First China Pharma Announces Third Quarter 2011 Financial Results

November 15, 2011 |

7 min read

KUNMING, CHINA--(Marketwire - November 14, 2011) - First China Pharmaceutical Group, Inc. (OTCBB: FCPG) (“First China” or the “Company”), a China-based leading pharmaceutical distribution company, today announced its unaudited financial results for the third quarter ended September 30, 2011.

First China is pleased to advise that its focus and investments on expanding sales in Yunnan province has led to doubling sales for the same period as last year. The April 2011 financing has enabled First China to hire additional sales staff, increase inventory and refine computer systems. While sales were at a record high this quarter, gross profit was down from the same period in 2010. The reduction in the Company’s profit margin is primarily due to a reduction in the prices required by the Chinese government for certain pharmaceuticals and increased costs associated with the operation of a public company. As part of the Chinese government’s mandate to significantly increase per capital spending on pharmaceuticals, they have put pressure on the companies who carry pharmaceuticals and other health care providers to reduce drug pricing in order to bring down the rising cost of health care for all Chinese. This has led to a decline in profit margins but an opportunity to increase sales.

Third Quarter 2011 Highlights

Net revenues were $14.2 million, an increase of 100.0% over the third quarter of 2010
Gross profit was $1.0 million, a decrease of 30.0% over the third quarter of 2010, with gross margin of 7.0%
Income from operations was $656,740, a decrease of 103.5% over the third quarter of 2010
Net income was $493,161, a decrease of 98.1%, as compared to $976,823, in the same period in 2010

For the same period in 2010 First China was not a public company and was not bearing the costs of a fully reporting public company. The Company also made significant additions to staff over the third quarter. Warehouse operations added 11 employees to help handle additional volume, 36 individuals were added to the sales staff, with 6 in management (predominately sales managers) and 3 individuals added to the accounting staff.

One of the key objectives for the Company is to refine its accounting functions so that it can produce financial statements on a timelier basis and reduce the high cost of utilizing outside accounting firms. In the third quarter First China added accounting staff, software and utilized a consultant to streamline the process of converting Chinese accounting to U.S. GAAP accounting.

While costs have risen and led to a decline in margins, the Company is aware of the need to tightly manage costs as it increases sales. All expenses continue to be closely scrutinized and monitored by our accounting department and senior management.

The Company also initiated sales conferences for potential customers. Five of these conferences were held throughout Yunnan province and met with great success. Approximately 95% of conference attendees have signed up to become a customer of First China. Over the quarter, the Company increased its customer base by adding 238 new customers without losing any customers.

Third Quarter 2011 Financial Summary (Unaudited)

 Three months ended Sept 30 Change (in $ millions, except per-share data in $) 2011 2010 Net Revenue 14.222 7.133 100% Gross Profit 1.015 1.373 -26% Operating Income 0.656 1.336 -51% Income before income taxes 0.643 1.302 -51% Net Income 0.493 0.976 -49%

Business Outlook

We believe that the Chinese pharmaceutical distribution market will begin to evolve like that in the United States, eventually dominated by a handful of large companies with significant sales and low profit margins. As the Chinese government increases pharmaceutical spending per capita, its objective will be to provide as much as it can for the money spent. With gross profit margins in the range of 4% to 8% the company will continue to focus on increasing sales volume. The Company is also in the process of applying for an import license so that it will be able to import and distribute higher margin drugs that are available in the West but not yet available in China.

First China is particularly encouraged to have obtained an Internet Drug Transaction Service License (IDTSL). The IDTSL provides the Company a significant growth option other than through a sole focus on acquisitions. First China recognizes that the IDTSL could have a significant impact on the Company’s strategy going forward. The Board, Company executives and advisors will be meeting in the fourth quarter to re-work the Company’s strategic plan to incorporate specific plans and new financial objectives and financing options for 2012 and beyond. In addition, the Board will be reviewing the re-organization that was initiated in late 2010 to ensure that it will not restrict the growth of First China and operations beyond Yunnan province.

The IDTSL will enable First China to grow organically throughout China while strategic acquisitions in key markets are still anticipated in order to build regional distribution and sales centers throughout the country. “First China is focused on realizing significant growth over the next 5 years. It is through rapid growth that the company will be able to reward its shareholders for their allegiance and commitment,” stated Mr. Wang, CEO of First China.

About First China Pharmaceutical Group, Inc. (OTCBB: FCPG)
First China Pharmaceutical Group, Inc. aims to develop a high growth pharmaceutical distribution company generating significant revenue from the sale of healthcare products in China. As part of its business strategy, the Company has acquired the assets of Kun Ming Xin Yuan Tang Pharmacies Co. Ltd. (XYT), which includes a strategic advantage over its competitors as it is one of a handful of pharmaceutical distribution company in Yunnan Province that has obtained government approval to market, fill orders and process payments using the internet. First China Pharmaceutical Group plans to continue the rapid growth of the company from its current position as a provider of over 7,000 drugs to more than 4,900 pharmacies, hospitals and clinics in China’s Yunnan Province. For more information visit: www.firstchinapharma.com

Notice Regarding Forward-Looking Statements
This news release contains “forward-looking statements” as that term is defined in Section 27A of the United States Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Statements in this press release which are not purely historical are forward-looking statements and include any statements regarding beliefs, plans, expectations or intentions regarding the future. Such forward-looking statements include, among other things, the development of new business opportunities, schedule to prepare unaudited quarter end financial statements, evolution of Chinese pharmaceutical distribution market, costs reduction, future operations and strategy, acquisition plans, revenue, margins and results of operations. Actual results could differ from those projected in any forward-looking statements due to numerous factors. Such factors include, among others, the inherent uncertainties associated with new projects and development stage companies. These forward-looking statements are made as of the date of this news release, and we assume no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements. Although we believe that any beliefs, plans, expectations and intentions contained in this press release are reasonable, there can be no assurance that any such beliefs, plans, expectations or intentions will prove to be accurate. Investors should consult all of the information set forth herein and should also refer to the risk factors disclosure outlined in our annual report on Form 10-K for the most recent fiscal year, our quarterly reports on Form 10-Q and other periodic reports filed from time-to-time with the Securities and Exchange Commission.

ON BEHALF OF THE BOARD
First China Pharmaceutical Group, Inc.
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Zhen Jiang Wang
Chairman and CEO