Simcere 3Q Earnings Matches - Analyst Blog

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Simcere Pharmaceutical Group ( SCR ) 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 Simcere Pharma.

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.

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 quarter.

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 local currency.

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 margin.

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 such as Merck & Company, Inc. ( MRK ) and Bristol-Myers Squibb Company ( BMY ) 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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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