- Gross Margin Increases to 35.6% from 23.4% -
- Conference Call Scheduled for August 13, 2010 -
Guangzhou, China, August 12, 2010 – China Medicine Corporation (OTC BB: CHME) (“China Medicine” or “the Company”), a leading manufacturer, developer and distributor of Western pharmaceuticals, traditional Chinese medicines (“TCM”), and other health products, today announced financial results for the second quarter ended June 30, 2010.
Second Quarter 2010 Financial Performance
- Revenue increased 14.2% to $17.2 million from $15.1 million in the prior year period.
- Gross margin was 35.5%, compared to 23.4% in the prior year period.
- Operating income increased 113.0% to $3.8 million from $1.8 million in the prior year period.
- Net income available to common shareholders increased to $4.1 million, or $0.10 per diluted share, from $41,996, or $0.00 per diluted share, in the prior year period.
Mr. Senshan Yang, Chairman and CEO of China Medicine Corporation, stated, "We are very happy with our performance this quarter, which marked a successful period of transition for us as we move from a pure pharmaceutical distributor to a vertically-integrated pharmaceutical enterprise. We are especially pleased with the improvement in gross margin, which was mainly driven by a product mix shift within our distribution business and the revenue contribution from our LifeTech proprietary products. Additionally, our addressable market in
In the second quarter of 2010, revenue increased 14.2% year over year to $17.2 million from $15.1 million, reflecting a combination of continued strong demand for our existing products and contributions from the newly-acquired Guangzhou LifeTech Pharmaceutical Co., Ltd. (“LifeTech”). Revenue from distribution increased 4.1% to $15.2 million from $14.6 million in the prior year period, driven by increased sales of high-margin products mainly for the treatment of cardiovascular and cerebral-vascular diseases. Revenue from proprietary products increased to $2.0 million from $0.5 million in the prior year period, reflecting the inclusion of revenues from LifeTech’s products, which were acquired at the end of 2009.
Gross profit increased 73.1% to $6.1 million from $3.5 million in the prior year period. Gross margin increased to 35.5% from 23.4% in the prior year period, primarily due to a revenue mix shift toward higher-margin products. The shift was aided by the product mix shift within our distribution business and increased revenue contribution from LifeTech products.
Operating income in the second quarter of 2010 increased 113.0% to $3.8 million from $1.8 million in the prior year period. Selling, general and administrative expenses increased to $2.0 million from $1.3 million in the same period last year, primarily due to additional overhead costs related to the LifeTech acquisition. Research and development expenses were $0.3 million, compared to $0.4 million in the prior year period.
Net income available to common shareholders in the second quarter of 2010 increased to $4.1 million, or $0.10 per diluted share, from $41,996, or $0.00 per diluted share, in the second quarter of 2009. The earnings per share calculation is based on 40.0 million diluted shares outstanding, compared to 15.4 million diluted shares outstanding in the prior year period. Non-GAAP net income, which excludes a one-time non-cash charge related to the warrants and the change in fair value of warrant liabilities, was $2.7 million, or $0.07 per diluted share, compared to $1.3 million, or $0.08 per diluted share, in the prior year period.
Financial Performance for the Six Months Ended June 30, 2010
For the six months ended June 30, 2010, revenue increased 10.4% to $27.8 million from $25.2 million in the first six months of 2009. During the same time period, gross profit increased 48.3% to $9.4 million from $6.3 million. Income from operations increased 42.0% to $5.0 million from $3.5 million in the first six months of 2009. Net loss available to common shareholders was ($242,870), or ($0.01) per share, compared to net income available to common shareholders of $592,078, or $0.04 per share, in the first six months of 2009. This net loss included a one-time $6.1 million non-cash charge in connection with a deemed preferred stock dividend related to the Company’s private placement financing in January 2010. The deemed preferred stock dividend reflects the beneficial conversion feature of the convertible preferred stock issued to OEP CHME Holdings, LLC (“OEP”) in the January 2010 private placement in accordance with SAB No.98.
As of June 30, 2010, the Company had cash and cash equivalents of $62.9 million, of which $53.9 million was restricted cash. This compares to $72.9 million as of March 31, 2010 and $2.4 million as of June 30, 2009. Restricted cash represents amounts set aside by the Company in accordance with its debt agreements with a financial institution and the Stock Subscription Agreement that was completed on January 29, 2010. Working capital was $87.6 million as of June 30, 2010. The increase was mainly due to the cash and cash equivalents obtained from OEP upon the completion of the private placement.
China Medicine reiterates its expectation that full year 2010 revenue will be in the range of $72 to $76 million, 11% to 17% higher than 2009, and gross margin will be in the range of 33% to 38%, as compared to 29.3% in 2009. The Company revised its expectation of full year operating expenses to represent approximately 12-15% of revenue. This guidance reflects China Medicine's current and preliminary views, which are subject to change.
The Company will hold a conference call on Friday, August 13th, at 8:
Listeners may access the replay through August 27, 2010 by dialing the following numbers:
Use of Non-GAAP Financial Measures
GAAP results for three and six months periods ended June 30, 2010 and June 30, 2009 include non-cash gains and expenses related to change in the fair value of the Company's warrant liabilities and a deemed preferred stock dividend related to outstanding convertible preferred stock issued to OEP. The non-GAAP measure provides a consistent basis for investors to understand our financial performance in comparison to historical periods without variation of non-recurring items and non-operating related gains and charges. In addition, it allows investors to evaluate our performance using the same methodology and information as that used by our management. Non-GAAP measures are subject to inherent limitations because they do not include all of the expenses included under GAAP and because they involve the exercise of judgment of which charges are excluded from the non-GAAP financial measure. However, the Company compensates for these limitations by providing the relevant disclosure of the items excluded.
Because these expenses are non-cash, and not related to the Company's operating results, the Company believes that the non-GAAP information is useful to supplement the Company's condensed consolidated financial statements. A reconciliation of the adjustments to GAAP results appears in the table accompanying this press release. This additional non-GAAP information is not meant to be considered as a substitute for GAAP financials. The non-GAAP financial information that the Company provides also may differ from the non-GAAP information provided by other companies.
About China Medicine Corporation
China Medicine Corporation, a vertically integrated enterprise with a research and development centre, manufacturing facility and well established sales network, engages in the production and distribution of prescription and over the counter ("OTC") drugs, traditional Chinese medicine (“TCM”) products, herbs and dietary-supplements, medical devices, and medical formulations in
This press release contains forward-looking statements concerning the Company’s business and products. The Company’s actual results may differ materially depending on a number of risk factors including, but not limited to, the following: general economic and business conditions, obtaining regulatory approval for new products, government support for rural health care, competition from existing and new competitors, changes in technology, and various other factors beyond its control. All forward-looking statements are expressly qualified in their entirety by this cautionary statement and the risk factors detailed in the Company's reports filed with the Securities and Exchange Commission. China Medicine Corporation undertakes no duty to revise or update any forward-looking statement to reflect events or circumstances after the date of this release.
In Beijing: Ms. Wen Lei Zheng: 86-10-6599-7968
China Medicine Corporation