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Simcere Pharmaceutical Group Reports Third Quarter 2007 Results
Date:11/5/2007

Net Income Increased 73% Year-over-year or 89% Year-to-date

NANJING, China, Nov. 5 /Xinhua-PRNewswire-FirstCall/ -- Simcere Pharmaceutical Group (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, 2007.

Third Quarter 2007 Highlights

-- Total revenue increased to RMB323.4 million (US$43.2 million) from

RMB223.8 million in the third quarter of 2006, representing a 44.5 %

year-over-year growth;

-- Net income increased to RMB73.1 million (US$9.8 million) from RMB42.3

million in the third quarter of 2006, representing a 72.9% year-over-

year growth; and

-- Gross margin increased to 81.7% from 79.0% in the third quarter of

2006. The improvement in gross margin reflects continuous increases

in sales of higher gross margin products.

Mr. Jinsheng Ren, Chairman and CEO of Simcere Pharmaceutical Group, commented: "This has been a solid quarter for Simcere. Our lead products Endu and Bicun achieved 377.3% and 83.8% year-over-year growth respectively, driving our business forward and achieving an overall year-over-year growth of 44.5% in terms of revenue, 72.9% in terms of net income, and 38.3% in terms of basic earnings per share. We have also made progress in stabilizing the performance of our generic products during this quarter. We expect the momentum of Endu, Bicun, and other generic products to continue.

In addition, we completed the acquisition of 51% ownership interest in Boda Pharmaceutical on October 1st. After this transaction, we have

CONSOLIDATED Balance Sheets

(UNAUDITED, Amounts expressed IN THOUSANDS)

December 31, September 30, September 30,

2006 2007 2007

RMB RMB USD

Assets

Current assets

Cash and cash equivalents 106,027 684,016 91,290

Pledged bank deposits 20,787 1,070 143

Short term investments -- 450,000 60,058

Accounts receivable, net of

allowance for

doubtful accounts 61,723 126,087 16,828

Bills receivable 101,058 258,477 34,496

Inventories 39,483 45,421 6,062

Prepaid expenses and other

current assets 79,192 20,615 2,751

Amounts due from related

parties 434 10,616 1,417

Deferred income taxes 2,725 -- --

Total current assets 411,429 1,596,302 213,045

Property, plant and

equipment, less

accumulated depreciation 267,054 287,624 38,387

Land use rights 82,522 96,351 12,859

Deposits for purchase of

property, plant and

equipment 4,056 1,625 217

Intangible assets, net 163,148 173,170 23,111

Goodwill 100,634 105,086 14,025

Deferred income taxes 5,704 5,614 749

Total assets 1,034,547 2,265,772 302,393

Liabilities

Current liabilities

Short-term bank loans and

borrowings 333,000 19,000 2,536

Accounts and bills payable 20,089 14,996 2,001

Accrued payroll and

employee benefits 23,766 25,628 3,420

Other payables and accrued

liabilities 169,874 244,029 32,569

Amounts due to related

parties 1,352 1,216 162

Income taxes payable 20,092 17,196 2,295

Total current liabilities 568,173 322,065 42,983

Deferred income taxes 23,634 25,177 3,360

Total liabilities 591,807 347,242 46,343

Minority interests -- 1,919 256

Shareholders' equity

Contributed capital 7,909 9,839 1,313

Additional paid-in capital 265,964 1,541,755 205,765

Accumulated other

comprehensive loss -- (27,039) (3,609)

Retained earnings 168,867 392,056 52,324

Total shareholders' equity 442,740 1,916,611 255,795

Commitments and

contingencies

Total liabilities, minority

interests and

shareholders' equity 1,034,547 2,265,772 302,393

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 = RMB7.4928 on September 28, 2007 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.

Reconciliations of non-GAAP results of operations measures to

the nearest comparable GAAP measures (*)

(UNAUDITED, EXPRESSED IN RMB THOUSANDS)

Three months ended Three months ended

September 30, 2006 September 30, 2007

GAAP Adjustment Non-GAAP GAAP Adjustment Non-GAAP

Result Result Result Result

Income from

operations 44,213 -- 44,213 60,241 7,540 67,781

Net income 42,295 -- 42,295 73,120 7,540 80,660

Nine months ended Nine months ended

September 30, 2006 September 30, 2007

GAAP Adjustment Non-GAAP GAAP Adjustment Non-GAAP

Result Result Result Result

Income from

Operations 135,875 -- 135,875 211,231 22,041 233,272

Net income 118,148 -- 118,148 223,189 22,041 245,230

(*) 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:

Michele Loguidice

Brunswick Group LLC

Tel: +1-212-333-3810

Email: ir@simcere.com

captured 100% of the fast-growing injectable edaravone market, where Bicun focused primarily on the premium edaravone market while Boda's Yidasheng on the medium to low end. This strategic acquisition is a good example of our product based M&A strategy, which helps slow down competition pressure for our biggest seller Bicun, while ensuring Simcere's leading position and strong growth momentum in capturing the whole edaravone market. We believe this will help to maintain the company's high gross margin and high profitability characteristics.

We are confident that we will meet our 2007 full year performance guidance. Our team will continue to work hard to ensure that Simcere maintains its position as a leading player in the Chinese pharmaceutical industry."

2007 Third Quarter and Nine Month Financial Results

Total revenue for the third quarter of 2007 was RMB323.4 million (US$43.2 million), representing an increase of 44.5% from RMB223.8 million for the same period in 2006. For the first nine months of 2007, total revenue was RMB990.6

million (US$132.2 million), representing an increase of 42.4% from RMB695.5 million for the same period in 2006.

Revenue from Endu, the Company's patented anti-cancer biotech drug launched in July 2006, totaled RMB52.8 million (US$7.1 million) in the third quarter of 2007, representing 16.4% of the Company's product revenue for the quarter and an increase of 377.3% from RMB11.1 million in the corresponding period in 2006. For the first nine months of 2007, revenue from Endu totaled RMB152.2 million (US$20.3 million), representing 15.8% of product revenue.

Revenue from Bicun, the Company's first-to-market stroke management product, totaled RMB106.2 million (US$14.2 million) in the third quarter of 2007. In the third quarter, Bicun's revenue represented 32.9% of the company's product revenue compared to 25.8% in the prior year period, and demonstrated an increase of 83.8% from RMB57.8 million in the corresponding period in 2006. For the first nine months of 2007, revenue from Bicun increased 90.2% to RMB296.5 million (US$39.6 million), representing 30.7% of product revenue, compared to RMB155.9 million, or 22.5% of product revenue, in the first nine months of 2006.

Revenue from other branded generic products for the third quarter of 2007 totaled RMB163.3 million (US$21.8 million), contributing 50.7% of total revenue, representing an increase of 5.4% from RMB154.9 million in the same period in 2006. For the first nine months of 2007, revenue from other generic products totaled RMB516.4 million (US$68.9 million), representing 53.5% of total product revenue, compared to RMB525.8 million or 75.9% of product revenue in the corresponding period in 2006.

Research and development expenses in the third quarter of 2007 totaled RMB19.3 million (US$2.6 million) compared to RMB7.0 million for the corresponding period a year ago. The increase in research and development expenses was primarily related to the Phase IV clinical study for Endu, the expansion of the Company's research and development department and other ongoing research projects. For the first nine months of 2007, research and development expenses totaled RMB52.4 million (US$7.0 million), compared to RMB23.2 million for the same period in 2006.

Sales and marketing expenses were RMB146.6 million (US$19.6 million) for the third quarter of 2007, an increase of 41.5% from RMB103.6 million for the corresponding period a year ago. For the first nine months of 2007, sales and marketing expenses were RMB441.7 million (US$59.0 million), an increase of 38.6% from RMB318.8 million in the first nine 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 the new drug Endu.

General and administrative expenses were RMB38.2 million (US$5.1 million) for the third quarter of 2007, representing an increase of 72.7% from RMB22.1 million for the corresponding period a year ago. General and administrative expenses as a percentage of the Company's total revenues increased to 11.8% in the third quarter of 2007 from 9.9% in the corresponding period of 2006. The increased expenses were primarily related to stock option expenses, staff costs and professional service fees associated with being a new public company. For the first nine months of 2007, general and administrative expenses were RMB115.3 million (US$15.4 million), an increase of 61.3% from RMB71.5 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 RMB7.5 million (US$1.0 million) for the third quarter of 2007. For the first nine months of 2007, share-based compensation expense totaled RMB22.0 million (US$2.9 million).

Operating income was RMB60.2 million (US$8.0 million) for the third quarter of 2007, as compared to RMB44.2 million for the corresponding period of 2006. For the first nine months of 2007, operating income was RMB211.2 million (US$28.2 million), an increase of 55.5% as compared to RMB135.9 million in the corresponding period in 2006.

Net income was RMB73.1 million (US$9.8 million) for the third quarter of 2007, compared to RMB42.3 million in the corresponding period a year ago. The Company's net margin was 22.6% for the third quarter of 2007 compared to 18.9 % for the corresponding period a year ago. For the first nine months of 2007, net income was RMB223.2 million (US$29.8 million), an increase of 88.9% as compared to RMB118.1 million in the first nine months of 2006. Net income margin for the first nine months of 2007 was 22.5%, compared to 17.0 % in the corresponding period in 2006.

The basic earnings per ADS for the third quarter of 2007 increased to RMB1.17 (US$0.16) and the diluted earnings per ADS for the third quarter of 2007 increased to RMB1.14 (US$0.15), compared to basic and diluted earnings per ADS of RMB0.85 for the corresponding period a year ago. Each ADS represents two ordinary shares.

Net income excluding share-based compensation expenses (non-GAAP) was RMB80.7 million (US$10.8 million) in the third quarter of 2007 compared to RMB42.3 million, representing a 90.7% increase from the third quarter of 2006. For the first nine months of 2007, net income excluding share-based compensation expenses was RMB245.2 million (US$32.7 million), an increase of 107.6% from RMB118.1 million in the corresponding period in 2006.

As of September 30, 2007, the Company had cash and cash equivalents of RMB684.0 million (US$91.3 million) compared to RMB1.12 billion at the end of the second quarter of 2007. The decrease in cash and cash equivalents is a result of investing RMB450.0 million (US$60.1 million) in fixed income financial products with maturity less than one year with banks and other financial institutions.

On September 28, 2007, the Company entered into a definite agreement to purchase a 51% stake in Jilin Boda Pharmaceutical Co, Ltd. for RMB111.2 million (US$14.8 million) in cash. The transaction was closed on October 1, 2007 and the integration is expected to be completed during the fourth quarter of 2007.

Financial Outlook

Based on current operating and market conditions, management would like to uphold the 2007 full year revenue and net income guidance given out in the prior quarters.

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 and information contained in the section Financial Outlook 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 third quarter 2007 earnings on Monday, November 5, at 8 a.m. Eastern Time (Monday, November 5 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: + 1 866 578 5747

United States dial-in number: + 1 617 213 8054

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 third quarter 2007 Earnings Call and provide the following passcode: 17992002. 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: 72545063. 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 focused its strategy on the development of first-to-market generic and innovative pharmaceuticals, and has introduced a first-to-market generic stoke 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 .

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED, Amounts expressed IN THOUSANDS,

EXCEPT PER SHARE AND PER ADS DATA)

Three months ended Nine months ended

September 30 September 30

2006 2007 2007 2006 2007 2007

RMB RMB USD RMB RMB USD

Product revenue 223,768 322,355 43,022 692,790 965,021 128,793

Other revenue 72 1,018 136 2,718 25,605 3,417

Total revenue 223,840 323,373 43,158 695,508 990,626 132,210

Cost of materials

and production (46,979) (59,042) (7,880) (146,163)(170,009)(22,690)

Gross profit 176,861 264,331 35,278 549,345 820,617 109,520

Operating expenses:

Research and

development expenses (6,954) (19,290) (2,574) (23,196) (52,381) (6,991)

Sales, marketing

and distribution

expenses (103,558)(146,573)(19,562) (318,807)(441,722)(58,953)

General and

administrative

expenses (22,136) (38,227) (5,102) (71,467)(115,283)(15,386)

Income from

operations 44,213 60,241 8,040 135,875 211,231 28,190

Interest income 204 8,503 1,135 617 15,424 2,059

Interest expense (3,561) (21) (3) (8,010) (5,811) (775)

Other income -- 5,494 733 -- 5,494 733

Income before income

tax expense

and minority

interests 40,856 74,217 9,905 128,482 226,338 30,207

Income tax

credit/(expense) 1,439 273 37 (13,861) 2,819 376

Income before

minority interests 42,295 74,490 9,942 114,621 229,157 30,583

Minority interests -- (1,370) (183) 3,527 (5,968) (796)

Net income 42,295 73,120 9,759 118,148 223,189 29,787

Earnings per share:

Basic 0.42 0.58 0.08 1.31 1.94 0.26

Diluted 0.42 0.57 0.08 1.31 1.87 0.25

Earnings per ADS:

Basic 0.85 1.17 0.16 2.62 3.88 0.52

Diluted 0.85 1.14 0.15 2.62 3.75 0.50

Simcere Pharmaceutical Group
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SOURCE Simcere Pharmaceutical Group
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