Third-quarter 2009 results announced by Tongjitang Chinese Medicines

Tongjitang Chinese Medicines Company (NYSE: TCM) (“Tongjitang” or the “Company”), a leading specialty pharmaceutical company focusing on the development, manufacturing, marketing and selling of modernized traditional Chinese medicine in China, today announced its financial results for the quarter ended September 30, 2009 and the repurchase of ordinary shares in a private transaction.

Financial Results for the Quarter Ended September 30, 2009

• Net revenue was RMB104.6 million ($15.3 million), compared to RMB110.4 million in the prior year period.
• Gross margin was 57.6% in the third quarter of 2009, compared to 62.4% in the same period of 2008.
• Net loss attributable to the Company was RMB13.7 million ($2.0 million), which yielded net loss per ADS of RMB0.43 ($0.06) and net loss per share of RMB0.11 ($0.02).
• Non-GAAP loss per share was RMB0.04 ($0.01), compared to non-GAAP earnings per share of RMB0.11 in the third quarter of 2008.

Net revenue for the third quarter of 2009 was RMB104.6 million ($15.3 million), a decrease of 5.3% from RMB110.4 million in the third quarter of 2008. Xianling Gubao (“XLGB”) sales were RMB60.6 million ($8.9 million) in the third quarter of 2009, compared to RMB78.7 million in the third quarter of 2008. Net revenue of the Company’s other core products, including Moisturizing & Anti-itching Capsules and Zaoren Anshen Capsules, increased 4.1% to RMB12.8 million ($1.9 million) from RMB12.3 million in the third quarter of 2008. Revenue contribution from Guizhou Long-Life Pharmaceutical Company Limited (”Guizhou LLF”) was RMB2.6 million ($376,000), compared to RMB5.1 million in the third quarter of 2008. Revenue contribution from Qinghai Pulante Pharmaceutical Co., Ltd. (“Pulante”) was RMB1.9 million ($278,000), roughly flat year over year. Revenue contribution from Anhui Jingfang Pharmaceutical Co., Ltd. (“Jingfang”), which was acquired at the end of the first quarter of 2009, was RMB17.6 million ($2.6 million), compared to RMB14.4 million in the second quarter of 2009.

Xiaochun Wang, Chief Executive Officer and Chairman of Tongjitang, stated, “Our third quarter performance reflects the introduction of the newly-launched sales rebate program to the majority of distributors. As a result of this rebate program, RMB6.2 million has been recorded against revenues year to date. Additionally, even though the Essential Drug List was announced by China’s Ministry of Health during this third quarter, uncertainties regarding execution details and pricing continued to cause hospitals and distributors to destock their inventory levels, leading to low sales during the quarter. However, we believe that such declines in purchases from hospitals and distributors should recover noticeably when the pending Chinese healthcare policies are finalized and disclosed.”

Gross profit was RMB60.3 million ($8.8 million) in the third quarter of 2009, down from RMB69.0 million in the third quarter of 2008. Gross margin was 57.6% in the third quarter of 2009, compared to 62.4% in the same period of 2008. Tongjitang’s decreased gross margin reflects reduced revenues from XLGB and Guizhou LLF (which enjoys a higher margin) and the introduction of sales rebates. The price of barrenwort, used in the production of XLGB, remained stable in the third quarter of 2009.

Operating loss in the third quarter of 2009 was RMB12.8 million ($1.9 million), compared to operating income of RMB7.7 million in the third quarter of 2008, primarily reflecting increased selling and marketing expenses related to Jingfang’s products.

Net loss attributable to the Company was RMB13.7 million ($2.0 million), which yielded net loss per ADS of RMB0.43 ($0.06) and net loss per share² of RMB0.11 ($0.02).

Non-GAAP net loss in the third quarter of 2009 was RMB5.4 million ($790,000), compared to non-GAAP net income of RMB15.3 million in the third quarter of 2008. Non-GAAP loss per share was RMB0.04 ($0.01), compared to non-GAAP earnings per share of RMB0.11 in the third quarter of 2008. For the third quarter of 2009, the number of shares used in the computation of GAAP and non-GAAP net loss per share was 126.8 million. Please refer to the Company’s GAAP to non-GAAP reconciliation table provided below for additional details.

Wang continued, “During the third quarter, we are very pleased to see that our recently-integrated business, Jingfang, started to show great potential in sales. We also expect to see initial progress from our ongoing marketing campaign and the restructuring of Jingfang’s sales team in the fourth quarter. ”

Financial Results for the Nine Months Ended September 30, 2009

For the nine months ended September 30, 2009, revenue was RMB328.9 million ($48.2 million), down from RMB335.8 million in the first nine months of 2008. During this same time period, gross profit was RMB194.5 million ($28.5 million), down from RMB213.2 million. Operating loss was RMB11.3 million ($1.7 million), compared to operating income of RMB8.5 million in the first nine months of 2008. Net loss attributable to the Company was RMB7.9 million ($1.2 million), or RMB 0.06 ($0.01) per share, compared to net income attributable to the Company of RMB27.0 million, or RMB0.20 per share, in the first nine months of 2008. Net loss per ADS was RMB0.25 ($0.04) in the first nine months of 2009, compared with net income per ADS of RMB0.80 in the first nine months of 2008. The weighted average number of shares outstanding for the first nine months of 2009 was 128.6 million.

Balance Sheet

As of September 30, 2009, the Company had cash and cash equivalents of RMB310.6 million ($45.5 million). This compares to RMB473.7 million as of June 30, 2009.

Share Repurchase in a Private Transaction

On November 11, 2009, the Company completed a repurchase of 4.8 million ordinary shares in a private transaction. The purchase price of $1.025 per ordinary share was the same as the purchase price paid by the Company to certain non-affiliate and non-management investors in the recent share repurchases completed in September 2009 through privately negotiated transactions. Since the seller of these 4.8 million ordinary shares was a company controlled and owned by certain current and ex-senior management of the Company’s operating subsidiary in China, this transaction may be deemed a related party transaction. Due to such consideration, before the share repurchase was carried out, it was pre-approved by both the Company’s board of directors as well as the board’s audit committee.