Simcere Pharmaceutical Group Reports Preliminary Unaudited Second Quarter 2013 Results

NANJING, China, Aug. 13, 2013 /PRNewswire/ -- 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 preliminary unaudited financial results for the quarter ended June 30, 2013.

Highlights

Revenue from continuing operations for the second quarter of 2013 was RMB483.0 million (US$78.7 million), a decrease of 3.0% compared to RMB498.1 million for the same period in 2012. Revenue from continuing operations for the first six months of 2013 was RMB986.9 million (US$160.8 million), an increase of 2.9% from RMB959.1 million for the same period in 2012.

Gross margin from continuing operations for the second quarter of 2013 decreased to 83.1% compared to 84.5% for the same period in 2012. For the first six months of 2013, gross margin decreased to 81.5% compared to 83.8% for the same period in 2012.

Operating income from continuing operations was RMB10.7 million (US$1.7 million) for the second quarter of 2013, a decrease of 67.5% from RMB33.0 million for the same period in 2012. Operating income from continuing operations was RMB52.3 million (US$8.5 million) for the first six months of 2013, a decrease of 27.3% from RMB72.0 million for the same period in 2012.

Net income attributable to Simcere was RMB22.7 million (US$3.7 million) for the second quarter of 2013, a decrease of 15.7% from RMB27.0 million for the same period in 2012. Net income attributable to Simcere was RMB52.7 million (US$8.6 million) for the first six months of 2013, a decrease of 5.2% from RMB55.6 million for the same period in 2012.

Net income attributable to Simcere from continuing operations for the second quarter of 2013 was RMB8.2 million (US$1.3 million), a decrease of 57.6% from RMB19.4 million for the same period in 2012. Net income attributable to Simcere from continuing operations for the first six months of 2013 was RMB30.9 million (US$5.0 million), a decrease of 32.5% from RMB45.8 million for the same period in 2012.

On June 17, 2013, the Company entered into a share transfer agreement to sell its approximately 99.99% equity interest in Jilin Boda Pharmaceutical Co., Ltd. ("Boda") to Zhuhai Rongding Equity Investment Partnership L.P. for a total cash consideration of RMB400 million (US$65.2 million). Boda is currently the manufacturer of Yidasheng. In accordance with U.S. GAAP, assets and liabilities associated with the sale have been classified as "held for sale" and Boda's quarterly operating results are presented as discontinued operations. The preliminary unaudited condensed consolidated statements of income have been retrospectively modified to distinguish between continuing operations and discontinued operations.

"In the second quarter of 2013, our total revenue was impacted by the government's pricing policy, government restrictions on the use of antibiotics and market competition," said Mr. Hongquan Liu, Executive Director and Chief Executive Officer of Simcere Pharmaceutical Group. "Due to the changing market environment, we expect that the second half of the year will remain challenging."

Mr. Liu added, "We are encouraged by the collaboration announced in June of this year between Simcere and Bristol-Myers Squibb on the development of the subcutaneous (SC) formulation Orencia® (abatacept) for the treatment of rheumatoid arthritis. We have submitted a clinical trial application for Orenica® which has been accepted by the CFDA."

2013 Second Quarter Financial Results

Revenue from continuing operations for the second quarter of 2013 was RMB483.0 million (US$78.7 million), compared to RMB498.1 million for the second quarter of 2012, representing a decrease of 3.0%. Revenue from continuing operations for the first six months of 2013 was RMB986.9 million (US$160.8 million), representing an increase of 2.9% from RMB959.1 million for the same period in 2012.

The tables below set forth the Company's top 10 products, excluding Yidasheng which is manufactured by Boda, a subsidiary to be disposed by the Company, by revenue for the three months ended June 30, 2013 and the six months ended June 30, 2013:

Gross margin from continuing operations was 83.1% for the second quarter of 2013 compared to 84.5% for the second quarter of 2012. The decrease was mainly due to a drop in sales of products with higher gross margins as a percentage of total sales. Gross margin from continuing operations was 81.5% for the first six months of 2013 compared to 83.8% for the same period in 2012.

Research and development expenses from continuing operations for the second quarter of 2013 totaled RMB45.2 million (US$7.4 million) which represented a decrease of 16.5% from RMB54.1 million for the same period in 2012. The decrease occurred as the Company completed development of its influenza vaccine and began commercial manufacturing. As a percentage of revenue from continuing operations, research and development expenses from continuing operations decreased to 9.3% for the second quarter of 2013 from 10.9% for the same period in 2012. For the first six months of 2013, research and development expenses from continuing operations totaled RMB89.3 million (US$14.5 million), compared to RMB101.3 million for the same period in 2012.

Sales, marketing and distribution expenses from continuing operations for the second quarter of 2013 were RMB280.3 million (US$45.7 million), which represented a decrease of 0.8% from RMB282.7 million for the same period in 2012. As a percentage of total revenue from continuing operations, sales, marketing and distribution expenses from continuing operations increased to 58.0% for the second quarter of 2013 from 56.7% for the same period in 2012. For the first six months of 2013, sales, marketing and distribution expenses from continuing operations were RMB536.4 million (US$87.4 million), which represented an increase of 0.4% from RMB534.2 million for the same period in 2012.

General and administrative expenses from continuing operations were RMB65.3 million (US$10.6 million) for the second quarter of 2013, which represented an increase of 27.1% from RMB51.4 million for the same period in 2012. The increase was primarily due to legal and professional fees incurred during the Company's going-private process and the share-based compensation expenses as noted in the paragraph below. As a percentage of revenue from continuing operations, general and administrative expenses increased to 13.5% for the second quarter of 2013 from 10.3% for the same period in 2012. For the first six months of 2013, general and administrative expenses from continuing operations were RMB126.6 million (US$20.6 million), which represented an increase of 12.8% from RMB112.2 million for the same period in 2012.

