3SBio fourth quarter total net revenues increase 38.2% to RMB139.9M

3SBio Inc. (NASDAQ: SSRX) ("3SBio" or  "the Company"), a leading China-based biotechnology company focused on researching, developing, manufacturing and marketing biopharmaceutical products, announced its unaudited financial results for the fourth quarter and full year ended December 31, 2011.

Full Year 2011 Financial Highlights:

• Total net revenues in 2011 increased by 29.4% to RMB541.6 million (US$86.1 million), compared to RMB418.6 million (US$63.4 million) in 2010.
• GAAP operating income in 2011 increased by 38.3% to RMB120.1 million (US$19.1 million), compared to RMB86.8 million (US$13.2 million) in 2010. Non-GAAP operating income in 2011 increased by 24.0% to RMB120.1 million (US$19.1 million), compared to RMB96.8 million (US$14.7 million) in 2010.
• GAAP net income attributable to 3SBio Inc. increased by 33.6% to RMB108.6 million (US$17.3 million), compared to RMB81.3 million (US$12.3 million) in 2010. Non-GAAP net income attributable to 3SBio Inc. increased by 19.0% to RMB108.6 million (US$17.3 million), compared to RMB91.2 million (US$13.8 million) in 2010.
• GAAP net income attributable to 3SBio Inc. per American Depositary Share ("ADS") on a fully-diluted basis was RMB4.84 (US$0.77) compared to RMB3.69 (US$0.56) in 2010.  Non-GAAP net income attributable to 3SBio Inc. per ADS on a fully-diluted basis in 2011 was RMB4.84 (US$0.77) compared to RMB4.14 (US$0.63) in 2010.
• Positive operating cash flow of RMB137.1 million (US$21.8 million) for the year ended December 31, 2011 and as of December 31, 2011, cash and cash equivalents, restricted cash and time deposits of RMB765.7 million (US$121.7 million).

Fourth Quarter 2011 Financial Highlights:

• Total net revenues in the fourth quarter of 2011 increased by 38.2% to RMB139.9million (US$22.2 million), compared to RMB101.2 million (US$15.3 million) in the fourth quarter of 2010.
• GAAP operating income in the fourth quarter of 2011 increased by 563.2% to RMB26.0 million (US$4.1 million), compared to GAAP operating income of RMB3.9 million (US$0.6 million) in the fourth quarter of 2010. Non-GAAP operating income increased by 87.5% to RMB26.0 million (US$4.1 million), compared to non-GAAP operating income of RMB13.9 million (US$2.1 million) in the fourth quarter of 2010. The difference between GAAP and non-GAAP operating income in the fourth quarter of 2010 is due to the expensing of the US$1.5 million initial payment to acquire exclusive rights to all transplant and autoimmune indications of voclosporin in mainland China, Hong Kong and Taiwan.
• GAAP net income attributable to 3SBio Inc. in the fourth quarter of 2011 increased by 234.1% to RMB22.3 million (US$3.6 million), compared to GAAP net income attributable to 3SBio Inc. of RMB6.7 million (US$1.0 million) in the fourth quarter of 2010. Non-GAAP net income attributable to 3SBio Inc. in the fourth quarter of 2011 increased by 34.3% to RMB22.3 million (US$3.6 million), compared to non-GAAP net income of RMB16.6 million (US$2.5 million) in the fourth quarter of 2010.
• GAAP net income attributable to 3SBio Inc. per ADS on a fully-diluted basis in the fourth quarter of 2011 was RMB0.99 (US$0.16) compared to a GAAP net income attributable to 3SBio Inc. per ADS on a fully-diluted basis of RMB0.30 (US$0.05) for the fourth quarter of 2010. Non-GAAP net income attributable to 3SBio Inc. per ADS on a fully-diluted basis in the fourth quarter of 2011 was RMB0.99 (US$0.16), compared to non-GAAP net income attributable to 3SBio Inc. per ADS on a fully-diluted basis of RMB0.74 (US$0.11) in the fourth quarter of 2010.

Full Year 2011 Business Highlights

Operations

• EPIAO, the Company's flagship injectable recombinant human erythropoietin ("EPO") product, demonstrated strong growth with net revenues in 2011 rising 26.7% to RMB317.9 million (US$50.5 million), compared to RMB250.9 million (US$38.0 million) in 2010. According to the latest data from IMS Health China, EPIAO's market share in terms of value reached 41.6% in the fourth quarter of 2011.
• Net revenues for TPIAO, the Company's novel recombinant human thrombopoietin ("TPO") product, increased by 28.1% to RMB164.8 million (US$26.2 million) in 2011, compared to RMB128.7 million (US$19.5 million) in 2010.
• Net revenues for Iron Sucrose Supplement increased by 44.6% to RMB24.9 million (US$4.0 million), 4.6% of net revenues in 2011, compared to RMB17.2 million (US$2.6 million), or 4.1% of net revenues in 2010.
• Net export revenues increased by 95.6% to RMB23.9 million (US$3.8 million), accounting for 4.4% of total net revenue in 2011, compared to RMB12.2 million (US$1.9 million), or 2.9% of net revenues in 2010.  The increase was partly attributable to increased sales to Egypt and Thailand.

