Simcere's Q4: Revenues Up, Earnings Down

Mar.13.09 | About: Simcere Pharmaceutical (SCR)

Simcere Pharmaceutical Group (NYSE: SCR), which makes both branded generic pharmaceuticals and the anti-angiogenesis cancer drug Endu, reported Q4 revenues climbed 17% to 467 million RMB ($68.4 million), but net income fell 34% to 52 million RMB ($7.6 million).

Simcere did not attribute the net income shortfall to any particular cause. Although expenses were higher in all categories, most of the increases in each category were more or less in line with the rise in revenues. The only dramatic increase was in R&D spending, which was up 114% to 34.0 million RMB ($5.0 million).

For the full year 2008, Simcere recorded revenues of 1.7 billion RMB ($255.2 million), a 27% increase over 2007. 2008 net income rose 16% to 350 million RMB ($51.3 million).

Simcere declined to provide financial guidance for 2009 because it is not certain that Endu and its edaravone products for treatment of stroke will be included in the national insurance catalogue. However, citing medical reform in China and increasing industry consolidation, the company believes the environment for biopharmas in China is positive.

Simcere remains disappointed in Endu sales, which are below plan. Its stroke drugs, the edaravone products Bicun and Yidasheng, are providing growth, despite increased competition. Simcere also makes a variety of generic cancer chemotherapy drugs.

Acquisitions remain a stated goal of the company, though Simcere used the term “selected acquisitions” to describe its approach, implying a go-slow strategy. On December 31, 2008, Simcere had cash of 814 million RMB ($119.3 million).

Because the net earnings were 14 cents below expectations, Simcere fell 16 cents in mid-session trading to a price of $5.36 per share. That gives the company a market capitalization of $336 million and a price/earnings ratio of 13. Analysts are projecting only modest growth for revenues in 2009 while they expect the bottom line to be flat.

The value side of the valuation equation is strong, but Simcere needs an earnings catalyst to generate investor excitement.

Disclosure: none.