Revenues Rise at Simcere Pharmaceutical

| About: Simcere Pharmaceutical (SCR)

Simcere Pharmaceutical Group’s (NYSE:SCR) fourth quarter 2010 earnings of 16 cents per American Depository Share (ADS) easily surpassed the Zacks Consensus Estimate of 10 cents. The company suffered a loss of 27 cents per ADS in the final quarter of 2009 (on an adjusted basis). Higher revenues benefited earnings in the reported quarter.

Quarterly Details

Revenues at Simcere Pharma came in at $89.1 million in the final quarter of 2010. Revenues edged past the Zacks Consensus Estimate of $89 million. In terms of the local currency revenues climbed 7.6% to RMB587.7 million. Higher sales of cancer drugs, Endu (up 99.7% in local currency), Sinofuan (up 18% in local currency) and edaravone injection products (up 5.1% in local currency) helped boost revenues.

Gross margin went up to 84.1% during the quarter, compared with 83.6% in the prior-year quarter. Stable pricing of the company’s products helped boost the margin.

Simcere Pharma’s research and development (R&D) expenses came in at $4.8 million in the final quarter of 2010. R&D expenses were down 37.3% in local currency. The decrease in the reported quarter was primarily attributable to the recognition of a subsidy received from the government towards research and innovation.

Sales, marketing and distribution expenses came in at $50.1 million in the reported quarter. The expenses increased 10.2% in local currency. Expansion of the sales force and increased promotion expenses for newly launched products inflated expenses.

We expect these expenses to continue increasing in the near term. General and administrative expenses at Simcere Pharma were $10.5 million in the reported quarter (up 23.6% in local currency).

Annual Results

For full year 2010, Simcere Pharma earned 47 cents per ADS, beating the 2009 adjusted earnings by 44 cents and the Zacks Consensus Estimate by 7 cents. Earnings were driven by higher revenues. 2010 revenues came in at $324.4 million (up 15.3% in local currency). The Zacks Consensus Estimate was $320 million.

Our View

We are gratified by Simcere Pharma’s efforts to expand its portfolio by launching new drugs. The Chinese government’s healthcare initiatives should also aid growth at Simcere Pharma.

With over 100 drugs in the National Drug Reimbursement List issued by the China’s Ministry of Human Resources and Social Security, we believe Simcere Pharma, which boasts of a well-established sales network, is well-positioned for long-term growth. The agreement with pharma major Bristol-Myers Squibb (NYSE:BMY), signed late last year, is also a major achievement for Simcere Pharma.

Even though the company carries a Zacks #2 Rank (Buy rating) in the short-run, we are more cautious in the long-term with a Neutral view on Simcere Pharma.