HARBIN, China, March 17 /PRNewswire-Asia-FirstCall/ -- China Sky One Medical, Inc. (“China Sky One Medical” or “the Company”) , a leading fully integrated pharmaceutical company producing over-the-counter drugs in the People’s Republic of China (“PRC”), today announced financial results for the fourth quarter and fiscal year ended December 31, 2009. The Company also announced its earnings guidance for full year 2010.
“The Company’s record revenues in 2009 were primarily driven by positive contribution from the strategic acquisitions that we completed in 2008, heightened consumer brand awareness and expansion of our sales network. Our full year net income was slightly below our expectations due to increased operating costs from several acquisitions in 2008 and our new corporate headquarters and other non-cash expense items as previously discussed,” said Mr. Yan-Qing Liu, Chairman and CEO of China Sky One Medical, Inc. “Looking ahead, the Company plans to make significant investment in the development of high margin branded drugs to support long-term sustainable growth. With a growing distribution network and a growing pipeline of SFDA License for drug batch lots, China Sky One is well positioned to be a leading pharmaceutical company in China.”
Fourth Quarter 2009 results
In the fourth quarter of 2009, China Sky One’s total revenues increased 15.0% to $29.9 million comparing to $26.0 million in the same quarter last year. This increase was primarily attributable to the strong performance of the Company’s sales network and the addition of direct territory managers and sales agents, as well as increased marketing and advertising activities. As of December 31, 2009, China Sky One had 1,491 sales and marketing staff. The head count included approximately 1,100 sales representatives stationed in pharmacies to educate consumers about the benefits of the Company’s products and to drive end users’ buying decisions.
Sales of patch products were essentially flat year-over-year at $9.9 million or 33.2% of revenue in the fourth quarter of 2009. Sales of ointments were down modestly in the 2009 fourth quarter to $5.3 million, accounting for 17.8% of revenues, compared to $5.8 million or 22.3% of revenues in the year ago quarter. Sales of spray products increased by 56% to $4.0 million and accounted for 13.4% of revenues, versus $2.5 million or 9.7% of revenues a year ago. The increase in spray products was primarily due to increased sales of mouth sprays resulting from the outbreak of the H1N1 virus. Sales of diagnostic testing kits decreased to $0.8 million or 2.8% of revenues from $2.4 million or 9.1% of revenues a year ago. Sales of the Company’s Other Product Category totaled $9.8 million or 32.8% of revenues, representing a 133.5% increase from $4.2 million sales and 16.2% of revenues in 2008. The higher sales in this category were mainly due to an increase in diversified products from the acquisitions of Heilongjiang Tianlong Pharmaceutical, Inc. and Peng Lai Jin Chuang Pharmaceutical Company in 2008.
Gross profit rose 18.5% to $22.9 million in the fourth quarter of 2009. Gross margin increased to 76.6%, compared to 74.4% in the fourth quarter of 2008, primarily reflecting the Company’s better production cost control.
Operating expenses increased 32.9% to $13.8 million in the fourth quarter of 2009 comparing to the same period of 2008. The increase was principally due to higher general and administrative expenses associated with the non-cash stock compensation expenses and registration rights liability. Depreciation and amortization expenses increased 170% year-over-year to $0.9 million due to the increased amortization resulting from the Company’s newly acquired proprietary technologies in 2008 as well as the acquired proprietary technologies during the fourth quarter of 2009.
Operating income was $9.1 million, representing an operating margin of 30.4%, as compared to $8.9 million, or 34.4% margin, a year ago.
During the fourth quarter of 2009, the Company recorded a $1.3 million non-cash registration rights liability. The Company recorded no such expense in the year ago period.
Provision for income taxes was $2.5 million in the fourth quarter of 2009, as compared to $2.1 million in the same period of last year.
