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3SBio Inc. (SSRX)

Q3 2009 Earnings Call

November 13, 2009 8:00 am ET

Executives

Jing Lou - Chief Executive Officer

Bo Tan - Chief Financial Officer

David Chen - Chief Operating Officer

Yingfei Wei - Chief Scientific Officer

Kevin Teo - Director of Finance

Tom Folinsbee - Director of Investor Relations

Analysts

Hongbo Lu - Piper Jaffray

[Ram Balarasu - Soleil Securities]

Katherine Lu - Oppenheimer

Cheng Hu - Mentor Capital

Jeb Besser - Manchester Management

Presentation

Operator

Welcome to the 3SBio, quarter three 2009 earnings conference call. At this time, all participants are in a listen-only mode. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Mr. Tom Folinsbee. Thank you. Please go ahead.

Tom Folinsbee

Welcome to 3SBio’s third quarter 2009 results conference call. Before I turn the call over to the management team, I would like to remind you that the presentation today may contain forward-looking statements made pursuant to the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve risks, uncertainties and assumptions. As such 3SBio’s actual financial condition and operation results may differ materially from those forward looking statements. A number of risks and uncertainties that are discussed in our risk factors and other relevant sections of 3SBio’s filings with the Securities and Exchange Commission.

Please see the earnings press release under the heading Safe Harbor statement for more information. 3SBio undertakes no obligation to update or revise these forward-looking statements. As the management team proceeds through their remarks, they will refer to the third quarter results presentation which could be downloaded from www.3sbio.com in the Investor Relation section under Financial Reports. The management team will open the floor to questions after their opening comments.

I would now like to turn the conference over to 3SBio’s CEO Dr. Jing Lou. Dr. Lou please go ahead.

Jing Lou

Thank you Tom, and thank you everyone for joining our third quarter 2009 conference call. Joining me today are David Chen, Chief Operating Officer; and Bo Tan, Chief Financial Officer. After some brief comments we will be pleased to answer your questions.

In the third quarter we remained focused on executing our business strategies and demonstrated again our ability to deliver strong top line and bottom line growth. In the meantime we have continued to invest in our product pipeline which is summarized on the slide 15.

We are actively working with China backed SFDA to seek approval for these three products which were submitted last year. Our research scientists continue to move forward with our early stage programs. We will update everyone after we reach any significant new development on reaching each milestone.

The construction of our new EPIAO and TPIAO manufacturing plant in Shenyang is ongoing and remains on schedule. The new plant will increase our capacity to meet the growing demand for our core products. We also continue to look externally for opportunities to invest our strong balance sheet and build our pipeline.

Our main criteria remains unchanged; the most important one being that new product should compliment our core strength in biologics, while elaborating our existing sales and distribution infrastructure in nephrology and oncology in China. Overall we are very pleased with the financial results for the quarter and are comfortable reiterating our full year revenue guidance of $43 million to $45 million.

So, I would now like to turn the call over to Bo Tan, our CFO who will review our financial results, and then David Chen, our COO who will update you on our operations. Bo.

Bo Tan

Thank you Dr. Lou, and hello again to everyone on the call. I will go through some financial highlights. You can find more details on slide seven through 11, as well as in the press release. We continue to show both non-GAAP and GAAP numbers for this quarter. You can find the reconciliation tables in the press release. I am also going to use US Dollar throughout, but you can find the RMB figures in the press release as well.

As Dr. Lou noticed, we delivered a strong top line growth in the third quarter, and net revenues increased year-on-year by almost 36% from $10 million to $13.6 million. Net revenue for the first nine months of 2009 hit $35.5 million, just over 80% of our full year target.

Bills in the fourth quarter over the past three years have accounted for about 25% of our annual sales. So we seem to be slightly ahead of target based on the historical [Inaudible]. However, our outlook for the fourth quarter remains positive. We expect sales to taper off somewhat in the fourth quarter compared to the third quarter as they usually do.

Gross profits marked the quarter with $12.6 million, a 38% increase over the third quarter of 2008, which were $9.2 million. For quarter-on-quarter comparison, gross profit in the second quarter this year was $11 million. Gross margin last quarter hit an all time high of 93%, a 1.7% increase over the 91.3% registered in the same period of 2008.

Our GAAP operating income was $4.2 million, a 38% increase from the $3.1 million we generated in the same quarter last year. Net interest income stabilized at $0.4 million, essentially unchanged over the second quarter. Our GAAP net income for the quarter was $3.9 million, a substantial improvement over the $0.3 million earned in the third quarter of 2008.

On a non-GAAP basis, net income was $4.1 million, a 25.6% increased over the $3.3 million earned in the third quarter of 2008. The difference between the GAAP and non-GAAP members here is mainly due to a one-time impairment of loss last year on our Lehman credit note.

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