Manufacturing 

• In September, the SFDA approved 3SBio's voluntary upgrade of manufacturing specifications to align EPIAO product quality with European Pharmacopoeia standards. 3SBio is the only domestic manufacturer with an approved product quality that meets both Chinese Pharmacopoeia and European Pharmacopoeia standards.

Events subsequent to December 31, 2011

Partnerships and Business Development

• As announced, 3SBio entered into a framework joint venture agreement with DaVita Inc., ("DaVita") a Fortune 500 company that operates over 1800 dialysis clinics in the United States. The joint venture will provide renal care services in Liaoning and Jilin, two provinces in northeastern China with a combined population of 64 million. The total investment is US$20 million with DaVita and 3SBio contributing 70% and 30% respectively. DaVita and 3SBio have also agreed to enter into a nationwide supply agreement for anemia management drugs.

Dr. Jing Lou, chief executive officer of 3SBio, commented:

"We are pleased to report another year of strong top line growth, improved profitability and cash flow. Over the past five years, we have grown the business more than five times by focusing on our core areas of kidney and cancer therapeutics. The SFDA has recently approved our new EPIAO quality standard, which meets both Chinese and European Pharmacopoeia  requirements, the only domestic biological medicine company in China to reach this standard. We expect this recognition will further support our efforts to develop international markets for both EPIAO and TPIAO. 3SBio's collaboration with DaVita marks our entry into the dialysis service area and demonstrates our long-term commitment to providing integrated solutions for China's dialysis patients. We are optimistic about the coming year and expect net revenue growth in the range of 15-25%, or between US$99 million and US$108 million."

Full Year Ended December 31, 2011 Unaudited Financial Results

Net revenues.  Net revenues for 2011 increased by 29.4% to RMB541.6 million (US$86.1 million), from RMB418.6 million (US$63.4 million) in 2010. The increase was largely due to continued strong sales of EPIAO and TPIAO, underpinned by continued strong demand in the oncology and nephrology markets.

Net revenues from EPIAO in 2011 increased by 26.7% to RMB317.9 million (US$50.5 million) from RMB250.9 million (US$38.0 million) in 2010. Net revenues from TPIAO in 2011 increased by 28.1% to RMB164.8 million (US$26.2 million) from RMB128.7 million (US$19.5 million) in 2010. In addition, net revenues from our export business increased to RMB23.9 million (US$3.8 million), compared to RMB12.2 million (US$1.9 million) in 2010, while net revenues from Iron Sucrose Supplement were RMB24.9 million (US$4.0 million), representing an increase of 44.6% from RMB17.2 million (US$2.6 million) in 2010.

Gross profit.  Gross profit for 2011 increased by 28.3% to RMB483.5 million (US$76.8 million) compared to RMB377.0 million (US$57.1 million) in 2010. Gross margin for 2011 decreased to 89.3% compared to 90.1% in 2010. The decline in gross margin was mainly attributable to new plant depreciation and increased material, labor and energy costs.

Operating expenses. GAAP operating expenses were RMB363.5 million (US$57.8 million) for 2011, an increase of 25.3% from RMB290.1 million (US$44.0 million) in 2010. Non-GAAP operating expenses were RMB363.5 million (US$57.8 million) for 2011, an increase of 29.7% from RMB280.2 million (US$42.5 million) in 2010.  

• Research and development ("R&D") costs. GAAP R&D costs for 2011 were RMB41.8 million (US$6.6 million), or 7.7% of net revenues, compared to RMB39.4 million (US$6.0 million), or 9.4% of net revenues in 2010. The decrease in GAAP R&D costs as a percentage of net revenues was mainly attributable to the non-refundable upfront licensing payment of US$1.5 million made to Isotechnika Pharma Inc. in December 2010 to acquire exclusive rights to all transplant and autoimmune indications of voclosporin in mainland China, Hong Kong and Taiwan. Non-GAAP R&D costs for 2011 were RMB41.8 million (US$6.6 million), or 7.7% of net revenues, compared to RMB29.5 million (US$4.5 million), or 7.0% of net revenues in 2010.
• Sales, marketing and distribution expenses. Sales, marketing and distribution expenses for 2011 were RMB254.8 million (US$40.5 million), or 47.0% of net revenues, compared to RMB194.9 million (US$29.5 million), or 46.6% of net revenues in 2010. The increase is mainly attributable to expanded sales and marketing activities, including new product launch initiatives for TPIAO for ITP as well as the municipal construction tax and education surcharges levied as a result of the change in the China tax regulation effective from December 2010.
• General and administrative expenses. General and administrative expenses for 2011 were RMB66.9 million (US$10.6 million), or 12.4% of net revenues, compared to RMB55.9 million (US$8.5 million), or 13.3% of net revenues in 2010.

