Simcere Pharmaceutical Group (SCR) earned 12 cents per American Depository Share (ADS) in the fourth quarter of 2011 as opposed to the prior-year earnings of 16 cents per ADS. Earnings in the quarter were hurt by lower revenues and higher research & development (R&D) expenses. The Zacks Consensus Estimate was 5 cents per share. We note that each ADS stands for two ordinary shares of Simcere Pharma.
Quarterly Details
Revenues at Simcere Pharma declined 9% to $81.2 million in the final quarter of 2011. Revenues were short of the Zacks Consensus Estimate of $85 million. In terms of the local currency revenues declined 13.0% to RMB 511.0 million.
Sales of cancer drug Endu was down 3.7% in local currency. Sales of branded generic drugs, including Zailin, declined 9.7% in terms of local currencies to RMB230.5 million. Revenues were impacted by the Chinese government’s decision to cut the prices for branded generic drugs.
Sales of edaravone injection products declined 22.5% to RMB172.3 million primarily due to the adverse impact of changes to the tender process in certain regional areas coupled with the realignment of the sales force at Simcere Pharma. However, cancer drug Sinofuan performed impressively in the quarter with sales increasing 18.5% in terms of local currency to RMB 42.8 million.
Gross margin went down to 82.3% during the quarter, compared with 84.1% reported in the prior-year quarter. Reduced sales of the high margin edaravone injection offerings were primarily responsible for the decline in gross margin.
Simcere Pharma’s R&D expenses were up 124.4% in local currency to RMB70.6 million. The increase was attributable to Simcere Pharma’s efforts to develop its pipeline.
Sales, marketing and distribution expenses decreased 13.1% in local currency to RMB287.4 million. General and administrative expenses at Simcere Pharma were $12.0 million in the reported quarter (up 8.9% in local currency to RMB75.8 million).
Annual Results
For the full year 2011, Simcere Pharma earned 51 cents per ADS, beating the 2010 earnings by 4 cents. The Zacks Consensus Estimate was 43 cents per share. 2011 revenues came in at $324.2 million (down 4.7% in local currency to RMB2, 040.5 million). The Zacks Consensus Estimate was $328 million.
Our View
We are pleased by Simcere Pharma’s efforts to expand its portfolio by launching new drugs. With multiple 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 association with leading players such as Merck & Company, Inc. (MRK) and Bristol-Myers Squibb Company (BMY) should stand Simcere Pharma in good stead.
Even though the company carries a Zacks #4 Rank (‘Sell’ rating) in the short-run, we are more cautious in the long-term with a ‘Neutral’ view on Simcere Pharma.
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