Simcere Pharmaceutical Group Reports Unaudited Fourth Quarter and Full Year 2011 Results

NANJING, China, March 7, 2012 /PRNewswire-Asia/ -- Simcere Pharmaceutical Group (“Simcere” or the “Company”) (NYSE: SCR), a leading pharmaceutical company specializing in the development, manufacturing, and marketing of branded generic and proprietary pharmaceuticals in China, today reported unaudited financial results for the fourth quarter and full year ended December 31, 2011.

Highlights

• Total revenue was RMB511.0 million (US$81.2 million) for the fourth quarter of 2011, compared to RMB587.7 million for the same period in 2010. For the full year of 2011, total revenue was RMB2,040.5 million (US$324.2 million), which represented a decrease of 4.7% from RMB2,141.1 million in 2010.
• Income from operations was RMB1.6 million (US$0.3 million) for the fourth quarter of 2011, compared to RMB62.8 million for the same period in 2010. For the full year of 2011, income from operations was RMB143.5 million (US$22.8 million), which represented a decrease of 34.1% from RMB217.9 million in 2010.
• Net income attributable to Simcere was RMB42.8 million (US$6.8 million) for the fourth quarter of 2011, compared to RMB58.7 million for the same period in 2010. For the full year of 2011, net income was RMB178.4 million (US$28.3 million), which represented an increase of 3.5% from RMB172.4 million in 2010.
• Gross margin for the fourth quarter of 2011 was 82.3%, compared to 84.1% for the same period in 2010. For the full year of 2011, gross margin was 83.9%, a decrease from 84.0% in 2010.

“2011 was a challenging year for Simcere,” commented Mr. Jinsheng Ren, Chairman and Chief Executive Officer of Simcere Pharmaceutical Group. “Factors including changes in certain provincial tendering processes as well as government pricing policies negatively impacted full year sales of Zailin and our edaravone products. We were encouraged, however, by the solid full year performance of our oncology drugs Endu, Sinofuan and Jiebaishu, as well as the strong sales growth of our new antibiotic drug Anxin.”

Mr. Ren added, “Looking forward, we plan to allocate more sales resources to oncology drugs and new products. We are pleased that we began to sell Iremod, our new Category I Disease Modifying Anti-rheumatic Drug, in the first quarter of 2012. We believe that both Iremod and Qiangke, Shanghai Celgen’s Recombinant Human TNF Receptor-IgG Fusion Protein for Injection, have exciting market potential in China.”

Simcere holds a 35% equity interest in Shanghai Celgen Bio-Pharmaceutical Co., Ltd.

Compound Edaravone Injection, a new drug being developed by Simcere, received clinical studies approval in February 2012 from the State Food and Drug Administration. Simcere expects to begin Phase I clinical trials of Compound Edaravone Injection in China during the first quarter of 2012. Simcere previously completed Phase I clinical trials of Compound Edaravone Injection in Australia.

2011 Fourth Quarter and Full Year Financial Results

Total revenue for the fourth quarter of 2011 was RMB511.0 million (US$81.2 million), compared to RMB587.7 million for the same period in 2010. For the full year of 2011, total revenue was RMB2,040.5 million (US$324.2 million), which represented a decrease of 4.7% from RMB2,141.1 million in 2010.

Revenue from edaravone injection products under the brand names Bicun and Yidasheng totaled RMB172.3 million (US$27.4 million) for the fourth quarter of 2011, which was 33.7% of the Company’s total revenue for the fourth quarter of 2011, and represented a decrease of 22.5% from RMB222.4 million for the same period in 2010. The decrease was primarily due to factors including the negative impact of changes to the tender process in certain regional markets and adjustments to Simcere’s sales force. For the full year of 2011, revenue from Bicun and Yidasheng totaled RMB771.0 million (US$122.5 million), which represented a decrease of 2.6% from RMB791.9 million in 2010.

Revenue from Endu, the Company’s patented anti-cancer biotech product, amounted to RMB65.4 million (US$10.4 million) in the fourth quarter of 2011, which was 12.8% of the Company’s total revenue for the fourth quarter of 2011, and represented a decrease of 3.7% from RMB67.9 million for the same period in 2010. For the full year of 2011, revenue from Endu totaled RMB263.0 million (US$41.8 million), which represented an increase of 17.9% from RMB223.1 million in 2010.

