Simcere Pharmaceutical Group Reports Unaudited Second Quarter 2008 Results

NANJING, China, Aug. 5 /Xinhua-PRNewswire/ -- Simcere Pharmaceutical Group
(NYSE: SCR), a leading manufacturer and supplier of branded generic
pharmaceuticals and manufacturer of the patented anti-cancer biotech product
Endu in China, today reported unaudited financial results for the quarter
ended June 30, 2008.
Highlights
-- Total revenue increased to RMB436.2 million (US$63.6 million) for the
second quarter, representing a 30.4% year-over-year growth;

-- Net income increased to RMB95.2 million (US$13.9 million) for the
second quarter, representing a 14.5% year-over-year growth; and

-- Gross margin was 81.7% for the second quarter 2008, compared to 83.7%
for the second quarter 2007.

Mr. Jinsheng Ren, Chairman and CEO of Simcere Pharmaceutical Group,
commented, ''Simcere achieved steady sales growth this quarter compared to the
same period last year. Our net profit remained strong and we saw strong
growth for our other branded generics. During the quarter we received
approval from the SFDA to manufacture and market a first- to-market generic
Biapenem injection under the brand name Anxin. This approval strengthens our
antibiotic product portfolio in line with our strategy to focus on first-to-
market generic and innovative drugs.''
''Looking to the second half of 2008, we will continue to focus on
building our portfolio of innovative and first-to-market drugs through organic
growth and acquisitions,'' added Mr. Ren. ''We also plan to enhance our
investment in sales and marketing activities to help Simcere achieve
sustainable growth for the long-term."
The Company noted that year-over-year sales growth for Endu was slower
then expected during the second quarter and the first six months of 2008 due
to the disruption to sales activities resulting from the restructuring of
Endu's sales force. In addition, the Company has offered a greater than
anticipated volume of Endu for free to existing and new patients to accelerate
participation in Endu's Phase IV clinical studies, resulting in fewer products
being sold at the regular price.
Also, revenue from Yidasheng for the second quarter and the first six
months of 2008 was lower than expected as the Company did not proceed with the
planned transition of Yidasheng from the agency-sales model to Bicun's sales
model. Under Yidasheng's current agency-sales model, sales and marketing
activities and corresponding expenses are the responsibility of the sales
agents; accordingly, the sales agents are offered a lower price than under
Bicun's sales model, in which Simcere is responsible for product sales and
marketing. Because Simcere does not incur corresponding marketing and sales
costs under Yidasheng's agency-sales model, Simcere's net profit for the
quarter was not impacted by the lower than expected Yidasheng revenue.
Due to the reasons cited above, the Company has adjusted its targeted
total revenue for the full year of 2008; targeted net income for the full year
of 2008 has not changed.
2008 Second Quarter Financial Results
Total revenue for the second quarter of 2008 was RMB436.2 million (US$63.6
million), representing a growth of 30.4% from RMB334.5 million for the same
period in 2007. For the first six months of 2008, total revenue was RMB830.8
million (US$121.1 million), representing an increase of 28.5% from RMB646.7
million for the same period in 2007.
Revenue from Endu, the Company's patented anti-cancer pharmaceutical
launched in July 2006, totaled RMB63.1 million (US$9.2 million) in the second
quarter of 2008, an increase of 4.6% compared to RMB60.3 million in the
corresponding period in 2007. For the first six months of 2008, revenue from
Endu totaled RMB126.9 million (US$18.5 million), an increase of 27.8% compared
to RMB99.3 million in the first six months of 2007.
Revenue from first-to-market Edavarone injection products under the brand
names Bicun and Yidasheng totaled RMB147.6 million (US$21.5 million) in the
second quarter of 2008, an increase of 34.3% compared to RMB109.9 million for
the same period in 2007. For the first six months of 2008, revenue from Bicun
and Yidasheng totaled RMB299.7 million (US$43.7 million), an increase of 57.5%
compared to RMB190.3 million in the first six months of 2007.
Revenue from other first-to-market products, Jiebaishu and Sinofuan,
totaled RMB10.1 million (US$1.5 million) in the second quarter of 2008. For
the first six months of 2008, revenue from other first-to-market products
totaled RMB13.4 million (US$2.0 million). There was no revenue generated from
these two products for the same period in 2007.
Revenue from other branded generic products totaled RMB215.0 million
(US$31.3 million) in the second quarter of 2008, an increase of 34.2% compared
to RMB160.2 million for the same period in 2007. For the first six months of
2008, revenue from other branded generic products totaled RMB388.8 million
(US$56.7 million), an increase of 10.1% compared to RMB353.1 million in the
first six months of 2007.
Gross margin for the second quarter of 2008 decreased to 81.7%, as
compared to 83.7% for the same period in 2007. The decrease was primarily due
to the growth in other branded generics as a percentage of our total sales and
the increased cost of some raw materials. For the first six months of 2008,
gross margin decreased slightly to 82.4% compared to 82.7% for the first six
months of 2007.
Research and development expenses for the second quarter of 2008 totaled
RMB13.2 million (US$1.9 million), a decrease of 31.7% from RMB19.3 million for
