GUANGZHOU, China, Nov. 13 /Xinhua-PRNewswire/ -- China Medicine Corporation (“China Medicine” or “the Company”), a leading distributor and developer of prescription and over-the-counter pharmaceuticals, traditional Chinese medicines (“TCM”), nutritional and dietary-supplements, medical devices, and medical formulations in the People’s Republic of China (“PRC”), today financial results for the third quarter ended September 30, 2008.
“In our third quarter, we experienced a temporary delay in the execution of the Guangdong Sunshine Medicine Public Internet Bidding, which adversely impacted our revenue during the quarter. However, by managing our product mix to focus more on higher-margin prescription products, and by managing operating expenses, we improved margins,” said Mr. Senshan Yang, CEO and Chairman of China Medicine Corporation. “I am happy to report that as of September 1, 2008, we successfully secured all the products we represented in our distributorship last year. We are confident that we will see strong results in the fourth quarter of 2008.”
Third Quarter Results
For the quarter ended September 30, 2008, revenues declined 16.5% to $10.5 from $12.6 million in the third quarter of 2007. The decrease in revenues was attributable to the following reasons:
1. A delay in the execution of the Guangdong Sunshine Medicine Public Internet Bidding System to September 1, 2008, which has resulted in collection delays from some hospitals. As a result, the Company has had to allocate its resources to negotiating with hospitals during the third quarter, which is crucial to winning bids in the public internet bidding systems. The Guangdong Sunshine Medicine Public Internet Bidding System is historically held in May- July every year.
2. A decline in sales of OTC products during the third quarter of 2008, which resulted from the Company’s decision to adjust its product portfolio and reduce sales of lower margin OTC products.
3. A decline in medical formula sales caused by stringent government regulation on concerns over food and pharmaceutical product safety, which has made the R&D process more difficult and has slowed sales.
In addition to these factors, the tightening of China’s credit policy resulted in cash flow problems for various suppliers and factories, creating a headwind for distributors. The Company also faced headwinds tied to a decrease in provincial government spending in many provinces as funds were diverted to help victims of the Sichuan earthquake.
For the quarter ended September 30, 2008, sales of pharmaceutical products with national and regional level distribution rights made up 85.6 % of total revenues, and sales of products with manufacturing license accounted for 9.1% of total revenues. Sales of medical formulas accounted for 5.3% of total revenues. Of all the products distributed via China Medicine’s distribution network, products obtained through the Guangdong Sunshine Medicine Public Internet Bidding System contributed to 32.1% of the Company’s total revenues.
Product sales in the third of 2008 quarter totaled $10.0 million and accounted for 94.8% of total net revenues. Sales of Western-style prescription and over-the-counter products accounted for 66.1% of total revenues for the third quarter. Sales of TCM prescription and over-the- counter products accounted for 26.4% of total revenues. Medical formula sales in the third quarter of 2008 accounted for 5.3% of total revenues, dietary supplements, medical instruments and others accounted for 2.2% of total revenues.
Gross profit for the third quarter of 2008 was $3.3 million, a decrease of 14.7% over the third quarter of 2007. Gross margin increased slightly from 30.3% during the third quarter of 2007 compared to 31.0% in the third quarter of 2008. The increase in gross margin was attributable to the Company’s strategy to decrease sales of Western and TCM over-the-counter pharmaceutical products in its product portfolio.
Operating expenses for the third quarter of 2008 were $0.93 million, down 20.2% from $1.2 million in the third quarter of 2007. The decrease was due to lower advertising and marketing expenses. Operating expenses represented 8.9% of total revenues in the third quarter of 2008, down from 9.3% in the third quarter of 2007.
Operating income was $2.3 million in the third quarter of 2008, down 12.3% from $2.7 million in third quarter of 2007. Operating margin for the third quarter of 2008 was 22.1% compared to 21.1% for the third quarter of 2007.
Net income for the third quarter of 2008 was $2.0 million or $0.13 per diluted share, compared to $2.2 million, or $0.14 per diluted share in the third quarter of 2007.
Nine Month Results
For the nine months ended September 30, 2008, revenues increased to $29.2 million, up 12.6% from $25.9 million in first nine months of 2007. Gross profit increased 22.9% to $9.7 million in the first nine months of 2008, versus $7.9 million in the first nine month of 2007. Gross margin was 33.3% in the first nine months of 2008 compared to 30.5% during the first nine months of 2007. Operating income in the first nine months of 2008 grew 33.4% to $6.7 million compared to $5.0 million in the first nine months of 2007. Net income for the first nine months of 2008 was $5.6 million or $0.36 per diluted share, up 36.9% from $4.1 million, or $0.30 per diluted share in the first nine months of 2007.
