3SBio Inc. Announces Unaudited Third Quarter 2011 Results

SHENYANG, China, November 11, 2011 /PRNewswire-Asia-FirstCall/ -- 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 third quarter and nine months ended September 30, 2011.

Third Quarter 2011 Financial Highlights:

• Total net revenues increased by 27.5% over the third quarter of 2011 to RMB147.4 million (US$23.1million), compared to RMB115.6 million (US$17.3 million) in the third quarter of 2010.
• Operating income increased by 48.7% to RMB39.8 million (US$6.2 million), compared to operating income of RMB26.8 million (US$4.0 million) in the third quarter of 2010.
• Net income attributable to 3SBio Inc. increased by 50.4% to RMB33.7 million (US$5.3 million), compared to net income of RMB22.4 million (US$3.4 million) in the third quarter of 2010.
• Net income attributable to 3SBio Inc. per American Depositary Share ("ADS") on a fully-diluted basis increased by 48.5% to RMB1.50 (US$0.23) compared to net income per ADS on a fully-diluted basis of RMB1.01 (US$0.15) for the third quarter of 2010.
• Cash, cash equivalents and time deposits were RMB756.3 million (US$118.6 million, including restricted cash of RMB0.7 million) at September 30, 2011.

First Nine Months 2011 Financial Highlights:

• Total net revenues increased by 26.6% over the first nine months of 2011 to RMB401.7 million (US$63.0 million), compared to RMB317.4 million (US$47.4 million) in the first nine months of 2010.
• Operating income increased by 13.4% to RMB94.1 million (US$14.8 million), compared to operating income of RMB82.9 million (US$12.4 million) in the first nine months of 2010.
• Net income attributable to 3SBio Inc. increased by 15.6% to RMB86.2 million (US$13.5 million), compared to net income of RMB74.6 million (US$11.1 million) in the first nine months of 2010.
• Net income attributable to 3SBio Inc. per ADS on a fully-diluted basis increased by 13.0% to RMB3.83 (US$0.60) compared to net income per ADS on a fully-diluted basis of RMB3.39 (US$0.51) for the first nine months of 2010.

Third Quarter 2011 Business Highlights

Operations

• EPIAO, the Company's flagship injectable recombinant human erythropoietin (EPO) product, demonstrated strong growth with net revenue in the third quarter of 2011 rising 24.8% to RMB86.6 million (US$13.6 million), compared to RMB69.4 million (US$10.4 million) in the third quarter of 2010.
• Net revenues for TPIAO, the Company's novel recombinant human thrombopoietin (TPO) product, increased by 28.6% to RMB46.0 million (US$7.2 million) in the third quarter of 2011, compared to RMB35.8 million (US$5.3 million) in the third quarter of 2010.
• Net revenues for Iron Sucrose Supplement increased by 49.1% to RMB7.1 million (US$1.1 million) in the third quarter of 2011, compared to RMB4.8 million (US$0.7 million) in the third quarter of 2010.
• Net export revenues increased by 56.7% to RMB5.3 million (US$0.8 million), accounting for 3.6% of total net revenue in the third quarter of 2011, compared to RMB3.4 million (US$0.5 million), or 2.9% of net revenues in the third quarter of 2010. The increase was partly attributable to improved sales to Egypt.

Regulatory

• The SFDA has provided feedback on the Nuleusin new product application submitted in 2008. The SFDA requested additional trials for Nuleusin with increased patient numbers. Due to the extended review period, additional costs and changes to the competitive landscape since our original submission, the company has decided to suspend its support for additional clinical trials and will reallocate resources to other pipeline candidates with larger market potential.

Dr. Jing Lou, chief executive officer of 3SBio, commented: "We are pleased to see continued strong sales growth driven by improved patient access to renal care and growing use of EPIAO in the treatment of chemotherapy related anemia, where EPIAO remains the only EPO approved for this indication. Preparations are underway for the launch of high dosage 36,000 IU EPIAO which will contribute to the growing awareness of EPIAO's quality of life benefits for patients undergoing chemotherapy treatment. We are also seeing meaningful sales contributions from the recent launch of TPIAO for ITP, a treatment for immune thrombocytopenia approved by the SFDA in March. Export sales have accelerated since the completion of our new state-of-the-art manufacturing facility, with demand from markets such as Egypt and Thailand driven by our compelling value proposition of world-class biological medicines at competitive prices. We reiterate our full year guidance of US$76-82 million."