the corresponding period a year ago. As a percentage of total revenue,
research and development expenses were 3.0% compared to 5.8% for the same
period in 2007. This change was primarily due to recognition in this quarter
of government grants which offset certain research and development expenses by
RMB2.7 million (US$0.4 million), and the completion of some research and
development projects related to Endu. For the first six months of 2008,
research and development expenses totaled RMB31.0 million (US$4.5 million),
compared to RMB33.1 million for the same period in 2007.
Sales, marketing and distribution expenses for the second quarter of 2008
were RMB197.9 million (US$28.9 million), an increase of 24.6% from RMB158.8
million for the corresponding period a year ago. As a percentage of total
revenue, sales, marketing and distribution expenses were 45.4% compared to
47.5% for the same period in 2007. The decrease in sales, marketing and
distribution expenses as a percentage of total revenue was primarily due to
fewer marketing conferences held during the quarter. For the first six months
of 2008, sales and marketing expenses were RMB362.5 million (US$52.8 million),
an increase of 22.8% from RMB295.1 million in the first six months of 2007.
General and administrative expenses were RMB47.0 million (US$6.8 million)
for the second quarter of 2008, representing an increase of 1.8% from RMB46.1
million for the second quarter of 2007. As a percentage of total revenue,
general and administrative expenses were 10.8% compared to 13.8% for the same
period in 2007. The decrease in general and administrative expenses as a
percentage of total revenue was mainly attributable to the one-off expenses
related to the Company's initial public offering incurred in the second
quarter of 2007. For the first six months of 2008, general and administrative
expenses were RMB94.0 million (US$13.7 million), an increase of 22.0% from
RMB77.1 million in the corresponding period in 2007.
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 the Company's
employees were assigned to perform, totaled RMB6.4 million (US$0.9 million)
for the second quarter of 2008. The share-based compensation expenses for the
second quarter of 2007 were RMB7.7 million. For the first six months of 2008,
share-based compensation expenses totaled RMB13.4 million (US$2.0 million), a
decrease of 7.5% from RMB14.5 million for the first six months of 2007.
Operating income was RMB98.1 million (US$14.3 million) for the second
quarter of 2008, representing an increase of 73.9% as compared to RMB56.4
million for the corresponding period of 2007. For the first six months of
2008, operating income was RMB197.3 million (US$28.8 million), an increase of
51.3% as compared to RMB130.5 million in the corresponding period in 2007.
Income tax expense for the second quarter of 2008 totaled RMB18.1 million
(US$2.6 million) compared to an income tax credit of RMB4.0 million for the
corresponding period of 2007. For the first six months of 2008, income tax
expense was RMB34.9 million (US$5.1 million) compared to an income tax credit
of RMB2.5 million for the first six months of 2007. In addition to the
overall increase in taxable income, the increased income tax expense in 2008
was primarily due to the expiration of tax holidays enjoyed by two PRC
subsidiaries.
Net income was RMB95.2 million (US$13.9 million) for the second quarter of
2008, compared to RMB83.1 million in the corresponding period a year ago and
representing growth of 14.5%. The Company's net margin (net income as a
percentage of total revenue) was 21.8% for the second quarter of 2008 compared
to 24.9% for the second quarter of 2007. For the first six months of 2008,
net income was RMB207.3 million (US$30.2 million), an increase of 38.1% as
compared to RMB150.1 million for the first six months of 2007. Net margin for
the first six months of 2008 was 24.9% as compared to 23.2% for the first six
months of 2007.
Basic earnings per American Depository Share (ADS) for the second quarter
of 2008 and the first six months of 2008 were RMB1.52(US$0.22) and
RMB3.32(US$0.48) respectively, and diluted earnings per ADS for the second
quarter of
2008 and the first six months of 2008 were RMB1.48(US$0.22) and
RMB3.23(US$0.47) respectively. Each ADS represents two ordinary shares.
As of June 30, 2008, the Company had cash and cash equivalents (including
pledged bank deposits), and short term investments of RMB949.0 million
(US$138.4 million) compared to RMB968.3 million as of December 31, 2007.
Financial Outlook
Based on its first six months performance, the Company has adjusted its
targeted total revenue for the full year 2008 to be in the range between
RMB1.7 billion and RMB1.8 billion. The Company maintains its targeted net
income for the full year 2008 to be in the range between RMB390.0 million and
RMB400.0 million.
The above targets are based on the Company's current views on the
operating and marketing conditions which are subject to change.
Safe Harbor Statement
This press release contains forward-looking statements. These statements
constitute ''forward-looking" statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and 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 filing
with the U.S. Securities and Exchange Commission at http://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
second quarter 2008 earnings on Tuesday, August 5, at 8 a.m. Eastern Time
(Tuesday, August 5 at 8 p.m.Beijing/Hong Kong time). The management team
will be on the call to discuss quarterly results and highlights and to answer
questions.
To access the conference call, please dial:

