3SBio Inc. Announces Unaudited Fourth Quarter and Full Year 2011 Results

SHENYANG, China, March 9, 2012 /PRNewswire-Asia/ -- 3SBio Inc. (NASDAQ: SSRX) ("3SBio" or "the Company"), 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 full year ended December 31, 2011.

Full Year 2011 Financial Highlights:

• Total net revenues in 2011 increased by 29.4% to RMB541.6 million (US$86.1 million), compared to RMB418.6 million (US$63.4 million) in 2010.
• GAAP operating income in 2011 increased by 38.3% to RMB120.1 million (US$19.1 million), compared to RMB86.8 million (US$13.2 million) in 2010. Non-GAAP operating income in 2011 increased by 24.0% to RMB120.1 million (US$19.1 million), compared to RMB96.8 million (US$14.7 million) in 2010.
• GAAP net income attributable to 3SBio Inc. increased by 33.6% to RMB108.6 million (US$17.3 million), compared to RMB81.3 million (US$12.3 million) in 2010. Non-GAAP net income attributable to 3SBio Inc. increased by 19.0% to RMB108.6 million (US$17.3 million), compared to RMB91.2 million (US$13.8 million) in 2010.
• GAAP net income attributable to 3SBio Inc. per American Depositary Share ("ADS") on a fully-diluted basis was RMB4.84 (US$0.77) compared to RMB3.69 (US$0.56) in 2010. Non-GAAP net income attributable to 3SBio Inc. per ADS on a fully-diluted basis in 2011 was RMB4.84 (US$0.77) compared to RMB4.14 (US$0.63) in 2010.
• Positive operating cash flow of RMB137.1 million (US$21.8 million) for the year ended December 31, 2011 and as of December 31, 2011, cash and cash equivalents, restricted cash and time deposits of RMB765.7 million (US$121.7 million).

Fourth Quarter 2011 Financial Highlights:

• Total net revenues in the fourth quarter of 2011 increased by 38.2% to RMB139.9million (US$22.2 million), compared to RMB101.2 million (US$15.3 million) in the fourth quarter of 2010.
• GAAP operating income in the fourth quarter of 2011 increased by 563.2% to RMB26.0 million (US$4.1 million), compared to GAAP operating income of RMB3.9 million (US$0.6 million) in the fourth quarter of 2010. Non-GAAP operating income increased by 87.5% to RMB26.0 million (US$4.1 million), compared to non-GAAP operating income of RMB13.9 million (US$2.1 million) in the fourth quarter of 2010. The difference between GAAP and non-GAAP operating income in the fourth quarter of 2010 is due to the expensing of the US$1.5 million initial payment to acquire exclusive rights to all transplant and autoimmune indications of voclosporin in mainland China, Hong Kong and Taiwan.
• GAAP net income attributable to 3SBio Inc. in the fourth quarter of 2011 increased by 234.1% to RMB22.3 million (US$3.6 million), compared to GAAP net income attributable to 3SBio Inc. of RMB6.7 million (US$1.0 million) in the fourth quarter of 2010. Non-GAAP net income attributable to 3SBio Inc. in the fourth quarter of 2011 increased by 34.3% to RMB22.3 million (US$3.6 million), compared to non-GAAP net income of RMB16.6 million (US$2.5 million) in the fourth quarter of 2010.
• GAAP net income attributable to 3SBio Inc. per ADS on a fully-diluted basis in the fourth quarter of 2011 was RMB0.99 (US$0.16) compared to a GAAP net income attributable to 3SBio Inc. per ADS on a fully-diluted basis of RMB0.30 (US$0.05) for the fourth quarter of 2010. Non-GAAP net income attributable to 3SBio Inc. per ADS on a fully-diluted basis in the fourth quarter of 2011 was RMB0.99 (US$0.16), compared to non-GAAP net income attributable to 3SBio Inc. per ADS on a fully-diluted basis of RMB0.74 (US$0.11) in the fourth quarter of 2010.

Full Year 2011 Business Highlights

Operations

• EPIAO, the Company's flagship injectable recombinant human erythropoietin ("EPO") product, demonstrated strong growth with net revenues in 2011 rising 26.7% to RMB317.9 million (US$50.5 million), compared to RMB250.9 million (US$38.0 million) in 2010. According to the latest data from IMS Health China, EPIAO's market share in terms of value reached 41.6% in the fourth quarter of 2011.
• Net revenues for TPIAO, the Company's novel recombinant human thrombopoietin ("TPO") product, increased by 28.1% to RMB164.8 million (US$26.2 million) in 2011, compared to RMB128.7 million (US$19.5 million) in 2010.
• Net revenues for Iron Sucrose Supplement increased by 44.6% to RMB24.9 million (US$4.0 million), 4.6% of net revenues in 2011, compared to RMB17.2 million (US$2.6 million), or 4.1% of net revenues in 2010.
• Net export revenues increased by 95.6% to RMB23.9 million (US$3.8 million), accounting for 4.4% of total net revenue in 2011, compared to RMB12.2 million (US$1.9 million), or 2.9% of net revenues in 2010. The increase was partly attributable to increased sales to Egypt and Thailand.

Manufacturing

• In September, the SFDA approved 3SBio's voluntary upgrade of manufacturing specifications to align EPIAO product quality with European Pharmacopoeia standards. 3SBio is the only domestic manufacturer with an approved product quality that meets both Chinese Pharmacopoeia and European Pharmacopoeia standards.

Events subsequent to December 31, 2011

Partnerships and Business Development

• As announced today, 3SBio entered into a framework joint venture agreement with DaVita Inc., ("DaVita") a Fortune 500 company that operates over 1800 dialysis clinics in the United States. The joint venture will provide renal care services in Liaoning and Jilin, two provinces in northeastern China with a combined population of 64 million. The total investment is US$20 million with DaVita and 3SBio contributing 70% and 30% respectively. DaVita and 3SBio have also agreed to enter into a nationwide supply agreement for anemia management drugs.

Dr. Jing Lou, chief executive officer of 3SBio, commented:

"We are pleased to report another year of strong top line growth, improved profitability and cash flow. Over the past five years, we have grown the business more than five times by focusing on our core areas of kidney and cancer therapeutics. The SFDA has recently approved our new EPIAO quality standard, which meets both Chinese and European Pharmacopoeia requirements, the only domestic biological medicine company in China to reach this standard. We expect this recognition will further support our efforts to develop international markets for both EPIAO and TPIAO. 3SBio's collaboration with DaVita marks our entry into the dialysis service area and demonstrates our long-term commitment to providing integrated solutions for China's dialysis patients. We are optimistic about the coming year and expect net revenue growth in the range of 15-25%, or between US$99 million and US$108 million."

Full Year Ended December 31, 2011 Unaudited Financial Results

Net revenues. Net revenues for 2011 increased by 29.4% to RMB541.6 million (US$86.1 million), from RMB418.6 million (US$63.4 million) in 2010. The increase was largely due to continued strong sales of EPIAO and TPIAO, underpinned by continued strong demand in the oncology and nephrology markets.

Net revenues from EPIAO in 2011 increased by 26.7% to RMB317.9 million (US$50.5 million) from RMB250.9 million (US$38.0 million) in 2010. Net revenues from TPIAO in 2011 increased by 28.1% to RMB164.8 million (US$26.2 million) from RMB128.7 million (US$19.5 million) in 2010. In addition, net revenues from our export business increased to RMB23.9 million (US$3.8 million), compared to RMB12.2 million (US$1.9 million) in 2010, while net revenues from Iron Sucrose Supplement were RMB24.9 million (US$4.0 million), representing an increase of 44.6% from RMB17.2 million (US$2.6 million) in 2010.

