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Simcere Pharmaceutical Group Reports Second Quarter 2007 Results

2007-08-06 18:24 767


NANJING, China, Aug. 6 /Xinhua-PRNewswire/ -- Simcere Pharmaceutical Group (NYSE: SCR), a leading manufacturer and supplier of branded generic pharmaceuticals in China, today reported unaudited financial results for the quarter ended June 30, 2007.

Second Quarter 2007 Highlights

-- Total revenue increased to RMB355.0 million (US$46.6 million) from

RMB234.6 million in the second quarter of 2006, representing 51.3%

year-over-year growth;

-- Net income increased to RMB83.1 million (US$10.9 million) from

RMB49.7 million in the second quarter of 2006, representing 67.4%

year-over-year growth; and

-- Gross margin increased to 83.7% from 78.9% in the second quarter of

2006. The improvement in gross margin reflects consistent increases

in sales of higher gross margin products.

Mr. Jinsheng Ren, Chairman and CEO of Simcere Pharmaceutical Group, commented, “We are pleased with our second quarter results. During the quarter, we continued to experience strong growth in Bicun and Endu. This underscored the progress that we are making toward our strategic focus of bringing new first-to-market drugs to the Chinese marketplace. Bicun and Endu have gained wider recognition by Chinese hospitals, clinical physicians and patients. Bicun’s strong brand awareness has resulted in Bicun becoming the preferred anti-stroke medicine in major hospitals and its quarterly sales exceed RMB100 million for the first time in the second quarter of 2007.”

“As we look toward the second half of the year, we believe that the policy changes being implemented by the SFDA and the more stringent drug approval process bode well for China’s pharmaceutical industry, and importantly, patients around the country. We are well positioned to meet the higher industry standards, deliver innovative, effective new drugs to our customers as well as continue to successfully execute our long-term business strategy.”

2007 Second Quarter and Six Month Financial Results

Total revenue for the second quarter of 2007 was RMB355.0 million (US$46.6 million), representing an increase of 51.3% from RMB234.6 million for the same period in 2006. For the first six months of 2007, total revenue was RMB667.3 million (US$87.7 million), representing an increase of 41.5% from RMB471.7 million for the same period in 2006.

Revenue from Simcere’s top five branded generic products for the second quarter of 2007 totaled RMB240.2 million (US$31.6 million), contributing 67.7% of total revenue, representing an increase of 22.1% from RMB196.7 million in the same period in 2006. For the first six months of 2007, revenue from Simcere’s top five branded generic products increased 21.0% to RMB478.7 million (US$62.9 million), compared to RMB395.6 million in the corresponding period in 2006.

-- Revenue from Bicun, the Company’s first-to-market product and one of

the top five branded generic products, totaled RMB109.9 million

(US$14.4 million) in the second quarter of 2007. In the second

quarter, Bicun’s revenue represented 33.3% of the company’s product

revenue as compared to 20.3% in the prior year period. For the first

six months of 2007, revenue from Bicun increased 94.0% to RMB190.3

million (US$25.0 million), representing 29.6% of product revenue,

compared to RMB 98.1 million, or 20.9% of product revenue, in first

half 2006.

-- Revenue from Endu, the company’s first patented new drug launched in

July 2006, totaled RMB60.3 million (US$7.9 million) in the second

quarter of 2007, representing 18.3% of the company’s product revenue

for the quarter; Endu’s second quarter sales increased 54.5% compared

with those of first quarter 2007. For the first six months of 2007,

revenue from Endu totaled RMB99.3 million (US$13.0 million),

representing 15.5% of product revenue.

Gross margin for the second quarter of 2007 was 83.7%, as compared to 78.9% in the corresponding period a year ago. The higher gross margin was primarily due to the continued sales growth of Bicun and Endu, two of Simcere’s higher gross margin products with gross margins of 96.8% and 87.8%, respectively. For the first six months of 2007, the gross margin was 82.7%, as compared to 78.9% in the corresponding period in 2006.

Research and development expenses in the second quarter of 2007 totaled RMB19.3 million (US$2.5 million) compared to RMB4.7 million for the corresponding period a year ago. The increase of R&D expenses was primarily related to Phase IV clinical studies for Endu and the expansion of our R&D department. For the first six months of 2007, research and development expenses totaled RMB33.1 million (US$4.3 million), versus RMB16.2 million in the corresponding period in 2006.

