3SBio Inc. Announces Unaudited Fourth Quarter and Full Year 2010 Results

SHENYANG, China, March 15, 2011 /PRNewswire-Asia-FirstCall/ -- 3SBio Inc. (Nasdaq: SSRX) (“3SBio” or “the Company”), a leading China-based biotechnology company focused on researching, developing, manufacturing and marketing biopharmaceutical products, today announced its unaudited financial results for the fourth quarter and full year ended December 31, 2010.

Full Year 2010 Financial Highlights:

• Total net revenues in 2010 increased by 32.1% to RMB418.6 million (US$63.4 million), compared to RMB316.9 million (US$46.4 million) in 2009.
• GAAP operating income in 2010 increased by 2.8% to RMB86.8 million (US$13.2 million), compared to RMB84.4 million (US$12.4 million) in 2009. Non-GAAP operating income in 2010 increased by 14.7% to RMB96.8 million (US$14.7 million), compared to RMB84.4 million (US$12.4 million) in 2009.
• GAAP net income decreased by 2.6% to RMB81.3 million (US$12.3 million), compared to RMB83.4 million (US$12.2 million) in 2009. Non-GAAP net income increased by 9.0% to RMB91.2 million (US$13.8 million), compared to RMB83.7 million (US$12.3 million) in 2009.
• GAAP net income per American Depositary Share (“ADS”) on a fully-diluted basis was RMB3.69(US$0.56) compared to RMB3.87(US$0.57) in 2009. Non-GAAP net income per ADS on a fully-diluted basis in 2010 was RMB4.14(US$0.63) compared to RMB3.88(US$0.57) in 2009.

Fourth Quarter 2010 Financial Highlights:

• Total net revenues in the fourth quarter of 2010 increased by 36.2% to RMB101.2million (US$15.3 million), compared to RMB74.3 million (US$10.9 million) in the fourth quarter of 2009.
• GAAP operating income in the fourth quarter of 2010 decreased by 60.6% to RMB3.9 million (US$0.6 million), compared to GAAP operating income of RMB9.9 million (US$1.5 million) in the fourth quarter of 2009. Non-GAAP operating income increased by 40.4% to RMB13.9 million (US$2.1 million), compared to non-GAAP operating income of RMB9.9 million (US$1.5 million) in the fourth quarter of 2009. The difference between GAAP and non-GAAP operating income 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 in the fourth quarter of 2010 decreased by 51.1% to RMB6.7 million (US$1.0 million), compared to GAAP net income of RMB13.7 million (US$2.0 million) in the fourth quarter of 2009. Non-GAAP net income in the fourth quarter of 2010 increased by 52.3% to RMB16.6 million (US$2.5 million), compared to non-GAAP net income of RMB10.9 million (US$1.6 million) in the fourth quarter of 2009.
• GAAP net income per ADS on a fully-diluted basis in the fourth quarter of 2010 was RMB0.30(US$0.05) compared to a net income per ADS on a fully-diluted basis of RMB0.63(US$0.09) for the fourth quarter of 2009. Non-GAAP net income per ADS on a fully-diluted basis in the fourth quarter of 2010 was RMB0.74(US$0.11), compared to non-GAAP net income per ADS on a fully-diluted basis of RMB0.50(US$0.07) in the fourth quarter of 2009.

Full Year 2010 Business Highlights

Operations

• EPIAO, the Company’s flagship injectable recombinant human erythropoietin (“EPO”) product, demonstrated strong growth with net revenues in 2010 rising 27.9% to RMB250.9 million (US$38.0 million), compared to RMB196.1 million (US$28.7 million) in 2009. According to the latest data from IMS Health China, EPIAO’s market share in terms of value reached 41.0% in the fourth quarter of 2010.
• Net revenues for TPIAO, the Company’s novel recombinant human thrombopoietin (“TPO”) product, increased by 43.5% to RMB128.7 million (US$19.5 million) in 2010, compared to RMB89.7 million (US$13.1 million) in 2009.
• Net revenues for Iron Sucrose Supplement increased by 60.4% to RMB17.2 million (US$2.6 million), 4.1% of net revenues in 2010, compared to RMB10.7 million (US$1.6 million), or 3.4% of net revenues in 2009.
• Net export revenues decreased slightly to RMB12.2 million (US$1.8m), accounting for 2.9% of total net revenue in 2010, compared to RMB13.2 million (US$1.9 million), or 4.2% of net revenues in 2009.