Gross profit. Gross profit for 2011 increased by 28.3% to RMB483.5 million (US$76.8 million) compared to RMB377.0 million (US$57.1 million) in 2010. Gross margin for 2011 decreased to 89.3% compared to 90.1% in 2010. The decline in gross margin was mainly attributable to new plant depreciation and increased material, labor and energy costs.

Operating expenses. GAAP operating expenses were RMB363.5 million (US$57.8 million) for 2011, an increase of 25.3% from RMB290.1 million (US$44.0 million) in 2010. Non-GAAP operating expenses were RMB363.5 million (US$57.8 million) for 2011, an increase of 29.7% from RMB280.2 million (US$42.5 million) in 2010.

• Research and development ("R&D") costs. GAAP R&D costs for 2011 were RMB41.8 million (US$6.6 million), or 7.7% of net revenues, compared to RMB39.4 million (US$6.0 million), or 9.4% of net revenues in 2010. The decrease in GAAP R&D costs as a percentage of net revenues was mainly attributable to the non-refundable upfront licensing payment of US$1.5 million made to Isotechnika Pharma Inc. in December 2010 to acquire exclusive rights to all transplant and autoimmune indications of voclosporin in mainland China, Hong Kong and Taiwan. Non-GAAP R&D costs for 2011 were RMB41.8 million (US$6.6 million), or 7.7% of net revenues, compared to RMB29.5 million (US$4.5 million), or 7.0% of net revenues in 2010.
• Sales, marketing and distribution expenses. Sales, marketing and distribution expenses for 2011 were RMB254.8 million (US$40.5 million), or 47.0% of net revenues, compared to RMB194.9 million (US$29.5 million), or 46.6% of net revenues in 2010. The increase is mainly attributable to expanded sales and marketing activities, including new product launch initiatives for TPIAO for ITP as well as the municipal construction tax and education surcharges levied as a result of the change in the China tax regulation effective from December 2010.
• General and administrative expenses. General and administrative expenses for 2011 were RMB66.9 million (US$10.6 million), or 12.4% of net revenues, compared to RMB55.9 million (US$8.5 million), or 13.3% of net revenues in 2010.

Operating income. GAAP operating income for 2011 increased by 38.3% to RMB120.1 million (US$19.1 million), compared to RMB86.8 million (US$13.2 million) in 2010. Non-GAAP operating income increased by 24.0% to RMB120.1 million (US$19.1 million), compared to RMB96.8 million (US$14.7 million) in 2010. GAAP operating margin for 2011 was 22.2%, compared to 20.7% in 2010. The increase in GAAP operating margin is primarily due to strong sales growth while R&D expense has remained stable. Non-GAAP operating margin for 2011 was 22.2%, compared to 23.1% in 2010.

Interest income. The Company recorded interest income of RMB18.5 million (US$2.9 million) in 2011, compared to RMB13.0 million (US$2.0 million) in 2010. The increase is primarily due to the combined effect of increased time deposits and higher interest rates on time deposits.

Net income. GAAP net income attributable to 3SBio Inc. for 2011 increased by 33.6% to RMB108.6 million (US$17.3 million) compared to RMB81.3 million (US$12.3 million) in 2010. GAAP net margin attributable to 3SBio Inc. for 2011 was 20.1% as compared to 19.4% in 2010. GAAP net income attributable to 3SBio Inc. per ADS on a fully-diluted basis for 2011 increased to RMB4.84 (US$0.77) from RMB3.69 (US$0.56) in 2010.

Non-GAAP net income attributable to 3SBio Inc. for 2011 increased by 19.0% to RMB108.6 million (US$17.3 million) compared to RMB91.2 million (US$13.8 million) in 2010. Non-GAAP net margin attributable to 3SBio Inc. for 2011 was 20.1% as compared to 21.8% in 2010. Non-GAAP net income attributable to 3SBio Inc. per ADS on a fully-diluted basis for 2011 increased to RMB4.84 (US$0.77) from RMB4.14 (US$0.63) in 2010.

