Simcere second-quarter total revenue increases 28.3% to RMB544.6 million

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 June 30, 2010.

Highlights

Total revenue was RMB544.6 million (US$80.3 million) for the second quarter of 2010, compared to RMB424.4 million for the same period in 2009, representing year-over-year growth of 28.3%. For the first six months of 2010, total revenue was slightly over RMB1.0 billion (US$147.9 million), representing an increase of 15.7% from RMB866.9 million for the same period in 2009.

Gross margin for the second quarter of 2010 increased to 86.8% compared to 82.3% for the same period in 2009. For the first six months of 2010, gross margin increased to 83.5%, compared to 82.4% in the first six months of 2009. Excluding the one-time adjustments related to Jiangsu Yanshen Biological Technology Stock Co., Ltd. ("Jiangsu Yanshen"), gross margin for the second quarter would have been 85.0%.

Income from operations was RMB62.7 million (US$9.2 million) for the second quarter of 2010, an increase of 65.6% from RMB37.9 million for the same period in 2009. For the first six months of 2010, income from operations was RMB93.6 million (US$13.8 million), which represented a decrease of 5.4% from RMB98.9 million for the same period in 2009.

Net income attributable to Simcere was RMB38.6 million (US$5.7 million) for the second quarter of 2010, an increase of 3.6% from RMB37.2 million for the same period in 2009. For the first six months of 2010, net income was RMB59.0 million (US$8.7 million), which represented a decrease of 30.9% from RMB85.4 million for the same period in 2009. The decrease was primarily due to the increase in bills factoring interest expenses paid to the financial institutions, approximately 35% of equity interest in losses of Shanghai Celgen Bio-Pharmaceutical Co., Ltd. which was acquired in August 2009 and income tax expenses.

"We are pleased to report strong top line growth and operating margin expansion for the second quarter. In particular, we were encouraged by Endu's strong performance as we began to see the positive effects of our sales force restructuring," said Mr. Jinsheng Ren, Chairman and Chief Executive Officer of Simcere Pharmaceutical Group.

"During the quarter, we invested in advertising for two of our OTC branded generics, Yingtaiqing and Biqi, and conducted marketing activities around newly launched products. While we are confident that these investments will result in stronger future sales, they resulted in significantly higher marketing expenses for the quarter."

Mr. Ren concluded, "Looking forward, as we continue to invest in both new product development and marketing, I am confident that we will build an even stronger foundation for Simcere's sustainable future growth."

2010 Second Quarter Financial Results

Total revenue for the second quarter of 2010 was RMB544.6 million (US$80.3 million), compared to RMB424.4 million for the same period in 2009, representing year-over-year growth of 28.3%. For the first six months of 2010, total revenue was RMB1,0032 million (US$147.9 million), representing an increase of 15.7% from RMB866.9 million for the same period in 2009.

Revenue from edaravone injection products under the brand names Bicun and Yidasheng increased by 5.6% to RMB193.3 million (US$28.5 million) for the second quarter of 2010 from RMB183.0 million for the same period in 2009. Sales of edaravone injection products constituted 35.9% of the Company's product revenue for the second quarter of 2010. For the first six months of 2010, revenue from Bicun and Yidasheng totaled RMB366.7 million (US$54.1 million), which represented an increase of 7.0% from RMB342.6 million for the same period in 2009.

Revenue from Endu, the Company's patented anti-cancer biotech product, increased by 67.6% to RMB53.7 million (US$7.9 million) in the second quarter of 2010 from RMB32.1 million for the same period in 2009. Sales of Endu constituted 10.0% of the Company's product revenue for the second quarter of 2010. For the first six months of 2010, revenue from Endu totaled RMB91.2 million (US$13.4 million), which represented an increase of 32.9% from RMB68.6 million for the same period in 2009.

Revenue from Sinofuan, a 5-FU sustained release implant for the treatment of cancer, increased by 21.9% to RMB42.1 million (US$6.2 million) for the second quarter of 2010 from RMB34.6 million for the same period in 2009. Sales of Sinofuan constituted 7.8% of the Company's product revenue for the second quarter of 2010. For the first six months of 2010, revenue from Sinofuan totaled RMB67.5 million (US$10.0 million), which represented an increase of 13.1% from RMB59.7 million for the same period in 2009.

Revenue from other branded generic products including Zailin and Yingtaiqing increased by 28.8% to RMB218.8 million (US$32.3 million) in the second quarter of 2010 from RMB169.8 million for the same period in 2009. Sales of other branded generic products constituted 40.6% of the Company's product revenue for the second quarter of 2010. For the first six months of 2010, revenue from other branded generic products totaled RMB411.1 million (US$60.6 million), which represented an increase of 7.3% from RMB383.2 million for the same period in 2009.

