Simcere Pharmaceutical Group report 15.5% sequential growth in fourth quarter revenues

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 and the fiscal year ended December 31, 2009.

Highlights -- Total revenue was RMB539.4 million (US$79.0 million) for the fourth quarter of 2009, compared to RMB466.9 million for the same period in 2008, representing sequential growth of 15.5%. For the full year of 2009, total revenue was RMB1,850.0 million (US$271.0 million), which represented an increase of 6.3% from RMB1,741.1 million for the full year of 2008. -- Gross margin for the fourth quarter of 2009 was 83.1%, compared to 83.1% for the same period in 2008. For the full year of 2009, gross margin was 82.6%, increased from 81.6% for the full year of 2008. -- Income from operations was RMB44.9 million (US$6.6 million) for the fourth quarter of 2009, a decrease of 38.2% from RMB72.7 million for the same period in 2008. For the full year of 2009, income from operations was RMB172.9 million (US$25.3 million), which represented a decrease of 51.6% from RMB357.0 million for the full year of 2008. -- Net income attributable to Simcere was RMB17.7 million (US$2.6 million) for the fourth quarter of 2009, a decrease of 65.9% from RMB51.7 million for the same period in 2008. For the full year of 2009, net income was RMB119.5 million (US$17.5 million), which represented a decrease of 65.9% from RMB350.2 million for the full year of 2008.

"We are pleased to end 2009 with positive top-line growth while maintaining steady gross margin," commented Mr. Jinsheng Ren, Chairman and Chief Executive Officer of Simcere. "In particular, for the fourth quarter, we were encouraged by the strong performance of Edavarone as well as increased sales of Endu. However, the combination of higher sales and marketing expenses associated with the promotion of new drugs and increased research and development expenses impacted our operating income."

"We are confident that 2010 will be a year of growth for Simcere," continued Mr. Ren. "As national and provincial drug reimbursement lists are expected to be implemented in the second half of the year, we are optimistic that a number of our key products will experience greater market demand. In addition, we expect to receive multiple new drug approvals in 2010 which will further strengthen Simcere's product portfolio."

Mr. Ren concluded: "Last month we were pleased to announce that Zanamivir received SFDA approval and that industry veteran, Dr. Yehong Zhang has joined Simcere as president. These important announcements highlight our commitment to strengthening Simcere's management team while continuously investing in research and development to increase our competitiveness for the mid-to-long term."

2009 Fourth Quarter and Full Year Financial Results

Total revenue for the fourth quarter of 2009 was RMB539.4 million (US$79.0 million), compared to RMB466.9 million for the same period in 2008, representing sequential growth of 15.5%. For the full year of 2009, total revenue was RMB1,850.0 million (US$271.0 million), which represented an increase of 6.3% from RMB1,741.1 million for the full year of 2008.

Revenue from Edaravone injection products under the brand names Bicun and Yidasheng totaled RMB211.7 million (US$31.0 million) for the fourth quarter of 2009, which was 39.3% of the Company's product revenue for the fourth quarter of 2009, and represented an increase of 9.8% from RMB192.7 million for the same period in 2008. For the full year of 2009, revenue from Bicun and Yidasheng totaled RMB745.4 million (US$109.2 million), which represented an increase of 14.5% from RMB651.2 million for the full year of 2008.

Revenue from Endu, the Company's patented anti-cancer biotech product, amounted to RMB34.0 million (US$5.0 million) in the fourth quarter of 2009, which was 6.3% of the Company's product revenue for the fourth quarter of 2009 and represented a decrease of 41.6% from RMB58.1 million for the same period in 2008. For the full year of 2009, revenue from Endu totaled RMB124.2 million (US$18.2 million), which represented a decrease of 48.1% from RMB239.4 million for the full year of 2008.

Revenue from Sinofuan, a 5-FU sustained release implant for the treatment of cancer, amounted to RMB30.6 million (US$4.5 million) for the fourth quarter of 2009, which was 5.7% of the Company's product revenue for the fourth quarter of 2009, and represented an increase of 54.8% from RMB19.8 million for the same period in 2008. For the full year of 2009, revenue from Sinofuan totaled RMB126.3 million (US$18.5 million), which represented an increase of 205.1% from RMB41.4 million for the full year of 2008.

Revenue from other first-to-market products including Jiebaishu, a nedaplatin product and Anxin, a biapenem injection, amounted to RMB10.0 million (US$1.5 million), which was 1.9% of the Company's product revenue for the fourth quarter of 2009, and represented an increase of 70.0% from RMB5.9 million for the same period in 2008. For the full year of 2009, revenue other first-to-market products totaled RMB37.7 million (US$5.5 million), which represented an increase of 104.6% from RMB18.4 million for the full year of 2008.