Cash and cash equivalents, restricted cash and time deposits. 3SBio had positive operating cash flow of RMB137.1 million (US$21.8 million) for the year ended December 31, 2011 and as of December 31, 2011, cash and cash equivalents, restricted cash and time deposits of RMB765.7 million (US$121.7 million).

Three Months Ended December 31, 2011 Unaudited Financial Results

Net revenues. Net revenues increased by 38.2% to RMB139.9 million (US$22.2 million) for the fourth quarter of 2011 from RMB101.2 million (US$15.3 million) for the same period in 2010. This increase was largely due to continued strong sales of EPIAO and TPIAO which grew by 33.9% and 25.8%, respectively, over the same period in 2010. TPIAO remained 3SBio's second largest revenue contributor in the quarter, accounting for 27.7% of total net revenues. Export sales increased by 247.6% to RMB9.8 million (US$1.6 million), compared to RMB2.8 million (US$0.4 million) in the fourth quarter of 2010, largely due to increased sales to Egypt and Thailand. Revenues from Iron Sucrose Supplement rose 74.1% to RMB6.7 million (US$1.1 million), compared to RMB3.8 million (US$0.6 million) in the fourth quarter of 2010.

Gross profit. As a result of continued sales growth from key products, gross profit for the fourth quarter of 2011 increased by 40.6% to RMB125.0 million (US$19.9 million) from RMB88.9 million (US$13.5 million) for the same period in 2010. Gross margins increased to 89.4% for the fourth quarter of 2011 from 87.9% for the same period in 2010. The increase was mainly attributable to the enhanced capacity utilization and improved production efficiency of the new plant.

Operating expenses. GAAP operating expenses were RMB99.0 million (US$15.7 million) for the fourth quarter of 2011, an increase of 16.5% from RMB85.0 million (US$12.9 million) for the same period in 2010. Non-GAAP operating expenses were RMB99.0 million (US$15.7 million) for the fourth quarter of 2011, an increase of 31.9% from RMB75.1 million (US$11.4 million) for the same period in 2010.

• Research and development ("R&D") costs. GAAP R&D costs for the fourth quarter of 2011 were RMB12.7 million (US$2.0 million), or 9.1% of net revenues, compared to RMB17.2 million (US$2.6 million), or 17.0% of net revenues, for the same period in 2010. The decrease in R&D expenses is primarily attributable to the non-refundable upfront licensing payment of US$1.5 million made to Isotechnika in December 2010, which was partially offset by the increased R&D costs related to Anti-TNF Rab (SSS07) in the fourth quarter of 2011. Non-GAAP R&D costs for the fourth quarter of 2011 were RMB12.7 million (US$2.0 million), or 9.1% of net revenues, compared to RMB7.2 million (US$1.1 million), or 7.2% of net revenues, for the same period in 2010. The difference between GAAP and non-GAAP R&D costs for the fourth quarter of 2010 is due to the expensing of the US$1.5 million up-front non-refundable payment to acquire exclusive rights to certain indications of voclosporin in mainland China, Hong Kong and Taiwan.
• Sales, marketing and distribution expenses. Sales, marketing and distribution expenses for the fourth quarter of 2011 were RMB65.9 million (US$10.5 million), or 47.1% of net revenues, compared to RMB51.1 million (US$7.7 million), or 50.5% of net revenues, for the same period in 2010, on both a GAAP and non-GAAP basis.
• General and administrative expenses. General and administrative expenses for the fourth quarter of 2011 were RMB20.4 million (US$3.2 million), or 14.6% of net revenues, compared to RMB16.8 million (US$2.5 million), or 16.6% of net revenues for the same period in 2010, on both a GAAP and non-GAAP basis.

