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Simcere Pharmaceutical Group Reports First Quarter 2007 Results

2007-05-16 08:51

First Quarter 2007 Net Income Increased 155.6% Year-over-Year

NANJING, China, May 16 /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

first quarter ended March 31, 2007.

First Quarter 2007 Highlights

-- Total revenues increased 31.7% year-over-year to RMB 312.3 million

(US$ 40.4 million);

-- Net income increased 155.6% to RMB 66.9 million (US$ 8.7 million) in

the first quarter of 2007 from RMB 26.2 million in the same period a

year ago; and

-- Gross margin increased to 81.7 % for the first quarter of 2007 from

78.8% in the same period a year ago. The improvement in gross margin

reflects increased revenue contribution from higher gross margin

products and continued stabilization of cost of sales.

"We are pleased to report strong results for the first quarter of 2007,"

said Mr. Jinsheng Ren, Chairman and CEO of Simcere Pharmaceutical Group.

"During the first quarter, we continued to enhance our market position through

expanding hospital coverage and channel penetration. For example, in order to

deepen the market penetration of Bicun, we hosted about 100 medical seminars

across China and generated increasing awareness of Bicun among doctors. By the

end of the first quarter, Bicun had been prescribed by approximately 1,000

hospitals in China. In the first quarter, we were able to increase Endu's

coverage in more than 100 hospitals. As of March 31, 2007, there were more

than 500 hospitals prescribing Endu to treat their cancer patients."

Mr. Ren continued, "Progress made in the development of pipeline products

and extended clinical trials for Endu was in line with our expectation. We aim

to obtain the SFDA approval for two of our pipeline products, Biapenem and

Palonosetron, during the fourth quarter of 2007 and first half of 2008,

respectively."

Mr. Ren concluded, "Our growth in both total revenues and net income is a

validation of our strengthened and improved business model, which aims to

focus our resources on first-to-market and new drugs. On April 25, 2007, we

successfully completed our initial public offering. We believe that, with the

superior capital strength obtained from this offering, we are well-positioned

to leverage our strong product development capabilities and well-established

nationwide sales and distribution network to emerge as a leader in the

pharmaceutical industry in China."

Mr. Frank Zhao, CFO of Simcere Pharmaceutical Group, commented, "Strong

revenue growth of our first-to-market branded generic drug Bicun and our new

anti-cancer drug Endu contributed greatly to our first quarter financial

result. Our successful initial public offering further strengthened our cash

position and will broaden our acquisition opportunities for business or

products with great commercialization potential."

First Quarter 2007 Financial Results

Total revenues for the first quarter of 2007 were RMB 312.3 million (US$

40.4 million), representing an increase of 31.7% from RMB 237.1 million

reported for the same period in 2006;

Revenues from top five branded generic pharmaceutical products for the

first quarter of 2007 totaled RMB 238.6 million (US$ 30.9 million),

contributing 76.4% of the Company's total revenues and representing an

increase of 19.9% from RMB 198.9 million for the same period in 2006;

Revenue from Endu, the Company's first anti-cancer drug launched in July

2006, totaled RMB 39.0 million (US$ 5.1 million) in the first quarter of 2007,

representing 12.5% of the Company's total revenue.

Gross margin for the first quarter of 2007 was 81.7%, as compared to 78.8

% in the corresponding period a year ago. The higher gross margin was

primarily due to the continued sales growth of higher margin products Bicun

and Endu.

Research and development expenses in the first quarter of 2007 totaled RMB

13.7 million (US$ 1.8 million), an increase of 19.5% from RMB 11.5 million for

the corresponding period a year ago;

Sales and marketing expenses were RMB 136.3 million (US$ 17.6 million) for

the first quarter of 2007, an increase of 25.9 % from RMB 108.3 million for

the corresponding period a year ago. The increase was directly related to the

increase of sales;

General and administrative expenses were RMB 30.9 million (US$ 4.0

million) for the first quarter of 2007, an increase of 14.6% from RMB 27.0

million for the corresponding period a year ago.

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 RMB 6.8 million (US$ 0.9

million ) for the first quarter of 2007.

Operating income was RMB 74.0 million (US$ 9.6 million) for the first

quarter of 2007, as compared to RMB 40.0 million for the corresponding period

of 2006.

Interest expense was RMB 4.0 million (US$ 0.5 million) for the first

quarter of 2007, compared to RMB 2.4 million for the corresponding period a

year ago. The higher interest expense is due to the increased average balance

of the Company's short-term loan for the first quarter of 2007.

Net income was RMB 66.9 million (US$ 8.7 million) for the first quarter

of 2007, compared to RMB 26.2 million in the corresponding period a year ago.

The Company's net margin increased to 21.4% for the first quarter of 2007

compared to 11.0% for the corresponding period a year ago.

The basic earnings per ADS for the first quarter of 2007 was RMB 1.34 (US$

0.17), the diluted earnings per ADS for the first quarter of 2007 was RMB 1.30

(US$ 0.17), compared to basic and diluted earnings per ADS of RMB 0.74 for the

corresponding period a year ago. 1 ADS represents 2 ordinary shares.