Revenue from Sinofuan, a 5-FU sustained release implant for the treatment of cancer, amounted to RMB42.8 million (US$6.8 million) for the fourth quarter of 2011, which was 8.4% of the Company’s total revenue for the fourth quarter of 2011, and represented an increase of 18.5% from RMB36.1 million for the same period in 2010. For the full year of 2011, revenue from Sinofuan totaled RMB178.1 million (US$28.3 million), which represented an increase of 17.3% from RMB151.8 million in 2010.

Revenue from other branded generic products including Zailin and Yingtaiqing amounted to RMB230.5 million (US$36.6 million), which was 45.1% of the Company’s product revenue for the fourth quarter of 2011, and represented a decrease of 9.7% from RMB255.4 million for the same period in 2010. For the full year of 2011, revenue from other branded generic products totaled RMB828.2 million (US$131.6 million), which represented a decrease of 7.6% from RMB896.3 million in 2010.

Gross margin for the fourth quarter of 2011 was 82.3%, a decrease from 84.1% for the same period in 2010 which was primarily due to the decrease of revenue from edaravone injection products which has a relatively high gross margin. For the full year of 2011, gross margin was 83.9%, compared to 84.0% in 2010.

Research and development expenses for the fourth quarter of 2011 totaled RMB70.6 million (US$11.2 million), which represented an increase of 124.4% from RMB31.4 million for the same period in 2010. This increase was primarily due to increased expenditures on on-going research and development projects and an increase in the number of research and development personnel. As a percentage of total revenue, research and development expenses were 13.8% for the fourth quarter of 2011, compared to 5.4% for the same period in 2010. For the full year of 2011, research and development expenses totaled RMB198.7 million (US$31.6 million), compared to RMB125.7 million in 2010.

Sales, marketing and distribution expenses for the fourth quarter of 2011 were RMB287.4 million (US$45.7 million), which represented a decrease of 13.1% from RMB330.6 million for the same period in 2010. As a percentage of total revenue, sales, marketing and distribution expenses were 56.2% for the fourth quarter of 2011, compared to 56.3% for the same period in 2010. For the full year of 2011, sales, marketing and distribution expenses were RMB1,132.0 million (US$179.9 million), which represented a decrease of 4.6% from RMB1,186.1 million in 2010.

General and administrative expenses were RMB75.8 million (US$12.0 million) for the fourth quarter of 2011, which represented an increase of 8.9% from RMB69.6 million for the same period in 2010. As a percentage of total revenue, general and administrative expenses increased to 14.8% for the fourth quarter of 2011 from 11.8% for the same period in 2010. For the full year of 2011, general and administrative expenses were RMB288.1 million (US$45.8 million), which represented an increase of 6.9% from RMB269.5 million in 2010.

Share-based compensation expense, which was allocated to research and development expenses, sales, marketing and distribution expenses, and general and administrative expenses, based on the nature of the work that the employee was assigned to perform, totaled RMB6.3 million (US$1.0 million) for the fourth quarter of 2011. Share-based compensation expenses for the fourth quarter of 2010 were RMB8.1 million. For the full year of 2011, share-based compensation expenses totaled RMB29.3 million (US$4.7 million), which represented a decrease of 5.7% from RMB31.1 million in 2010.

Income from operations was RMB1.6 million (US$0.3 million) for the fourth quarter of 2011, compared to RMB62.8 million for the same period in 2010. This was primarily due to a decrease in total revenue and an increase in research and development expenses. For the full year of 2011, operating income was RMB143.5 million (US$22.8 million), which represented a decrease of 34.1% from RMB217.9 million in 2010.

Income tax benefit for the fourth quarter of 2011 was RMB41.9 million (US$6.7 million), compared to income tax benefit of RMB6.8 million for the same period in 2010. This was primarily due to the improved financial results in one of our subsidiaries during 2011, resulting in the reversal of valuation allowance previously made against the deferred tax assets of this subsidiary amounting to RMB32.3 million (US$5.14 million) and the impact of a non-taxable other operating income of RMB15.0 million (US$2.4 million) arising from the receipt of settlement in respect of the acquisition of Jiangsu Quanyi in 2009 from certain former shareholders of Jiangsu Quanyi. For the full year of 2011, income tax benefit was RMB35.4 million (US$5.6 million) compared to income tax expense of RMB10.6 million in 2010.