Operating income. GAAP operating income for the fourth quarter of 2011 increased by 563.2% to RMB26.0 million (US$4.1 million), compared to operating income of RMB3.9 million (US$0.6 million) for the same period in 2010. Non-GAAP operating income for the fourth quarter of 2011 grew by 87.5% to RMB26.0 million (US$4.1 million), compared to RMB13.9 million (US$2.1 million) in the fourth quarter of 2010. GAAP operating margin for the fourth quarter of 2011 was 18.6% as compared to 3.9% for the same period in 2010. Non-GAAP operating margin was 18.6% for the fourth quarter of 2011, compared to 13.7% in the same period in 2010. The increase in operating margin is primarily due to enhanced capacity utilization, improved production efficiency and lower R&D expenses.

Interest income. The Company recorded interest income of RMB4.7 million (US$0.8 million) for the fourth quarter of 2011, compared to RMB3.2 million (US$0.5 million) for the same period in 2010. The increase is primarily due to the combined effect of increased time deposits and higher interest rates on time deposits.

Net income. GAAP net income attributable to 3SBio Inc. for the fourth quarter of 2011 increased by 234.1% to RMB22.3 million (US$3.6 million) compared to net income attributable to 3SBio Inc. of RMB6.7 million (US$1.0 million) for the same period in 2010. GAAP net income attributable to 3SBio Inc. per ADS on a fully-diluted basis for the fourth quarter of 2011 increased by 230.0% to RMB0.99 (US$0.16), compared to RMB0.30 (US$0.05) for the same period in 2010. GAAP net margin attributable to 3SBio Inc. for the fourth quarter of 2011 was 15.9% as compared to 6.6% for the same period in 2010.

Non-GAAP net income attributable to 3SBio Inc. for the fourth quarter of 2011 was RMB22.3 million (US$3.6 million), 34.3% higher than non-GAAP net income attributable to 3SBio Inc. of RMB16.6 million (US$2.5 million) for the same period in 2010. Non-GAAP net income attributable to 3SBio Inc. per ADS on a fully-diluted basis for the fourth quarter of 2011 increased by 33.8% to RMB0.99 (US$0.16), compared to RMB0.74 (US$0.11) for the same period in 2010. Non-GAAP net margin attributable to 3SBio Inc. for the fourth quarter of 2011 was 15.9% as compared to 16.4% for the same period in 2010.

2012 Full Year Guidance and Selected Company Objectives

Based on current market and operating conditions and the following goals, the Company expects net revenues to grow by 15-25% in 2012, or between US$99 million to US$108 million. Other operating objectives include:

• Explore the potential market in the renal care area to further strengthen our leadership position in the nephrology area
• Evaluate manufacturing options for small-molecule medicines
• Initiate Phase I trial of NuPiao, our next-generation EPO product
• Initiate a registration trial of Feraheme, an IV iron supplement
• Continue to explore global biosimilar opportunities and initiate the approval process in selected markets
• Work with Isotechnika on initiating a global Phase III multi-center trial of voclosporin for the prevention of kidney transplant rejection
• Prepare application to conduct clinical trials in China for pegsiticase (Uricase-PEG 20), a treatment for refractory gout, and identify potential partners for development outside China
• Strengthen existing strategic partnerships while continuing to seek opportunities that leverage our balance sheet, strong nephrology and oncology franchises and recent additions to our product pipeline

Conference Call

3SBio's senior management will host a conference call on Friday, March 9, 2012 at 5:00am (US Pacific) / 8:00am (US Eastern) / 9:00pm (Beijing) to discuss its unaudited fourth quarter and full year 2011 results and recent business activity. The conference call may be accessed using the dial-in numbers below:

Conference ID: 50023809

Local dial-in:

International toll-free dial-in:

International toll dial-in:

Replay- Conference ID: 50023809

A telephone replay will be available two hours after the call until March 17, 2012 at:

Webcast

A live webcast of the conference will be available on the investor relations section of 3SBio's website at www.3sbio.com and at http://www.media-server.com/m/p/4jjxyoq7.