Three Months Ended September 30, 2011 Unaudited Financial Results

Net revenues. Net revenues increased by 27.5% to RMB147.4 million (US$23.1 million) for the third quarter of 2011 from RMB115.6 million (US$17.3 million) for the same period in 2010. This increase was largely due to continued strong sales of EPIAO and TPIAO which grew by 24.8% and 28.6%, respectively, over the same period in 2010. TPIAO remained 3SBio's second largest revenue contributor in the quarter, accounting for an all-time high of 31.2% of total net revenues. Export sales increased by 56.7% year-on-year to RMB5.3 million (US$0.8 million), and revenues from Iron Sucrose rose by 49.1% year-on-year to RMB7.1 million (US$1.1 million).

Gross profit. As a result of continued sales growth from key products, gross profit for the third quarter of 2011 increased by 28.8% to RMB134.1 million (US$21.0 million) from RMB104.1 million (US$15.6 million) for the same period in 2010. Gross margins increased 0.9% to 91.0% for the third quarter of 2011 from 90.1% for the same period in 2010. The increase was mainly attributable to enhanced capacity utilization and improved production efficiency of the new plant.

Operating expenses. Operating expenses were RMB94.3 million (US$14.8 million) for the third quarter of 2011, representing an increase of 22.0% from RMB77.3 million (US$11.6 million) for the same period in 2010.

• Research and development ("R&D") costs. R&D costs for the third quarter of 2011 were RMB10.6 million (US$1.7 million), or 7.2% of net revenues, compared to RMB11.8 million (US$1.8 million), or 10.2% of net revenues, for the same period in 2010. The decrease in R&D expenses is primarily attributable to higher third quarter 2010 expenses related to the cancer therapeutics developed in collaboration with Ascentage Pharma, total expense of which was RMB4.8 million, compared to RMB1.5 million for the third quarter of 2011.
• Sales, marketing and distribution expenses. Sales, marketing and distribution expenses for the third quarter of 2011 were RMB68.2 million (US$10.7 million), or 46.3% of net revenues, compared to RMB53.0 million (US$7.9 million), or 45.9% of net revenues, for the same period 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 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 the third quarter of 2011 were RMB15.5 million (US$2.4 million), or 10.5% of net revenues, compared to RMB12.5 million (US$1.9 million), or 10.8% of net revenues for the same period in 2010.

Operating income. Operating income was RMB39.8 million (US$6.2 million) for the third quarter of 2011, a 48.7% increase from operating income of RMB26.8 million (US$4.0 million) for the same period in 2010. Operating margin for the third quarter of 2011 was 27.0%, a 3.8% increase from operating margin of 23.2% for 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. Net interest income was RMB5.0 million (US$0.8 million) for the third quarter of 2011, compared to RMB3.9 million (US$0.6 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 attributable to 3SBio Inc. Net income attributable to 3SBio Inc. was RMB33.7 million (US$5.3 million) for the third quarter of 2011, a 50.4% increase over net income of RMB22.4 million (US$3.4 million) for the same period in 2010. Net income attributable to 3SBio Inc. per ADS on a fully-diluted basis for the third quarter of 2011 increased to RMB1.50 (US$0.23) compared to RMB1.01 (US$0.15) for the same period in 2010. Net margin for the third quarter of 2011 was 22.9%, a 3.5% increase over net margin of 19.4% for the same period in 2010.

Nine Months Ended September 30, 2011 Unaudited Financial Results

Net revenues. Net revenues increased by 26.6% to RMB401.7 million (US$63.0 million) for the first nine months of 2011 from RMB317.4 million (US$47.4 million) for the same period in 2010. This increase was largely due to continued strong sales of EPIAO and TPIAO which grew by 24.4% and 28.8%, respectively, over the same period in 2010. TPIAO remained 3SBio's second largest revenue contributor in the first nine months, accounting for an all-time high of 31.4% of total net revenues. Export sales increased by 50.0% year-on-year to RMB14.1 million (US$2.2 million), and revenues from Iron Sucrose rose 36.2% year-on-year to RMB18.2 million (US$2.8 million).

Gross profit. As a result of continued sales growth from key products, gross profit for the first nine months of 2011 increased by 24.5% to RMB358.5 million (US$56.2 million) from RMB288.1 million (US$43.1 million) for the same period in 2010. Gross margins declined by 1.5% to 89.2% for the first nine months of 2011 from 90.7% for the same period in 2010. The decline was mainly attributable to new plant depreciation and increased material, labor and energy costs.

