Genesis Pharma Reports Improved Q1

Genesis Pharmaceuticals Enterprises, Inc. (GNPH.OB) reported that Q1 (ended September 30, 2008) revenues climbed an admirable 66% to $27.6 million, and gross profit rose an even more dramatic 81% to $21.8 million. On a non-GAAP basis, Genesis reported net income of $4.8 million a 50% increase. That was lower than the rise in revenue, but still a big jump. It works out to earnings of 49 cents per fully diluted share.

On a GAAP basis, however, the situation was not as positive. Using those standards, net income for Q1 dipped slightly from $3.2 million last year to $3.1 million this year.

The company attributed the disappointing profit to a laundry list of causes. On an ongoing basis, affecting both the GAAP and non-GAAP calculations, the most significant problem was a dramatic rise in SG&A expense. Costs in the category soared 96% to $13.4 million, a rate far greater than the rise in revenues. Genesis said the largest item was an $8.6 million expense for salaries and higher commissions for the sales force, an increase of 166% over the previous year. The company also upped its spending on both advertising and R&D.

Specific to the GAAP figures, Genesis’s net income was also negatively affected by a number of accounting issues. It took a $1 million writedown on security investments and a $.7 million charge for amortization of convertible debt discounts.

For the full fiscal 2009 year, Genesis reiterated its guidance that revenues will be in a $122 to $130 million range and operating income will be between $40 and $43 million.

In a separate announcement, Genesis said it would begin a $2 million buyback of its own shares.

Also, Genesis was hit with a $13.5 million suit from China West, which alleged that Genesis had reneged on its contract to pay China West for guidance in the reverse merger that listed Genesis Pharma shares on the Bulletin Board Exchange. Management did not comment on the suit.

As corporate accomplishments during the quarter, Genesis pointed to an SFDA approval of Radix Isatidis Dispersible Tablets, a TCM for viral influenza. The company also effected a 40-for-1 reverse stock split. Another recently new product, Baobaole Chewable tablets, used to treat gastric discomfort, continues to perform well for the company. It was launched less than one year ago. Other major products for Genesis are Itopride Hydrochloride Granules, a TCM that aids digestion, and Clarithromycin Sustained-release Tablets, an antibiotic.

Genesis ended its Q1 with $61.3 million in cash and working capital of $77.4 million. It generated $13.7 million of positive cash flow during Q1. Shareholders' equity was $97.4 million.

The various announcements issued by and about Genesis had a negative effect on its stock price. Genesis dropped 75 cents to $4.70, a decline of 14% on very light volume of just 1500 shares. The company was bid at $4.70, while the ask was listed at $5.45.

After the company’s reverse split, Genesis has 9.9 million shares outstanding, fully diluted. At its current price, Genesis has a market capitalization of $47 million.

Disclosure: none.