3SBio Inc. Q3 2009 Earnings Call Transcript

3SBio Inc. (SSRX)

Q3 2009 Earnings Call

November 13, 2009 8:00 am ET

Executives

Jing Lou - Chief Executive Officer

Bo Tan - Chief Financial Officer

David Chen - Chief Operating Officer

Yingfei Wei - Chief Scientific Officer

Kevin Teo - Director of Finance

Tom Folinsbee - Director of Investor Relations

Analysts

Hongbo Lu - Piper Jaffray

[Ram Balarasu - Soleil Securities]

Katherine Lu - Oppenheimer

Cheng Hu - Mentor Capital

Jeb Besser - Manchester Management

Presentation

Operator

Welcome to the 3SBio, quarter three 2009 earnings conference call. At this time, all participants are in a listen-only mode. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Mr. Tom Folinsbee. Thank you. Please go ahead.

Tom Folinsbee

Welcome to 3SBio’s third quarter 2009 results conference call. Before I turn the call over to the management team, I would like to remind you that the presentation today may contain forward-looking statements made pursuant to the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve risks, uncertainties and assumptions. As such 3SBio’s actual financial condition and operation results may differ materially from those forward looking statements. A number of risks and uncertainties that are discussed in our risk factors and other relevant sections of 3SBio’s filings with the Securities and Exchange Commission.

Please see the earnings press release under the heading Safe Harbor statement for more information. 3SBio undertakes no obligation to update or revise these forward-looking statements. As the management team proceeds through their remarks, they will refer to the third quarter results presentation which could be downloaded from www.3sbio.com in the Investor Relation section under Financial Reports. The management team will open the floor to questions after their opening comments.

I would now like to turn the conference over to 3SBio’s CEO Dr. Jing Lou. Dr. Lou please go ahead.

Jing Lou

Thank you Tom, and thank you everyone for joining our third quarter 2009 conference call. Joining me today are David Chen, Chief Operating Officer; and Bo Tan, Chief Financial Officer. After some brief comments we will be pleased to answer your questions.

In the third quarter we remained focused on executing our business strategies and demonstrated again our ability to deliver strong top line and bottom line growth. In the meantime we have continued to invest in our product pipeline which is summarized on the slide 15.

We are actively working with China backed SFDA to seek approval for these three products which were submitted last year. Our research scientists continue to move forward with our early stage programs. We will update everyone after we reach any significant new development on reaching each milestone.

The construction of our new EPIAO and TPIAO manufacturing plant in Shenyang is ongoing and remains on schedule. The new plant will increase our capacity to meet the growing demand for our core products. We also continue to look externally for opportunities to invest our strong balance sheet and build our pipeline.

Our main criteria remains unchanged; the most important one being that new product should compliment our core strength in biologics, while elaborating our existing sales and distribution infrastructure in nephrology and oncology in China. Overall we are very pleased with the financial results for the quarter and are comfortable reiterating our full year revenue guidance of $43 million to $45 million.

So, I would now like to turn the call over to Bo Tan, our CFO who will review our financial results, and then David Chen, our COO who will update you on our operations. Bo.

Bo Tan

Thank you Dr. Lou, and hello again to everyone on the call. I will go through some financial highlights. You can find more details on slide seven through 11, as well as in the press release. We continue to show both non-GAAP and GAAP numbers for this quarter. You can find the reconciliation tables in the press release. I am also going to use US Dollar throughout, but you can find the RMB figures in the press release as well.

As Dr. Lou noticed, we delivered a strong top line growth in the third quarter, and net revenues increased year-on-year by almost 36% from $10 million to $13.6 million. Net revenue for the first nine months of 2009 hit $35.5 million, just over 80% of our full year target.

Bills in the fourth quarter over the past three years have accounted for about 25% of our annual sales. So we seem to be slightly ahead of target based on the historical [Inaudible]. However, our outlook for the fourth quarter remains positive. We expect sales to taper off somewhat in the fourth quarter compared to the third quarter as they usually do.