Operating income. GAAP operating income for 2011 increased by 38.3% to RMB120.1 million (US$19.1 million), compared to RMB86.8 million (US$13.2 million) in 2010. Non-GAAP operating income increased by 24.0% to RMB120.1 million (US$19.1 million), compared to RMB96.8 million (US$14.7 million) in 2010. GAAP operating margin for 2011 was 22.2%, compared to 20.7% in 2010. The increase in GAAP operating margin is primarily due to strong sales growth while R&D expense has remained stable.  Non-GAAP operating margin for 2011 was 22.2%, compared to 23.1% in 2010.

Interest income.  The Company recorded interest income of RMB18.5 million (US$2.9 million) in 2011, compared to RMB13.0 million (US$2.0 million) in 2010.  The increase is primarily due to the combined effect of increased time deposits and higher interest rates on time deposits.

Net income. GAAP net income attributable to 3SBio Inc. for 2011 increased by 33.6% to RMB108.6 million (US$17.3 million) compared to RMB81.3 million (US$12.3 million) in 2010. GAAP net margin attributable to 3SBio Inc. for 2011 was 20.1% as compared to 19.4% in 2010.  GAAP net income attributable to 3SBio Inc. per ADS on a fully-diluted basis for 2011 increased to RMB4.84 (US$0.77) from RMB3.69 (US$0.56) in 2010.

Non-GAAP net income attributable to 3SBio Inc. for 2011 increased by 19.0% to RMB108.6 million (US$17.3 million) compared to RMB91.2 million (US$13.8 million) in 2010.  Non-GAAP net margin attributable to 3SBio Inc. for 2011 was 20.1% as compared to 21.8% in 2010.  Non-GAAP net income attributable to 3SBio Inc. per ADS on a fully-diluted basis for 2011 increased to RMB4.84 (US$0.77) from RMB4.14 (US$0.63) in 2010.

Cash and cash equivalents, restricted cash and time deposits. 3SBio had positive operating cash flow of RMB137.1 million (US$21.8 million) for the year ended December 31, 2011 and as of December 31, 2011, cash and cash equivalents, restricted cash and time deposits of RMB765.7 million (US$121.7 million).

Three Months Ended December 31, 2011 Unaudited Financial Results

Net revenues.  Net revenues increased by 38.2% to RMB139.9 million (US$22.2 million) for the fourth quarter of 2011 from RMB101.2 million (US$15.3 million) for the same period in 2010. This increase was largely due to continued strong sales of EPIAO and TPIAO which grew by 33.9% and 25.8%, respectively, over the same period in 2010. TPIAO remained 3SBio's second largest revenue contributor in the quarter, accounting for 27.7% of total net revenues. Export sales increased by 247.6% to RMB9.8 million (US$1.6 million), compared to RMB2.8 million (US$0.4 million) in the fourth quarter of 2010, largely due to increased sales to Egypt and Thailand. Revenues from Iron Sucrose Supplement rose 74.1% to RMB6.7 million (US$1.1 million), compared to RMB3.8 million (US$0.6 million) in the fourth quarter of 2010.

Gross profit.  As a result of continued sales growth from key products, gross profit for the fourth quarter of 2011 increased by 40.6% to RMB125.0 million (US$19.9 million) from RMB88.9 million (US$13.5 million) for the same period in 2010. Gross margins increased to 89.4% for the fourth quarter of 2011 from 87.9% for the same period in 2010. The increase was mainly attributable to the enhanced capacity utilization and improved production efficiency of the new plant.

Operating expenses. GAAP operating expenses were RMB99.0 million (US$15.7 million) for the fourth quarter of 2011, an increase of 16.5% from RMB85.0 million (US$12.9 million) for the same period in 2010. Non-GAAP operating expenses were RMB99.0 million (US$15.7 million) for the fourth quarter of 2011, an increase of 31.9% from RMB75.1 million (US$11.4 million) for the same period in 2010.

