GUANGZHOU, China, Aug. 13 /PRNewswire-Asia/ -- China Medicine Corporation (“China Medicine” or “the Company”), a developer and a leading distributor of prescription and over the counter pharmaceuticals, traditional Chinese medicines (TCM), nutritional and dietary supplements, and medical devices and medical formulations, today announced its second quarter 2009 results.
“We are pleased with our top line growth during the second quarter, during which we expanded regional and provincial distribution sales into rural areas and established trial sales of rADTZ, which has very high profit margins and promises to increase our profitability going forward. During the second quarter, our gross profit fell because of lower selling prices tied to severe price competition, an increase in sales of regional level distribution rights drugs, which have lower margins, and increased costs associated with promotional campaigns to increase sales. However, we believe that profitability will improve going forward since the second quarter is typically the slowest seasonally, and we have already seen an uptick in sales and profitability. As a result, we remain confident that our financial profile will improve and anticipate stronger sales in the second half of the year as we ramp up new proprietary products,” said Mr. Senshan Yang, Chairman and CEO of China Medicine Corporation.
“Our top-selling drugs for the quarter included Iopamidol by injection, which accounted for 13.7% of revenues and is used to help diagnose heart, brain, blood and nervous system disorders in X-rays or CT scans; Kelinao (Cinepazide Maleate Injection), which accounted for 6.7% of revenues and is used for the treatment of cardio-cerebral vascular diseases; and Hongjin Xiaojie capsules, which accounted for 5.4% of revenues are used to treat pain and for blood circulation. Combined gross margins for these products were 32.2%. Collectively, our top three selling drugs accounted for approximately 25.8% of revenues,” said Mr. Yang.
Second Quarter 2009 Results
China Medicine’s total revenues in the second quarter were $15.1 million, an increase of 29.4% over the second quarter of 2008. This was attributable to an increase in the Company’s provincial and regional distribution sales as the Chinese government’s implementation of its rural health care reform policy presented new opportunities for expansion of the Company’s business in keeping with its strategic focus in 2008 to lay a solid foundation for a rural distribution network.
Product sales in the second quarter totaled $15.1 million and accounted for 100% of total net revenues. Sales of Western-style prescription products and over-the-counter products accounted for 73.9% of total revenues in the second quarter of 2009. Sales of TCM, prescription and over-the-counter products accounted for 22.8% of total revenues. Sales of dietary supplements and medical equipment accounted for 3.1% of revenues. Sales of rADTZ accounted for 0.2% of total revenue.
Gross profit in the second quarter of 2009 was $3.5 million, a decrease of 15.1% over the second quarter of 2008. Gross margin was 23.4% of total revenues for the second quarter, compared to 35.7% in the second quarter of 2008, and 27.5% in the first quarter of 2009. The decrease in gross profit was attributable to overall lower selling prices in the second quarter of 2009 due to increased sales of lower margin regional distribution products and an increase in the cost of some of our pharmaceutical products imposed by our suppliers. In addition, to respond to a trend of lower consumer spending tied to the global economic slowdown affecting the pharmaceutical industry, the Company increased its advertising efforts and spent more on promotional campaigns to increase sales.
Operating expenses in the second quarter of 2009 were $1.8 million, up 49.9% from $1.2 million in the second quarter of 2008. The increase was due to higher selling, general and administrative expenses related to depreciation of assets and an increase in advertising fees, as well as higher transportation costs that resulted from increased sales during the quarter. Operating expenses represented 11.6% of total revenues in the second quarter of 2009, increase from 10.0% in the second quarter of 2008.
Operating income was $1.8 million in the second quarter of 2009, down 40.5% from $3.0 million in second quarter of 2008. Operating margin was 11.8%, as compared to 25.7% during the same period a year ago.
The Company’s provision for income taxes was $570,014 for the three months ended June 30, 2009 compared to $572,176 for the comparable period of 2008. The decrease was due to the decrease in operating income. The decrease was subject to an effective income tax rate of 25% in 2009, versus a reduced rate of 16.5% in 2008, as tax exemptions enjoyed by the Company’s Konzern subsidiary ended in 2008.
Net income for the second quarter of 2009 was $0.04 million, or $0.003 per diluted share, which included a $1.2 million non-cash expense related to a change in the fair value of warrants, compared to $2.5 million or $0.16 per diluted share, in the second quarter of 2008. This is due to the adoption of a new accounting policy that became effective January 1, 2009, which requires changes in the fair value of warrants to be recognized in earnings each quarter. Excluding this expense, adjusted net income for the second quarter of 2009 was $1.3 million, or $0.08 per fully diluted share, which translates to a 49.1% decrease in net income for the second quarter of 2009 compared to the same period last year.
Six Month Results
For the first half of 2009, revenues increased to $25.2 million, up 34.5% from $18.7 million in first half of 2008. Gross profit decreased 2.5% to $6.3 million in the first six months of 2009, versus $6.5 million in the first six month of 2008. Gross margin was 25.1% in the first half of 2008 compared to 34.6% during the first half of 2008. Operating income in the first half of 2009 decreased 19.4% to $3.5 million compared to $4.4 million in the first half 2008. Net income for the first six months of 2009 was $0.6 million or $0.04 per diluted share, compared to $3.6 million, or $0.23 per diluted share in the first half of 2008. Adjusted net income, excluding expenses related to fair value of warrants, was $2.6 million in first half 2009, or $0.17 per diluted share, which translates to a 29.6% decrease in net income for the first half of 2009 compared to the same period last year.
Financial Condition
As of June 30, 2009, China Medicine had $1.8 million in cash and cash equivalents. Working capital was approximately $33.0 million, up 1.4% from $32.5 million as of December 31, 2008. Accounts receivable stood at $15.4 million as of June 30, 2009, down from $19.2 million as of December 31, 2008, reflecting increased customer collections. China Medicine Corporation Stockholders’ equity as of June 30, 2009 was $42.9 million compared to $42.8 million recorded as of December 31, 2008. For the six months ended June 30, 2009, cash from operating activities was $1.5 million. Cash flow used in investing activities was $2.6 million for the six months ended June 30, 2009, versus $0.6 million for the six months ended June 30, 2008. The increase is attributable to the purchase of know-how for a non-prescription medicine, Shiwuwei Syrup, which is used to enhance the respiratory system and increase the amount of hemoglobin in the blood.
Business Outlook
“We continue to make progress on executing our business plan as we enter second half of 2009 and are excited about the prospects for recombinant Alfatoxin Detoxifizyme (rADTZ), our innovative product that has the potential to detoxify alfatoxin (AFT), a potential cancer causing agent, in food and feed when used as an additive. We are pleased to have successfully commenced trial production and sales for our rADTZ, which have generated RMB 153,000 (approximately $22,400), with gross margin of approximately 65.4%. As we produce the product in greater scale and refine the technology used in the production process, we believe gross margin could be improved. We are very enthusiastic about the prospects for rADTZ and the demand for the product, and believe it will become one of the most important contributors to our growth in the coming years.
“In terms of increasing our product portfolio to include products with exclusive national distribution rights, we added Qinpi Jiegu tablets to our portfolio in the second quarter, which are used to promote blood circulation to dissipate blood stasis and relieve pain. We also obtained exclusive provincial level distribution rights for Alendronate Sodium tablets used for treatment of osteoporosis. In keeping with our strategy, we plan to increase sales of pharmaceutical products with exclusive distribution rights, which have higher margins. Overall, we are confident that our margins will improve going forward as sales for these products increase during the year,” said Mr. Yang.
“Recently, we have also received Quality Standard certification for our herbal tea series and expect to launch our self-branded herbal tea series into the market in August 2009. As we get further into the second half of 2009, we also expect to receive approval from the State Food and Drug Administration (SFDA) in October to start the production of our self-branded multivitamin series. We will be launching a comprehensive outdoor advertising campaign to promote our self-branded products, including our proprietary weight loss supplement-Bethin, during the second half of 2009. We remain confident that as we promote our brand image among Chinese consumers in Guangdong province, we will able to increase our profitability profile in the quarters ahead.”