Revenue from other branded generic products including Zailin and Yingtaiqing, amounted to RMB201.9 million (US$29.5 million), which was 37.5% of the Company's product revenue for the fourth quarter of 2009, and represented an increase of 6.1% from RMB190.3 million for the same period in 2008. For the full year of 2009, revenue from other branded generic products totaled RMB753.1 million (US$110.4 million), which represented a decrease of 4.2% from RMB786.4 million for the full year of 2008.

Gross margin for the fourth quarter of 2009 was 83.1%, compared to 83.1% for the same period in 2008. For the full year of 2009, gross margin was 82.6%, increased from 81.6% for the full year of 2008.

Research and development expenses for the fourth quarter of 2009 totaled RMB50.1 million (US$7.3 million), which represented an increase of 47.6% from RMB34.0 million for the same period in 2008. This increase was primarily due to the launch of new research and development projects and increased research and development headcount as a result of the Company's continued expansion of its research and development activities. As a percentage of total revenue, research and development expenses were 9.3% for the fourth quarter of 2009, compared to 7.3% for the same period in 2008. For the full year of 2009, research and development expenses totaled RMB133.0 million (US$19.5 million), compared to RMB86.1 million for the full year of 2008, representing year-over-year growth of 54.5%.

Sales, marketing and distribution expenses for the fourth quarter of 2009 were RMB297.0 million (US$43.5 million), which represented an increase of 31.5% from RMB225.8 million for the same period in 2008. As a percentage of total revenue, sales, marketing and distribution expenses were 55.1% for the fourth quarter of 2009, compared to 48.4% for the same period in 2008. This increase was primarily due to the costs of restructuring the Endu sales team and increased promotion expenses to market new drugs such as Anxin and Sinofuan. For the full year of 2009, sales, marketing and distribution expenses were RMB999.5 million (US$146.4 million), which represented an increase of 27.7% from RMB783.0 million for the full year of 2008.

General and administrative expenses were RMB56.3 million (US$8.3 million) for the fourth quarter of 2009, which represented an increase of 1.3% from RMB55.6 million for the same period in 2008. As a percentage of total revenue, general and administrative expenses decreased to 10.4% for the fourth quarter of 2009 from 11.9% for the same period in 2008. For the full year of 2009, general and administrative expenses were RMB222.1 million (US$32.5 million), which represented an increase of 14.4% from RMB194.2 million for the full year of 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 RMB6.0 million (US$0.9 million) for the fourth quarter of 2009. Share-based compensation expenses for the fourth quarter of 2008 were RMB5.7 million. For the full year of 2009, share-based compensation expenses totaled RMB23.7 million (US$3.5 million), which represented a decrease of 7.3% from RMB25.5 million for the full year of 2008.

Income from operations was RMB44.9 million (US$6.6 million) for the fourth quarter of 2009, which represented a decrease of 38.2% from RMB72.7 million for the same period in 2008. For the full year of 2009, income from operations was RMB172.9 million (US$25.4 million), which represented a decrease of 51.6% from RMB357.0 million for the full year of 2008.

Income tax expense for the fourth quarter of 2009 was RMB7.2 million (US$1.1 million), compared to RMB13.0 million for the same period in 2008. The decrease in income tax expense for the fourth quarter of 2009 was primarily due to the decrease of the net income and the entitlement of the preferential tax treatment. For the full year of 2009, income tax expense was RMB16.0 million (US$2.3 million) compared to RMB49.3 million for the full year of 2008.

Net income attributable to Simcere was RMB17.7 million (US$2.6 million) for the fourth quarter of 2009, compared to RMB51.7 million for the same period in 2008. Net income margin was 3.3% for the fourth quarter of 2009, compared to 11.1% for the fourth quarter of 2008. For the full year of 2009, net income was RMB119.5 million (US$17.5 million), which represented a decrease of 65.9% from RMB350.2 million for the same period in 2008. Net margin for the full year of 2009 was 6.5% as compared to 20.1% for the full year of 2008.

Basic and diluted earnings per American Depository Share ("ADS") for the fourth quarter of 2009 were RMB0.32 (US$0.05) and RMB0.31 (US$0.05), respectively. Basic and diluted earnings per ADS for the full year of 2009 were RMB2.08 (US$0.30) and RMB2.05 (US$0.30), respectively. One ADS represents two ordinary shares of the Company.

As of December 31, 2009, the Company had cash, cash equivalents and restricted cash of RMB458.1 million (US$67.1 million), compared to RMB813.8 million as of December 31, 2008.

Financial Statements

The unaudited condensed consolidated statements of income and balance sheets accompanying this press release have been prepared by management using U.S. GAAP. These financial statements are not intended to fully comply with U.S. GAAP because they do not present all of the financial statements and disclosures required by U.S. GAAP.

The unaudited financial statements are subject to the completion of the Company's normal year end closing procedures including the annual impairment review of goodwill and the purchase price allocation in respect of the Company's acquisitions in 2009 and are subject to change.