The Company's newly-launched products including Anxin, a biapenem injection, Shufutan, a rosuvastatin calcium tablet, and Xinta, a leveamlodipine besylate tablet, continued to build hospital penetration and market recognition. All three drugs have been included in the national reimbursement list and should benefit when the list becomes active.

Gross margin for the second quarter of 2010 increased to 86.8% compared to 82.3% for the same period in 2009. The increase was primarily due to an increase in the revenue of high gross profit margin products. For the first six months of 2010, gross margin increased to 83.5%, compared to 82.4% in the first six months of 2009. Excluding the one-time adjustments related to Jiangsu Yanshen, gross margin for the second quarter would have been 85.0%.

Research and development expenses for the second quarter of 2010 totaled RMB31.2 million (US$4.6 million) which represented an increase of 24.8% from RMB25.0 million for the same period in 2009. This increase was due primarily to increased expenditure on on-going research and development projects. As a percentage of total revenue, research and development expenses was 5.7% for the second quarter of 2010. For the first six months of 2010, research and development expenses totaled RMB61.8 million (US$9.1 million), compared to RMB50.0 million for the same period in 2009.

Sales, marketing and distribution expenses for the second quarter of 2010 were RMB319.9 million (US$47.2 million), which represented an increase of 35.9% from RMB235.5 million for the same period in 2009. As a percentage of total revenue, sales, marketing and distribution expenses increased to 58.8% for the second quarter of 2010 from 55.5% for the same period in 2009. This increase was due primarily to higher advertising expenses for two of the Company's OTC branded generics, Yingtaiqing and Biqi,as well as marketing activities for newly-launched products. For the first six months of 2010, sales, marketing and distribution expenses were RMB556.8 million (US$82.1 million), which represented an increase of 22.3% from RMB455.3 million for the same period in 2009.

General and administrative expenses were RMB58.6 million (US$8.6 million) for the second quarter of 2010, which represented an increase of 15.2% from RMB50.9 million for the same period in 2009. As a percentage of total revenue, general and administrative expenses decreased to 10.8% for the second quarter of 2010 from 12.0% for the same period in 2009. For the first six months of 2010, general and administrative expenses were RMB125.9 million (US$18.6 million), which represented an increase of 14.2% from RMB110.2 million for the same period in 2009.

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 RMB7.4 million (US$1.1 million) for the second quarter of 2010. Share-based compensation expenses for the second quarter of 2009 were RMB5.6 million. For the first six months of 2010, share-based compensation expenses totaled RMB15.4 million (US$2.3 million), which represented an increase of 29.5% from RMB11.9 million for the same period in 2009.

Income from operations was RMB62.7 million (US$9.2 million) for the second quarter of 2010, which represented an increase of 65.6% from RMB37.9 million for the same period in 2009. For the first six months of 2010, income from operations was RMB93.6 million (US$13.8 million), which represented a decrease of 5.4% from RMB98.9 million for the same period in 2009.

Income tax expense for the second quarter of 2010 was RMB10.2 million (US$1.5 million), compared to an income tax benefit of RMB3.4 million for the same period in 2009. The benefit in 2009 was primarily due to the reduced income tax rates for certain operating subsidiaries in the PRC effective from 2009. For the first six months of 2010, income tax expense was RMB11.5 million (US$1.7 million) compared to RMB4.2 million for the same period in 2009.

Net income attributable to Simcere was RMB38.6 million (US$5.7 million) for the second quarter of 2010, compared to RMB37.2 million for the same period in 2009. Net margin, representing net income divided by total revenue, was 7.1% for the second quarter of 2010, compared to 8.8% for the second quarter of 2009. For the first six months of 2010, net income was RMB59.0 million (US$8.7 million), which represented a decrease of 30.9% from RMB85.4 million for the same period in 2009. Net margin for the first six months of 2010 was 5.9% as compared to 9.9% for the same period in 2009.

Basic and diluted earnings per American Depository Share ("ADS") for the second quarter of 2010 were RMB0.71 (US$0.10) and RMB0.69 (US$0.10), respectively. Basic and diluted earnings per ADS for the first six months of 2010 were RMB1.08 (US$0.16) and RMB1.05 (US$0.16) respectively. One ADS represents two ordinary shares of the Company.

As of June 30, 2010, the Company had cash, cash equivalents and restricted cash of RMB235.8 million (US$34.8 million), compared to RMB458.1 million as of December 31, 2009.

Financial Information

The 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.

The Company previously announced that its preliminary unaudited first quarter 2010 financial results were subject to the completion of the impairment review of goodwill and intangible assets and the purchase price allocation with respect to the Company's acquisition of Jiangsu Yanshen. Management has completed the goodwill impairment analysis and the purchase price allocation. The revision has resulted in an increase in net income attributable to Simcere of RMB4.2 million which has been recognized in the second quarter of 2010.