Share-based compensation expenses, which were 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 relevant employee was assigned to perform, totaled RMB8.5 million (US$1.4 million) for the second quarter of 2013. Share-based compensation expenses for the second quarter of 2012 were RMB2.7 million. For the first six months of 2013, share-based compensation expenses totaled RMB18.2 million (US$3.0 million), which represented an increase of 179% from RMB6.5 million for the same period in 2012. The increase was primarily due to restricted shares granted to our management in the second half of 2012.

Operating income from continuing operations was RMB10.7 million (US$1.7 million) for the second quarter of 2013, which represented a decrease of 67.5% from RMB33.0 million for the same period in 2012. For the first six months of 2013, operating income from continuing operations was RMB52.3 million (US$8.5 million), which represented a decrease of 27.3% from RMB72.0 million for the same period in 2012.

Income tax benefit from continuing operations for the second quarter of 2013 was RMB10.3 million (US$1.7 million), resulting from the reversal of the unrecognized tax benefits and related accrued cumulative interest as a result of a lapse of the statute of limitations in accordance to the PRC Tax Administration and Collection Law, compared to income tax expense of RMB0.5 million for the second quarter in 2012. For the first six months of 2013, income tax benefit from continuing operations was RMB4.8 million (US$ 0.8 million) compared to income tax expense of RMB2.7 million for the same period in 2012.

Income from discontinued operations, net of tax, was RMB14.5 million (US$2.4 million) and RMB7.6 million for the second quarter of 2013 and 2012, respectively. For the first six months of 2013, income from discontinued operations, net of tax, was RMB21.8 million (US$3.5 million), up 122.0% from RMB9.8 million for the same period in 2012.

Net income attributable to Simcere was RMB22.7 million (US$3.7 million) for the second quarter of 2013, which consists of net income attributable to Simcere from continuing operations of RMB8.2 million (US$1.3 million) and net income attributable to Simcere from discontinued operations of RMB14.5 million (US$2.4 million). Net income attributable to Simcere from continuing operations for the second quarter of 2013 decreased by 57.6% from RMB19.4 million for the same period in 2012. Net margin from continuing operations, which represents net income attributable to Simcere from continuing operations divided by revenue from continuing operations, was 1.7% for the second quarter of 2013, compared to 3.9% for the second quarter of 2012. For the first six months of 2013, net income attributable to Simcere was RMB52.7 million (US$8.6 million) which consists of net income attributable to Simcere from continuing operations of RMB30.9 million (US$5.0 million) and net income attributable to Simcere from discontinued operations of RMB21.8 million (US$3.5 million). For the first six months of 2012, net income attributable to Simcere was RMB55.6 million which consists of net income attributable to Simcere from continuing operations of RMB45.8 million and net income attributable to Simcere from discontinued operations of RMB9.8 million. Net margin from continuing operations was 3.1% for the first six months of 2013, compared to 4.8% for the same period in 2012.

Basic and diluted earnings per American Depository Share ("ADS") from continuing operations for the second quarter of 2013 were RMB0.16 (US$0.03) and RMB0.15 (US$0.02), respectively. Basic and diluted earnings per ADS from continuing operations for the first six months of 2013 were RMB0.59 (US$0.10) and RMB0.58 (US$0.09), respectively. Basic and diluted earnings per ADS from discontinued operations for the second quarter of 2013 were RMB0.28 (US$0.05) and RMB0.27 (US$0.04), respectively. Basic and diluted earnings per ADS from discontinued operations for the first six months of 2013 were RMB0.41 (US$0.07) and RMB0.41 (US$0.07), respectively. One ADS represents two ordinary shares of the Company.

As of June 30, 2013, the Company had cash and restricted cash of RMB643.4 million (US$104.8 million), compared to RMB201.6 million as of December 31, 2012. The increase was primarily due to cash consideration received related to sell of equity interest in Shanghai Celgen.

Financial Information

The preliminary unaudited condensed consolidated statements of income and balance sheets accompanying this press release have been prepared by management using U.S. GAAP. This preliminary financial information is not intended to fully comply with U.S. GAAP because it does not present all of the financial information 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 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 second quarter of 2013 on August 13th 2013, at 8:00 a.m. Eastern Time (Tuesday, August 13th at 8:00 p.m. Beijing/Hong Kong time). The management team will be on the call to discuss the results for the second quarter of 2013 and to answer questions.

To access the conference call, please dial:

Please ask to be connected to Q2 2013 Simcere Pharmaceutical Group Earnings Conference Call and provide the following passcode: 23263347.

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 23263347. The telephone replay also will be archived on the "Investor Relations" section of the Company's web site for seven days following the earnings announcement.

About Simcere Pharmaceutical Group

Simcere Pharmaceutical Group (NYSE:SCR, Simcere) is a leading pharmaceutical company specializing in the development, manufacturing, and marketing of branded 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.

Note: The conversions of Renminbi (RMB) into United States dollars (USD) as at the reporting dates are based on the noon buying rate of USD1.00 = RMB6.1374 on June 28, 2013 as set forth in the H. 10 statistical release of the Federal Reserve Board. No representation is intended to imply that the RMB amounts could have been, or could be, converted, realized or settled into U.S. dollars at that rate on the reporting dates.

SOURCE Simcere Pharmaceutical Group

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