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Simcere Pharmaceutical Group Reports Unaudited Third Quarter 2008 Results and Announces Share Repurchase
Date:11/6/2008

NANJING, China, Nov. 6 /Xinhua-PRNewswire/ -- Simcere Pharmaceutical Group ("Simcere" or the "Company') (NYSE: SCR), a leading manufacturer and supplier of branded generic pharmaceuticals and manufacturer of the patented anti- cancer biotech product Endu in China, today reported unaudited financial results for the quarter ended September 30, 2008 and announced that its Board of Directors has approved a share repurchase program.

Highlights

-- Total revenue increased to RMB443.4 million (US$65.3 million) for the

third quarter, representing a 37.1% year-over-year growth;

-- Net income was RMB91.2 million (US$13.4 million) for the third quarter,

representing a 24.7% year-over-year growth;

-- Gross margin was 78.3% for the third quarter, which was impacted by a

one-off contract sale transaction involving the resale of generic drugs

for other pharmaceutical companies, which is now ceased; and

-- The board of directors has approved a share repurchase program under

which Simcere Pharmaceutical Group may purchase up to US$50 million

worth of its issued and outstanding American depositary shares

("ADSs") in the following twelve months.

Mr. Jinsheng Ren, Chairman and CEO of Simcere Pharmaceutical Group, commented: "We are pleased to report solid year on year growth for the third quarter. We are encouraged by the continued growth of our edaravone products, although our Endu sales continued to be affected by the sales team restructuring and an expanded program to supply Endu free of charge in clinical studies. Our other branded generic products grew steadily this quarter. In October, we successfully launched Anxin, our first-to-market biapenem for injection, which is used to treat serious infections."

"Simcere is one of China's leading pharmaceutical companies with a unique business strategy and established distribution network. Combined with our healthy balance sheet and strong cash position, we are confident that Simcere will benefit from the continued growth of China's healthcare industry, as well as the long-term trend towards industry consolidation. Our share repurchase program demonstrates Simcere's confidence in the long term growth and commitment to maximize shareholder value. "

2008 Third Quarter Financial Results

Total revenue for the third quarter of 2008 was RMB443.4 million (US$65.3 million), representing a growth of 37.1% from RMB323.4 million for the same period in 2007. For the first nine months of 2008, total revenue was RMB1,274.2 million (US$187.7 million), representing an increase of 31.4% from RMB970.1 million for the same period in 2007.

Revenue from Endu, the Company's patented anti-cancer pharmaceutical launched in July 2006, totaled RMB54.4 million (US$8.0 million) in the third quarter of 2008, representing an increase of 3.0% from RMB52.8 million for the same period in 2007. Endu sales growth slowed down this quarter due to the restructuring of the Endu sales force and an expanded program to supply Endu free of charge to existing and new patients participating in a series of clinical studies. For the first nine months of 2008, revenue from Endu totaled RMB181.3 million (US$26.7 million), representing an increase of 19.2% from RMB152.2 million in the first nine months of 2007.

Revenue from first-to-market Edavarone injection products under the brand names Bicun and Yidasheng totaled RMB158.8 million (US$23.4 million) in the third quarter of 2008, representing an increase of 49.5% from RMB106.2 million for the same period in 2007. While more edaravone products enter the market, Simcere's Bicun and Yidasheng remain the most established brands and are the market leaders in China. For the first nine months of 2008, revenue from Bicun and Yidasheng totaled RMB458.4 million (US$67.5 million), representing an increase of 54.6% from RMB296.5 million in the first nine months of 2007.

Revenue from other first-to-market products, Jiebaishu, a nedaplatin product and Sinofuan, a 5-FU sustained release implant for the treatment of cancer, totaled RMB20.7 million (US$3.1 million) in the third quarter of 2008. There was no revenue generated from these two new products for the same period in 2007. For the first nine months of 2008, revenue from Jiebaishu and Sinofuan totaled RMB34.1 million (US$5.0 million).

