Tongjitang Chinese Medicines Company Reports Fourth Quarter and Full Year 2009 Financial Results

SHENZHEN, China, March 31 /PRNewswire-Asia-FirstCall/ -- Tongjitang Chinese Medicines Company (the "Company" or "Tongjitang") , a leading specialty pharmaceutical company focusing on the development, manufacturing, marketing and selling of modernized traditional Chinese medicine in China, today announced its financial results for the fourth quarter of 2009 and for the full year ended December 31, 2009.

Xiaochun Wang, Chief Executive Officer and Chairman of Tongjitang, stated, "We are very pleased with our fourth quarter performance, which was a significant revenue improvement from the fourth quarter of last year. While our margin performance does reflect a mix shift to lower margin products, we are operating in a more stable macro environment. Uncertainty in the market has been greatly reduced by the release and implementation of healthcare reform, from which we expect to continue to benefit in the long term. The destocking issues from previous quarters have largely abated, and our sales have grown as a result. Going forward we will continue to focus on expanding our sales networks into community hospitals, and we expect these efforts to result in increased selling and marketing expenses in the near future."

Net revenue in the fourth quarter of 2009 increased 31.5% to RMB 151.5 million ($22.2 million) from RMB 115.2 million in the fourth quarter of 2008. Xianling Gubao ("XLGB") sales were RMB 92.0 million ($13.5 million) in the fourth quarter of 2009, compared to RMB 86.7 million in the fourth quarter of 2008. Net revenue from Moisturizing & Anti-itching Capsules and Zaoren Anshen Capsules reached RMB 18.8 million ($2.8 million), an increase of 41.4% from RMB 13.3 million in the prior year period. Net revenue from the Company's other products increased 167.8% to RMB 40.7 million ($6.0 million) from RMB 15.2 million in the fourth quarter of 2008. Revenue contribution from Anhui Jingfang Pharmaceutical Co., Ltd. ("Jingfang"), which was acquired at the end of the first quarter of 2009, was RMB14.0 million ($2.1 million), compared to RMB17.6 million in the third quarter of 2009.

Gross profit increased 20.0% to RMB 84.6 million ($12.4 million) in the fourth quarter of 2009 from RMB 70.5 million in the fourth quarter of 2008. Gross margin was 55.9% in the fourth quarter of 2009, compared to 61.2% in the same period of 2008. Tongjitang's decreased gross margin reflects higher revenue contribution from lower-margin products. The price of barrenwort, used in the production of XLGB, remained stable in the fourth quarter of 2009.

Operating income in the fourth quarter of 2009 was RMB 0.3 million ($0.1 million), compared to an operating loss of RMB 86.2 million in the fourth quarter of 2008. Operating loss in the fourth quarter of 2008 included significant asset impairments to goodwill and intangible assets related to the Guizhou LLF and Qinghai Pulante acquisitions.

Net income attributable to the Company was RMB 4.1 million ($0.6 million), which yielded earnings per ADS of RMB 0.15 ($0.02) and earnings per share2 of RMB 0.04 ($0.01).

Non-GAAP adjusted EBITDA in the fourth quarter of 2009 was RMB 11.4 million ($1.7 million), compared to net loss of Non-GAAP adjusted EBITDA of RMB 75.5 million in the fourth quarter of 2008. Non-GAAP adjusted EBITDA per share was RMB 0.11 ($0.02) in the fourth quarter of 2009, compared to net loss of Non-GAAP adjusted EBITDA per share of RMB 0.56 in the fourth quarter of 2008. For the fourth quarter of 2009, the number of shares used in the computation of GAAP and non-GAAP adjusted EBITDA per share was 106.2 million. Please refer to the Company's GAAP to non-GAAP reconciliation table provided below for additional details.

Financial Results for the Year Ended December 31, 2009

For the year ended December 31, 2009, revenues increased 6.5% to RMB 480.3 million ($70.4 million), from RMB 451.0 million for the full year 2008. During this same time period, gross profit decreased by 1.6% to RMB 279.1 million ($40.9 million) from RMB 283.7 million. Gross margin for the full year 2009 was 58.1%, compared to 62.9% in the year before. Operating loss improved to RMB 10.9 million ($1.6 million) from RMB 77.7 million in the full year 2008. Net loss attributable to the Company was RMB 3.8 million ($0.6 million), or RMB 0.03 ($0. 01) per share, compared to net loss of RMB 52.3 million, or RMB 0.39 per share, in the year before. Net loss per ADS was RMB 0.12 ($0.02) in the year 2009, compared to net loss per ADS of RMB 1.55 in the year 2008. The weighted average number of shares outstanding for the year 2009 was 122.9 million.

Balance Sheet

As of December 31, 2009, the Company had cash and cash equivalents of RMB 237.6 million ($34.8 million). This compares to RMB 310.6 million as of September 30, 2009, and RMB 516.1 million as of December 31, 2008.

Business Updates

On February 2, 2010, the Company announced that it set up a joint venture with a third party to acquire 100% of state-owned Guiyang Liquor Factory for RMB120.6 million in cash. Tongjitang owns 95% of the joint venture and has already completed the acquisition.

On December 23, 2009, the Company held its annual meeting of shareholders for the fiscal year ended December 31, 2009 at its executive office in Shenzhen. At the meeting, Tongjitang's Chairman of the Board of Directors and Chief Executive Officer gave an update on company affairs, and management and stakeholders discussed their views of Tongitang's progress and prospects.

On November 19, 2009, the Company announced the repurchase of 4.8 million ordinary shares, or 4% of the Company's issued and outstanding shares, in privately negotiated transactions.

