3SBio Reports Higher Q2 Revenues but Earnings Slip

3SBio Inc. (SSRX) reported that Q2 revenue increased 38% to 60 million RMB ($8.7 million), but net income actually declined 17% to 19 million RMB ($2.2 million). That number works out to earnings of 13 cents per ADS. The company took advantage of the higher sales numbers to raise its full-year 2008 revenue targets by about $4 million to a range of $34 million to $35 million.

Net margin for Q2 of 2008 was 32.5% as compared to a sky-high 54.2% a year earlier.

Revenue from 3SBio’s most important product, EPIAO, a recombinant human erythropoietin [EPO], rose 24% to $5.4 million. Sales of 3SBio’s newer product, TPIAO, a protein-based therapeutic recombinant human thrombopoietin [TPO] jumped 67% to $2.3 million.

Despite the rise in revenues, operating income increased only 10.5% to $2.2 million. Meanwhile, operating expenses swelled by 54% to $5.7 million. The company blamed its increased costs on higher expenditures for sales, marketing and distribution as well as general and administrative expenses. In the conference call to investors, 3SBio said that the company is essentially creating a market among cancer patients for its TPIAO product. However, it acknowledged that this initiative has been going on for two and one-half years, which does not explain the sudden rise in costs. In any event, the company does feel the high costs of launching this product will eventually prove worthwhile.

Stressing the positive, 3SBio reminded investors that it signed a partnership in Q2 with AMAG Pharma of Boston to develop and commercialize ferumoxytol in China. Ferumoxytol is a new-generation intravenous iron replacement therapeutic agent to treat iron deficiency anemia in chronic kidney disease ("CKD") patients. In the conference call, company officials said they thought the product might be able to complete the approval process and be launched in 2011. 3SBio said the company paid a $1 million upfront fee for the product.

The company is also continuing its Phase III trial of high-dose EPIAO, which is administered once a week as opposed to three times per week for the normal version.

3SBio is in the process of analyzing the data from a Phase III trial of its kidney cancer drug, NuLeusin, a second generation IL-2. The company expects to file for approval of the drug in the second half of 2008. In the Phase III test, the drug causes an 11% partial response and one patient experienced a complete response. The Phase III trial for TPIAO as a treatment of idiopathic thrombocytopenic purpura [ITP] has completed enrollment. 3SBio expects to file for approval of TPIAO for this indication in Q4 of 2008.

After the report was released, 3SBio dropped 3% or 34 cents to close at $10 per share. The company has a market capitalization of $217 million and a trailing 12 month P/E ratio of 17. With $115 million of cash on its books, 3SBio still has in its possession the majority of the capital it raised in its IPO. The company says its remains in the hunt for advantageous M&A deals, but any potential acquisition must be right in terms of price and/or synergies.

Disclosure: none