“2009 is an important, transitional year for China Medicine as we set out to achieve our major goals of bringing the Company up to a higher platform. The increase of higher margin pharmaceutical products to our distribution pipeline and our plan to launch self-branded products will contribute to our bottom line growth. Furthermore, with our novel rADTZ product currently under review by the Department of Agriculture for product permit approval, we expect by the end of 2009, we will be able to commercialize this product and compete for a share of the $4.04 billion addressable market for rADTZ in China’s feed industry,” said Mr. Yang.
Conference Call
China Medicine will hold its second quarter conference call for all interested persons at 10:00 a.m. Eastern Time on Thursday, August 13, 2009, to discuss its results. To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time 866.800.8648. International callers should dial 617.614.2702. When prompted by the operator, mention conference passcode 175 848 10. If you are unable to participate in the call at its scheduled time, a replay will be available for 14 days starting on Thursday, August 13 at 12:00 p.m. Eastern Time. To access the replay, dial 888-286-8010 (international callers dial 617-801-6888, and enter the passcode 442 846 06.
About China Medicine Corporation
China Medicine Corporation is a developer and leading distributor of prescription and over the counter (“OTC”) drugs, traditional Chinese medicine products, herbs and dietary-supplements, medical devices, and medical formulations in China. China Medicine also has its research and development force for certain products it manufactures through OEM arrangement makes the distribution. The Company distributes its products to wholesale distributors including more than 300 hospitals and 500 medicine companies that sell to over 2,000 drug stores in 28 provinces throughout China. The Company actively develops a number of proprietary products for a variety of uses, including oncology, high blood pressure and the removal of toxins from food and animal feeds. For more information visit the Company’s website at http://www.chinamedicinecorp.com
Use of Non-GAAP Financial Measures
GAAP results for second quarter 2009 include $1.2 million non cash expenses related to change in Company’s fair value of warrants. Because the expense is non-cash, and is not related to the Company’s operating results, the Company believes that the non-GAAP information is useful to supplement the Company’s condensed consolidated financial statements. A reconciliation of the adjustments to GAAP results appears in the table accompanying this press release. This additional non-GAAP information is not meant to be considered as a substitute for GAAP financials. The non-GAAP financial information that the Company provides also may differ from the non-GAAP information provided by other companies.
Cautionary Statement
This press release contains forward-looking statements concerning the Company’s business and products. The Company’s actual results may differ materially depending on a number of risk factors including, but not limited to, the following: general economic and business conditions, obtaining regulatory approval for new products, the expected contribution of higher margin products, government support for rural health care, competition from existing and new competitors, changes in technology, and various other factors beyond its control. All forward-looking statements are expressly qualified in their entirety by this Cautionary Statement and the risk factors detailed in the Company’s reports filed with the Securities and Exchange Commission. China Medicine Corporation undertakes no duty to revise or update any forward- looking statement to reflect events or circumstances after the date of this release.
Weighted average diluted shares, 15355660 for three months ended June 30, 2009 and 15634713 for three months ended June 30, 2008
Weighted average diluted shares, 15248654 for the six months ended June 30, 2009 and 15547183 for the six months ended June 30, 2009
Weighted average diluted shares, 15355660 for three months ended June 30, 2009 and 15634713 for three months ended June 30, 2008
Weighted average diluted shares, 15248654 for the six months ended June 30, 2009 and 15547183 for the six months ended June 30, 2009
SOURCE China Medicine Corporation
CONTACT: Huizhen Yu, Chief Financial Officer, China Medicine Corp at
+86-20-8739-1718 or konzern08@163.com; Investor Relations Contact: Crocker
Coulson, President, CCG Investor Relations at +1-646-213-1915 or
crocker.coulson@ccgir.com
Web site: http://www.chinamedicinecorp.com/