Financial Condition
As of September 30, 2008, China Medicine had $2.7 million in cash and cash equivalents, approximately $34.1 million in working capital, and total liabilities of $0.5 million. Stockholders’ equity as of September 30, 2008 was $39.1 million, an increase of 26.6% over the $30.9 million recorded as of December 31, 2007.
For the nine months ended September 30, 2008, cash used in operating activities was $0.7 million, compared to $1.8 million for the nine months ended 2007. The Company intends to fund its working capital and capital expenditure requirements over the next 12 months from cash on hand and by accelerating accounts receivable collections efforts.
Business Outlook
China Medicine is actively pursuing its expansion into overseas markets, including the United States and Hong Kong. The Company has established a subsidiary-Konzern U.S. Holding Corporation-and began sales of its “Bethin” weight loss supplement in July. In addition, the Company showcased Bethin at the Natural Food Expo East Trade Show in Boston in October, 2008, and met with distributors from the U.S. and other countries to explore commercial opportunities for the product worldwide. The Company has obtained trademarks for both the Konzern and Bethin brands from the government of Hong Kong and is seeking potential distributors in Hong Kong through the Hong Kong Trade and Development Council’s business partner matching program.
The Company also plans to launch a self-branded dietary food supplement in China in the first half of 2009. “Although the ‘dietary supplement’ category is a major health care category that is not included in China’s health care plan, we have seen a 40% increase of dietary supplement sales in China annually tied to the rising incomes of Chinese workers and the rise of China’s middle class,” commented Mr. Senshan Yang, Chairman and CEO of China Medicine. “We have been actively engaging in R&D for dietary food supplement products and we are confident that the launch of our self-branded dietary food supplement will be well received by the market and will allow us to promote our brand name that will increase our profitability over time.”
China Medicine resumed testing of recombinant aflatoxin detoxifizyme (rADTZ), a product that has the potential to remove toxic compounds in food and feed, with the Feed Research Institute of the Chinese Academy of Agricultural Sciences in October. rADTZ testing is focused on the improvement of the Company’s zymosis technology and the enhancement of rADTZ as an agent to detoxify animal feed. The Company is satisfied with the progress it has made on testing rADTZ and plans to lease a manufacturing facility for rADTZ trial production. Simultaneously, the Company will also apply for a production permit, which will facilitate the commercialization of rADTZ in the first quarter of 2009. The Company has applied for rADTZ patents in over twenty countries and has received the patents from China, Australia, South Africa and South Korea.
“In terms of our existing business, we do not expect the global economic crisis to have a substantial impact on our growth strategy going forward,” said Mr. Yang. We have taken measures to increase sales of certain pharmaceutical products and adjust the product mix to maintain profitability. Based on our financial performance in the first nine months of 2008 and our anticipated strong results in the fourth quarter, we expect to achieve 10-15% in revenue growth and achieve gross margin estimate of 28%-31%. We also feel confident that we will meet our net income growth guidance of 20%-22% for 2008.
Conference Call
China Medicine will hold its third quarter conference call for all interested persons at 9:00 a.m. Eastern Time on November 13, 2008, 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: 888.482.0024. International callers should dial 617.801.9702 when prompted by the operator, mention conference passcode 501 582 39. If you are unable to participate in the call at its scheduled time, a replay will be available for seven days starting on Thursday, November 13 at 11:00 a.m. Eastern Time. To access the replay, dial 888-286-8010 (international callers dial 617-801-6888, and enter the passcode 11677443.
About China Medicine Corporation
China Medicine Corporation is a leading pharmaceutical company that discovers and develops medical formulations and distributes over 2,200 pharmaceutical products in China including prescription and over-the-counter drugs, traditional Chinese medicine products, herbs and dietary supplements. The Company distributes the products to wholesale distributors in 28 provinces and to more than 300 hospitals, 500 medicine companies, and 1,788 drug stores throughout China. The Company actively develops a number of proprietary products for many 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
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.
CONTACT: Ms. Huizhen Yu, Chief Financial Officer of China Medicine Corp,
+86-20-8739-1718, or konzern08@163.com; or Investor Relations Contact, Mr.
Crocker Coulson, President of CCG Investor Relations, +1-646-213-1915 (NY
Office) or crocker.coulson@ccgir.com, for CHME
Web site: http://www.chinamedicinecorp.com/