United States toll-free dial-in number: + 1 866 510 0704
United States dial-in number: + 1 617 597 5362
China toll-free dial-in number: +86 10 800 130 0399
Hong Kong dial-in number: +852 3002 1672

Please ask to be connected to Simcere's second quarter 2008 earnings call
and provide the following passcode: 25912661. Simcere also will 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
http://www.simcere.com .
Following the earnings conference call, an archive of the call will be
available by dialing:
United States toll-free dial-in number: +1 888 286 8010
International dial-in number: +1 617 801 6888

The passcode for replay participants is: 83949361. The telephone replay
also will be archived on the ''Investor Relations'' section of the company's
Web site at http://www.simcere.com for seven days following the earnings
announcement.
About Simcere Pharmaceutical Group
Simcere Pharmaceutical Group (NYSE:SCR, Simcere) is a leading manufacturer
and supplier of branded generic pharmaceuticals and manufacturer of the
patented anti-cancer biotech product Endu in the rapidly growing China market.
In recent years, Simcere has been focusing its strategy on the development of
first-to-market generic and innovative pharmaceuticals, and has introduced a
first-to-market generic stroke management medication under the brand name
Bicun and an innovative anti-cancer medication under the brand name Endu.
Simcere currently manufactures and sells more than 50 pharmaceutical products
including antibiotics, anti-cancer medication and stroke management medication
and is the exclusive distributor of three additional pharmaceuticals that are
marketed under its brand names. 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, osteoporosis and infectious diseases
and currently has more than 12 pipeline products. For more information about
Simcere Pharmaceutical Group, please visit http://www.simcere.com .
Simcere Pharmaceutical Group
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Amounts expressed IN THOUSANDS, EXCEPT PER SHARE AND PER ADS DATA)

Three months ended Six months ended
June 30 June 30

2007 2008 2008 2007 2008 2008
RMB RMB USD RMB RMB USD

Product revenue 330,394 435,839 63,542 642,666 828,768 120,828
Other revenue 4,061 359 52 4,061 2,072 302
Total revenue 334,455 436,198 63,594 646,727 830,840 121,130

Cost of materials
and production (53,700)(79,957)(11,657)(110,967)(146,077)(21,297)
Gross profit 280,755 356,241 51,937 535,760 684,763 99,833

