Lotus Pharmaceuticals, Inc. Announces Third Quarter 2010 Financial Results

BEIJING, Nov. 11, 2010 /PRNewswire-Asia-FirstCall/ -- Lotus Pharmaceuticals, Inc. (OTC Bulletin Board: LTUS) (“Lotus” or the “Company”), a fast-growing, profitable developer, manufacturer and seller of medicine and drugs in the People’s Republic of China (“PRC”), today announced its financial results for the third fiscal quarter ended September 30, 2010. The Company posted revenues of $18.5 million and quarterly GAAP net income of $6.7 million, or $0.12 per diluted share. These results compare to revenue of $14.5 million and quarterly GAAP net income of $5.4 million, or $0.11 per diluted share, for the same period last year. Summary financial data is provided below:

Third Quarter 2010 Financial Highlights

• Revenues for the third quarter of fiscal year 2010 increased by 27.5% year-over-year to $18.5 million, up from $14.5 million in the third quarter of 2009
  • Wholesale revenue was $13.3 million, or 71.7% of total revenues
  • Retail revenues were $5.2 million, or 28.3% of total revenues
• Net income for the third quarter increased 24.3% year-over-year to $6.7 million, compared with $5.4 million for the third quarter of 2009
• Gross margin for the third quarter was 57.2% based on gross profit of $10.6 million, compared with a 58.7% margin in the same period last year
• Operating income and operating margin for the third quarter were $7.0 million and 37.6%, respectively, compared to $6.0 million and 41.4%, respectively, in the third quarter of 2009
• Earnings per diluted share were $0.12 for the quarter, compared with diluted EPS of $0.11 achieved in the same period a year ago

Nine Months Financial Highlights

• Revenues for the nine months ended September 30, 2010 increased by 31.5% year-over-year to $52.6 million, up from $40.0 million in the third quarter of 2009
  • Wholesale revenues were $37.5 million, or 71.4% of total revenues
  • Retail revenues were $15.0 million, or 28.6% of total revenues
• Net income for the nine months increased 30.6% year-over-year to $18.0 million, compared with $13.7 million for the third quarter of 2009
• Gross margin for the nine months was 55.7% based on gross profit of $29.3 million, compared with a 57.7% margin in the same period last year
• Operating income and operating margin for the nine months were $19.0 million and 36.2%, respectively, compared to $15.5 million and 38.8%, respectively, for the same period in 2009
• Earnings per diluted share were $0.33 for the nine months, compared with diluted EPS of $0.28 achieved in the same period a year ago

Chairman and Chief Executive Officer Mr. Zhongyi Liu stated, “Our strong third-quarter results reflect the effectiveness of our sales team, the breadth of our product offerings, and the continued growth of the Chinese pharmaceutical market. The Chinese government’s $125 billion healthcare reform plan has stimulated strong domestic demand for pharmaceuticals, and we are very optimistic about the growth opportunities we see in this market. We are particularly excited about beginning Phase 1 clinical trials for our leading drug candidate, R-Bambuterol, in the coming months. We expect this medication, upon its approval, to contribute significantly to our revenues.”

Mr. Liu added, “We will continue to focus on developing our nationwide sales and distribution network, boosting our direct sales to hospitals, and advancing our internal drug development pipeline. We are on track to reach our financial guidance of $73.6 million in revenues and net income of $21.4 million for 2010. As we prepare to apply for uplisting to a senior exchange, our outlook remains extremely bright.”

Third Quarter 2010 Results of Operations

Revenues

Revenues for the three months ended September 30, 2010 were $18.5 million as compared to $14.5 million for the three months ended September 30, 2009. The increase of $4.0 million, or 27.5%, was primarily due to the addition of five new drugs to the Company’s product line and expansion of the Company’s OTC sales division. Wholesale revenue increased 14.3% year-over-year to $13.3 million, or 71.7% of total revenues. Retail revenues increased 80.3% year-over-year to $5.2 million, or 28.3% of total revenues. The growth in retail revenues was primarily attributable to the strong performance of the Company’s sales force.

Gross Profit

Gross profit for the three months ended September 30, 2010 was $10.6 million as compared to $8.5 million for the three months ended September 30, 2009. Costs of sales for the three-month period were $7.9 million as compared to $6.0 million for the same period a year ago. The Company’s gross margin was 57.2% and 58.7%, for the three months ended September 30, 2010 and 2009, respectively.

Income from Operations

Operating income for the three months ended September 30, 2010 amounted to $7.0 million as compared to $6.0 million for the three months ended September 30, 2009. Operating expenses for the three-month period totaled $3.6 million as compared to $2.5 million for the same period in 2009. The increase in operating expenses was primarily due to the increase in sales, an increase in amortization and depreciation expenses, and an increase in corporate consultants’ fees.

Net Income

Net income for the three months ended September 30, 2010 was $6.7 million as compared to $5.4 million for the three months ended September 30, 2009, due to the reasons set forth above. Earnings per diluted share were $0.12 for the quarter, compared with diluted EPS of $0.11 for the same period a year ago.

Results of Operations for the Nine Months Ended September 30, 2010

• Revenues for the nine months ended September 30, 2010 increased 31.5% to $52.6 million, up from $40.0 million achieved in the same period a year ago
• Net income for the first nine months of fiscal 2010 increased 30.6% to $18.0 million with diluted EPS of $0.33

Revenues

Revenues for the nine months ended September 30, 2010 were $52.6 million as compared to $40.0 million for the nine months ended September 30, 2009. The increase of $12.6 million, or 31.5%, was largely due to the addition of five new drugs to the Company’s product line. The five drugs accounted for approximately $6.4 million in sales during the nine-month period.