Gross profits marked the quarter with $12.6 million, a 38% increase over the third quarter of 2008, which were $9.2 million. For quarter-on-quarter comparison, gross profit in the second quarter this year was $11 million. Gross margin last quarter hit an all time high of 93%, a 1.7% increase over the 91.3% registered in the same period of 2008.

Our GAAP operating income was $4.2 million, a 38% increase from the $3.1 million we generated in the same quarter last year. Net interest income stabilized at $0.4 million, essentially unchanged over the second quarter. Our GAAP net income for the quarter was $3.9 million, a substantial improvement over the $0.3 million earned in the third quarter of 2008.

On a non-GAAP basis, net income was $4.1 million, a 25.6% increased over the $3.3 million earned in the third quarter of 2008. The difference between the GAAP and non-GAAP members here is mainly due to a one-time impairment of loss last year on our Lehman credit note.

Operating cash flow for the quarter was $9 million. As of September 30, 2009, we had cash balance of $107.2 million, basically unchanged from the end of last year. So we are ending the quarter in a strong financial position.

So now I would turn the call over to our COO, David Chen for some comments about our operations.

David Chen

Thank you Bo. Overall the strong momentum from the beginning of this year has continued through to the third quarter with revenue from our core products, EPIAO and TPIAO, both increasing year-on-year by 33% and 41% respectively. The graphs on slide 13 and 14 clearly demonstrate the strong growth trend of these two core products.

The dialysis market in China continues to grow, and we are accelerating our efforts to raise awareness in the oncology segment, where EPIAO is still the only EPO drug approved for cancer related indication. The oncology sector accounts for roughly 30% of our EPIAO sales and we believe there is further room to expend the market.

Overall the market penetration is excellent, with the latest data from IMS Health, an independent market research firm showing our share of China’s market for EPO at an all time high of 42.6% in the second quarter of this year.

In order to support a strong growth profile of both EPIAO and TPIAO, we previously announced a $30 million investment in a new factory in Shenyang. Construction remains on track with testing and validation of the new production lines scheduled to begin early next year.

Our product pipeline continued to progress through the SFDA approval process. Regarding our AMAG partnership, we are targeting domestic clinical trial applications for Feraheme in the fourth quarter of this year. As for other submissions we submitted last year, we’re actively working with the SFDA and will update you after we reach significant new milestones.

Overall we are pleased with our operating results and progress with the pipeline over the past quarter. I look forward to providing further updates. Thank you, and now I would turn the call back to Dr. Lou for some closing remarks. Dr. Lou.

Jing Lou

Thank you David. Well just to sum up, our revenue growth and profit margins remained strong and we continue to be comfortable with our full year revenue guidance of $43 million to $45 million.

We will continue to execute on our business strategy and invest for future, including the new manufacturing facility in Shenyang, as well as working with the SFDA to progress our existing pipeline. At the same time, we are always evaluating new alternative both internally and externally.

Thank you for attending today’s earnings call and we look forward to updating you again in the near future. Our team will now take your questions. Tom.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Hongbo Lu - Piper Jaffray.

Hongbo Lu - Piper Jaffray

I have probably a few; one is David, can you give us the split of oncology and nephrology. You said 30% of total sales is from oncology. Is that for this quarter or so far 2009?

David Chen

It’s for this quarter, but on the annual basis, we don’t see any specific change. Probably a little bit of fluctuation, but overall it’s around 30%.

Hongbo Lu - Piper Jaffray

And how about last year?

David Chen

What’s that?

Hongbo Lu - Piper Jaffray

How about last year?

David Chen

I think the last year was, I think at that time when we did the calculation it was around 30% as well. We started to pull this data from hospitals from the beginning of last year, and as we moved to this year we are looking at the actual split. As you know the IMS doesn’t have a specific split of data, so we have the samples at the hospitals to get that data and according to our best estimate right now it’s around 30%.

Jing Lou

Right, Hongbo please note that also the dialysis markets are growing very fast.

David Chen

It’s picking up a lot more than we expected.

Hongbo Lu - Piper Jaffray

Is that because of the inclusion of dialysis and in the insurance expansion. I think there was an inclusion of dialysis into the insurance program last year May, was that the impact we are seeing now?

David Chen

Yes, part of it.

Hongbo Lu - Piper Jaffray

Okay, and then for TPIAO, what’s the strength, what’s the key driver for TPIAO growth as far as you can see?

David Chen

Certainly that’s the continued education effort for oncologists in terms of how to use these products appropriately, and also certainly the brand equity we start to built more and more in the oncology franchise, both EPIAO and TPIAO combined, and certainly we see the promotion effort for the product.

Hongbo Lu - Piper Jaffray

Were you able to change the label so far?

David Chen

No, we haven’t started this work yet.

Hongbo Lu - Piper Jaffray

Okay. Last question and then I will jump back into the queue; what’s your visibility in terms of adding EPIAO in chemo induced anemia, and TPIAO in thrombocytopenia into national insurance list towards the end of this month?

David Chen

Towards the end of this month, we’re working towards trying to add both in the list, but right now it’s very difficult to comment on the timeline in terms of the specifics.

Hongbo Lu - Piper Jaffray

Okay, I understand that, but if we just assume, assume those will be added to the national insurance list, which actually I assigned it to be less than 50% of possibility, but if that happens, what would it do to your volume and the pricing and overall sales outlook for the next two years?

Bo Tan

Well Hongbo, we normally don’t give out sort of the sales outlook for that. It was definitely positive, and in terms of the pricing volume balance, typically the pricing may be under little pressure, but volume will pick up, that will offset the decline in pricing. Overall if we can get on the list it’s going to be a positive plus for us, but right now we can’t comment on sort of how that would impact specifically.

Operator

Your next question comes from [Ram Balarasu] - Soleil Securities.

Ram Balarasu - Soleil Securities

A couple of questions; first of all, with respect to the new manufacturing facility, can you sort of take us through the additional steps that would be necessary to bring the plant online once it is complete?

David Chen

Yes, Ram this is David here. Once the construction plan is done, we look to validation runs for the product and also the GMP qualification and validation. So that will take about six months, the first half of next year. As to the outside of China, we still need to do clinical trials, if we are talking about European markets, to get the products to the market.

Ram Balarasu - Soleil Securities

Okay, can you talk a little bit more about your future plans for expansion outside China and what specific regulatory pathways you are pursuing? Does this have anything to do with the generic biologics approval pathway that is currently implemented in the EU?

David Chen

Yes, regulatory pathway would be a major driver in terms of how we look at the international markets. So markets like Australia, Malaysia, South Africa, those countries will be also in our targets, so that could be the first step, the first countries we are going to look at it, and then we’ll also look at the European countries as well. The main driver is regulatory Bios pipeline that already exists

Ram Balarasu - Soleil Securities

Okay, with respect to the manufacturing facility, can you give us an idea of how broad its capabilities are? Can you manufacture not only proteins like EPIAO and TPIAO, but also monoclonal antibodies and things of that nature if necessary?

David Chen

This facility will be only dedicated to manufacturing EPIAO and TPIAO.

Ram Balarasu - Soleil Securities

Okay. Do you have plans to acquire manufacturing capabilities for other product candidates in the future at this time?

David Chen

We are very strong on the biological side and certainly we are looking at opportunities in the biological fields including monoclonal antibodies. So in terms of whether the future plan, at this point we are still evaluating what would be the best pathway to move forward.

Ram Balarasu - Soleil Securities

Okay, thank you. A couple of quick finance related questions. Can you give me an idea of how sustainable the currently achieved gross margin of 93% on a GAAP basis is likely to be going forward, do you believe that you can continue to sustain that?

Bo Tan

Yes Ram, actually we don’t give any guidance in terms of all margin levels, but in terms of the gross margin, our new plant will come on stream some time next year. So we are going to start taking some depreciation charges, average of about $15 million roughly per year for the next 10 or 15 years. So I think our gross margin will be under a little bit of pressure from this high level in the future.

Ram Balarasu - Soleil Securities

With respect to the current market share for EPIAO, can you give me an idea of where that is currently; is it holding steadily at around 40%?

Bo Tan

We have been growing the market share based on the MS data, we have been growing the market share over the past several years.

David Chen

Right now, the latest data is 42.6% dollar value.

Ram Balarasu - Soleil Securities

Okay, and can you just give me a general idea of what kinds of additional products you would consider to be complementary with 3Sbio’s existing product portfolio, and whether you would seek to consummate additional licensing agreements similar to the one with AMAG on Feraheme?

David Chen

As you know we are actually still looking for business development opportunities, and in terms of complimenting to our franchise, and certainly nephrology is the area that we focus on; certainly many other therapeutic areas, and CKD area, so these will be the areas where we focus our effort.

Oncology wise, we have a fairly significantly presence in the oncology supportive care, and certainly we have high dose aisle two in our pipeline waiting for SFDA approval, and that will be our first, the oncology test, and that will be the focus of our effort as well in terms of the oncology therapeutics with its targeted therapies, monoclonal antibodies, those would be the areas that we are going to focus our effort.

So in terms of the AMAG, our partnership, these kind of opportunities really come by from the [Lentus] that we are actively looking for in that type.

Operator

Your next question comes from Katherine Lu - Oppenheimer.

Katherine Lu - Oppenheimer

I just want to follow-up on the EPO question. EPIAO obviously had a very strong quarter, and David you mentioned, in 2Q you gained market share to 42.8%. So I’m just wondering, I know the IMS data will come in delayed, but could you give us some estimate on the EPO market growth in the third quarter, and the pricing environment.

Bo Tan

In terms of the pricing environment, based on what we saw so far on our products, it has been stable. We are expecting roughly as you know a 5% decline in our prizing, but so far this year it’s been a stable environment.

Katherine Lu - Oppenheimer

How about the market growth?

Bo Tan

The market growth in the past five years had a figure of about 15%. We think in the third quarter, the market should be at least growing at that level as well.

Katherine Lu - Oppenheimer

Would it be fair to assume that you gained share in the third quarter because your growth was 32.5%?

Bo Tan

Yes, until we see the data, yes, that’s a fair assumption.

Katherine Lu - Oppenheimer

Okay. And also what kind of pricing trend should we be expecting for 2010?

Bo Tan

Usually, as before, due to all the different kinds of provincial opinions, we have a 5% decline, sort of assumption.

Katherine Lu - Oppenheimer

Okay, and do you have any feedback from SFDA on the high dose EPO application? When should we be expecting the application to get approval if it’s still sometime next year?

David Chen

Yes. Well, I think it will be some time next year, and we have had several rounds of meaningful interactions with SFDA regarding manufacturing the clinical data. So right now, I can’t provide any specific timeline. It would be sometime next year.

Katherine Lu - Oppenheimer

Is it possible for us to assume first half or second half?

David Chen

It will be difficult to provide that timeline right now.

Katherine Lu - Oppenheimer

Then my second question is, obviously you had a very strong quarter with sales strength across the board in domestic market. Then you also kept your guidance unchanged. I am just wondering, besides the seasonality, is there any other factors that contributed to the strong quarter? Is there anything that you are concerned about that will prevent the company to exceed the guidance for the full year?

Bo Tan

Yes Katherine, we provided the annual revenue guidance at the beginning of this year, and we are very happy with our sort of performance in the first three quarters. Going to the fourth quarter this year, as we noted before, there is a seasonality here, and if you look at the past several years, the fourth quarter on a sequential basis usually declined from the third quarter, anywhere from the single-digit decline until to about 18% decline in the fourth quarter.

For this year we would like to remain cautious, as well as a conservative in terms of the full-year guidance. There are a couple of specific factors this year that could be different from the previous three years. The first one is the long October 1 holiday, and that may have skewed the seasonality a little bit. As it’s the 60^th Year Anniversary, a lot of celebration activities were going on around that time.

The second factor that caused us to be a little bit cautious and conservative is on the weather side. The HIN1 influenza here this year, the snow stop this year is different from the previous years. So overall we are comfortable with our full year guidance and we are set to achieve that goal by the year-end.

Katherine Lu - Oppenheimer

Then on the cost side, I just want to follow up on that gross margin question. The gross margin was really much stronger than expected. Could you remind us the gross margin for EPIAO and TPIAO? Was that a higher margin due to a mix shift or it is due to the economy of scales or is it anything else?

Bo Tan

It’s largely due to the economy of scale, and also all of our products are from our existing plant which has been more than 10 years old. So a lot of depreciation charges, the fixed cost is over now. So that’s one of the key reasons we had this high growth margin level, but going forward with our new plant coming on stream, we will see some pressure on the gross margin.

Katherine Lu - Oppenheimer

Okay, and you mentioned that additional depreciation of RMB50 million per year going forward…

Bo Tan

Roughly yes.

Katherine Lu - Oppenheimer

Okay, could you remind us what was the total CapEx for the facility expansion?

Bo Tan

Total CapEx for facility expansion is about $30 million.

Operator

Your next question comes from [Cheng Hu] - Mentor Capital.

Cheng Hu - Mentor Capital

I have a few questions, let’s just go one by one. On TPIAO, you showed a very good growth for the quarter and in the last few quarters I did meet other investors and some of them expressed the concern about the safety for TPIAO. So I want to get your opinion within the last three years of experience, what do you see on the safety side of this drug?

David Chen

Chen let me take that question. We just completed a few studies, and the results show great safety profile of TPIAO. One is our pharmaco vigilance program. We studied about 2000 patients and we collected the safety data, and in terms of their clinical symptoms and also their drug chemistry, and the results showing that TPIAO is very safe, which reaffirm the results that we have seen in our phase III trial.

We also completed another study. In terms of antibodies we collected over 100 patients; antibodies and to look at the TPIAO safety; and its results are very positive. There are only few cases of patients developing antibodies and also they are non-neutralizing antibody. So in terms of safety, we are very confident with our TPIAO.

Jing Lou

That’s the first time I heard that question Chen Hu, it’s surprising.

Cheng Hu - Mentor Capital

No actually, I think it may be good to address this one. Then why in U.S, they said this drug is found to be the efficacy is very good, but the safety was no good, and then they get approved. I mean they finally failed FDA approval, but in a sense they maybe…

Jing Lou

They did not fail FDA approval. No that’s wrong.

Cheng Hu - Mentor Capital

I see.

Jing Lou

They discontinued and go to another small molecule, instead of it.

David Chen

Yes, people certainly are entitled to their opinions, and when they look at the other company’s strategy, whether they would continue to develop certain assets, as far as the data we have right now about TPAIO, it’s very safe.

Cheng Hu - Mentor Capital

Okay, so may be in the sense, what do we do different with the drug than say US tiers.

David Chen

Say it again. I am sorry. Could you repeat?

Cheng Hu - Mentor Capital

I mean what would be difference with the drug in terms of maybe dosage or composition. Why in US you cannot get FDA approval?

David Chen

They did not finish the study. I think they completed phase II and they choose to not to progress with the program. So whether it’s because of strategic reason, whether it’s because of other technical reasons they have seen, whether it’s investment decision, we just simply don’t know, but we don’t want to speculate what their decision is, but it’s not that they are not getting the FDA approval.

Bo Tan

It did not fail, right.

David Chen

Yes, they did not fail.

Cheng Hu - Mentor Capital

Okay, but somehow they decided not to go to phase III?

David Chen

Right. We don’t know exactly where their program is right now.

Cheng Hu - Mentor Capital

Okay, the second question is regarding export. Also in the last two quarters the growth is actually very good, and this quarter looks like a fall off. Just wonder is that seasonal, I mean just fluctuation, I mean the up trend is still there or what you see?

David Chen

We manage export business through our distributors in various countries. So quarterly numbers can be lumpy, and depending on the various market situations and the distributors, when they are tendering, and all different kind of situations. So the quarterly numbers, I won’t read too much into it, but overall export market is growing and remains our focus area, especially when we complete the new plant construction, and it’s still relatively small, relatively 5% of our business for the year.

Cheng Hu - Mentor Capital

Yes. Also David you mentioned you targeted AMAG at the drug for Q4 this year for SFDA application, does that mean that you already did the clinical trial in China or are you doing the clinical trial in China or what?

David Chen

Yes, normal process is we will submit the clinical trial application in terms of getting all the FDA dossier translate them according to the SFDA regulations and also including all the after approval documents required that AMAG provides us, and then we will submit this whole package to SFDA for clinical trial approval. That process usually takes six to nine months, and then after that we will start the clinical trial.

Cheng Hu - Mentor Capital

Okay. Finally regarding Q4 guidance, I noticed you mentioned a few factors. So may be if you do something like Q4 from October to now, that’s like about a half of the quarter as it’s passed. Is the pattern, the sales pattern or sales through pattern very different from last year or from the year earlier?

Bo Tan

Chen, we can’t comment on the fourth quarter results yet as we are reporting the third quarter one, but we do noticed a seasonality. The seasonality is very similar to the previous years, but fourth quarter sales tapers off compared to the third quarter sequentially.

Cheng Hu - Mentor Capital

Yes, if I look at the total, it’s around 43 to 45, which means your fourth quarter is something like $8 million to $10 million; that looks like a year-over-year decline. Do you think the sales will decline year-over-year?

Bo Tan

Well, again Cheng, the guidance will give you the 21% to 26% year-over-year gross over last year, and we use this guidance both internally as well as for the communication with the market. As of today, we are still comfortable with that guidance.

Operator

Your next question comes from James Tong - Roth Capital.

James Tong - Roth Capital

I have a quick question; first of all for the high-dose EPO, now you have EPO penetration of 42.6%, and if the high-dose EPO comes in, whether it will increase the market penetration or is there a possibility to cannibalize the EPO market for SSR?

David Chen

I think it would definitely help to penetrate oncology segments, as the patients now are only getting one shot instead of three shots, but in terms of cannibalization we think there was a certain degree of cannibalization but to what extent it’s difficult to estimate right now. Our focus right now is trying to work SFDA and get product approved to the market.

James Tong - Roth Capital

So in the new plant, the last time I visited was actually the last year, so is the new plant almost completed, and do you think that a new plant would be able to contribute to revenue by mid next year?

Jing Lou

Second half next year.

Operator

Your next question comes from Jeb Besser - Manchester Management.

Jeb Besser - Manchester Management

One minor question, so your total budget for the plant is $30 million, how much have you spent so far?

Bo Tan

So far, let me give you a specific breakdown. Basically in 2008 we spent about $5 million, and in Q1 and Q2 this year we spend about $3.5 million. In the third quarter of this year, we spend about over $5 million, but in the fourth quarter this year we are budgeting $13 million to $15 million.

Jeb Besser - Manchester Management

Okay, all right. So you’ll substantially be done with the expenditures on the actual plant this quarter?

Bo Tan

By the end of this year, yes.

Jeb Besser - Manchester Management

Which means that your cash balance will still be or probably just a little under a $100 million after you’re finished with the plant?

Bo Tan

Right.

Operator

Your next question comes from Hongbo Lu - Piper Jaffray.

Hongbo Lu - Piper Jaffray

I have two more questions; one is on Feraheme. David, can you share with us your current thoughts on potential clinical protocol with regards to how many patients you might need and the recruiting time end points, and your expectation on the NDA submission timeline?

Then the second question is also for David. If you can elaborate your thoughts on ex-China opportunity for EPIAO, have you started partnering discussions and how big market opportunity there might be for example in Europe? Thank you.

David Chen

Hongbo, the first question first. In terms of Feraheme studies, it will be 200 patients, 100 on the drug and 100 active control and we are going to compare the two drugs and will be a 30 day study similar to the Feraheme study in the United States. The study will last; I think the rough estimate is about six months to a year to complete. In terms of NDA submission, we won’t be able to submit the NDA right after the completion of the studies, so roughly 2012 time frame.

