Simcere Pharmaceutical Group
) reported first quarter 2013 earnings of 9 cents per American
Depositary Share (ADS) beating the Zacks Consensus Estimate by a
penny. We note that each ADS represents two ordinary shares of
Revenues at Simcere Pharma came in at $85.1 million in the
first quarter of 2013 beating the Zacks Consensus Estimate of $82
million. Sales increased 8.4% year over year in local currency
despite continued pricing restrictions from the government and
Quarter In Detail
All growth rates mentioned below are in terms of local
currency. Sales of Edaravone injection decreased 10.3% year over
year primarily due to pricing restrictions by the government
along with issues relating to the tendering process. Cancer drug
Sinofuan (declined 16.9% in terms of local currency) also
performed disappointingly during the reported quarter.
Sales of other cancer drugs like Endu and Jiebaishu increased
42.4% and 12.6%, respectively. Sales of gastroenterology drug
Biqi posted year-over-year growth of 11.5%.
Nevertheless, sales of Anxin (anti-infection) increased 7.2%
year over year notwithstanding government restrictions on the use
of antibiotics. The growth was primarily attributable to Simcere
Pharma's strategy of targeting key regions and key hospitals.
Sales of another anti-infection drug Anqi, however, were down
13.3% in the reported quarter.
Sales of Zailin (anti-infection) increased 4.2%. Yintaiqing
(inflammation) also posted an increase of 46.2% from the year-ago
quarter. Sales of Kechuanning (respiratory) were up 26.3% from
the year-ago quarter. Simcere Pharma is reformulating its pricing
strategy for tenders along with exploring new models for better
promotion of its generic products in the market to combat
Gross margin declined to 79.2% during the first quarter of
2013 from 82.0% in the year-ago quarter. The decline in gross
margin was due to a reduction in sales of drugs with higher gross
margins. Simcere Pharma also incurred certain fixed overhead
costs ahead of the commercial production of influenza vaccine
products, which negatively impacted margins.
Simcere Pharma's research and development (R&D) expenses
decreased 7.0% primarily due to the completion of development of
the company's influenza vaccine product and subsequent transition
to commercial manufacturing. Sales, marketing and distribution
expenses increased 0.3%. General and administrative expenses
declined 1.6% from the year-ago quarter.
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We believe that Simcere Pharma will face challenging market
conditions in the remainder of 2013 owing to pricing pressure
from the government. Nevertheless, improvements in cost structure
should lift the overall performance.
We note that Simcere Pharma has associations with leading players
in the pharmaceutical space, such as
Merck & Company, Inc
Bristol-Myers Squibb Company
), to expand its product portfolio.
We remind investors that Simcere Pharma received a buyout
proposal from Mr. Jinsheng Ren, New Good Management Limited,
Assure Ahead Investments Limited and its subsidiaries in Mar
2013. In response, Simcere Pharma's board has formed a special
committee of independent directors, headed by Mr Alan Au, to
consider the proposal.
Simcere Pharma currently carries a Zacks Rank #3 (Hold). Right
) looks attractive with a Zacks Rank #1 (Strong Buy).