Net income excluding share-based compensation expenses (non-GAAP) was RMB

73.8 million (US$ 9.6 million) in the first quarter of 2007, representing a

181.7% increase from the first quarter of 2006.

As of March 31, 2007, the Company had cash of RMB 102.3 million (US$ 13.3

million). Outstanding short-term loan was RMB 288.0 million (US$ 37.3

million). In April 2007, the Company received net proceeds of approximately

US$162 million from its initial public offering on the New York Stock

Exchange.

Financial Outlook

Based on current operating and market conditions, Simcere's targeted total

revenues for the full year 2007 are expected to be between RMB1.33 billion

(US$172.2 million) and RMB1.4 billion (US$181.3 million) and Simcere's target

annual net income for the full year 2007 is expected to be between RMB270

million (US$35.0 million) and RMB280 million (US$36.3 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 projected full year

2007 data regarding the total net revenues and net income are 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 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

first quarter 2007 earnings at 8 pm Eastern Time, May 15, 2007 (Beijing/Hong

Kong time: May 16, 2007 at 8 am). The management team will be on the call to

discuss quarterly results and highlights and to answer questions.

Dial-in details for the earnings conference call are as follows:

US toll free dial in number: 866-713-8310

US toll dial in number: 617-597-5308

HK toll dial in number: +852-3002-1672

Pass code for all regions: Simcere

Following the earnings conference call, an archive of the call will be

available by dialing:

US toll free dial in number: 888-286-8010

International dial in number: 617-801-6888

Pass code: 73035007

The conference call will also be available on web site

http://www.simcere.com for seven days.

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)

Period ended March 31,

2006 2007 2007

RMB RMB USD

Product revenues 237,076 312,272 40,433

Cost of materials and

production (50,339) (57,267) (7,415)

Gross profit 186,737 255,005 33,018

Operating expenses:

Research and development

expenses (11,499) (13,746) (1,780)

Sales, marketing and

distribution expenses (108,279) (136,303) (17,649)

General and administrative

expenses (26,982) (30,930) (4,005)

Income from operations 39,977 74,026 9,584

Interest income 212 486 63

Interest expense (2,440) (4,003) (518)

Income before income tax

expense and minority interests 37,749 70,509 9,129

Income tax expense (14,631) (1,476) (191)

Income before minority

interests 23,118 69,033 8,938

Minority interests 3,078 (2,088) (270)

Net income 26,196 66,945 8,668

Earnings per share:

Basic 0.37 0.67 0.09

Diluted 0.37 0.65 0.08

Earnings per ADS:

Basic 0.74 1.34 0.17

Diluted 0.74 1.30 0.17

SIMCERE PHARMACEUTICAL GROUP

CONSOLIDATED BALANCE SHEETS

(UNAUDITED, Amounts expressed IN THOUSANDS)

Dec 31, Mar 31, Mar 31,

2006 2007 2007

RMB RMB USD

Assets

Current assets

Cash 106,027 102,334 13,250

Pledged bank deposits 20,787 15,100 1,955

Accounts receivable, net of

allowance for doubtful

accounts 61,723 99,723 12,912

Bills receivable 101,058 109,756 14,211

Inventories 39,483 34,847 4,512

Prepaid expenses and other

current assets 79,192 86,759 11,234

Amounts due from related parties 434 432 56

Deferred income taxes 2,725 2,247 291

Total current assets 411,429 451,198 58,421

Property, plant and equipment,

less accumulated depreciation 267,054 274,450 35,536

Land use rights 82,522 81,546 10,559

Deposits for purchase of

property, plant and equipment 4,056 2,761 357

Intangible assets, net 163,148 160,142 20,735

Goodwill 100,634 98,545 12,760

Deferred income taxes 5,704 5,915 766

Total assets 1,034,547 1,074,557 139,134

Liabilities

Current liabilities

Short-term bank loans and

borrowings 333,000 288,000 37,290

Accounts and bills payable 20,089 12,356 1,600

Accrued payroll and employee

benefits 23,766 20,724 2,683

Other payables and accrued

liabilities 169,874 191,091 24,743

Amounts due to related parties 1,352 1,035 134

Income taxes payable 20,092 21,942 2,841

Total current liabilities 568,173 535,148 69,291

Deferred income taxes 23,634 22,877 2,962

Total liabilities 591,807 558,025 72,253

Minority interests - - -

Shareholders' equity

Contributed capital 7,909 7,909 1,024

Additional paid-in capital 265,964 272,811 35,324

Retained earnings 168,867 235,812 30,533

Total shareholders' equity 442,740 516,532 66,881

Commitments and contingencies

Total liabilities, minority

interests and shareholders'

equity 1,034,547 1,074,557 139,134

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

7.7232 on March 31, 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 March Three months ended March

31, 2006 31, 2007

GAAP Adjustment Non-GAAP GAAP Adjustment Non-GAAP

Result Result Result Result

Income from

operations 39,977 39,977 74,026 6,847 80,873

Net income 26,196 26,196 66,945 6,847 73,792

(*) 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.

Source: Simcere Pharmaceutical Group
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