Net income attributable to Simcere was RMB42.8 million (US$6.8 million) for the fourth quarter of 2011, compared to RMB58.7 million for the same period in 2010. Net margin, representing net income attributable to Simcere divided by total revenue, was 8.4% for the fourth quarter of 2011, compared to 10.0% for the same period in 2010. For the full year of 2011, net income attributable to Simcere was RMB178.4 million (US$28.3 million), which represented an increase of 3.5% from RMB172.4 million in 2010. Net margin for the full year of 2011 was 8.7% as compared to 8.1% in 2010.

Basic and diluted earnings per American Depository Share (“ADS”) for the fourth quarter of 2011 were RMB0.78(US$0.12) and RMB0.77(US$0.12) respectively. Basic and diluted earnings per ADS for the full year of 2011 were RMB3.25(US$0.52) and RMB3.23(US$0.51) respectively. One ADS represents two ordinary shares of the Company.

As of December 31, 2011, the Company had cash, cash equivalents and restricted cash of RMB262.6 million (US$41.7 million), compared to RMB278.7 million as of December 31, 2010.

On December 31, 2011, the Company acquired an additional 9.8% equity interest in Jilin Boda Pharmaceutical Co., Ltd through the acquisition of a 20% equity interest in Nanjing Xiangao Investments management Co., Ltd for a cash consideration of RMB 40.0 million(US$6.4 million).Through this acquisition, the Company now holds 99.99% equity interest in Jilin Boda Pharmaceutical Co., Ltd.

Financial Statements

The unaudited condensed consolidated statements of income and balance sheets accompanying this press release have been prepared by management using U.S. GAAP. These financial statements are not intended to fully comply with U.S. GAAP because they do not present all of the financial statements and disclosures required by U.S. GAAP.

Safe Harbor Statement

This press release contains forward-looking statements. These statements constitute “forward-looking” statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “project,” “predict,” “should” and “will” and similar expressions. In particular, the quotations from management in this press release and the section under “Financial Outlook” contain forward-looking statements. These forward looking statements are based upon management’s current views and expectations with respect to future events and are not a guarantee of future performance. Furthermore, these statements are, by their nature, subject to a number of risks and uncertainties that could cause actual performance and results to differ materially from those discussed in the forward-looking statements as a result of a number of factors. Further information regarding these and other risks is included in Simcere’s filings with the U.S. Securities and Exchange Commission at www.sec.gov. Simcere does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

Conference Call

Simcere Pharmaceutical Group will host a conference call to discuss the Company’s results for the fourth quarter and full year of 2011 on Wednesday, March 7, 2012 at 8 a.m. ET (Wednesday, March 7 at 9 p.m.Beijing/Hong Kong time). The management team will be on the call to discuss the results for the fourth quarter and full year of 2011 and to answer questions.

To access the conference call, please dial:

Please ask to be connected to Q4 2011 Simcere Pharmaceutical Group Earnings Conference Call and provide the following passcode: 53190629.

Simcere will also broadcast a live audio webcast of the conference call. The broadcast will be available by visiting the “Investor Relations” section of the company’s web site at www.simcere.com.

Following the earnings conference call, an archive of the call will be available by dialing:

The passcode for replay participants is 53190629. The telephone replay also will be archived on the “Investor Relations” section of the company’s website for seven days following the earnings announcement.

About Simcere Pharmaceutical Group

Simcere Pharmaceutical Group (“Simcere”) (NYSE:SCR) is a leading pharmaceutical company specializing in the development, manufacturing, and marketing of branded generic and proprietary pharmaceuticals in China. Simcere concentrates its research and development efforts on the treatment of diseases with high incidence and/or mortality rates and for which there is a clear demand for more effective pharmacotherapy such as cancer, strokes, cardiovascular disease, infectious diseases and pain. For more information about Simcere Pharmaceutical Group, please visit www.simcere.com.