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Simcere Pharmaceutical Group Reports Preliminary Unaudited Second Quarter 2011 Results
Date:8/9/2011

NANJING, China, Aug. 9, 2011 /PRNewswire-Asia/ -- Simcere Pharmaceutical Group ("Simcere" or the "Company") (NYSE: SCR), a leading pharmaceutical company specializing in the development, manufacturing, and marketing of branded generic and proprietary pharmaceuticals in China, today reported preliminary unaudited financial results for the quarter ended June 30, 2011.

Highlights

  • Total revenue was RMB546.4million (US$84.4million) for the second quarter of 2011, compared to RMB544.6 million for the same period in 2010, representing a year-over-year growth of 0.3%. For the first six months of 2011, total revenue was RMB1,028.6 million (US$158.9 million), representing an increase of 2.5% from RMB1,003.2 million for the same period in 2010.

  • Gross margin for the second quarter of 2011 was 84.9%, compared to 86.8% for the same period in 2010. For the first six months of 2011, gross margin was 84.4%, compared to 83.5% for the same period in 2010.

  • Income from operations was RMB79.9 million (US$12.4 million) for the second quarter of 2011, an increase of 27.5% from RMB62.7 million for the same period in 2010. For the first six months of 2011, income from operations was RMB109.6 million (US$16.9 million), which represented an increase of 17.1% from RMB93.6 million for the same period in 2010.

  • Net incomeattributable to Simcere was RMB73.7 million (US$11.4 million) for the second quarter of 2011, an increase of 91.1% from RMB38.6 million for the same period in 2010. For the first six months of 2011, net income was RMB101.6 million (US$15.7million), which represented an increase of 72.1% from RMB59.0 million for the same period in 2010.

  • "In the second quarter, both Simcere's revenue and gross margin remained steady, while anti-cancer drugs, including Endu, Sinofuan and Jiebaishu, achieved healthy growth," said Mr. Jinsheng Ren, Chairman and Chief Executive Officer of Simcere Pharmaceutical Group. "Changes to government pricing policies have negatively impacted margins for some of our branded generic drugs, including Zailin."

    Mr. Ren added, "We continue to make significant investments in R&D to support Simcere's long-term development strategy, including Bicun's overseas clinical research. In July we received approval from the SFDA to conduct clinical trials for our innovative anti-tumor drug Simotinib. Our recently announced joint-venture with Merck & Co., Inc. represents a major step forward in our strategy to cooperate with international partners to address the needs of Chinese patients."

    2011 Second Quarter Financial Results Total revenue for the second quarter of 2011 was RMB546.4 million (US$84.4 million), compared to RMB544.6 million for the same period in 2010, representing a year-over-year growth of 0.3%. For the first six months of 2011, total revenue was RMB1,028.6 million (US$158.9 million), representing an increase of 2.5% from RMB1,003.2 million for the same period in 2010.

    Revenue from edaravone injection productsunder the brand names Bicun and Yidasheng increased by 12.7% to RMB217.9 million (US$33.7 million) for the second quarter of 2011 from RMB193.3 million for the same period in 2010. Sales of edaravone injection products constituted 39.9% of the Company's total revenue for the second quarter of 2011. For the first six months of 2011, revenue from Bicun and Yidasheng totaled RMB406.7 million (US$62.8 million), which represented an increase of 10.9% from RMB366.7 million for the same period in 2010.

    Revenue from Endu,the Company's patented anti-cancer biotech product, increased by 30.3% to RMB70.0 million (US$10.8 million) in the second quarter of 2011 from RMB53.7 million for the same period in 2010.  Sales of Endu constituted 12.8% of the Company's total revenue for the second quarter of 2011. For the first six months of 2011, revenue from Endu totaled RMB119.7 million (US$18.5 million), which represented an increase of 31.3% from RMB91.2 million for the same period in 2010.

    Revenue from Sinofuan, a 5-FU sustained release implant for the treatment of cancer, increased by 25.8% to RMB53.0 million (US$8.2 million) for the second quarter of 2011 from RMB42.1 million for the same period in 2010.  Sales of Sinofuan constituted 9.7% of the Company's total revenue for the second quarter of 2011. For the first six months of 2011, revenue from Sinofuan totaled RMB82.4 million (US$12.7 million), which represented an increase of 22.0% from RMB67.5 million for the same period in 2010.

