Simcere Reports Unimpressive Q3 Results

Simcere Pharmaceutical Group (NYSE: SCR) reported its unaudited financial results for the quarter ended September 30, 2007 before the bell yesterday. Overall, the company's results were in line with expectations. Total revenue increased to US$43.2 million, up 44.5 % from the same period last year. Gross margins improved from 79.0% to 81.7%, and net income increased to US$9.8 million for a 72.9% gain.

The company's revenue growth was driven by its 2 main products, Endu and Bicun. Endu, recombinant human endostatin used in the treatment of advanced lung cancer, had sales of US$7.1 million in the quarter, up 377.3% over the year but down slightly from quarter 2. Sales of Bicun (endaravone), used in the management of acute stroke, rose 83.8% to US$14.2 million. Generic products revenues rose 5.4% to US$21.8 million for the quarter.

The company reported R&D expenses of US$2.6 million or 6% of revenues. Ongoing phase IV clinical studies for Endu accounted for much of these expenses. In addition management attributed the slight drop in Endu sales to enrollment of some patients into the clinical trials. The company intends to continue clinical trials on Endu in combination therapy as well as on extended indications. Simcere management also reported the completion of the company's acquisition of Jilin Boda Pharmaceutical Co. Ltd. The acquisition, valued at US$14.8 million, adds the injectable edaravone Yidasheng to Simcere's portfolio. The company plans to position Yidasheng in the low to mid end of the market, with Bicun at the high end and reports it now controls 100% of the injectable edaravone market in China.The company's results are in-line with current expectations. Net income for the first 9 months of 2007 is US$29.8 million, on track to meet analyst's expectations of US$37.9 million for the year. The company continues to execute on its business model of building out its innovative drug portfolio while maintaining a solid foundation in the generics. Clearly the key to the company's growth is its ability to innovate, so the results of Endu's clinical trials over the next 2-3 quarters will have significant impact on the company's top and bottom lines.

Investors weren't impressed with Simcere's results, with shares down over 8% at midday. This likely reflect the in-line results, some limitation to the company's upside potential until more clinical results are in, as well as general weakness in the Asian markets.

Disclosure: none