Net income for the fourth quarter of 2009 was $5.3 million, compared to $6.9 million in the fourth quarter of 2008. Excluding the effect of recording certain non-cash expense items: (i) share-based compensation and (ii) the registration rights liability expenses; the Company’s pro forma non-GAAP adjusted net income was $7.9 million, or $0.47, as compared to $6.9 million or $0.45 per diluted share.
Full Year 2009 Results
For the full year 2009, total revenues were $130.1 million, up 41.7% from $91.8 million in 2008. Of the 91 products commercialized by China Sky One Medical in 2009, patches, ointments, sprays and diagnostic kits accounted for 31.3%, 22.2%, 14.2% and 7.9% of total revenues respectively.
The Company’s top 10 products, including Sumei Slim Patch, Hemorrhoids Ointment, Compound Camphor Cream, Stomatitis Spray, AMI Diagnostic Kit and Naftopidil Dispersible Tablet, together accounted for approximately 68% of total revenues. Sales from export were $10.1 million, representing 7.8% of total revenues.
Gross profit was $98.4 million, an increase of 41.8% from $69.4 million in 2008. Gross margin was little changed at 75.7% and 75.6% in 2009 and 2008, respectively.
Operating income was $46.3 million, up 29.7% from $35.7 million in 2008. Operating margin was 35.6% in 2009 versus 38.8% in 2008.
Net income for 2009 rose 19.4% to $34.5 million, or a net profit margin of 26.5%, from $28.9 million or a 31.4% net margin. The decrease in net margin was primarily attributable to higher selling and R&D expenses incurred in 2009. Excluding the effect of recording certain expense items: (i) share-based compensation and (ii) the registration rights liability; the Company’s pro forma non-GAAP basis adjusted net income was $37.0 million, or $2.22 per diluted share, as compared to $29.2 million or $1.89 per diluted share.
Financial Condition
As of December 31, 2009, China Sky One had $52.8 million in cash and equivalents, with a quick ratio of 7.9. Average Days Sales Outstanding increase to 51.6 days from 45.5 days principally due to the increased average accounts receivable balances on September 30 and December 31 and less increase of average daily sales during the fourth quarter of 2009 comparing to the same period in 2008. Working capital was approximately $67.0 million. Stockholders’ equity at December 31, 2009, was $131.0 million, a 38.0% increase over the $94.9 million recorded at December 31, 2008.
The Company generated $33.4 million in net cash flow from operating activities in 2009, up from $27.5 million in 2008.
Recent Events
As of January 4, 2010, China Sky One Medical’s common shares were listed on the NASDAQ Global Select Market.
Also in January, the Company completed its two office buildings and relocated its headquarters to Harbin Song Bei New Development District and consolidated administration, research and development, accounting and sales functions to streamline operations and improve efficiency. Following the move of its headquarters, the Company also received local government-supported preferential policies, such as discounted land transfer fees and green channel to expedite project permits, which are expected to facilitate more cost effective expansion in the future.
In addition, the Company’s AMI Diagnostic Kit was recently recognized by the National Development and Reform Commission as a “National Innovation Project,” a designation given to innovative projects in key high technology industries.
2010 Outlook and Guidance
The Company’s top priority in 2010 is to further optimize its distribution channels by locating and cooperating with more reputable distributors with extensive market coverage.
“We are confident in our 2010 outlook and plan to focus on enhancing and broadening our product portfolio to include proprietary new drugs so as to support sustainable long-term growth,” said Mr. Yan-Qing Liu, Chairman and CEO of China Sky One Medical, Inc. “Our financial guidance assumes only organic growth and does not reflect any potential acquisitions or other strategic deals in 2010. The Company is committed to delivering shareholder value and will pursue opportunities to acquire new proprietary drugs, advanced technologies or companies that can increase our growth potential.”