    Revenue from other branded generic products including Zailin and Yingtaiqing decreased by 8.0% to RMB205.3million (US$31.7 million) from RMB223.1 million for the same period in 2010. Sales of other branded generic products constituted 37.6% of the Company's total revenue for the second quarter of 2011. For the first six months of 2011, revenue from other branded generic products totaled RMB419.7 million (US$64.9 million), which represented an increase of 0.4% from RMB418.1 million for the same period in 2010.

    Gross margin for the second quarter of 2011 was 84.9%, compared to 86.8% for the same period in 2010. For the first six months of 2011, gross margin was 84.4%, compared to 83.5% in the first six months of 2010.

    Research and development expenses for the second quarter of 2011 totaled RMB40.1 million (US$6.2 million), which represented an increase of 28.7% from RMB31.2 million for the same period in 2010. This increase was due primarily to the increased expenditure on on-going research and development projects. As a percentage of total revenue, research and development expenses increased to 7.3% for the second quarter of 2011 from 5.7% for the same period in 2010. For the first six months of 2011, research and development expenses totaled RMB82.7 million (US$12.8 million), compared to RMB61.8 million for the same period in 2010.

    Sales, marketing and distribution expenses for the second quarter of 2011 were RMB288.9 million (US$44.6 million), which represented a decrease of 9.7% from RMB319.9 million for the same period in 2010. As a percentage of total revenue, sales, marketing and distribution expenses decreased to 52.9% for the second quarter of 2011 from 58.8% for the same period in 2010. This decrease was due primarily to the strengthened budget control and efficiency improvement on marketing activities. For the first six months of 2011, sales, marketing and distribution expenses were RMB553.2 million (US$85.5 million), which represented a decrease of 0.6% from RMB556.8 million for the same period in 2010.

    General and administrative expenses were RMB74.7 million (US$11.5 million) for the second quarter of 2011, which represented an increase of 27.3% from RMB58.6 million for the same period in 2010. As a percentage of total revenue, general and administrative expenses increased to 13.7% for the second quarter of 2011 from 10.8% for the same period in 2010. This increase was due primarily to the increased salary expenses and legal fees incurred for establishing a joint venture with Merck & Co., Inc.. For the first six months of 2011, general and administrative expenses were RMB142.8 million (US$22.1 million), which represented an increase of 13.4% from RMB125.9 million for the same period in 2010.

    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 that the relevant employee was assigned to perform, totaled RMB7.8 million (US$1.2 million) for the second quarter of 2011,which represented an increase of 5.9% from RMB7.4 million for the same period in 2010. For the first six months of 2011, share-based compensation expenses totaled RMB15.1 million (US$2.3 million), which represented a decrease of 1.8% from RMB15.4 million for the same period in 2010.

    Income from operations was RMB79.9 million (US$12.4 million) for the second quarter of 2011, which represented an increase of 27.5% from RMB62.7 million for the same period in 2010. For the first six months of 2011, income from operations was RMB109.6 million (US$16.9 million), which represented an increase of 17.1%from RMB93.6 million for the same period in 2010.

    Income tax expense for the second quarter of 2011 was RMB0.7 million (US$0.1 million), compared to RMB10.2 million in the same quarter of 2010.For the first six months of 2011, income tax expense was RMB5.8 million (US$0.9 million), compared to RMB11.5 million for the same period in 2010.The effective income tax rate was 6.0% for the first six months of 2011 decreased from 14.1% for the same period in 2010, which was primarily due to the improved financial results in one of the subsidiaries during the first six months of 2011, resulting in the reversal of valuation allowance previously made against the deferred tax assets of such subsidiary amounting to RMB8.9 million (US$1.4 million), and the impact of a non-taxable other operating income of RMB20 million (US$3.1 million) arising from the receipt of settlement in respect of the acquisition of Jiangsu Quanyi in 2009 from certain former shareholders of Jiangsu Quanyi.

    Net incomeattributable to Simcere was RMB73.7 million (US$11.4 million) for the second quarter of 2011, which represented an increase of 91.1%from RMB38.6 million for the same period in 2010. Net margin, representing net income divided by total revenue, was 13.5% for the second quarter of 2011, compared to 7.1% for the second quarter of 2010. For the first six months of 2011, net income was RMB101.6 million (US$15.7 million), which represented an increase of 72.1% from RMB59.0 million for the same period in 2010. Net margin for the first six months of 2011 was 9.9% as compared to 5.9% for the same period in 2010.

    Basic and diluted earnings per American Depository Share ("ADS")for the second quarter of 2011 were RMB1.38 (US$0.21) and RMB1.33 (US$0.21), respectively. Basic and diluted earnings per ADS for the first six months of 2011 were RMB1.90 (US$0.29) and RMB1.84 (US$0.28) respectively. One ADS represents two ordinary shares of the Company.

    As of June 30, 2011, the Company had cash, cash equivalents and restricted cash of RMB230.5 million (US$35.6 million), compared to RMB278.7 million as of December 31, 2010.

    Financial InformationThe preliminary unaudited condensed consolidated statements of income and balance sheets accompanying this press release have been prepared by management using U.S. GAAP. This preliminary financial information is not intended to fully comply with U.S. GAAP because it does not present all of the financial information and disclosures required by U.S. GAAP.

    Safe Harbor StatementThis press release contains forward-looking statements. These statements constitute "forward-looking" statements within the meaning of 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 filings 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 CallSimcere Pharmaceutical Group will host a conference call to discuss the Company's results for the second quarter of 2011 on Tuesday, August 9, at 8:00 a.m. Eastern Time (Tuesday, August 9 at 8:00 p.m. Beijing/Hong Kong time). The management team will be on the call to discuss the results for second quarter of 2011 and to answer questions.

    To access the conference call, please dial:United States toll-free:

    +1.866.510.0708International:

    +1.617.597.5377China Telecom:

    10.800.130.0399 / 10.800.120.2655 / 10.800.152.1490China Netcom:

    10.800.852.1490 / 10.800.712.2655China 400 (for mobile users)400.881.1630 / 400.881.1629Hong Kong:

    +852.3002.1672Please ask to be connected to Q2 2011 Simcere Pharmaceutical Group Earnings Conference Call and provide the following passcode: 72942369.

    Simcere will also 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 www.simcere.com.

    Following the earnings conference call, an archive of the call will be available by dialing:United States toll-free:+1.888.286.8010International:

    +1.617.801.6888The passcode for replay participants is 99140552. The telephone replay also will be archived on the "Investor Relations" section of the company's web site for seven days following the earnings announcement.

    About Simcere Pharmaceutical GroupSimcere Pharmaceutical Group (NYSE: SCR, Simcere) is a leading pharmaceutical company specializing in the development, manufacturing, and marketing of branded generic and proprietary pharmaceuticals in China. 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, cardiovascular disease, infectious diseases and pain. For more information about Simcere Pharmaceutical Group, please visit www.simcere.com.Investor and Media Contacts: Email: ir@simcere.comIn Nanjing:Yehong Zhang

    President

    Simcere Pharmaceutical GroupTel: 86-25-8556-6666 ext 8811In the United States:Cindy Zheng

    Brunswick Group

    Tel: 1-212-333-3810In Beijing:Yue Yu

    Brunswick Group

    Tel: 86-10-5960-8600In Hong Kong:Joseph Lo Chi-Lun

    Brunswick Group

    Tel: 852-3512-5000  Simcere Pharmaceutical GroupPRELIMINARY UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Amounts expressed IN THOUSANDS, EXCEPT SHARE AND ADS DATA) Three months ended June 30,Six months ended June 30,201020112011201020112011RMBRMBUSDRMBRMBUSDProduct revenue

    538,990

    546,363

    84,425996,638

    1,028,565

    158,935Other revenue

    5,578

    -

    -6,599

    -

    -Total revenue544,568546,36384,4251,003,2371,028,565158,935Cost of materials and production

    (72,099)

    (82,761)

    (12,788)(165,195)

    (160,234)

    (24,760)Gross profit472,469463,60271,637838,042868,331134,175Operating expenses:Research and development

    (31,195)

    (40,147)

    (6,204)(61,787)

    (82,729)

    (12,783)Sales, marketing and distribution

    (319,945)

    (288,855)

    (44,634)(556,824)

    (553,250)

    (85,489)General and administrative

    (58,640)

    (74,661)

    (11,537)(125,880)

    (142,798)

    (22,065)Other operating income*

    -20,000

    3,090-20,000

    3,090Income from operations62,68979,93912,35293,551109,55416,928Interest income

    1,066

    1,310

    2022,362

    2,362

    365Interest expense

    (4,052)

    (10,001)

    (1,545)(9,017)

    (19,405)

    (2,998)Foreign currency exchange gains

    1,150

    2,142

    3311,217

    3,717

    574Other  income

    1,091

    1,099

    1701,091

    7,522

    1,162Equity in losses of equity method affiliated
     companies

    (3,253)

    (3,427)

    (530)(7,703)

    (6,599)

    (1,019)Earnings before income taxes 58,69171,06210,98081,50197,15115,012Income tax expense

