3SBio Inc. Announces Unaudited Second Quarter and First Half 2011 Results

SHENYANG, China, Aug. 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 second quarter and first half ended June 30, 2011.

Second Quarter 2011 Financial Highlights:

• Total net revenues increased by 29.0% over the second quarter of 2010 to RMB136.1 million (US$21.1 million), compared to RMB105.5 million (US$15.6 million) in the second quarter of 2010.
• Operating income was RMB30.1 million (US$4.7 million), compared to operating income of RMB27.9 million (US$4.1 million) in the second quarter of 2010.
• Net income was RMB30.4 million (US$4.7 million), compared to net income of RMB25.5 million (US$3.8 million) in the second quarter of 2010.
• Net income per American Depositary Share (“ADS”) on a fully-diluted basis was RMB1.34(US$0.21) compared to net income per ADS on a fully-diluted basis of RMB1.16(US$0.17) for the second quarter of 2010.
• Cash, cash equivalents and time deposits were RMB725.6 million (US$112.3 million, including restricted cash of RMB0.7 million) at June 30, 2011.

First Half 2011 Financial Highlights:

• Total net revenues increased by 26.0% over the first half of 2010 to RMB254.4 million (US$39.4 million), compared to RMB201.9million (US$29.8 million) in the first half of 2010.
• Operating income was RMB54.3million (US$8.4 million), compared to operating income of RMB56.1 million (US$8.3 million) in the first half of 2010.
• Net income was RMB52.5 million (US$8.1million), compared to net income of RMB52.2 million (US$7.7 million) in the first half of 2010.
• Net income per American Depositary Share (“ADS”) on a fully-diluted basis was RMB2.34(US$0.36) compared to net income per ADS on a fully-diluted basis of RMB2.37(US$0.35) for the first half of 2010.

Second Quarter 2011 Business Highlights

Operations

• EPIAO, the Company’s flagship injectable recombinant human erythropoietin (EPO) product, demonstrated strong growth with net revenue in the second quarter of 2011 rising 27.7% to RMB80.2 million (US$12.4 million), compared to RMB62.8 million (US$9.3 million) in the second quarter of 2010. According to IMS Health, second quarter 2011 market share by value increased by 2.2% points, reaching an all-time high of 44.0%, more than the combined market share of the six closest competitors.
• Net revenues for TPIAO, the Company’s novel recombinant human thrombopoietin (TPO) product, increased by 31.7% to RMB42.3 million (US$6.5 million) in the second quarter of 2011, compared to RMB32.1 million (US$4.7 million) in the second quarter of 2010.
• Net revenues for Iron Sucrose Supplement increased by 39.1% to RMB6.2 million (US$1.0 million) in the second quarter of 2011, compared to RMB4.5 million (US$0.7 million) in the second quarter of 2010.
• Net export revenues increased by 54.1% to RMB4.5 million (US$0.7 million), accounting for 3.3% of total net revenue in the second quarter of 2011, compared to RMB2.9 million (US$0.4 million), or 2.8% of net revenues in the second quarter of 2010. The increase was partly attributable to continued strong EPIAO sales to Egypt and Thailand. The GMP certification for EPIAO was renewed in Brazil and an application for GMP certification was submitted in Turkey in line with our strategy of seeking product registrations in more developed countries.

Events Subsequent to June 30, 2011

• The Chinese State Food and Drug Administration (“SFDA”) approved a 36,000 IU dosage formulation of EPIAO for the treatment of anemia associated with chemotherapy in cancer patients. High-dose EPIAO is the only dosage form of this kind available in China. The 36,000 IU dosage is comparable to the standardized dose used globally for chemotherapy-induced anemia, allowing for less frequent administration than lower dosage forms, which in turn is expected to provide greater convenience for both patients and caregivers.
• We formed an investment partnership (“3SBio Ventures” or the “Fund”) with Taizhou Oriental CMC Limited (“Taizhou Oriental”), the investment arm of Taizhou China Medical City Company (“CMC”). CMC is a Jiangsu province-based national level high-tech industrial park dedicated to life science innovation and is supported directly by the Ministry of Health, Ministry of Science and Technology and the State Food and Drug Administration. The investment partnership will be managed by Taizhou Huan Sheng Investment Management Company Limited (“Huan Sheng”), a wholly-owned subsidiary of 3SBio. Taizhou Oriental and 3SBio have committed RMB50 million and RMB200 million respectively to the Fund. The initial contribution is 20% of the total commitment with the balance to be drawn down as required. 3SBio Ventures will seek investments in the life science sector that support 3SBio’s strategic interests. The Fund will have an investment horizon of 8 years with an option to extend.
• Dr. David Chen has assumed new responsibilities as the managing partner of 3SBio Ventures and has resigned from his position as chief operating officer of 3SBio Inc. Dr. Chen will focus his efforts on seeking strategic investment opportunities for 3SBio Ventures. Dr. Chen’s current responsibilities will be allocated among the senior management team while the Company continues to seek opportunities to strengthen its executive team.
• Dr. Yingfei Wei has resigned from her position as 3SBio’s chief scientific officer but will remain engaged in a consulting role to both 3SBio and 3SBio Ventures. Dr. Dongmei Su, chief technology officer of the company, will take on the role of vice president, R&D and will assume Dr. Wei’s current responsibilities.

Dr. Jing Lou, chief executive officer of 3SBio, commented, “We are pleased with the strong and rising demand for our core products in the dialysis and oncology areas. EPIAO’s market share increased by 2.2% points, reaching an all-time high of 44.0%, more than the combined market share of our six closest competitors. The recent approval of high dosage EPIAO reinforces our pioneering role in the treatment of chemotherapy-related anemia in China. As a result of our educational efforts related to TPIAO’s recently approved indication for ITP, the medical community is becoming more aware of the benefits for patients suffering from platelet disorders. Our export business also continues to gain momentum with GMP certificate renewal for EPIAO obtained in Brazil, a market with over 90,000 dialysis patients. We are laying the foundation for future growth in our export business with applications pending in Turkey and Malaysia.”

Dr Lou continued, “We are also pleased to announce an investment partnership with Taizhou Oriental CMC Ltdin Taizhou China Medical City, a national level high-tech industrial park dedicated to life science. This platform will facilitate collaboration with China’s public health care sector, providing both funding and access to larger scale initiatives and will play a key role in our future pipeline development for 3SBio. I am also pleased that David Chen will assume a new role as managing partner of 3SBio Ventures. We will continue to source innovative products from around the globe and execute our strategy of developing innovative products whichaddress china’s unmet medical needs.”

Three Months Ended June 30, 2011 Unaudited Financial Results

Net revenues. Net revenues increased by 29.0% to RMB136.1 million (US$21.1 million) for the second quarter of 2011 from RMB105.5 million (US$15.6 million) for the same period in 2010. This increase was largely due to continued strong sales of EPIAO and TPIAO which grew by 27.7% and 31.7%, respectively, over the same period in 2010. TPIAO remained 3SBio’s second largest revenue contributor in the quarter, accounting for an all-time high of 31.1% of total net revenues. Export sales increased by 54.1% year-on-year to RMB4.5 million (US$0.7 million), and revenues from Iron Sucrose rose 39.1% year-on-year to RMB6.2 million (US$1.0 million).

Gross profit. As a result of continued sales growth from key products, gross profit for the second quarter of 2011 increased by 27.7% to RMB121.5 million (US$18.8 million) from RMB95.2 million (US$14.0 million) for the same period in 2010. Gross margins declined 1.0% to 89.2% for the second quarter of 2011 from 90.2% for the same period in 2010. The decline was mainly attributable to new plant depreciation and increased material, labor and energy costs.

Operating expenses.Operating expenses were RMB91.4 million (US$14.1 million) for the second quarter of 2011, representing an increase of 35.9% from RMB67.2 million (US$9.9 million) for the same period in 2010.

• Research and development (“R&D”) costs. R&D costs for the second quarter of 2011 were RMB10.7 million (US$1.7 million), or 7.8% of net revenues, compared to RMB5.7 million (US$0.8 million), or 5.4% of net revenues, for the same period in 2010. The increase in R&D expenses is primarily attributable to clinical trial and testing expenses related to cancer therapeutics developed in collaboration with Ascentage Pharma and NuPIAO, our second generation version of EPIAO.
• Sales, marketing and distribution expenses. Sales, marketing and distribution expenses for the second quarter of 2011 were RMB65.3 million (US$10.1 million), or 48.0% of net revenues, compared to RMB48.0 million (US$7.1 million), or 45.5% of net revenues, for the same period in 2010. The increase is mainly attributable to expanded sales and marketing activities, including new product launch initiatives for TPIAO for ITP.
• General and administrative expenses. General and administrative expenses for the second quarter of 2011 were RMB15.4 million (US$2.4 million), or 11.3% of net revenues, compared to RMB13.5 million (US$2.0 million), or 12.8% of net revenues for the same period in 2010.

Operating income. Operating income was RMB30.1 million (US$4.7 million) for the second quarter of 2011, a 7.7% increase from operating income of RMB27.9 million (US$4.1 million) for the same period in 2010. Operating margin for the second quarter of 2011 was 22.1%, a 4.4% decline from operating margin of 26.5% for the same period in 2010. The decline in operating margin is primarily due to increased depreciation expenses related to the new plant and increased R&D and sales, marketing and distribution expenses.

Interest income. Net interest income was RMB5.1 million (US$0.8 million) for the second quarter of 2011, compared to RMB2.7 million (US$0.4 million) for the same period in 2010. The increase is primarily due to the combined effect of increased time deposits and higher interest rates on time deposits.

Net income.Net income was RMB30.4 million (US$4.7 million) for the second quarter of 2011, a 18.9% increase over net income of RMB25.5 million (US$3.8 million) for the same period in 2010. Net income per ADS on a fully-diluted basis for the second quarter of 2011 increased to RMB1.34(US$0.21) compared to RMB1.16(US$0.17) for the same period in 2010. Net margin for the second quarter of 2011 was 22.4%, a 1.8% decrease over net margin of 24.2% for the same period in 2010.

Six Months Ended June 30, 2011 Unaudited Financial Results

Net revenues. Net revenues increased by 26.0% to RMB254.4 million (US$39.4 million) for the first half of 2011 from RMB201.9 million (US$29.8 million) for the same period in 2010. This increase was largely due to continued strong sales of EPIAO and TPIAO which grew by 24.1% and 28.8%, respectively, over the same period in 2010. TPIAO remained 3SBio’s second largest revenue contributor in the first half, accounting for an all-time high of 31.5% of total net revenues. Export sales increased by 46.2% year-on-year to RMB8.7 million (US$1.4 million), and revenues from Iron Sucrose rose 29.0% year-on-year to RMB11.1 million (US$1.7 million).

Gross profit. As a result of continued sales growth from key products, gross profit for the first half of 2011 increased by 22.0% to RMB224.4 million (US$34.7 million) from RMB183.9 million (US$27.1 million) for the same period in 2010. Gross margins declined by 2.9% to 88.2% for the first half of 2011 from 91.1% for the same period in 2010. The decline was mainly attributable to new plant depreciation and increased material, labor and energy costs.

Operating expenses.Operating expenses were RMB170.1 million (US$26.3 million) for the first half of 2011, representing an increase of 33.1% from RMB127.8 million (US$18.8 million) for the same period in 2010.

• Research and development (“R&D”) costs. R&D costs for the first half of 2011 were RMB18.4 million (US$2.9 million), or 7.2% of net revenues, compared to RMB10.4 million (US$1.5 million), or 5.2% of net revenues, for the same period in 2010. The increase in R&D expenses is primarily attributable to clinical trial and testing expenses related to cancer therapeutics developed in collaboration with Ascentage Pharma, NuPIAO, our second generation version of EPIAO and an anti-TNF compound that targets rheumatoid arthritis, psoriasis and other inflammatory disorders.
• Sales, marketing and distribution expenses. Sales, marketing and distribution expenses for the first half of 2011 were RMB120.7 million (US$18.7 million), or 47.4% of net revenues, compared to RMB90.8 million (US$13.4 million), or 45.0% of net revenues, for the same period in 2010. The increase is mainly attributable to expanded sales and marketing activities, including new product launch initiatives for TPIAO for ITP.
• General and administrative expenses. General and administrative expenses for the first half of 2011 were RMB31.0 million (US$4.8 million), or 12.2% of net revenues, compared to RMB26.6 million (US$3.9 million), or 13.2% of net revenues for the same period in 2010.

Operating income.Operating income was RMB54.3 million (US$8.4 million) for the first half of 2011, a 3.4% decrease from operating income of RMB56.1 million (US$8.3 million) for the same period in 2010. Operating margin for the first half of 2011 was 21.4%, a 6.4% decline from operating margin of 27.8% for the same period in 2010. The decline in operating margin is primarily due to increased depreciation expenses related to the new plant and increased R&D and sales, marketing and distribution expenses.

Interest income. Net interest income was RMB8.7 million (US$1.4 million) for the first half of 2011, compared to RMB5.8 million (US$0.9 million) for the same period in 2010. The increase is primarily due to the combined effect of increased time deposits and higher interest rates on time deposits.

Net income.Net income was RMB52.5 million (US$8.1 million) for the first half of 2011, a 0.6% increase over net income of RMB52.2 million (US$7.7 million) for the same period in 2010. Net income per ADS on a fully-diluted basis for the first half of 2011 decreased to RMB2.34(US$0.36) compared to RMB2.37(US$0.35) for the same period in 2010. Net margin for the first half of 2011 was 20.7%, a 5.1% decrease over net margin of 25.8% for the same period in 2010.

Conference Call

3SBio’s senior management will host a conference call on Tuesday, August 16, 2011 at 5:00am (US Pacific) / 8:00am (US Eastern) / 8:00pm (Beijing) to discuss its unaudited second quarter and first half 2011 results and recent business activity. The conference call may be accessed using the dial-in numbers below: