Simcere Pharmaceutical Group
) reported third quarter 2012 earnings of 7 cents per American
Depositary Share (ADS), in line with the Zacks Consensus Estimate
but well below the year-ago earnings of 23 cents.
Higher research and development expenses and sales, marketing
and distribution expenses led to the decline in year-over-year
earnings. We note that each ADS represents two ordinary shares of
Revenues at Simcere Pharma came in at $83.8 million in the
third quarter of 2012, up 6.8% year over year.
Higher-than-expected sales from products such as Zailin,
Yingtaiqing and Anxin resulted in the year-over-year increase in
Revenues in the reported quarter were nominally higher than
the Zacks Consensus Estimate of $83 million. In terms of local
currency, revenues increased 5.1%.
Sales of branded generic drug, Zailin, climbed 86.4% in terms
of local currencies. Yintaiqing (up 23% in local currency) and
Anxin (up 64.1% in local currency) also performed well during the
Products like Edaravone injection (declined 6.6% in terms of
local currency) and cancer drug Sinofuan (declined 23.3% in terms
of local currency) performed disappointingly during the third
quarter. Sales of another cancer drug Endu also decreased 9.6% in
Gross margin declined to 83.6% during the quarter from 84.6%
in the prior-year quarter. Reduced sales of high-margin products
as a percentage of total sales led to the decline in gross
Simcere Pharma's R&D expenses increased 43.7% in local
currency. The increase was primarily attributable to higher
expenses related to Simcere Pharma's ongoing R&D projects. We
remind investors that the company gained approval to conduct
first in-human clinical trials for its category 1 new drugs,
metatinib and anti-VEGF human monoclonal antibody this September
and October, respectively.
Sales, marketing and distribution expenses increased 5.1% in
local currency. General and administrative expenses at Simcere
Pharma declined 12.6% in local currency.
Neutral on Simcere Pharma
We are pleased with Simcere's cost-control measures and
spending efficiency, which are likely to drive profitability.
Moreover, the Chinese company's associations with leading players
Merck & Company, Inc.
Bristol-Myers Squibb Company
) should stand Simcere in good stead.
We currently have a Neutral recommendation on Simcere Pharma.
The stock carries a Zacks #4 Rank (short-term Sell rating).
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