Gross Profit

Gross profit for the nine months ended September 30, 2010 was $29.3 million as compared to $23.0 million for the nine months ended September 30, 2009. Costs of sales were $23.3 million for the nine-month period, up 37.5% from $16.9 million in the same period a year ago. The Company’s gross margin was 55.7% and 57.7%, respectively, for the nine months ended September 30, 2010 and 2009.

Income from Operations

Operating income for the nine months ended September 30, 2010 amounted to $19.0 million as compared to $15.5 million for the nine months ended September 30, 2009. Operating expenses for the nine months ended September 30, 2010 totaled $10.3 million, up 36.3% from $7.5 million in the same period a year ago. The increase in operating expenses was primarily due to the increase in sales, an increase in amortization and depreciation expenses, and an increase in corporate consultants’ fees.

Net Income

Net income for the nine months ended September 30, 2010 was $18.0 million as compared to $13.7 million for the nine months ended September 30, 2009, due to the reasons set forth above. Earnings per diluted share were $0.33 for the first three quarters, compared with diluted EPS of $0.28 for the same period in 2009.

Liquidity and Capital Resources

As of September 30, 2010, the Company’s current assets were $5.1 million and current liabilities were $6.9 million. Cash and cash equivalents totaled $0.9 million as of September 30, 2010. The Company’s shareholders’ equity at September 30, 2010 was $90.9 million. The Company generated $19.0 million in cash from operating activities for the nine months ended September 30, 2010, compared to $25.3 million for the same period in 2009. The Company used $22.1 million in net cash for investing activities for the nine months ended September 30, 2010, compared to $24.0 million for the same period in 2009.

Recent Business Highlights

-- Lotus received approval from the State Food and Drug Administration’s Ethics Committee to commence Phase I human clinical trials of R-Bambuterol Hydrochloride, the Company’s proprietary drug candidate for the treatment of asthma, in China. The Company plans to initiate Phase I trials, which are expected to last four to six months, in the near term. Lotus expects to receive regulatory approval for R-Bambuterol Hydrochloride by 2014.

-- The Company completed construction on the exterior portion of its new facility in Beijing‘s Chaoyang District. The 250,000-square-foot building will house the Company’s R&D center, GMP manufacturing operations, storage facilities and administrative offices. The project has entered the exterior and interior furnishing phase. The building will become the Company’s new corporate headquarters following its completion. Management expects to move into the new facility in the second quarter of 2011.

-- The Company’s wholly owned subsidiary, En Ze Jia Shi Pharmaceuticals, was issued a patent by the State Intellectual Property Office in China for controlled-release oral gliclazide to manage Type 2 diabetes. Lotus has patent protection for controlled-release oral gliclazide through 2028 and plans to initiate clinical trials in 2012, with regulatory approval expected in 2014.

-- Lotus appointed Mr. Xing Shen as its Vice President of Corporate Development. In his new role, Mr. Shen will oversee the Company’s strategic business development and internal investor relations functions.

-- The Company retained Sichenzia Ross Friedman Ference LLP as its general corporate legal counsel. Lotus also engaged RedChip Companies, Inc. to lead its investor and public relations efforts. As part of the Company’s investor outreach efforts, Lotus’ senior management team traveled to San Francisco, Los Angeles, Phoenix, Chicago and New York in early November to meet with brokers and institutional investors.

Financial Outlook for Fiscal Year 2010

The company reaffirms its previously stated guidance for its fiscal year 2010 financial results, projecting revenues for the fiscal year ending December 31, 2010 of $73.6 million with net income of $21.4 million.

Conference Call and Webcast

Management will host a conference call to discuss these financial results today at 1:00 p.m. Eastern time (10:00 a.m. Pacific).

To participate in the call please dial (877) 941-1430, or (480) 629-9667 for international calls, approximately 10 minutes prior to the scheduled start time. Interested parties can also listen via a live Internet webcast, which can be found at http://ViaVid.net.

A replay of the call will be available for two weeks from 4:00 p.m. EST on November 11, 2010, until 11:59 p.m. EST on November 25, 2010. The number for the replay is (877) 870-5176, or (858) 858-384-5517 for international calls; the passcode for the replay is 4385128.

About Lotus Pharmaceuticals, Inc.

Lotus Pharmaceuticals, Inc. is a fast-growing, profitable developer and producer of drugs and a licensed national seller of pharmaceutical items in the People’s Republic of China (PRC). Lotus operates its business through its two controlled entities: Liang Fang Pharmaceutical, Ltd. and En Ze Jia Shi Pharmaceutical, Ltd. Lotus’ current drug development is focused on the treatment of cerebro-cardiovascular diseases, asthma and diabetes. Liang Fang sells drugs directly and indirectly through its national sales channels to hospitals, clinics and drugs stores in 30 provinces of the PRC.

Information Regarding Forward-Looking Statements

Except for historical information contained herein, the statements in this press release are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which may cause our actual results in future periods to differ materially from forecasted results. These risks and uncertainties include, among other things, product demand, market competition, and risks inherent in our operations. These and other risks are described in our filings with the U.S. Securities and Exchange Commission.