Regulatory

• An application for a registration trial for Feraheme was submitted in January 2010 to the Chinese State Food and Drug Administration (“SFDA”). Feraheme is a new generation IV iron therapy licensed through a strategic partnership with AMAG Pharmaceuticals.
• An application was submitted to the SFDA in February 2010 to conduct Phase I clinical trials for NuPIAO, the Company’s second generation EPO product.

Manufacturing

• In August 2010, the SFDA granted GMP certification for the new factory in Shenyang. GMP certification will support the future growth of EPIAO and TPIAO in China and serve as an important step towards exploring global biosimilar opportunities.

Partnerships and Business Development

• A strategic alliance was formed in February 2010 with Ascentage Pharma Group Corporation Ltd (“APGC”) to research, develop and commercialize cancer therapeutics focused on programmed cell death, or apoptosis. 3SBio invested a total consideration of US$3 million in APGC through equity investment and R&D contracts. In December 2010, APGC announced the formation of a strategic collaboration with Ascenta Pharmaceuticals (“Ascenta”) to develop Ascenta’s clinical stage, apoptosis-triggering small molecules, AT-101 and AT-406, in China. AT-101 is a pan-Bcl-2 inhibitor in Phase II development for several cancers. Regulatory approval for clinical development of AT-101 has already been granted by the Chinese SFDA and Phase II clinical trials are expected to begin in China soon. AT-406 is a multi-IAP inhibitor (including XIAP, cIAP1, cIAP2, ML-IAP). An Investigational New Drug (“IND”) application for AT-406 was recently submitted in China. APGC will acquire the exclusive rights to AT-406 in mainland China, Hong Kong, Taiwan and Macau, as well as exclusive rights to AT-101 in all regions worldwide outside USA, Canada and Europe.
• In August 2010, 3SBio announced a licensing, development and commercialization agreement with Isotechnika Pharma Inc. (“Isotechnika”) (TSX: ISA), a Toronto Stock Exchange-listed company for voclosporin, a treatment to prevent organ rejection following transplantation and other autoimmune diseases. 3SBio made a US$4.5 million investment in a convertible note which was fully converted before December 31, 2010, bringing 3SBio’s shareholding to 30,734,877 shares. As of December 31, 2010, 3SBio owned 18.94% of Isotechnika. 3SBio also made an up-front payment of US$1.5 million in December 2010 to acquire the exclusive rights to certain indications of voclosporin in Greater China, including Hong Kong and Taiwan from Isotechnika.
• In November 2010, 3SBio purchased the assets of EnzymeRx for a total consideration of US$6.25 million, including the worldwide rights excluding Taiwan to all indications of pegsiticase (Uricase-PEG 20), a treatment for refractory gout, tumor lysis syndrome, and Lesch-Nyhan syndrome. Pegsiticase (Uricase-PEG 20) is a pegylated recombinant uricase derived from Candida utilis, modified by the attachment of multiple 20 kilodalton molecules of polyethylene glycol (“PEG”). Gout is a common rheumatic disease in China with prevalence of gout and hyperuricemia estimated to be 0.22%0.43% and 12.1%25.2% respectively. The number of patients in China suffering from gout and hyperuricemia is expected to continue to grow rapidly due to changes in diet and lifestyle. 3SBio intends to apply to the SFDA to conduct trials for pegsticase in China and will seek partnerships for development outside of China.
• The Taiwanese regulatory authorities did not approve a previously announced interest in investing US$1 million equity investment in Panacor Bioscience, a Taiwan-based pharmaceutical company, and consequently no payments have been incurred to date on the related Nephoxil deal.