Sales and marketing expenses were RMB158.8 million (US$20.9 million) for the second quarter of 2007, an increase of 48.5% from RMB107.0 million for the corresponding period a year ago. For the first six months of 2007, sales and marketing expenses were RMB295.1 million (US$38.8 million), an increase of 37.1% from RMB215.2 million in the first six months of 2006. The increase was primarily due to increased marketing expenses associated with the promotion of Simcere’s first-to-market product Bicun and our new drug Endu.

General and administrative expenses were RMB46.1 million (US$6.1 million) for the second quarter of 2007, representing an increase of 106.4% from RMB22.3 million for the corresponding period a year ago. General and administrative expenses as a percentage of the company’s total revenues increased to 13.0% in the second quarter of 2007 from 9.5% in the corresponding period of 2006. The increase was primarily due to

non-recurring spending on activities associated with the company’s initial public offering. For the first six months of 2007, general and administrative expenses were RMB77.1 million (US$10.1 million), an increase of 56.2% from RMB49.3 million in the corresponding period in 2006.

Share-based compensation expenses, which were allocated to research and development expenses, sales and marketing expenses, and general and administrative expenses, respectively, based on the nature of the work the company’s employees were assigned to perform, totaled RMB7.7 million (US$1.0 million) for the second quarter of 2007. For the first six months of 2007, share-based compensation expense totaled RMB14.5 million (US$1.9 million).

Operating income was RMB77.0 million (US$10.1 million) for the second quarter of 2007, as compared to RMB 51.7 million for the corresponding period of 2006. For the first six months of 2007, operating income was RMB151.0 million (US$19.8 million), an increase of 64.7% as compared to RMB91.7 million in the corresponding period in 2006.

Net income was RMB83.1 million (US$10.9 million) for the second quarter of 2007, compared to RMB49.7 million in the corresponding period a year ago. The company’s net margin was 23.4% for the second quarter of 2007 compared to 21.2% for the corresponding period a year ago. For the first six months of 2007, net income was RMB150.1 million (US$19.7 million), an increase of 97.8% as compared to RMB75.9 million in the first six months of 2006. Net income margin for the first six months of 2007 was 22.5%, compared to 16.1% in the corresponding period in 2006.

The basic earnings per ADS for the second quarter of 2007 increased to RMB1.39 (US$0.183) and the diluted earnings per ADS for the second quarter of 2007 increased to RMB1.34 (US$0.176), compared to basic and diluted earnings per ADS of RMB0.99 for the corresponding period a year ago. One ADS represents two ordinary shares.

Net income excluding share-based compensation expenses (non-GAAP) was RMB90.8 million (US$11.9 million) in the second quarter of 2007 compared to RMB49.7 million, representing an 82.8% increase from the second quarter of 2006. For the first six months of 2007, net income excluding share-based compensation expenses was RMB164.6 million (US$21.6 million), an increase of 117.0% from RMB 75.9 million in the corresponding period in 2006.

As of June 30, 2007, the company had cash and cash equivalents of RMB1.12 billion (US$147.5 million) compared to RMB102.3 million at the end of 2007 first quarter. Following the completion of the company’s initial public offering, the company has repaid RMB269.0 million (US$35.3 million) of short-term bank loans, and therefore total short-term loans and borrowing decreased to RMB19.0 million (US$2.5 million).

Financial Outlook

Based on current operating and market conditions, Simcere sustained its expected total revenue for the full year 2007 between RMB1.33 billion (US$174.7 million) and RMB1.4 billion (US$183.9 million) and expected annual net income for the full year 2007 between RMB270 million (US$35.5 million) and RMB280 million (US$36.8 million).

Non-GAAP Disclosure

In addition to the unaudited consolidated financial information presented in accordance with US GAAP, Simcere’s management uses a non-GAAP measure of net income excluding non-cash share-based compensation. Simcere’s management believes excluding the share-based compensation expenses from non-GAAP financial measures is useful for the investors’ understanding of overall current financial performance. Nevertheless, the limitation of using non-GAAP financial measures excluding share-based compensation expenses is that share-based compensation expenses have been and will continue to be a significant recurring expense in the company’s business.

