Simcere Pharmaceutical Group’s ( SCR - Snapshot Report ) first quarter 2011 earnings of 8 cents per American Depositary Share (ADS) surpassed the year-ago earnings by 3 cents. However, earnings in the quarter fell short of the Zacks Consensus Estimate by 3 cents. The year over year rise in earnings was attributable to higher revenues recorded in the first quarter of 2011.

Revenues at Simcere Pharma came in at $73.6 million in the first quarter of 2011, up 9.5% year over year. Revenues however fell short of the Zacks Consensus Estimate of $78 million.

In terms of local currency, revenues climbed 5.1%. Higher sales of cancer drugs, Endu (up 32.8% in local currency), Sinofuan (up 15.9% in local currency) and edaravone injection products (up 9% in local currency) helped boost revenues.

Gross margin went up to 83.9% during the quarter, compared with 79.7% in the prior-year quarter. Stable pricing of the company’s products helped boost the margin.

Simcere Pharma’s research and development (R&D) expenses came in at $6.5 million in the first quarter of 2011, up 44.4%. In terms of local currency, R&D expenses climbed 39.2%. The increase was attributable to the company’s efforts to develop its pipeline.

Sales, marketing and distribution expenses came in at $40.4 million in the reported quarter, up 16.4%. The expenses increased 11.6% in local currency. Expansion of the sales force and increased promotion expenses for newly launched products inflated expenses.

General and administrative expenses at Simcere Pharma were $10.4 million in the reported quarter, up 5.6%. The expenses climbed 1.3% in local currency.

Our Take & Recommendation

We are pleased with Simcere Pharma’s efforts to expand its portfolio by launching new drugs. With over 100 drugs in the National Drug Reimbursement List issued by the China’s Ministry of Human Resources and Social Security, we believe Simcere Pharma, which boasts of a well-established sales network, is well-positioned for long-term growth.

The oncology deal with pharma major Bristol-Myers Squibb ( BMY - Analyst Report ) , signed late last year, is also a major achievement for Simcere Pharma.

Simcere Pharma carries a Zacks #4 Rank (Sell rating) in the short-run highlighting near-term pressure. We believe bottom-line growth at Simcere Pharma will be restricted in the near-term due to rising operating costs.