Simcere Pharmaceutical announces financial results for the third quarter of 2009

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 unaudited financial results for the quarter ended September 30, 2009.

Highlights -- Total revenue was RMB443.7 million (US$65.0 million) for the third quarter of 2009, compared to RMB443.4 million for the same period in 2008. -- Gross margin for the third quarter of 2009 was 82.2%, compared to 78.4% for the same period in 2008. -- Income from operations was RMB29.0 million (US$4.3 million) for the third quarter of 2009, a decrease of 66.6% from RMB87.0 million for the same period in 2008. -- Net income attributable to Simcere was RMB16.4 million (US$2.4 million) for the third quarter of 2009, a decrease of 82.0% from RMB91.2 million for the same period in 2008.

Mr. Jinsheng Ren, Chairman and Chief Executive Officer of Simcere Pharmaceutical Group, commented: "Our sales and gross profit margins remained stable this quarter. However, lower sales in Endu, impacted by the restructuring of the sales team, and an increase in sales and marketing expenses for new to market drugs like Anxin and Sinofuan, caused a significant decrease in operating income.

"Looking forward, we will maximize the commercial opportunities presented by the upcoming changes in the national and local insurance catalogues, and continue our strategy of marketing existing key products within Simcere's strong product portfolio to drive mid-to-long term growth."

In October 2009, we increased our stake in Jiangsu Yanshen, a manufacturer of the Influenza A (H1N1) vaccine and became its controlling shareholder. We also acquired the manufacturing license of Rosuvastatin, an effective statin to treat high cholesterol and related conditions.

2009 Third Quarter Financial Results

Total revenue for the third quarter of 2009 was RMB443.7 million (US$65.0 million), compared to RMB443.4 million for the same period in 2008. For the first nine months of 2009, total revenue was RMB1,310.6 million (US$192.0 million), which represented an increase of 2.9% from RMB1,274.2 million for the same period in 2008.

Revenue from Endu, the Company's patented anti-cancer biotech product, amounted to RMB21.6 million (US$3.2 million) in the third quarter of 2009, which was 4.9% of the Company's product revenue for the third quarter of 2009 and represented a decrease of 60.2% from RMB54.4 million for the same period in 2008. For the first nine months of 2009, revenue from Endu totaled RMB90.2 million (US$13.2 million), which represented a decrease of 50.2% from RMB181.3 million for the same period in 2008.

Revenue from edaravone injection products under the brand names Bicun and Yidasheng totaled RMB191.1 million (US$28.0 million) for the third quarter of 2009, which was 43.5% of the Company's product revenue for the third quarter of 2009, and represented an increase of 20.4% from RMB158.8 million for the same period in 2008. For the first nine months of 2009, revenue from Bicun and Yidasheng totaled RMB533.7 million (US$78.2 million), which represented an increase of 16.4% from RMB458.4 million for the same period in 2008.

Revenue from Sinofuan, a 5-FU sustained release implant for the treatment of cancer, amounted to RMB36.0 million (US$5.3 million) for the third quarter of 2009, which was 8.2% of the Company's product revenue for the third quarter of 2009, and represented an increase of 114.6% from RMB16.8 million for the same period in 2008.

Revenue from other first-to-market products including Jiebaishu, a nedaplatin product, and Anxin, a biapenem injection for the treatment of serious infections, amounted to RMB8.7 million (US$1.3 million) for the third quarter of 2009, which was 2.0% of the Company's product revenue for the third quarter of 2009. For the first nine months of 2009, revenue from other first-to-market products totaled RMB27.6 million (US$4.0 million).

Revenue from other branded generic products amounted to RMB181.6 million (US$26.5 million), which was 41.4% of the Company's product revenue for the third quarter of 2009, and represented a decrease of 12.4% from RMB207.3 million for the same period in 2008. For the first nine months of 2009, revenue from other branded generic products totaled RMB551.3 million (US$80.8 million), which represented a decrease of 7.5% from RMB596.2 million for the same period in 2008.