Operating expenses:
Research and
development expenses (19,345)(13,221) (1,927) (33,091) (30,994) (4,519)
Sales, marketing and
distribution
expenses (158,845)(197,939)(28,858)(295,149)(362,458)(52,843)
General and
administrative
expenses (46,126)(46,955) (6,846) (77,056) (93,982)(13,702)
Income from operations 56,439 98,126 14,306 130,464 197,329 28,769

Interest income 6,435 11,395 1,661 6,921 21,802 3,179
Interest expense (1,788) (2,761) (402) (5,790) (3,243) (473)
Foreign currency
exchange gains -- 11,524 1,680 -- 38,079 5,552
Other income 20,526 1,104 161 20,526 1,104 161
Earnings before income
taxes and minority
interests and
minority interests 81,612 119,388 17,406 152,121 255,071 37,188

Income tax
credit/(expense) 4,022 (18,087) (2,637) 2,546 (34,869) (5,084)
Income before minority
interests 85,634 101,301 14,769 154,667 220,202 32,104

Minority interests (2,511) (6,135) (894) (4,599)(12,919) (1,883)
Net income 83,123 95,166 13,875 150,068 207,283 30,221

Earnings per share:
Basic 0.69 0.76 0.11 1.36 1.66 0.24
Diluted 0.67 0.74 0.11 1.31 1.62 0.24

Earnings per ADS:
Basic 1.39 1.52 0.22 2.73 3.32 0.48
Diluted 1.34 1.48 0.22 2.63 3.23 0.47

Simcere Pharmaceutical Group
UNAUDITED CONSOLIDATED CONDENSED Balance Sheets
(Amounts expressed IN THOUSANDS)

December 31, June 30, June 30,
2007 2008 2008
RMB RMB USD
Assets
Current assets
Cash and cash equivalents
(including pledged bank
deposits) 498,262 339,047 49,431
Short term investments 470,000 610,000 88,933
Accounts and bills receivables,
net of allowance for doubtful
accounts 488,374 624,903 91,106
Inventories 65,241 85,311 12,438
Other current assets 35,276 79,982 11,661
Total current assets 1,557,153 1,739,243 253,569
Property, plant and equipment,
less accumulated depreciation 374,058 404,403 58,959
Land use rights 116,386 115,850 16,890
Intangible assets, net 251,221 296,417 43,215
Goodwill 161,496 187,902 27,395
Other assets 11,894 10,712 1,559
Total assets 2,472,208 2,754,527 401,587
Liabilities
Current liabilities
Short term bank loans and
borrowings 29,000 19,000 2,770
Accounts and bills payables 23,711 46,994 6,851
Other payables and accrued
liabilities 285,411 320,066 46,214
Income taxes payable 4,515 27,769 4,498
Total current liabilities 342,637 413,829 60,333
Long term loan 52,000 52,000 7,581
Deferred income taxes 61,690 61,775 9,006
Other long term liabilities 19,928 33,131 4,830
Total liabilities 476,255 560,735 81,750

Minority interests 12,137 28,123 4,100

Shareholders' equity
Contributed capital 9,840 9,847 1,436
Additional paid-in capital 1,550,697 1,567,083 228,468
Accumulated other comprehensive
loss (46,849) (88,672) 12,928)
Retained earnings 470,128 677,411 98,761
Total shareholders' equity 1,983,816 2,165,669 315,737
Commitments and contingencies
Total liabilities, minority
interests and shareholders'
equity 2,472,208 2,754,527 401,587

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 = RMB6.8591 on June 30, 2008 in The City of New York for
cable transfers of Renminbi as certified for customs purposes by the
Federal Reserve. 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

Investor and Media Contact for SCR, ir@simcere.com; or in Nanjing, Frank Zhao,
Chief Financial Officer of Simcere Pharmaceutical Group, +86-25-8556-6666
x8818, or zhaozhigang@simcere.com; or in the United States, Michael Guerin of
Brunswick Group LLC, +1-212-333-3810, or mguerin@brunswickgroup.com, or in
Beijing, Kejia Wu of Brunswick Group, +86- 10-6566-2256, or
kwu@brunswickgroup.com, or in Hong Kong, Joseph Lo Chi-Lun of Brunswick Group,
+852-3512-5000, or clo@brunswickgroup.com, all for Simcere