The presentation of the non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with US GAAP. For more information on these non-GAAP financial measures, please see the tables captioned “Reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP measures” set forth at the end of this release, which shall be read in conjunction with the preceding financial information presented in accordance with US GAAP.

Safe Harbor Statement

This press release contains forward-looking statements. These statements 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 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 filing with the U.S. Securities and Exchange Commission at http://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 second quarter 2007 earnings on Monday, August 6, at 8 a.m. Eastern Time (Monday, August 6 at 8 p.m., Beijing/Hong Kong time). The management team will be on the call to discuss quarterly results and highlights and to answer questions.

To access the conference call, please dial:

United States toll-free dial-in number: + 1 888 680 0865

United States dial-in number: + 1 617 213 4853

China toll-free dial-in number: + 10 800 130 0399

Hong Kong dial-in number: + 852 3002 1672

Please ask to be connected to Simcere’s Q2 2007 Earnings Call and provide the following passcode: 41492086. Simcere also will 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 http://www.simcere.com .

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

United States toll-free dial-in number: + 1 888 286 8010

International dial-in number: + 1 617 801 6888

The passcode for replay participants is: 41492086. The telephone replay also will be archived on the “Investor Relations” section of the company’s Web site at http://www.simcere.com following the earnings announcement.

About Simcere Pharmaceutical Group.

Simcere Pharmaceutical Group is a leading manufacturer and supplier of branded generic pharmaceuticals in the rapidly growing China market. In recent years, Simcere Pharmaceutical Group has focused its strategy on the development of first-to-market generic and innovative pharmaceuticals, and has introduced a first-to-market generic anti-stroke medication under the brand name Bicun and an innovative anti-cancer medication under the brand name Endu. Simcere Pharmaceutical Group currently manufactures and sells 35 pharmaceutical products including antibiotics, anti-cancer medication and anti-stroke medication and is the exclusive distributor of three additional pharmaceuticals that are marketed under its brand names. 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, osteoporosis and infectious diseases. For more information about Simcere Pharmaceutical Group, please visit http://www.simcere.com .

Simcere Pharmaceutical Group

Consolidated Statements of Income

(Unaudited, Amounts Expressed in Thousands,

Except Per Share and Per Ads Data)

Three months ended June 30 Six months ended June 30

2006 2007 2007 2006 2007 2007

RMB RMB USD RMB RMB USD

Product revenue 231,946 330,394 43,404 469,023 642,666 84,428

Other revenue 2,646 24,587 3,230 2,646 24,587 3,230

Total revenue

234,592 354,981 46,634 471,669 667,253 87,658

Cost of materials

and production (48,845) (53,700) (7,055) (99,185) (110,967) 14,578

Gross profit

185,747 301,281 39,579 372,484 556,286 73,080

Operating expenses:

Research and

development

expenses (4,743) (19,345) (2,541) (16,242) (33,091) (4,347)

Sales, marketing and

distribution

expenses (106,970)(158,845)(20,868)(215,249) (295,149)(38,774)

General and

administrative

expenses (22,349) (46,126) (6,060) (49,331) (77,056)(10,123)

Income from

operations 51,685 76,965 10,110 91,662 150,990 19,836

Interest income 201 6,435 845 413 6,921 909

Interest expense (2,009) (1,788) (235) (4,449) (5,790) (761)

Income before income

tax expense

and minority

interests 49,877 81,612 10,720 87,626 152,121 19,984

Income tax

(expense)/credit (668) 4,022 528 (15,300) 2,546 334

Income before minority

interests 49,209 85,634 11,248 72,326 154,667 20,318

Minority interests 449 (2,511) (330) 3,527 (4,599) (604)

Net income 49,658 83,123 10,918 75,853 150,068 19,714

Earnings per share:

Basic 0.50 0.69 0.09 0.89 1.36 0.18

Diluted 0.50 0.67 0.09 0.89 1.31 0.17

Earnings per ADS:

Basic 0.99 1.39 0.18 1.78 2.73 0.36

Diluted 0.99 1.34 0.18 1.78 2.63 0.35

Simcere Pharmaceutical Group

Consolidated Balance Sheets

(Unaudited, Amounts expressed in Thousands)