Revenue from other branded generic products totaled RMB207.3 million (US$30.5 million) in the third quarter of 2008, representing an increase of 26.9% from RMB163.4 million for the same period in 2007. For the first nine months of 2008, revenue from other branded generic products totaled RMB596.2 million (US$87.8 million), representing an increase of 15.4% from RMB516.3 million in the first nine months of 2007.

Gross margin for the third quarter of 2008 decreased to 78.3%, as compared to 81.7% for the same period in 2007. The decrease was primarily due to a lower margin contract sale transaction in the resale of drugs for other pharmaceutical companies, which is now ceased. For the first nine months of 2008, gross margin decreased to 80.9% compared to 82.4% for the first nine months of 2007.

Research and development expenses for the third quarter of 2008 totaled RMB21.1 million (US$3.1 million), an increase of 9.5% from RMB19.3 million for the corresponding period a year ago. This was primarily due to the expansion in headcount of our research and development team. As a percentage of total revenue, research and development expenses were 4.8% compared to 6.0% for the same period in 2007. For the first nine months of 2008, research and development expenses totaled RMB52.1 million (US$7.7 million), compared to RMB52.4 million for the same period in 2007.

Sales, marketing and distribution expenses for the third quarter of 2008 were RMB194.7 million (US$28.7 million), an increase of 32.9% from RMB146.6 million for the corresponding period a year ago. As a percentage of total revenue, sales, marketing and distribution expenses, were 43.9% compared to 45.3% for the same period in 2007. For the first nine months of 2008, sales and marketing expenses were RMB557.2 million (US$82.1 million), an increase of 26.1% from RMB441.7 million in the first nine months of 2007.

General and administrative expenses were RMB44.6 million (US$6.6 million) for the third quarter of 2008, representing an increase of 16.7% from RMB38.2 million for the third quarter of 2007. The increase was primarily due to the increased headcount and the professional service fees associated with the compliance work on Section 404 of the Sarbanes-Oxley Act of 2002. However, general and administrative expenses, as a percentage of total revenue, decreased to 10.1% in the third quarter of 2008 from 11.8% in the same period of 2007 as a result of increased economies of scale. For the first nine months of 2008, general and administrative expenses were RMB138.6 million (US$20.4 million), an increase of 20.2% from RMB115.3 million in the corresponding period in 2007.

Share-based compensation expenses, which were allocated to research and development expenses, sales, marketing and distribution expenses, and general and administrative expenses, based on the nature of the work the Company's employees were assigned to perform, totaled RMB6.5 million (US$1.0 million) for the third quarter of 2008. Share-based compensation expenses for the third quarter of 2007 were RMB7.5 million. For the first nine months of 2008, share-based compensation expenses totaled RMB19.9 million (US$2.9 million), a decrease of 9.8% from RMB22.0 million for the first nine months of 2007.

Operating income was RMB87.0 million (US$12.8 million) for the third quarter of 2008, representing an increase of 44.4% as compared to RMB60.2 million for the corresponding period of 2007. For the first nine months of 2008, operating income was RMB284.3 million (US$41.9 million), an increase of 49.1% as compared to RMB190.7 million in the corresponding period in 2007.

Income tax expense for the third quarter of 2008 totaled RMB1.5 million (US$0.2 million) compared to an income tax credit of RMB0.3 million for the corresponding period of 2007. For the first nine months of 2008, income tax expense was RMB36.3 million (US$5.4 million) compared to an income tax benefit of RMB2.8 million for the first nine months of 2007. In addition to the overall increase in taxable income, the increased income tax expense in 2008 was primarily due to the expiration of tax holidays enjoyed by two PRC subsidiaries.

Net income was RMB91.2 million (US$13.4 million) for the third quarter of 2008, compared to RMB73.1 million in the corresponding period a year ago and representing growth of 24.7%. The Company's net income margin was 20.6% for the third quarter of 2008 compared to 22.6% for the third quarter of 2007. For the first nine months of 2008, net income was RMB298.4 million (US$44.0 million), an increase of 33.7% as compared to RMB223.2 million for the first nine months of 2007. Net margin for the first nine months of 2008 was 23.4% as compared to 23.0% for the first nine months of 2007.

Basic earnings per share for the third quarter of 2008 and the first nine months of 2008 were RMB0.73 (US$0.11) and RMB2.39 (US$0.35) respectively, and diluted earnings per share for the third quarter of 2008 and the first nine months of 2008 were RMB0.72 (US$0.11) and RMB2.37 (US$0.35) respectively. One American Depository Share (ADS) represents two ordinary shares. Basic earnings per ADS for the third quarter of 2008 and the first nine months of 2008 were RMB1.46 (US$0.21) and RMB4.77 (US$0.70) respectively, and diluted earnings per ADS for the third quarter of 2008 and the first nine months of 2008 were RMB1.44 (US$0.21) and RMB4.73 (US$0.70) respectively.

As of September 30, 2008, the Company had cash and cash equivalents (including pledged bank deposits), and short term investments of RMB831.3 million (US$122.4 million) compared to RMB968.3 million as of December 31, 2007.

Financial Outlook

Based on its first nine months performance, the Company maintains its targeted total revenue for the full year 2008 to be in the range between RMB1.7 billion and RMB1.8 billion. The Company also maintains its targeted net income for the full year 2008 to be in the range between RMB390.0 million and RMB400.0 million.

The above targets are based on the Company's current views on the operating and marketing conditions which are subject to change.

Share Repurchase Program

Under the terms of the share repurchase program approved by the board of directors, Simcere Pharmaceutical Group may purchase up to US$50 million worth of its issued and outstanding ADSs. The repurchases will be made from time to time on the open market at prevailing market prices or in block trades and subject to restrictions relating to volume, price and timing. The Company may effect buyback transactions pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. The timing and extent of any purchases will depend upon market conditions, the trading price of its ADSs and other factors. The Company expects to implement this share repurchase program over the course of the next 12 months, in a manner consistent with market conditions and the interest of the shareholders. The Company's board of directors will review the share repurchase program periodically, and may authorize adjustment of its terms and size accordingly. The Company plans to fund repurchases made under this program from its available cash balance.

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 and the section under "Financial Outlook" 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 third quarter 2008 earnings on Thursday, November 6, at 8 a.m. Eastern Time (Thursday, November 6 at 9 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: + 1 866 314 4483

United States dial-in number: + 1 617 213 8049

China toll-free dial-in number: +86 10 800 130 0399

Hong Kong dial-in number: +852 3002 1672

Please ask to be connected to Simcere's third quarter 2008 earnings call and provide the following passcode: 91351092. 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: 53343092. The telephone replay also will be archived on the "Investor Relations" section of the Company's Web site at http://www.simcere.com for seven days following the earnings announcement.

About Simcere Pharmaceutical Group

Simcere Pharmaceutical Group (NYSE:SCR, Simcere) is a leading manufacturer and supplier of branded generic pharmaceuticals and manufacturer of the patented anti-cancer biotech product Endu in the rapidly growing China market. In recent years, Simcere has been focusing its strategy on the development of first-to-market generic and innovative pharmaceuticals, and has introduced a first-to-market generic stroke management medication under the brand name Bicun and an innovative anti-cancer medication under the brand name Endu. Simcere currently manufactures and sells more than 50 pharmaceutical products including antibiotics, anti-cancer medication and stroke management 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 and currently has more than 12 pipeline products. For more information about Simcere Pharmaceutical Group, please visit http://www.simcere.com .

Simcere Pharmaceutical Group

UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(AMOUNTS EXPRESSED IN THOUSANDS, EXCEPT SHARE AND ADS DATA)

Three months ended September 30,

2007 2008 2008

RMB RMB USD

Product revenue 322,355 441,214 64,981

Other revenue 1,018 2,184 322

Total revenue 323,373 443,398 65,303

Cost of materials and production (59,042) (95,925) (14,128)

Gross profit 264,331 347,473 51,175

Operating expenses:

Research and development expenses (19,290) (21,126) (3,111)

Sales, marketing and distribution

expenses (146,573) (194,731) (28,680)

General and administrative expenses (38,227) (44,619) (6,571)

Income from operations 60,241 86,997 12,813

Interest income 8,503 8,303 1,223

Interest expense (21) (452) (67)

Foreign currency exchange gains 5,494 3,147 464

Other income -- -- --

Earnings before income taxes and

minority interests 74,217 97,995 14,433

Income tax benefit (expense) 273 (1,454) (214)

Income before minority interests 74,490 96,541 14,219

Minority interests (1,370) (5,384) (793)

Net income 73,120 91,157 13,426

Earnings per share:

Basic 0.58 0.73 0.11

Diluted 0.57 0.72 0.11

Earnings per ADS:

Basic 1.17 1.46 0.21

Diluted 1.14 1.44 0.21

Weighted average number of common

shares:

Basic 125,000,000 125,148,011

Diluted 128,754,278 126,261,753

Nine months ended September 30,

2007 2008 2008

RMB RMB USD

Product revenue 965,021 1,269,982 187,040

Other revenue 5,079 4,256 627

Total revenue 970,100 1,274,238 187,667

Cost of materials and production (170,009) (242,002) (35,641)

Gross profit 800,091 1,032,236 152,026

Operating expenses:

Research and development expenses (52,381) (52,120) (7,676)

Sales, marketing and distribution

expenses (441,722) (557,188) (82,061)

General and administrative expenses (115,283) (138,601) (20,413)

Income from operations 190,705 284,327 41,876

Interest income 15,424 30,105 4,434

Interest expense (5,811) (3,695) (544)

Foreign currency exchange gains 5,494 41,226 6,072

Other income 20,526 1,104 163

Earnings before income taxes and

minority interests 226,338 353,067 52,001

Income tax benefit (expense) 2,819 (36,324) (5,350)

Income before minority interests 229,157 316,743 46,651

Minority interests (5,968) (18,303) (2,696)

Net income 223,189 298,440 43,955

Earnings per share:

Basic 1.94 2.39 0.35

Diluted 1.87 2.37 0.35

Earnings per ADS:

Basic 3.88 4.77 0.70

Diluted 3.75 4.73 0.70

Weighted average number of common

shares:

Basic 115,018,315 125,066,634

Diluted 119,082,118 126,175,766

Simcere Pharmaceutical Group

UNAUDITED CONSOLIDATED CONDENSED Balance Sheets

(AMOUNTS EXPRESSED IN THOUSANDS)

December September September

31, 2007 30, 2008 30, 2008

RMB RMB USD

Assets

Current assets

Cash and cash equivalents (including

pledged bank deposits) 498,262 731,277 107,701

Held-to-maturity investment

securities 470,000 100,000 14,728

Accounts and bills receivables, net

of allowance for doubtful accounts 488,374 785,491 115,685

Inventories 65,241 86,412 12,727

Other current assets 35,276 74,832 11,021

Total current assets 1,557,153 1,778,012 261,862

Property, plant and equipment, less

accumulated depreciation 374,058 434,162 63,942

Land use rights 116,386 115,227 16,970

Intangible assets, net 251,221 284,860 41,954

Goodwill 161,496 191,294 28,173

Other assets 11,894 24,113 3,551

Total assets 2,472,208 2,827,668 416,452

Liabilities

Current liabilities

Short term bank loans and borrowings 29,000 19,000 2,798

Accounts and bills payables 23,711 37,109 5,465

Other payables and accrued

liabilities 285,411 305,199 44,950

Income taxes payable 4,515 25,941 3,821

Total current liabilities 342,637 387,249 57,034

Long term loan 52,000 52,000 7,658

Deferred income taxes 61,690 60,172 8,862

Other long term liabilities 19,928 32,532 4,791

Total liabilities 476,255 531,953 78,345

Minority interests 12,137 33,507 4,935

Shareholders' equity

Share capital 9,840 9,854 1,451

Additional paid-in capital 1,550,697 1,576,303 232,154

Accumulated other comprehensive loss (46,849) (92,517) (13,626)

Retained earnings 470,128 768,568 113,193

Total shareholders' equity 1,983,816 2,262,208 333,172

Commitments and contingencies

Total liabilities, minority interests

and shareholders' equity 2,472,208 2,827,668 416,452

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 = RMB6.7899 on September 30, 2008 in 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.


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SOURCE Simcere Pharmaceutical Group
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