LAIYANG, China, Feb. 17 /PRNewswire-Asia-FirstCall/ -- Genesis Pharmaceuticals Enterprises, Inc. ("Genesis" or the "Company"), a U.S. pharmaceutical company with its principal operations in the People's Republic of China, today announced its financial results for the second quarter of its fiscal year 2009 ended December 31, 2008.
"We are pleased to report that Genesis Pharmaceuticals continued to show solid financial performance in the second quarter of our fiscal year 2009. Increased sales of Itopride Hydrochloride Granules and Baobaole Chewable Tablets led to strong revenue and operations income growth," said Mr. Wubo Cao, Chairman and CEO of Genesis. "And, sales of our latest over the counter product, Radix Isatidis Dispersible Tablets, began to contribute to revenue in the second quarter."
Second Quarter of Fiscal Year 2009 Results
Total revenue for the three months ended December 31, 2008 was $32.9 million, an increase of $6.4 million, or 24.1%, from $26.5 million for the three months ended December 31, 2007. Revenue increased mostly because of strong sales for two of the Company's products, Itopride Hydrochloride Granules and Baobaole Chewable Tablets. Sales also grew quickly for Radix Isatidis Dispersible Tablets, a drug launched in the first quarter of the Company's fiscal year 2009. Increased revenue was partially offset by decreased sales of Clarithromycin Sustained-Release Tablets.
Gross profit in the second quarter of the fiscal year 2009 was $25.8 million, an increase of 30.8% from $19.7 million for the prior year's corresponding period. Gross margin increased to 78.3% from 74.3% for the prior year's corresponding period. Gross margin increased because of increased sales of higher margin over the counter products, Baobaole chewable tables and Radix Isatidis Dispersible Tablets, and carefully managed purchases of raw materials.
Research and development costs totaled $1.1 million for the three months ended December 31, 2008, compared to $0.9 million for the three months ended December 31, 2007. Two new cooperative research and development agreements were signed to support university research and development projects in the latter part of fiscal year 2008 for which the Company makes monthly payments.
Selling, general and administrative expenses were $13.3 million for the three months ended December 31, 2008, up 28.8% from $10.3 million in the three months ended December 31, 2007. Salaries, wages and related benefits increased by 46.1% from the three months ended December 31, 2007 to $9.2 million for the three months ended December 31, 2008 primarily due to an increase in commissions as a percentage of sales paid to sales representatives and increased sales volume.
Income from operations was $11.4 million for the three months ended December 31, 2008, a 34.7% increase from $8.5 million for the three months ended December 31, 2007.
Net income for the three months ended December 31, 2008 was $5.4 million, $0.11 diluted earnings per share, compared to $5.2 million, $0.02 diluted earnings per share, for the three months ended December 31, 2007.
While the Company had a $2.9 million increase in income from operations, other expenses increased by $2.9 million. The increase in net other expenses was primarily due to increases in realized and unrealized losses of $1.3 million on security investments, an increase in interest expense and amortization of debt discounts related to financings in November 2007 and May 2008 of $2.7 million, and accounting for expenses acquired from discontinued operations associated with the Company's reverse merger on October 1, 2007. Excluding an unrealized net loss on security investments of $422,652, and a non-cash charge for amortization of debt discount and issuance costs, and interest expense related to convertible debentures of $1.7 million, non-GAAP adjusted net income for the three months ended December 31, 2008 was $7.0 million, or $0.71 per share, a 28.7% increase from non-GAAP net income of $5.4 million, or $0.56 per share, for the three month period ended December 31, 2007.
Six Month Operating Highlights
Total revenue for the six month period ended December 31, 2008 was $60.5 million, up 40.2% from $43.2 million for the six month period ended December 31, 2007.
Gross profit for the six month period ended December 31, 2008 totaled $47.6 million, up 49.9% from $31.8 million for the six month period ended December 31, 2007. Gross profit margin was 78.7% for the six month period ended December 31, 2008, compared to 73.6% for the corresponding period in 2007.
Operating income for the six month period ended December 31, 2008 totaled $18.8 million, a 39.9% increase from $13.4 million in the corresponding period in 2007. The Company's operating margin kept stable at around 31.0%.