For the full year 2010, the Company expects net revenue growth of approximately 20% or $156 million. Management developed the revenue guidance based upon a careful review of sales and marketing plans submitted by our sales team, as well as detailed analysis of each product’s growth outlook and marketing plan. The sales forecast is calculated mainly based on the factors of sales plans submitted by the Company’s sales agents, the estimate of increase and decrease of certain products managed on our internal sales and marketing force rather than through distributors or agents, and the estimate of promotion or discontinuance of sales of certain current products. The gross margin guidance is 68%, below historical levels due to our potential lower sales price to support our new sales model, as well as anticipated increases in raw materials costs and related overhead costs. Net income is anticipated to approximate $39 million, representing a net profit margin of 25%. The expected decline in net margin primarily reflects the increase in R&D spending which is expected to be 15% of total revenue for the year of 2010. We are dedicated to advancing our major research and development projects in the current R&D pipeline and also shifting our focus to Cardiovascular medicine and antibiotic drugs.
Conference Call
China Sky One Medical will conduct a conference call at 8:00 a.m. Eastern Daylight Time (EDT) on Wednesday, March 17, 2010, to discuss the fourth quarter and full year 2009 financial results. To participate on the live call, please dial the following number five to ten minutes prior to the scheduled conference call time: 877-585-2309. International callers should dial 706-902-4207. The Conference ID for this call is 61931973.
If you are unable to participate in the call at this time, a replay will be available for two weeks starting on Wednesday, March 17, 2010 at 10:00 a.m. EDT. To access the replay, dial 800-642-1687, international callers dial 706-645-9291. The Conference Replay Passcode is 61931973.
Use of Non GAAP Financial Measures
GAAP results for the three and twelve month periods ended December 31, 2009 include non-cash items of share-based compensation and registration rights liability expenses. To supplement the Company’s consolidated financial statements presented on a GAAP basis, the Company has provided pro forma non- GAAP adjusted financial information which excludes the impact of these items in this release. The Company’s management believes that these adjusted measures provide investors with a better understanding of how the results relate to the Company’s historical performance. A reconciliation of adjustments to GAAP results appears in the tables accompanying this press release. This additional adjusted information is not meant to be considered in isolation or as a substitute for GAAP financials. The adjusted financial information that the Company provides also may differ from the adjusted information provided by other companies.
About China Sky One Medical, Inc.
China Sky One Medical, Inc., a Nevada corporation, is a holding company. The Company engages in the manufacturing, marketing and distribution of pharmaceutical, medicinal and diagnostic products. Through its wholly-owned subsidiaries, Harbin Tian Di Ren Medical Science and Technology Company (“TDR”), Harbin First Bio-Engineering Company Limited (“First”), Heilongjiang Tianlong Pharmaceutical, Inc. (“Tianlong”) and Peng Lai Jin Chuang Pharmaceutical Company (“Jin Chuang”) the Company manufactures and distributes over-the-counter pharmaceutical products, which make up its major revenue source. For more information, visit http://www.cski.com.cn .
Safe Harbor Statement
Certain of the statements made in the press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the use of forward-looking terminology such as “believe,” “expect,” “may,” “will,” “should,” “project,” “plan,” “seek,” “intend,” or “anticipate” or the negative thereof or comparable terminology. Such statements typically involve risks and uncertainties and may include financial projections or business development. Actual results could differ materially from the expectations reflected in such forward-looking statements as a result of a variety of factors, including the risks associated with the effect of changing economic conditions in PRC, the ability to achieve guidance, the announcement or execution of any acquisitions or other strategic deals, the success of any pipeline projects, variations in cash flow, reliance on collaborative retail partners and on new product development, variations in new product development, risks associated with rapid technological change, and the potential of introduced or undetected flaws and defects in products, and other risk factors detailed in reports filed with the Securities and Exchange Commission from time to time.
CONTACT: Stanley Hao, CFO of China Sky One Medical, Inc.,
+86-451-8703-2617, stanleyhao@cski.com.cn; or Ms. Lei Huang, Account
Manager, +1-646-833-3417, lei.huang@ccgir.com, or Ms. Mabel Zhang, Vice
President, +1-310-954-1353, mabel.zhang@ccgir.com, both of CCG Investor
Relations
Web site: http://www.cski.com.cn/