    (10,215)

    (711)

    (110)(11,531)

    (5,802)

    (897)Net Income48,47670,35110,87069,97091,34914,115Less: Net (income) loss attributable to the
     redeemable noncontrolling interest and noncontrolling interest

    (9,910)

    3,355

    519(10,922)

    10,247

    1,583Net income attributable to Simcere38,566

    73,706

    11,38959,048

    101,596

    15,698Earnings per share attributable to Simcere:Basic

    0.35

    0.69

    0.110.54

    0.95

    0.15Diluted

    0.35

    0.67

    0.100.53

    0.92

    0.14Earnings per ADS attributable to Simcere:Basic

    0.71

    1.38

    0.211.08

    1.90

    0.29Diluted

    0.69

    1.33

    0.211.05

    1.84

    0.28Weighted average number of common shares: Basic

    108,889,747

    106,903,665

    106,903,665109,457,384

    106,857,024

    106,857,024Diluted

    111,633,592

    110,578,606

    110,578,606112,221,031

    110,501,057

    110,501,057*The Company reached a settlement agreement with certain former shareholders of Jiangsu Quanyi Biological Technology Stock Co., Ltd. ("Jiangsu Quanyi", previously known as Jiangsu Yanshen Biological Technology Stock Co., Ltd) in the second quarter of 2011, in respect of the Company's 2009 acquisition of 37.5% equity interest in Jiangsu Quanyi. Pursuant to the settlement agreement, the Company received RMB20 million (US$3.1 million) in June 2011 and is expected to receive additional RMB15 million (US$2.3million) and RMB15 million (US$2.3million) on or before September 30 and December 31, 2011 respectively, totaling RMB50 million (US$7.7 million). The first installment of RMB20 million (US$3.1 million) received was recognized as other operating income.** As disclosed in its annual report on Form-20Ffor the year ended December 31, 2010, the Company previously expected that Jiangsu Quanyi would be able to resume the production and sale of its influenza vaccine in the second half of 2011. As of now, the vaccine is undergoing the GMP certification procedure, and thus will not be produced or sold as planned this year.Simcere Pharmaceutical GrouppRELIMINARY UNAUDITED CONDENSED CONSOLIDATED Balance SheetS (Amounts expressed IN THOUSANDS) December 31,June 30,June 30,201020112011RMBRMBUSDAssetsCurrent assetsCash, cash equivalents and restricted cash 

    278,716

    230,456

    35,610Accounts and bills receivable, net

    884,738

    1,031,558

    159,398Inventories

    89,732

    106,819

    16,506Other current assets 

    135,301

    229,375

    35,443Total current assets1,388,4871,598,208246,957Property, plant and equipment, net 

    866,262

    878,622

    135,766Land use rights

    142,910

    141,308

    21,835Goodwill and intangible assets, net

    658,139

    641,815

    99,174Investments in and advance to affiliated companies

    121,220

    115,576

    17,859Other assets

    41,234

    31,142

    4,812Total assets3,218,252

    3,406,671

    526,403LiabilitiesCurrent liabilitiesShort-term borrowings and current portion of long-term borrowings

    360,000

    510,950

    78,952Accounts payable

    49,638

    37,896

    5,856Other payables and accrued liabilities

    596,208

    568,807

    87,893Total current liabilities1,005,8461,117,653172,701Long-term borrowings, excluding current portion

    19,306

    7,500

    1,159Deferred tax liabilities 

    68,811

    56,507

    8,731Other liabilities

    22,593

    23,109

    3,571Total liabilities1,116,5561,204,769186,162Redeemable noncontrolling interest47,45350,2987,772Shareholders' equitySimcere shareholders' equity Ordinary shares at par

    8,597

    8,605

    1,330Additional paid-in capital

    948,469

    963,583

    148,894Accumulated other comprehensive loss

    (97,512)

    (100,874)

    (15,587)Retained earnings

    1,019,118

    1,120,714

    173,174Total equity attributable to Simcere 1,878,6721,992,028307,811Noncontrolling interest

    175,571

    159,576

    24,658Total shareholders' equity2,054,2432,151,604332,469Commitments and contingenciesTotal liabilities, redeemable noncontrolling interest and shareholders' equity3,218,252

    3,406,671

    526,403Note: 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 = RMB6.4716 on June 30, 2011 as set forth in the H. 10 statistical release of the Federal Reserve Board. 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.
    '/>"/>

    SOURCE Simcere Pharmaceutical Group
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