Net income for the six month period ended December 31, 2008 was $8.5 million, $0.41 diluted earnings per share, compared to $8.4 million, $0.53 diluted earnings per share, for the corresponding period in 2007.
Excluding an unrealized net loss on security investments of $1.5 million, and a non-cash charge for amortization of debt discount and issuance costs related to convertible debentures of $2.0 million, non-GAAP adjusted net income for the six months ended December 31, 2008 was $12.0 million, or $1.23 per share, a 38.4% increase from non-GAAP net income of $8.7 million, or $1.46 per share, for the six month period ended December 31, 2007.
Financial Condition
As of December 31, 2008, the Company had $83.0 million in cash and restricted cash. Working capital was $83.7 million, up from $72.5 million as of June 30, 2008. Current liabilities were $33.7 million and long-term debt consisted of $4.0 million in convertible debt. Shareholders' equity was $102.9 million. Future contractual obligations within a one year period include $8.8 million in bank debt and $4.4 million in research and development contractual agreements.
The Company generated $26.4 million in cash flow from operating activities in the first half of the fiscal year 2009, compared to $2.9 million for the first six months of 2007. The Company believes it has enough cash to meet its future cash needs and successfully implement its growth strategies.
Recent Events
In January, the Company announced that it has retained KPMG Huazhen to help the Company develop a SOX 404 compliance program. This will include an examination and report on the adequacy of the Company's internal financial reporting and control procedures, and recommendations on how to implement best practices in the areas of operations and financial risk reporting and control.
In January, the Company announced that it signed an Assets Transfer Contract to acquire Hongrui, including all of Hongrui's manufacturing and office buildings, land, equipment and inventories. This acquisition also includes all the rights to manufacture and distribute Hongrui's 22 Traditional Chinese Medicines. The total purchase price will be RMB110 million (approximately $16.1 million) consisting of RMB66 million in cash (approximately $9.6 million) and 643,651 shares of Genesis' common stock. The Company has valued the equity consideration to be paid in this transaction at approximately $12.2 million based on the closing price of the Company's common stock on January 23, 2009.
The acquisition of Hongrui will increase the Company's product portfolio from 6 to 28 products, and will increase the Company's presence in the over the counter drug market while helping balance Genesis' over the counter sales with its sales of prescription drugs. Genesis will manufacture, label and distribute the drugs it purchased from Hongrui under its own brand name, "Jiangbo."
"We are excited by the opportunity to expand our over the counter presence by selling Hongrui's drugs. We expect that sales of Hongrui products will have an immediate positive impact on our revenue growth. Because our attention is no longer being diverted by the demands of arbitration procedures, we believe that we can return our attention to growing Genesis and developing our Hongrui purchase."
The Company participated in a number of American Arbitration Association ("AAA") proceedings during the latter part of 2008 and the beginning of 2009. In February 2009, the Company was notified by an AAA Panel that it awarded a total of $980,070 to claimants in the last remaining joint arbitration proceedings against the Company. These claimants had originally sought over $13 million from the Company. Once this joint claim is satisfied, the claimants who brought the arbitration proceedings against the Company will no longer be able to seek Genesis' shares or any other property which was originally sought in the arbitration proceedings brought by them.
"As part of our ongoing process of reviewing and improving our operational and financial reporting and controls, we engaged KPMG Huazhen to help develop a SOX 404 compliance program for us. We expect that the ideas which are generated during this engagement will help us in our ongoing preparations for upgrading the listing of our shares to the NASDAQ Capital Market."
Business Outlook and Guidance
In January of 2009, China's government announced that it will spend more than $120 billion over the next three years to expand insurance coverage, revamp public hospitals and improve access to medical treatment. Genesis expects these government programs to create favorable market conditions for the Company, especially because most of the Company's products are used to treat commonly occurring diseases.
The government aims to extend medical insurance to 90% of the population by 2011 and make "basic health-care services" available to all of China's 1.3 billion citizens. Making medical services available to more people is line with the Company's marketing strategy which includes increasing sales in rural markets.
"Sales growth for Baobaole Chewable Tablets and Radix Isatidis Dispersible Tablets confirms that there are tremendous market opportunities for over the counter products in China. Our acquisition of Hongrui comes at a time when the Chinese government is about to increase its spending on drugs. We believe that Genesis is well positioned to grow its sales and market reach, and we are confident that we will meet our fiscal year 2009 guidance," concluded Mr. Cao. "We expect revenue for fiscal 2009 to be from $122.0 to $130.0 million, and operating income to be from $40.0 to $43.0 million, excluding the impact of the Hongrui purchase."
Conference Call
Genesis Pharmaceuticals Enterprises, Inc. management will host a conference call at 9:00 a.m. Eastern Time on Tuesday, February 17, 2009 to discuss financial results for the quarter ended December 31, 2008. Mr. Wubo Cao, Chairman and CEO, Ms. Elsa Sung, CFO, and Mr. Haibo Xu, COO, of Genesis will be present for the conference call. To participate in this live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time of 9:00 a.m. Eastern Time on Tuesday, February 17, 2009: (888) 419-5570. International callers should call (617) 896-9871. The Conference Passcode is 694 125 61. Replay of the conference call will be available from Tuesday, February 17, 2009 at 11:00 a.m. Eastern until Tuesday, March 3, 2009. To access the replay, call (888) 286-8010. International callers should call (617) 801-6888. The Conference Passcode is: 398 758 52.
Use of Non-GAAP Financial Information
This press release includes certain financial information, adjusted net income and adjusted fully diluted earnings per share, which are not presented in accordance with GAAP. Adjusted net income was derived by taking earnings before unrealized losses on trading securities and non-cash amortization of debt discount and debt issuance costs related to convertible securities. The Company's management believes that these non-GAAP measures provide investors with a better understanding of the Company's historical results from its core business operations. To supplement the Company's condensed consolidated financial statements presented on a GAAP basis, the Company has provided non-GAAP financial information, which is adjusted net income and adjusted earnings per share, excluding the impact of these items in this release. The non-GAAP information is not meant to be considered in isolation or as a substitute for GAAP financials. The non-GAAP financial information provided by the Company may also differ from non-GAAP information provided by other companies. A table below provides a reconciliation of the non-GAAP financial information to the nearest GAAP measure.
About Genesis Pharmaceuticals Enterprises, Inc.
Genesis Pharmaceuticals Enterprises, Inc. is a U.S. public company engaged in the research, development, production, marketing and sales of pharmaceutical products in the People's Republic of China. Its operations are located in Northeast China in an Economic Development Zone in Laiyang City, Shandong province. Genesis is a pharmaceutical company in China producing western and Chinese herbal-based medical drugs in tablet, capsule, and granule form. For more information, visit: http://www.genesispharmaceuticals.com/
Safe Harbor Statement
Certain statements in this press release that are not historical facts are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not guarantees of future performance and are subject to risks and uncertainties that could cause the Company's actual results and financial position to differ materially from those included within the forward-looking statements. Forward-looking statements involve risks and uncertainties, including those relating to the Company's ability to introduce, manufacture and distribute new drugs. Actual results may differ materially from predicted results, and reported results should not be considered as an indication of future performance. The potential risks and uncertainties include, among others, the Company's ability to obtain raw materials needed in manufacturing, the continuing employment of key employees, the failure risks inherent in testing any new drug, the possibility that regulatory approvals may be delayed or become unavailable, patent or licensing concerns that may include litigation, direct competition from other manufacturers and product obsolescence. More information about the potential factors that could affect the Company's business and financial results is included in the Company's filings, available via the United States Securities and Exchange Commission.
CONTACT: Ms. Elsa Sung, CFO of Genesis Pharmaceuticals Enterprises, Inc.,
+1-954-727-8435, or elsasung@jiangbo.com; Or Mr. Crocker Coulson, President
of CCG Investor Relations, Inc., +1-646-213-1915, or
crocker.coulson@ccgir.com
Web site: http://www.genesispharmaceuticals.com/
http://www.ccgirasia.com/