A replay of the webcast will be available within one hour after the conclusion of the call.

Statement Regarding Unaudited Financial Information

The unaudited financial information set forth above is preliminary and subject to adjustments and modifications. The audited financial statements and related notes are to be included in the Company's annual report on Form 20-F for the year ending December 31, 2011. Adjustments and modifications to the financial statements may be identified during the course of the audit work, 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 RMB6.2939 to US$1.00, the noon buying rate for US dollars in effect on December 31, 2011 as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. A rate of 6.6000 was used for comparative purposes as of December 31, 2010, which was the noon buying rate for US dollars on that date for cable transfers of RMB per US dollar as certified for customs purposes by the Federal Reserve Bank of New York.

About 3SBio Inc.

3SBio is a leading, fully integrated, profitable biotechnology company focused on researching, developing, manufacturing and marketing biopharmaceutical products primarily in China. Its focus is on addressing large markets with significant unmet medical needs in nephrology, oncology, supportive cancer care, inflammation and infectious diseases. With headquarters and GMP-certified manufacturing facilities in Shenyang, PRC, 3SBio employs over 800 people. Shares trade in the form of American Depositary Shares (ADSs) on the NASDAQ stock market under the ticker symbol "SSRX". Please see www.3SBio.com for more information.

Cautionary Statement concerning Forward Looking Statements

Certain statements in the disclosures of 3SBio, Inc. (the "Company" or "3SBio") for the fourth quarter and the year of 2011 ("Disclosures") that are not purely historical in nature may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The Disclosures include the press release, the conference call and any accompanying materials, and any other information issued, released or publicized by the Company with respect to the fourth quarter and the year of 2011.

These forward-looking statements address activities, events, conditions, or developments that we currently expect or anticipate may occur in the future, and include, but may not be limited to, discussions and statements regarding full year revenue target, business growth and prospects, product pricing trends, operation objectives, market size or patient number or illness prevalence estimates, product development, pipeline progress, regulatory approval, certification and review progress, impact of the government policies and regulations, partnerships or collaborations and the outcome thereof, capital expense estimate, future operations and strategies. Forward-looking statements can be identified by such terminology as "believe," "expect," "plans," "strategy," "potential", "prospects," "forecast," "estimate," "project," "anticipate," "aim," "will" or "would", "may" or "might", and words, phrases, expressions, and usages of similar meaning or substance or the negative of such words, phrases, expressions and usages.

Forward-looking statements are based on management's current assumptions, beliefs, expectations, and projections, in light of the information currently available, and actual results, performances, or achievements could differ materially from those implied or expressed by the forward-looking statements. Among the factors that could cause actual results to differ from what the Company currently anticipates may include: regulatory actions such as adverse drug pricing adjustments, competition from other domestic and foreign pharmaceutical companies; risks and uncertainties related to cooperation, joint venture, and partnerships, including deal consummation risks; changes in China's healthcare insurance system; Chinese government policies and regulations; the segment market growth for our products; market acceptance of our products; hospital or patient demand for our products; progress of our clinical trials; receipt and timing of regulatory approvals for new products and indications; our ability to enhance production, sales and distribution network and other aspects of operation; our ability to effectively protect intellectual property; changes in the healthcare industry in China; and fluctuations in general economic and business conditions in China.

For additional information on factors identified above and other risk factors, uncertainties and assumptions, please refer to the Company's filings with the Securities and Exchange Commission at www.sec.gov, and, in particular, "Introduction - Cautionary Statement concerning Forward Looking Statements", Item 3.D "Risk Factors", Item 5. "Operating and Financial Review and Prospects", and other applicable discussions in 3SBio's annual report on Form 20-F for the year ended December 31, 2010.

All the statements in the Disclosures speak as of the date of the initial release, even if subsequently made available on the 3SBio website or otherwise. 3SBio undertakes no obligation to update or revise these forward-looking statements, whether as a result of new information, subsequent events or otherwise, after the date of this press release.