• Research and development ("R&D") costs. GAAP R&D costs for the fourth quarter of 2011 were RMB12.7 million (US$2.0 million), or 9.1% of net revenues, compared to RMB17.2 million (US$2.6 million), or 17.0% of net revenues, for the same period in 2010. The decrease in R&D expenses is primarily attributable to the non-refundable upfront licensing payment of US$1.5 million made to Isotechnika in December 2010, which was partially offset by the increased R&D costs related to Anti-TNF Rab (SSS07) in the fourth quarter of 2011. Non-GAAP R&D costs for the fourth quarter of 2011 were RMB12.7 million (US$2.0 million), or 9.1% of net revenues, compared to RMB7.2 million (US$1.1 million), or 7.2% of net revenues, for the same period in 2010.  The difference between GAAP and non-GAAP R&D costs for the fourth quarter of 2010 is due to the expensing of the US$1.5 million up-front non-refundable payment to acquire exclusive rights to certain indications of voclosporin in mainland China, Hong Kong and Taiwan.
• Sales, marketing and distribution expenses. Sales, marketing and distribution expenses for the fourth quarter of 2011 were RMB65.9 million (US$10.5 million), or 47.1% of net revenues, compared to RMB51.1 million (US$7.7 million), or 50.5% of net revenues, for the same period in 2010, on both a GAAP and non-GAAP basis.
• General and administrative expenses. General and administrative expenses for the fourth quarter of 2011 were RMB20.4 million (US$3.2 million), or 14.6% of net revenues, compared to RMB16.8 million (US$2.5 million), or 16.6% of net revenues for the same period in 2010, on both a GAAP and non-GAAP basis.

Operating income.  GAAP operating income for the fourth quarter of 2011 increased by 563.2% to RMB26.0 million (US$4.1 million), compared to operating income of RMB3.9 million (US$0.6 million) for the same period in 2010. Non-GAAP operating income for the fourth quarter of 2011 grew by 87.5% to RMB26.0 million (US$4.1 million), compared to RMB13.9 million (US$2.1 million) in the fourth quarter of 2010.  GAAP operating margin for the fourth quarter of 2011 was 18.6% as compared to 3.9% for the same period in 2010. Non-GAAP operating margin was 18.6% for the fourth quarter of 2011, compared to 13.7% in the same period in 2010. The increase in operating margin is primarily due to enhanced capacity utilization, improved production efficiency and lower R&D expenses.

Interest income.  The Company recorded interest income of RMB4.7 million (US$0.8 million) for the fourth quarter of 2011, compared to RMB3.2 million (US$0.5 million) for the same period in 2010. The increase is primarily due to the combined effect of increased time deposits and higher interest rates on time deposits.

Net income.  GAAP net income attributable to 3SBio Inc. for the fourth quarter of 2011 increased by 234.1% to RMB22.3 million (US$3.6 million) compared to net income attributable to 3SBio Inc. of RMB6.7 million (US$1.0 million) for the same period in 2010. GAAP net income attributable to 3SBio Inc. per ADS on a fully-diluted basis for the fourth quarter of 2011 increased by 230.0% to RMB0.99 (US$0.16), compared to RMB0.30 (US$0.05) for the same period in 2010. GAAP net margin attributable to 3SBio Inc. for the fourth quarter of 2011 was 15.9% as compared to 6.6% for the same period in 2010. 

Non-GAAP net income attributable to 3SBio Inc. for the fourth quarter of 2011 was RMB22.3 million (US$3.6 million), 34.3% higher than non-GAAP net income attributable to 3SBio Inc. of RMB16.6 million (US$2.5 million) for the same period in 2010. Non-GAAP net income attributable to 3SBio Inc. per ADS on a fully-diluted basis for the fourth quarter of 2011 increased by 33.8% to RMB0.99 (US$0.16), compared to RMB0.74 (US$0.11) for the same period in 2010. Non-GAAP net margin attributable to 3SBio Inc. for the fourth quarter of 2011 was 15.9% as compared to 16.4% for the same period in 2010. 

2012 Full Year Guidance and Selected Company Objectives

Based on current market and operating conditions and the following goals, the Company expects net revenues to grow by 15-25% in 2012, or between US$99 million to US$108 million. Other operating objectives include:

• Explore the potential market in the renal care area to further strengthen our leadership position in the nephrology area
• Evaluate manufacturing options for small-molecule medicines
• Initiate Phase I trial of NuPiao, our next-generation EPO product 
• Initiate a registration trial of Feraheme, an IV iron supplement
• Continue to explore global biosimilar opportunities and initiate the approval process in selected  markets
• Work with Isotechnika on initiating a global Phase III multi-center trial of voclosporin for the prevention of kidney transplant rejection
• Prepare application to conduct clinical trials in China for pegsiticase (Uricase-PEG 20), a treatment for refractory gout, and identify potential partners for development outside China
• Strengthen existing strategic partnerships while continuing to seek opportunities that leverage our balance sheet, strong nephrology and oncology franchises and recent additions to our product pipeline