Hongbo Lu - Piper Jaffray

Then ex-China?

David Chen

The ex-China, we already started the partnering discussions with various governments. In terms of the strategy we’re looking at these big countries in terms of Australia and Malaysia and South Africa and those countries and the European markets. It’s difficult to estimate the market potential we get from our perspective.

Jing Lou

Hong Bo, the real process we started from the completion of the new manufacturing plant.

David Chen

Right.

Hongbo Lu - Piper Jaffray

Why do we have to wait, why we can’t start partnering discussions now?

David Chen

No, what Dr. Lou means is the…

Jing Lou

The actual process

David Chen

Yes, the actual process, we already started the conversation. Certainly we need to do the market research in terms of understanding who are the active participants in this area, and who are interested, and we need to build a contact with them. We certainly need to assess the market using some consulting firms and it’s a process we already started to work on, but the actual kind of full effort will start from next year.

Operator

(Operator Instructions) Your next question comes from Katherine Lu - Oppenheimer

Katherine Lu - Oppenheimer

I have a couple of questions, first of all Bo, your R&D expense looks higher both on absolute number and as a percentage of sales. Is there any one time factor contributed to this up-tick in expense, and what would be a normalized run rate for us to think about going forward.

Bo Tan

Yes for the R&D ratio, historically in the past couple of quarters it was above 3% and also 5% of the total sales, and this quarter it’s about a little bit over 8%, and going forward where we don’t have a specific guidance on this one, our normalized sort of R&D ratio is anywhere from 5% to 10%.

For this quarter specifically we have had some spending on a couple of our pre-clinical study programs, including the monoclonal antibodies study etc. For those programs we are not yet in sort of a milestone yet, so we will make announcements when we get those programs advanced to the next milestone.

Katherine Lu - Oppenheimer

Okay, another question is once the feromoxytol starts, let’s say by the end of this year or early next year, how much expense should we be thinking of adding to your current level?

David Chen

With 200 patients we are probably looking at RMB3 million to RMB5 million.

Katherine Lu - Oppenheimer

And then second question is for David; I remember early this year you mentioned the goal on the business development side to achieve at least one licensing project this year, with only one and a half month left, should we be expecting anything from that front?

David Chen

This still remains our goal and I can’t comment specifics right now, but it still remains our goal.

Katherine Lu - Oppenheimer

Finally, I have two questions for Dr. Lou. Just on the full year gross perspective, is there any macro policy change that would help 3SBio to increase the full year growth from the current level going forward?

Jing Lou

For this year it’s hard to tell you. As you see it’s only one and a half month away from the end of the year.

Katherine Lu - Oppenheimer

Right, yes for next year is there any…

Jing Lou

We are planning for next year, but I can’t comment anything on the next year right now.

Katherine Lu - Oppenheimer

Okay. Is there any macro policy you would…

Jing Lou

Macro policy we would expect to be coming of, as everybody knows the renewal of the reimbursement list; the increase of coverage on dialysis

Katherine Lu - Oppenheimer

Second question is, given the growth prospective of China’s pharmaceutical markets, it seems more and more global players are interested in gaining additional footage in this area. We have seen a lot of exhibition investments on the OTC Pharmaceutical or vaccine or insulin related area. Given you are one of the leading franchise in the biological manufacturing, I’m wondering, do you think 3SBio can benefit from this trend as well, and would you ever consider to sell the company?

Jing Lou

Well, we definitely are actively looking for any opportunities, I mean domestically or internationally, both on the M&A side, and I really cannot comment on that part, but we are definitely focused on the execution, on our operation strategy.

Operator

(Operator Instructions) There are no further questions at this time; please continue.

Jing Lou

All right. It looks like we covered everybody’s questions. Again, thanks to everyone for participating in today’s call and for your interest in 3SBio too. We look forward to updating you again soon. Good bye.

Operator

Thank you for your participation in today’s conference call. You may now disconnect.

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