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Simcere Reports a Loss

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Simcere Pharmaceutical Group reported a third quarter 2013 loss of 2 cents per American Depositary Share (ADS) which compared unfavorably to the Zacks Consensus Estimate of an earnings per share of 6 cents per ADS. In the year-ago quarter, Simcere earned 7 cents per ADS. We note that each ADS represents two ordinary shares of Simcere.

Revenues at Simcere came in at $68.8 million in the third quarter of 2013, down 16.5% year over year. The decline was attributed to government policies imposing pricing restrictions on antibiotics along with issues relating to the tendering process of Bicun.

Quarter In Detail

All growth rates mentioned below are in terms of local currency.

Sales of Bicun (anti-stroke) decreased 28.2% year over year, primarily due to pricing restrictions by the government and generic competition.

Sales of oncology drug Sinofuan was down 14.3% year over year while Endu was up 7.6%.

Sales of Jiebaishu (oncology) increased 11.2%. Sales of gastroenterology drug Biqi grew 38.7% year over year.

Sales of anti-infection drugs continue to be affected by government restrictions on the use of antibiotics leading to a 20.8% and 72.2% decline in sales of Anxin and Zailin, respectively.

Gross margin dipped to 76.0% during the third quarter of 2013 from 84.2% in the year-ago quarter due to the inventory write-down for the influenza vaccine reporting unit and a drop in sales of products with higher gross margins.

Simcere’s research and development (R&D) expenses decreased 26.5% primarily due to a decline in travelling and conference expenses and promotional expenses. Sales, marketing and distribution expenses decreased 31.1%. General and administrative expenses increased 13.6% from the year-ago quarter.

During the quarter, the company completed the sale of its equity interest in Boda and in Kanda to focus on its core businesses. We note that in Jun 2013, Simcere announced the sale of its 99.99% stake in Jilin Boda Pharmaceutical Co., Ltd. for RMB 400 million to Zhuhai Rongding Equity Investment Partnership.

Our View

We remind investors that Simcere accepted a buyout proposal from a conglomerate led by founder Mr. Jinsheng Ren, New Good Management Limited, Assure Ahead Investments Limited and its subsidiaries.

Ren founded Simcere in Mar 1995. The conglomerate currently has approximately 77.6% stake in Simcere. As per the buyout offer, shareholders of Simcere will receive $4.83 per share or $9.66 per American depositary share (ADS), up from the original offer price of $4.78 per share or $9.56 per ADS.

We note that Simcere’s decision to go private comes in the wake of tough business conditions that it has been facing in the last few months due to price cuts from the government and market competition.  

Simcere Pharma currently carries a Zacks Rank #3 (Hold). However, others stocks which look attractive include  Actelion Ltd. , Impax Laboratories and Vanda Pharmaceuticals (VNDA - Free Report) . All three carry a Zacks Rank #1 (Strong Buy).

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