China Med Forecasts Increased Revenues for 2009 Despite Low Q3

| About: China Medicine (CHME)

China Medicine Corporation (OTCPK:CHME) said a delay in a provincial bidding system caused its Q3 revenues to fall 17% to $10.5 million. Even though margins rose slightly, the increases were not enough to offset Q3’s lower revenues. As a result, net income dipped 10% to $2 million or 13 cents per share. The company distributes and develops Western-style prescription and OTC pharmaceuticals, traditional Chinese medicines, nutritional and dietary-supplements, as well as medical devices.

Despite the negative Q3 comparisons, nine-month China Medicine revenues remain on the upside. Revenues so far in 2008 are up 13% to $29.2 million, and net income climbed 37% to $5.6 million or 36 cents per share, fully diluted.

The main reason for Q3’s shortfall was a postponement in the Guangdong Sunshine Medicine Public Internet Bidding System. Usually, the process takes place in the May-to-July timeframe, but this year it occurred on September 1, 2008. To have a successful auction, China Medicine must negotiate with hospitals to win bids, a process that occupied the majority of Q3. Once the bidding took place, China Medicine said it was successful in placing the products it represented last year.

China Medicine also said its OTC products are experiencing a decline in sales. Because those products have lower margins thaמ its pharmaceutical products, the switch out of OTC products is having a positive effect on profitability margins.

The company said that another difficulty experienced in Q3 was China’s tightening of credit, which created cash flow difficulties for suppliers and factories.

During Q3, Western-style prescription and OTC products contributed 66% of total revenues, while TCM prescription and over-the-counter products accounted for 26%. Medical formula sales, dietary supplements, and medical instruments were responsible for the remainder.

The company ended Q3 with $2.7 million in cash and $34 million in working capital. Stockholder equity has grown 25% to $39.1 million over the first nine months of 2008.

China Medicine is planning to expand overseas, with a special emphasis on the U.S. and Hong Kong. The company will use its Bethin weight loss supplement as its initial marketing tool. It will also launch a branded dietary food supplement in China during the first half of 2009.

Tests of an animal food additive, recombinant aflatoxin detoxifizyme (rADTZ), which remove toxic compounds in food and feed, recommenced in October. China Medicine hopes to receive production permits to launch the product in the first quarter of 2009.

Although Q3 was lower than planned, China Medicine still forecasts its full-year 2009 revenues will register an increase of 10%-15% over 2007, and net income growth will achieve a growth of 20%-22%.

Disclosure: none.