3SBio Drops on Missed Estimates

3SBio Inc. (SSRX) reported fourth quarter financial results that beat the previous year’s numbers by a substantial amount, but still fell short of estimates. Adding insult to the injury, the company guided investors lower in their forecast for 2008 revenue. 3SBio predicted 2008 revenues would be in a $30 million to $32 million range, while analysts had called for $35.5 million.

In Q4, 3SBio realized revenues of 45.7 million RMB ($6.3 million), a 30% gain over the year-earlier number. Sales for its erythropoietin [EPO] products were up a respectable 15%, but the big driver of the gain was its newer thrombopoietin [TPO] line of products, which doubled its 2006 Q4 results.

Unfortunately, despite the increased revenue, operating income was down 30%, due to increased amount of materials – which should have been offset by the higher revenues – and perhaps more to the point, higher wages. This is a big difference, however, which higher wages and a slightly increased budget for R&D does not fully explain. The company’s R&D effort cost $500,000 in the quarter, mainly a post-approval Phase IV trial of its relatively new TPO product.

Earnings per ADS climbed from 7 cents in 2006 to 11 cents this year. Analysts were expecting 13 cents EPS and revenues of $6.6 million.

For all of 2007, 3SBio reported revenues of 180 million RMB ($24.7 million), a 41% rise. Net income increased 167% to 81.5 million RMB ($11.2 million), and earnings per ADS rose 83% to 53 cents.

The big savior for the company during the year was an “other income” item of 36.5 million ($5 million) of interest income, which was earned on the company’s $123 million IPO held in February 2007. Its various borrowings were fully repaid after the IPO, reducing interest expense.

The earnings announcement sent 3SBio shares lower by 28% in Thursday’s session. The stock was off $3.26 at $8.44.

In the announcement of its results, 3SBio cited the following significant accomplishments during 2007:
• solid growth across our core product portfolio,
• progress on our development pipeline,
• introduction of an oncology-focused sales team,
• launch of a new product, and
• groundbreaking on a new manufacturing facility.

3SBio has three products in Phase III trials. All three were originally scheduled to complete their trials in 2007, but have been extended.

Enrollment for the Phase III trial of high-dose (36,000 IU) EPIAO was completed and patients completed the original protocol with positive results. As an additional safety measure, the post- treatment observation period was extended, primarily because of safety questions about higher hemoglobin levels caused by ESAs (Erythropoiesis-Stimulating Agents) in the US. 3SBio now expects to file for approval with the SFDA in Q3 of 2008.

Positive data was reported from a Phase III trial for TPIAO for the treatment of idiopathic thrombocytopenic purpura [ITP]. However, an unexpectedly high drop-off rate (patients left the hospital before the required observation time) means that more patients will have to be enrolled. 3SBio now expects to file with the SFDA in Q4 of 2008.

The Phase III trial for NuLeusin, a second generation IL-2, was completed with positive results. But 3SBio decided to increase the number of patients, and data from them remain outstanding. 3SBio anticipates all data will be gathered in Q2.

An efficacy and pharmacokinetics studies for NuPIAO, a second- generation EPO product, has been completed, and a toxicology study is currently underway. 3SBio plants to apply for a clinical trial in the second half of 2008.

3SBio’s first humanized monoclonal antibody (mAb), anti-TNF mAb (SSS07), completed characterization of fully humanized clones. 3SBio claimed that the original potency of the rabbit mAb proved to be more advantageous than all known anti-TNF mAbs currently on the market.

Disclosure: none.