Gross margin for the third quarter of 2009 was 82.2%, increased from 78.4% for the same period in 2008. For the first nine months of 2009, gross margin was 82.3%, increased from 81.0% for the same period in 2008.

Research and development expenses for the third quarter of 2009 totaled RMB32.8million (US$4.8 million), which represented an increase of 55.3% from RMB21.1 million for the same period in 2008. This increase was primarily due to increased research and development headcount as the Company continued to expand its research and development activities. As a percentage of total revenue, research and development expenses were 7.4% for the third quarter of 2009, compared to 4.8% for the same period in 2008. For the first nine months of 2009, research and development expenses totaled RMB82.9 million (US$12.1 million), compared to RMB52.1 million for the same period in 2008.

Sales, marketing and distribution expenses for the third quarter of 2009 were RMB247.2 million (US$36.2 million), which represented an increase of 27.0% from RMB194.7 million for the same period in 2008. As a percentage of total revenue, sales, marketing and distribution expenses were 55.7% for the third quarter of 2009, compared to 43.9% for the same period in 2008. This increase was primarily due to higher expenses from Endu sales team restructuring and increased expenses for new to market drugs such as Anxin and Sinofuan. For the first nine months of 2009, sales, marketing and distribution expenses were RMB702.5 million (US$102.9 million), which represented an increase of 26.1% from RMB557.2 million for the same period in 2008.

General and administrative expenses were RMB55.6 million (US$8.1 million) for the third quarter of 2009, which represented an increase of 24.6% from RMB44.6 million for the same period in 2008. As a percentage of total revenue, general and administrative expenses increased to 12.5% for the third quarter of 2009 from 10.1% for the same period in 2008. For the first nine months of 2009, general and administrative expenses were RMB165.8 million (US$24.3 million), which represented an increase of 19.6% from RMB138.6 million for the same period in 2008.

Share-based compensation expense, which was 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 employee was assigned to perform, totaled RMB5.8 million (US$0.8 million) for the third quarter of 2009. Share-based compensation expenses for the third quarter of 2008 were RMB6.5 million. For the first nine months of 2009, share-based compensation expenses totaled RMB17.7 million (US$2.6 million), which represented a decrease of 11.1% from RMB19.9 million for the same period in 2008.

Income from operations was RMB29.0 million (US$4.3 million) for the third quarter of 2009, which represented a decrease of 66.6% from RMB87.0 million for the same period in 2008. For the first nine months of 2009, operating income was RMB128.0 million (US$18.8 million), which represented a decrease of 55.0% from RMB284.3 million for the same period in 2008.

Income tax expense for the third quarter of 2009 was RMB4.7 million (US$0.7 million), compared to RMB1.5 million for the same period in 2008. The increase in income tax expense for the third quarter of 2009 was primarily due to the release of the valuation allowance utilized by the earnings of an operating subsidiary in the same period of 2008. For the first nine months of 2009, income tax expense was RMB8.8 million (US$1.3 million) compared to RMB36.3 million for the same period in 2008.

Net income attributable to Simcere was RMB16.4 million (US$2.4 million) for the third quarter of 2009, compared to RMB91.2 million for the same period in 2008. Net income margin was 3.7% for the third quarter of 2009, compared to 20.6% for the third quarter of 2008. For the first nine months of 2009, net income was RMB101.8 million (US$14.9 million), which represented a decrease of 65.9% from RMB298.4 million for the same period in 2008. Net margin for the first nine months of 2009 was 7.8% as compared to 23.4% for the same period in 2008.

Basic and diluted earnings per American Depository Share ("ADS") for the third quarter of 2009 were RMB0.29 (US$0.04) and RMB0.29 (US$0.04) respectively. Basic and diluted earnings per ADS for the first nine months of 2009 were RMB1.75 (US$0.26) and RMB1.73 (US$0.25) respectively. One ADS represents two ordinary shares of the Company.

As of September 30, 2009, the Company had cash, cash equivalents and restricted cash of RMB448.1 million (US$65.6 million), compared to RMB813.8 million as of December 31, 2008.

SOURCE Simcere Pharmaceutical Group

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