Operating expenses. Operating expenses were RMB264.5 million (US$41.5 million) for the first nine months of 2011, representing an increase of 28.9% from RMB205.1 million (US$30.7 million) for the same period in 2010.

• Research and development ("R&D") costs. R&D costs for the first nine months of 2011 were RMB29.1 million (US$4.6 million), or 7.2% of net revenues, compared to RMB22.2 million (US$3.3 million), or 7.0% of net revenues, for the same period in 2010. The increase in R&D expenses is primarily attributable to NuPIAO, our second generation version of EPIAO and an anti-TNF compound that targets rheumatoid arthritis, psoriasis and other inflammatory disorders.
• Sales, marketing and distribution expenses. Sales, marketing and distribution expenses for the first nine months of 2011 were RMB188.9 million (US$29.6 million), or 47.0% of net revenues, compared to RMB143.8 million (US$21.5 million), or 45.3% of net revenues, for the same period 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 the first nine months of 2011 were RMB46.5 million (US$7.3 million), or 11.6% of net revenues, compared to RMB39.1 million (US$5.8 million), or 12.3% of net revenues for the same period in 2010.

Operating income. Operating income was RMB94.1 million (US$14.8 million) for the first nine months of 2011, a 13.4% increase from operating income of RMB82.9 million (US$12.4 million) for the same period in 2010. Operating margin for the first nine months of 2011 was 23.4%, a 2.7% decline from operating margin of 26.1% for the same period in 2010. The decline in operating margin is primarily due to increased depreciation expenses related to the new plant and increased R&D and sales, marketing and distribution expenses.

Interest income. Net interest income was RMB13.8 million (US$2.2 million) for the first nine months of 2011, compared to RMB9.7 million (US$1.5 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 attributable to 3SBio Inc. Net income attributable to 3SBio Inc. was RMB86.2 million (US$13.5 million) for the first nine months of 2011, a 15.6% increase over net income of RMB74.6 million (US$11.1 million) for the same period in 2010. Net income attributable to 3SBio Inc. per ADS on a fully-diluted basis for the first nine months of 2011 increased to RMB3.83 (US$0.60) compared to RMB3.39 (US$0.51) for the same period in 2010. Net margin for the first nine months of 2011 was 21.5%, a 2.0% decrease over net margin of 23.5% for the same period in 2010.

Conference Call

3SBio's senior management will host a conference call on Friday, November 11, 2011 at 5:00am (US Pacific) / 8:00am (US Eastern) / 9:00pm (Beijing) to discuss its unaudited third quarter 2011 results and recent business activity. The conference call may be accessed using the dial-in numbers below:

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/6f58cija .

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 RMB6.3780 to US$1.00, the noon buying rate for US dollars in effect on September 30, 2011 as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. A rate of 6.6905 was used for comparative purposes as of September 30, 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 700 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 with respect to the fiscal year 2011 and the third quarter ("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 3SBio with respect to the fiscal year 2011 and the third quarter.

These forward-looking statements address activities, events, conditions, or developments that we currently expect may occur in the future, and include, but may not be limited to, discussions and statements regarding: revenue guidance, business prospects, exports prospects, product pricing trends, revenue contribution of new products, tendering process in government procurements, regulatory approval in new markets, business objectives, market size , dialysis growth, product development, clinical trial progress, regulatory approval process, collaborations, acquisitions and licensing, impact of government policies and regulations, production capacity, capital expense, and 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 thereof.

Forward-looking statements are based on management's current assumptions, beliefs, expectations, and projections, in light of the information currently available, and actual results could differ materially from those implied or expressed by the forward-looking statements. Among the factors that could cause 3SBio's actual results to differ from what 3SBio currently anticipates may include: government policies, actions and measures; evolving healthcare reform at the central and the provincial government level in China; regulatory environment and other risks in a new market; regulatory compliance risk; the ability of 3SBio or any source it relies on to estimate or forecast accurately; competition from other domestic and foreign pharmaceutical companies; the market growth for pharmaceutical products in China; market acceptance of 3SBio products; hospital or patient demand for our products; the completion and results of 3SBio's ongoing clinical trials; receipt and timing of regulatory approvals for 3SBio's new products and indications; risks associated with collaborations, licensing, and acquisitions; risks in seeking international certification and approvals; 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; other changes in the healthcare industry and in the health insurance system 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 that may affect 3SBio's business, financial conditions and results of operations, please refer to 3SBio'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 our website or otherwise. 3SBio undertakes no obligation to update or revise these statements after the date of release, whether as a result of new information, subsequent events or otherwise, except as required by law.