Dec 31, June 30, June 30,

2006 2007 2007

RMB RMB USD

Assets

Current assets

Cash 106,027 1,122,869 147,513

Pledged bank deposits 20,787 3,170 416

Accounts receivable, net

of allowance for

doubtful accounts 61,723 135,702 17,827

Bills receivable 101,058 161,297 21,190

Inventories 39,483 45,891 6,029

Prepaid expenses and

other current

assets 79,192 54,422 7,149

Amounts due from related

parties 434 52 7

Deferred income taxes 2,725 2,143 282

Total current assets 411,429 1,525,546 200,413

Property, plant and

equipment, less

accumulated depreciation 267,054 298,290 39,187

Land use rights 82,522 87,742 11,527

Deposits for purchase of

property, plant and

equipment 4,056 2,746 361

Intangible assets, net 163,148 176,506 23,188

Goodwill 100,634 105,086 13,805

Deferred income taxes 5,704 8,116 1,066

Total assets 1,034,547 2,204,032 289,547

Liabilities

Current liabilities

Short-term bank loans

and borrowings 333,000 19,000 2,496

Accounts and bills

payable 20,089 14,970 1,967

Accrued payroll and

employee benefits 23,766 21,394 2,810

Other payables and

accrued liabilities 169,874 258,691 33,984

Amounts due to related

parties 1,352 837 110

Income taxes payable 20,092 17,179 2,257

Total current

liabilities 568,173 332,071 43,624

Deferred income taxes 23,634 25,224 3,314

Total liabilities 591,807 357,295 46,938

Minority interests -- 549 72

Shareholders’ equity

Contributed capital 7,909 9,839 1,293

Additional paid-in

capital 265,964 1,534,156 201,544

Accumulated other

comprehensive loss -- (16,742) (2,198)

Retained earnings 168,867 318,935 41,898

Total shareholders’

equity 442,740 1,846,188 242,537

Commitments and

contingencies

Total liabilities,

minority interests

and shareholders’ equity 1,034,547 2,204,032 289,547

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 = RMB 7.6120 on June 29, 2007, The City of New York for cable transfers of Renminbi as certified for customs purposes by the Federal Reserve. 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.

Reconciliations of non-GAAP Results of Operations Measures to

the Nearest Comparable GAAP Measures (*)

(UNAUDITED, EXPRESSED IN RMB THOUSANDS)

Three months ended June 30, Three months ended June 30,

2006 2007

GAAP Adjustment Non-GAAP GAAP Adjustment Non-GAAP

Result Result Result Result

Income from --

operations 51,685 51,685 76,965 7,655 84,620

Net income 49,658 -- 49,658 83,123 7,655 90,778

Six months ended June 30, Six months ended June 30, 2007

2006

GAAP Adjustment Non-GAAP GAAP Adjustment Non-GAAP

Result Result Result Result

Income from --

operations 91,662 91,662 150,990 14,501 165,491

Net income 75,853 -- 75,853 150,068 14,501 164,569

(*) The adjustment is for share-based compensation expenses.

Non-GAAP Disclosure

In addition to the unaudited consolidated financial information presented in accordance with US GAAP, Simcere’s management uses a non-GAAP measure of net income excluding non-cash share-based compensation. Simcere’s management believes excluding the share-based compensation expenses from non-GAAP financial measures is useful for the investors’ understanding of overall current financial performance. Nevertheless, the limitation of using non-GAAP financial measures excluding share-based compensation expenses is that share-based compensation expenses have been and will continue to be a significant recurring expense in the company’s business.

The presentation of the non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with US GAAP. For more information on these non-GAAP financial measures, please see the tables captioned “Reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP measures” set forth at the end of this release, which shall be read in conjunction with the preceding financial information presented in accordance with US GAAP.

For more information, please contact:

In China:

Eric Wang Lam Cheung

Vice President, Investor Relations

Simcere Pharmaceutical Group

Tel: +86-25-8556-6666 x8898

Email: eric.cheung@ simcere.com

In the United States:

Ashley Zandy

Brunswick Group LLC

Tel: +1-212-333-3810

Email: ir@simcere.com

Source: Simcere Pharmaceutical Group
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