Events subsequent to December 31, 2010

-- The SFDA granted manufacturing approval in January 2011 for a TPIAO label extension for the treatment of idiopathic thrombocytopenic purpura (“ITP”).

Dr. Jing Lou, chief executive officer of 3SBio, commented: "We are very pleased to report our fourth consecutive year with sales growth in excess of 30%. Not only did we deliver better-than-expected topline growth driven by rising demand for our core products, EPIAO and TPIAO, we completed the construction and GMP certification of a new plant which complies with major international regulatory guidelines. We believe it is the best facility of its kind in China, making 3SBio the partner of choice in the increasingly globalised market for biological medicines. Our business development efforts have secured the rights to Phase III, II, I and pre-clinical molecules in our core therapeuticareas. Given the favorable demand outlook, supported by TPIAO’s recently approved indication for ITP, we confidently expect 2011 net revenues of US$76-82 million, a 20-30% increase over 2010.”

Full Year Ended December 31, 2010 Unaudited Financial Results

Net revenues. Net revenues for 2010 increased by 32.1% to RMB418.6 million (US$63.4 million), from RMB316.9 million (US$46.4 million) in 2009. The increase was primarily attributable to increased sales from our EPIAO and TPIAO products, underpinned by continued strong demand in the oncology and nephrology markets.

Net revenues from EPIAO in 2010 increased by 27.9% to RMB250.9 million (US$38.0 million) from RMB196.1 million (US$28.7 million) in 2009. Net revenues from TPIAO in 2010 increased by 43.5% to RMB128.7million (US$19.5 million) from RMB89.7 million (US$13.1 million) in 2009. In addition, net revenues from our export business were RMB12.2 million (US$1.9 million), compared to RMB13.2 million (US$1.9 million) in 2009, while net revenues from Iron Sucrose Supplement were RMB17.2 million (US$2.6 million), representing an increase of 60.4% from RMB10.7 million (US$1.6 million) in 2009.

Gross profit. Gross profit for 2010 increased by 29.3% to RMB375.3 million (US$56.9 million) compared to RMB290.3 million (US$42.5 million) in 2009. Gross margin for 2010 decreased to 89.7% compared to 91.6% in 2009. The decrease in gross margin is mainly due to higher depreciation costs related to the new plant.

Operating expenses.GAAP operating expenses were RMB288.5 million (US$43.7 million) for 2010, an increase of 40.0% from RMB206.0 million (US$30.2 million) in 2009. Non-GAAP operating expenses were RMB278.5 million (US$42.2 million) for 2010, an increase of 35.2% from RMB206.0 million (US$30.2 million) in 2009.

• Research and development (“R&D”) costs. GAAP R&D costs for 2010 were RMB39.4 million (US$6.0 million), or 9.4% of net revenues, compared to RMB19.4 million (US$2.8 million), or 6.1% of net revenues in 2009. Non-GAAP R&D costs for 2010 were RMB29.5 million (US$4.5 million), or 7.0% of net revenues, compared to RMB19.4 million (US$2.8 million), or 6.1% of net revenues in 2009. The difference between GAAP and non-GAAP R&D expense is due to the expensing of the US$1.5 million up-front payment to acquire exclusive rights to all transplant and autoimmune indications of voclosporin in mainland China, Hong Kong and Taiwan from Isotechnika. The increase in both GAAP and non-GAAP R&D costs is also attributable to expensing in 2010 of RMB5.0 million of the RMB17.0 million prepayment made to APGC pursuant to the R&D contracts, based on R&D activities performed to date.
• Sales, marketing and distribution expenses. Sales, marketing and distribution expenses for 2010 were RMB193.2 million (US$29.3 million), or 46.2% of net revenues, compared to RMB150.3million (US$22.0 million), or 47.4% of net revenues in 2009. The increase in sales, marketing and distribution expenses is broadly in line with overall sales growth.
• General and administrative expenses. General and administrative expenses for 2010 were RMB55.9 million (US$8.5 million), or 13.3% of net revenues, compared to RMB36.2 million (US$5.3 million), or 11.4% of net revenues in 2009. The increase in general and administrative expenses is mainly attributable to employee compensation, legal, auditing and office renovation expenses.

Operating income. GAAP operating income for 2010 increased by 2.9% to RMB86.8 million (US$13.2 million), compared to RMB84.4 million (US$12.4 million) in 2009. Non-GAAP operating income increased by 14.7% to RMB96.8 million (US$14.7 million), compared to RMB84.4 million (US$12.4 million) in 2009. GAAP operating margin for 2010 was 20.7%, compared to 26.6% in 2009. Non-GAAP operating margin for 2010 was 23.1%, compared to 26.6% in 2009. The decrease in operating margin is largely due to higher depreciation, business development and R&D expenses.

Interest income. The Company recorded interest income of RMB12.4 million (US$1.9 million) in 2010, compared to RMB10.3 million (US$1.5 million) in 2009.

Net income.GAAP net income for 2010 decreased by 2.6% to RMB81.3 million (US$12.3 million) compared to RMB83.4 million (US$12.2 million) in 2009. GAAP net margin for 2010 was 19.4% as compared to 26.3% in 2009. GAAP net income per ADS on a fully-diluted basis for 2010 decreased to RMB3.69(US$0.56) from RMB3.87(US$0.57) in 2009.

Non-GAAP net income for 2010 increased by 9.0% to RMB91.2 million (US$13.8 million) compared to RMB83.7 million (US$12.3 million) in 2009. Non-GAAP net margin for 2010 was 21.8% as compared to 26.4% in 2009. Non-GAAP net income per ADS on a fully-diluted basis for 2010 increased to RMB4.14(US$0.63) from RMB3.88(US$0.57) in 2009.

Cash and cash equivalents, restricted cash and time deposits. 3SBio had positive operating cash flow of RMB32.3 million (US$4.9 million) for the year ended December 31, 2010 and as of December 31, 2010, cash and cash equivalents, restricted cash and time deposits of RMB653.3 million (US$99.0 million), an 11.8% decrease from RMB740.5 million (US$108.5 million) as of December 31, 2009.

Three Months Ended December 31, 2010 Unaudited Financial Results

Net revenues. Net revenues increased by 36.2% to RMB101.2 million (US$15.3 million) for the fourth quarter of 2010 from RMB74.3 million (US$10.9 million) for the same period in 2009. This increase was largely due to continued strong sales of EPIAO and TPIAO which grew by 35.1% and 47.8%, respectively, over the same period in 2009. TPIAO remained 3SBio’s second largest revenue contributor in the quarter, accounting for 30.5% of total net revenues. Export sales decreased by 46.4% to RMB2.8 million (US$0.4 million), compared to RMB4.1 million (US$0.6 million) in the fourth quarter of 2009. Revenues from Iron Sucrose Supplement rose 90.7% to RMB3.8 million (US$0.6 million), compared to RMB2.0 million (US$0.3 million) in the fourth quarter of 2009.

Gross profit. As a result of continued sales growth from key products, gross profit for the fourth quarter of 2010 increased by 30.5% to RMB88.4 million (US$13.4 million) from RMB67.8 million (US$9.9 million) for the same period in 2009. Gross margins decreased to 87.4% for the fourth quarter of 2010 from 91.3% for the same period in 2009. The decrease in gross margin is primarily due to higher depreciation and utility expenses related to the new plant and salary increases in the manufacturing division.

Operating expenses.GAAP operating expenses were RMB84.5 million (US$12.8 million) for the fourth quarter of 2010, an increase of 46.1% from RMB57.8 million (US$8.5 million) for the same period in 2009. Non-GAAP operating expenses were RMB74.6 million (US$11.3 million) for the fourth quarter of 2010, an increase of 29.1% from RMB57.8 million (US$8.5 million) for the same period in 2009.

• Research and development (“R&D”) costs. GAAP R&D costs for the fourth quarter of 2010 were RMB17.2 million (US$2.6 million), or 17.0% of net revenues, compared to RMB5.1 million (US$0.7 million), or 6.9% of net revenues, for the same period in 2009. Non-GAAP R&D costs for the fourth quarter of 2010 were RMB7.2 million (US$1.1 million), or 7.1% of net revenues, compared to RMB5.1 million (US$0.7 million), or 6.9% of net revenues, for the same period in 2009. The difference between GAAP and non-GAAP R&D is due to the expensing of the US$1.5 million up-front 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 2010 were RMB50.6 million (US$7.7 million), or 50.0% of net revenues, compared to RMB40.7 million (US$6.0 million), or 54.8% of net revenues, for the same period in 2009.
• General and administrative expenses. General and administrative expenses for the fourth quarter of 2010 were RMB16.8 million (US$2.5 million), or 16.6% of net revenues, compared to RMB12.1 million (US$1.8 million), or 16.2% of net revenues for the same period in 2009.

Operating income. GAAP operating income for the fourth quarter of 2010 decreased 60.6% to RMB3.9 million (US$0.6 million), compared to operating income of RMB9.9 million (US$1.5 million) for the same period in 2009. Non-GAAP operating income for the fourth quarter of 2010 grew by 40.4% to RMB13.9 million (US$2.1 million), compared to RMB9.9 million (US$1.5 million) in the fourth quarter of 2009. GAAP operating margin for the fourth quarter of 2010 was 3.9% as compared to 13.4% for the same period in 2009. Non-GAAP operating margin was 13.7% for the fourth quarter of 2010, compared to 13.4% in the same period in 2009.

Interest income. The Company recorded interest income of RMB3.2 million (US$0.5 million) for the fourth quarter of 2010, compared to RMB2.2 million (US$0.3 million) for the same period in 2009.

Net income.GAAP net income for the fourth quarter of 2010 decreased 51.1% to RMB6.7 million (US$1.0 million) compared to net income of RMB13.7 million (US$2.0 million) for the same period in 2009. GAAP net income per ADS on a fully-diluted basis for the fourth quarter of 2010 decreased by 52.4% to RMB0.30(US$0.05), compared to RMB0.63(US$0.09) for the same period in 2009. GAAP net margin for the fourth quarter of 2010 was 6.6% as compared to 18.4% for the same period in 2009.

Non-GAAP net income for the fourth quarter of 2010 was RMB16.6 million (US$2.5 million), 52.3% higher than non-GAAP net income of RMB10.9 million (US$1.6 million) for the same period in 2009. Non-GAAP net income per ADS on a fully-diluted basis for the fourth quarter of 2010 increased 48.0% to RMB0.74(US$0.11), compared to RMB0.50(US$0.07) for the same period in 2009. Non-GAAP net margin for the fourth quarter of 2010 was 16.4% as compared to 14.7% for the same period in 2009.

2011 Full Year Guidance and Selected Company Objectives

Based on current market and operating conditions and the following goals, the Company’s total net revenues target for the full year 2011 is between US$76 million to US$82 million, an estimated year-over-year increase of approximately 20% to 30%. Other operating objectives include:

• Secure new product approval for 36,000 IU dosage formulation of EPIAO and Nuleusin
• 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

Conference Call

3SBio’s senior management will host a conference call at 5:00am (US Pacific) / 8:00am (US Eastern) / 8:00pm (Beijing) on Wednesday, March 16, 2011 to discuss its 2010 fourth quarter and fiscal year financial results and recent business activity. The conference call may be accessed using the dial-in numbers below: