Simcere Pharmaceutical Group Reports Preliminary Unaudited Third Quarter 2013 Results

NANJING, China, Nov. 14, 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 September 30, 2013.

Highlights       

Revenue from continuing operations for the third quarter of 2013 was RMB421.3 million (US$68.8 million), a decrease of 16.5% compared to RMB504.7 million for the same period in 2012. Revenue from continuing operations for the first nine months of 2013 was RMB1,408.2 million (US$230.1 million), a decrease of 3.8% from RMB1,463.8 million for the same period in 2012.

Gross margin from continuing operations for the third quarter of 2013 decreased to 76.0% compared to 84.2% for the same period in 2012. For the first nine months of 2013, gross margin decreased to 79.9% compared to 83.9% for the same period in 2012.

Operating loss from continuing operations was RMB125.5 million (US$20.5 million) for the third quarter of 2013, compared to operating income from continuing operations of RMB26.5 million for the same period in 2012. The operating loss was primarily due to the impairment charge for  goodwill and intangible assets along with the inventory write-down for the vaccine reporting unit in the third quarter of 2013.Operating loss from continuing operations was RMB73.2 million (US$12.0 million) for the first nine months of 2013, compared to operating income from continuing operations of RMB98.4 million for the same period in 2012.

Net income attributable to Simcere from continuing operations for the third quarter of 2013 was RMB167.0 million (US$27.3 million), an increase of 944.2% from RMB16.0 million for the same period in 2012, primarily due to the gain arising from the sale of equity interest in Kanda Biotech Holding Limited ("Kanda"), partially offset by the impairment charge of goodwill and intangible assets and inventory write-down. Net income attributable to Simcere from continuing operations for the first nine months of 2013 was RMB197.9 million (US$32.3 million), an increase of 220.3% from RMB61.8 million for the same period in 2012.

Net income attributable to Simcere was RMB384.1 million (US$62.8 million) for the third quarter of 2013, a significant increase from RMB22.2 million for the same period in 2012, primarily due to the gain arising from the sale of equity interest in Kanda and Jilin Boda Pharmaceutical Co., Ltd. ("Boda"), partially offset by the impairment charge for goodwill and intangible assets and inventory write-down. Net income attributable to Simcere was RMB436.8 million (US$71.4 million) for the first nine months of 2013, an increase of 461.7% from RMB77.8 million for the same period in 2012.

In July 2013, the Company sold its approximately 99.99% equity interest in Boda to Zhuhai Rongding Equity Investment Partnership L.P. for a total cash consideration of RMB400.0 million (US$65.4 million). Boda was the manufacturer of Yidasheng.  In accordance with U.S. GAAP, Boda's operating results and the gain from the disposal 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 July 2013, the Company sold all its equity interest in Kanda which holds Shanghai Celgen Bio-Pharmaceutical Co., Ltd. ("Celgen") and other assets to Devont Asset Management Limited for a total cash consideration of RMB302.0 million (US$49.3 million). The company realized RMB233.8 million (US$38.2 million) gain from the sale, which has been reflected in earnings (losses) from continuing operations before income taxes of the consolidated statement of income.

Management of the Company performed impairment testing for the goodwill and intangible assets of the vaccines reporting unit as of September 30, 2013 as triggered by the expectation that the Company may not realize production and sales of influenza vaccines in 2013 as previously planned. Based on the revised expectation, management reassessed the present operating status and future expectation of the Company in the vaccine industry and revised its sales forecast, leading to an impairment loss of RMB106.4 million (US$17.4 million) for goodwill and RMB19.0 million (US$3.1 million) for the intangible assets. The impairment loss has been reflected in income (losses) from operations of the consolidated statement of income. In the meantime, RMB 26.1 million (US$ 4.3 million) of inventory write-down has been provided in the third quarter of 2013.         

Mr. Hongquan Liu, Executive Director and Chief Executive Officer of Simcere Pharmaceutical Group said: "In the third quarter, we completed the sale of our equity interest in Boda and Kanda, which is consistent with our future business strategy, enabling us to focus more effectively on our core business. While third quarter sales declined due to the impact of price policy and issues related to EDL tendering, we were pleased to see that our cost control measures are proving effectual."

2013 Third Quarter Financial Results

Revenue from continuing operations for the third quarter of 2013 was RMB421.3 million (US$68.8 million), a decrease of 16.5% compared to RMB504.7 million for the same period in 2012. Revenue from continuing operations for the first nine months of 2013 was RMB1,408.2 million (US$230.1 million), a decrease of 3.8% from RMB1,463.8 million for the same period in 2012.

The tables below set forth the Company's top 10 products, excluding Yidasheng which was manufactured by Boda, a subsidiary disposed of by the Company, by revenue for the three months ended September 30, 2013 and the nine months ended September 30, 2013:

Gross margin from continuing operations for the third quarter of 2013 decreased to 76.0% compared to 84.2% for the same period in 2012. The decrease was mainly due to the inventory write-down for the influenza vaccine reporting unit and the drop in sales of products with higher gross margins as a percentage of total sales. Gross margin excluding the impact of inventory write-down was 82.2% in the third quarter of 2013. For the first nine months of 2013, gross margin decreased to 79.9% compared to 83.9% for the same period in 2012.

Research and development expenses from continuing operations for the third quarter of 2013 totaled RMB47.5 million (US$7.8 million) which represented a decrease of 26.5% from RMB64.7 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 11.3% for the third quarter of 2013 from 12.8% for the same period in 2012. For the first nine months of 2013, research and development expenses from continuing operations totaled RMB136.8 million (US$22.4 million), compared to RMB166.0 million for the same period in 2012.

Sales, marketing and distribution expenses from continuing operations for the third quarter of 2013 were RMB206.8 million (US$33.8 million), which represented a decrease of 31.1% from RMB300.2 million for the same period in 2012.The decrease was the result of a drop in travelling and conference expenses and promotional expenses. As a percentage of total revenue from continuing operations, sales, marketing and distribution expenses from continuing operations decreased to 49.1% for the third quarter of 2013 from 59.5% for the same period in 2012. For the first nine months of 2013, sales, marketing and distribution expenses from continuing operations were RMB743.1 million (US$121.4 million), which represented a decrease of 10.9% from RMB834.4 million for the same period in 2012.

General and administrative expenses from continuing operations were RMB66.1 million (US$10.8 million) for the third quarter of 2013, which represented an increase of 13.6% from RMB58.2 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 15.7% for the third quarter of 2013 from 11.5% for the same period in 2012. For the first nine months of 2013, general and administrative expenses from continuing operations were RMB192.7 million (US$31.5 million), which represented an increase of 13.0% from RMB170.4 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 RMB8.9 million (US$1.5 million) for the third quarter of 2013. Share-based compensation expenses for the third quarter of 2012 were RMB3.9 million. For the first nine months of 2013, share-based compensation expenses totaled RMB27.1 million (US$4.4 million), which represented an increase of 159.1% from RMB10.5 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 loss from continuing operations was RMB125.5 million (US$20.5 million) for the third quarter of 2013, compared to operating  income from continuing operations of RMB26.5 million for the same period in 2012.  The unfavorable result was due to the impairment charge for the goodwill and intangible assets of the influenza vaccine reporting unit along with the inventory write-down for influenza vaccines in the third quarter of 2013. Operating loss from continuing operations was RMB73.2 million (US$12.0 million) for the first nine months of 2013, compared to operating income from continuing operations of  RMB98.4 million for the same period in 2012.

Income tax benefit from continuing operations for the third quarter of 2013 was RMB5.8 million (US$0.9 million), compared to income tax expense of RMB3.2 million for the third quarter in 2012. The income tax benefit in the third quarter of 2013 was due to tax losses of the Company's PRC subsidiaries. For the first nine months of 2013, income tax benefit from continuing operations was RMB10.6 million (US$ 1.7million), compared to income tax expense of RMB 5.9 million for the same period in 2012.  This was primarily due to the reversal of an unrecognized tax benefit 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 in the second quarter.

Income from discontinued operations, net of tax, was RMB217.1 million (US$35.5 million) and RMB6.2 million for the third quarter of 2013 and 2012, respectively. The favorable result was mainly due to gain realized from the disposal of Boda. For the first nine months of 2013, income from discontinued operations, net of tax, was RMB238.9 million (US$39.0 million), a significant increase from RMB16.0 million for the same period in 2012.

Net income attributable to Simcere was RMB384.1 million (US$62.8 million) for the third quarter of 2013, which consists of net income attributable to Simcere from continuing operations of RMB167.0 million (US$27.3 million) and net income attributable to Simcere from discontinued operations of RMB217.1 million (US$35.5 million). Net income attributable to Simcere from continuing operations for the third quarter of 2013 increased by 944.2% from RMB16.0 million for the same period in 2012, primarily due to gain arising from the sale of equity interest in Kanda Biotech, partially offset by the impairment charge of goodwill and intangible assets. For the first nine months of 2013, net income attributable to Simcere was RMB436.8 million (US$71.4 million) which consists of net income attributable to Simcere from continuing operations of RMB197.9 million (US$32.3 million) and net income attributable to Simcere from discontinued operations of RMB238.9 million (US$39.0 million). For the first nine months of 2012, net income attributable to Simcere was RMB77.8 million which consists of net income attributable to Simcere from continuing operations of RMB61.8 million and net income attributable to Simcere from discontinued operations of RMB16.0 million.

Basic and diluted earnings per American Depository Share ("ADS") from continuing operations for the third quarter of 2013 were RMB3.16 (US$0.52) and RMB3.11 (US$0.51), respectively. Basic and diluted earnings per ADS from continuing operations for the first nine months of 2013 were RMB3.76 (US$0.61) and RMB3.70 (US$0.60), respectively. Basic and diluted earnings per ADS from discontinued operations for the third quarter of 2013 were RMB4.12 (US$0.67) and RMB4.04 (US$0.66), respectively. Basic and diluted earnings per ADS from discontinued operations for the first nine months of 2013 were RMB4.54 (US$0.74) and RMB4.47 (US$0.73), respectively. One ADS represents two ordinary shares of the Company.

As of September 30, 2013, the Company had cash and restricted cash of RMB871.8 million (US$142.5 million), compared to RMB201.6 million as of December 31, 2012. The increase was primarily due to cash consideration received from the sale of equity interest in Kanda Biotech and Boda.

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 third quarter of 2013 on Thursday, November 14, at 8:00 a.m. Eastern Time (Thursday, November 14 at 9:00 p.m. Beijing/Hong Kong time). The management team will be on the call to discuss the results for the third quarter of 2013 and to answer questions.

To access the conference call, please dial:

Please ask to be connected to Q3 2013 Simcere Pharmaceutical Group Earnings Conference Call and provide the following pass code: 94745140.

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 pass code for replay participants is 94745140. 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.

Investor and Media Contacts:

Email: [email protected]

SOURCE Simcere Pharmaceutical Group

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