000,998 100,000,998 100,000,998

Net income per ADS:

Basic and diluted 0.46 1.12 2.13 0.27

Weighted average

number of ADSs

outstanding 14,285,857 14,285,857 14,285,857 14,285,857

Source: 3SBio Inc.
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