On October 13, 2009, the Company announced the repurchase of 19.3 million ordinary shares, or 15% of the Company's issued and outstanding shares, in privately negotiated transactions.

On June 22, 2009, the Company announced that effective June 16, 2009, it changed its independent auditor from Deloitte Touche Tohmatsu ("Deloitte") to Ernst & Young Hua Ming.

On April 2, 2009, the Company announced the acquisition of Anhui Jingfang Pharmaceutical Co. Ltd. for RMB 60.0 million in cash. Jingfang began to contribute to Tongjitang's revenue stream upon the closing of the transaction.

About Non-GAAP Financial Measures

To supplement the Company's unaudited condensed consolidated financial information presented in accordance with the United States Generally Accepted Accounting Principles ("GAAP"), the Company also provides non-GAAP financial measures, non-GAAP adjusted EBITDA and non-GAAP adjusted EBITDA per share, all of which exclude depreciation and amortization, interest (income) expense, provision for income taxes and share-based compensation expenses recorded under FASB Accounting Standards Codification ("ASC") Subtopic 718 - 10 Compensation - Stock Compensation: Overall (Pre-codification: SFAS No. 123(R), Share-Based Payment.) The Company's management believes the non-GAAP financial measures facilitate better understanding of operating results from quarter to quarter and allows the management team to better plan and forecast future periods, as the non-GAAP financial measures provide additional information to the investors. The non-GAAP information is not in accordance with GAAP and may be different from non-GAAP methods of accounting and reporting used by other companies. The presentation of this additional information should not be considered a substitute for the GAAP results. A limitation of using these non-GAAP financial measures is that these non-GAAP measures exclude share- based compensation expenses that have been and will continue to be significant recurring expenses in our business for the foreseeable future. Reconciliations of the Company's non-GAAP financial data to the most comparable GAAP data are included at the end of this press release.

Conference Call

Tongjitang's management team will hold a conference call on March 31 at 8:00 a.m. U.S. Eastern Time (8:00 p.m. Beijing/Hong Kong time) following the announcement. Listeners may access the call by dialing the following numbers:

Listeners may access the replay through April 7, 2010, by dialing the following numbers:

An audio webcast of the call will also be available through the Company's website at http://www.tongjitang.com .

About Tongjitang Chinese Medicines Company

Tongjitang Chinese Medicines Company, through its operating subsidiaries Tongjitang Pharmaceutical, Tongjitang Distribution, Tongjitang Chain Stores, Guizhou Long-Life Pharmaceutical Company Limited, Qinghai Pulante and Anhui Jingfang, is a vertically integrated specialty pharmaceutical company focused on the development, manufacturing, marketing and selling of modernized traditional Chinese medicine in China. Tongjitang's principal executive offices are located in Shenzhen, China.

Tongjitang's flagship product, Xianling Gubao, is the leading traditional Chinese medicine for the treatment of osteoporosis in China as measured by sales in Renminbi. In addition to Xianling Gubao, the Company manufactures and markets 36 other modernized traditional Chinese medicine products and 37 western medicines. Please visit http://www.tongjitang.com for more information.

Safe Harbor Statements

This press release contains forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Although the Company believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Although the Company believes that the expectations expressed in these forward-looking statements are reasonable, they cannot assure you that their expectations will turn out to be correct, and investors are cautioned that actual results may differ materially from those described in the forward-looking statements in this press release. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: the Company's heavy dependence on the success of Xianling Gubao; the Company's ability to market Xianling Gubao to hospitals and to retail pharmacies; the retail prices of its principal products' being subject to price control by the government authorities in China; the inclusion of the Company's products in national and provincial medical catalogs of the National Medical Insurance Program in China; the Company's ability to obtain approval from the State Food and Drug Administration in China to convert a provisional national production standard of the Company's principal products to a national final production standard; the Company's ability to continue having the exclusive production rights for its products; the Company's ability to further improve its barrenwort extraction efficiency; the presence of certain side effects in the Company's current products and the Company's ability to identify side effects associated with its current or future products prior to their marketing and sale; the Company's ability to obtain manufacturing or marketing approval for its future products; the Company's dependence on a limited number of distributors for a significant portion of its net revenues; the Company's exposure to the risk of product liability claims and its limited insurance coverage; the Company's ability to manage the expansion of its operations and its future research and development projects successfully; the Company's ability to protect its intellectual property rights and defend infringement or misappropriation claims by third parties; intense competition in the pharmaceutical market in China; the supply of quality medicinal raw materials; the Company's U.S. tax status as a passive foreign investment company ("PFIC") for the taxable year ended December 31, 2008 and the significant risk that the Company will be a PFIC for the current taxable year ended December 31, 2009; uncertainties with respect to the legal system in China, including uncertainty with respect to potential regulatory changes in China's healthcare industry; if disruptions in the financial markets and other macro-economic challenges currently affecting the economy of the United States and other parts of the world continue or even worsen, it may adversely impact the economy and consumer confidence in China; the Company's ability to expand its business through organic growth and strategic acquisitions and investments; and the Company's ability to integrate its acquisitions, including the recently-acquired state-owned Guiyang Liquor Factory. Further information regarding these and other risks is and will be included in the Company's filings with the U.S. Securities and Exchange Commission, including its annual report on Form 20-F and other filings. The Company does not undertake any obligation to update any forward-looking statement, except as required under applicable law. All information provided in this press release is as of the date of this press release, and the Company undertakes no duty to update such information, except as required under applicable law.

CONTACT: ICR, Inc., Ashley M. Ammon or Christine Duan, +1-203-682-8200
(Investor Relations)

Web site: http://www.tongjitang.com/

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