China Medicine (PINK:CHME)

Third Quarter 2010 Financial Performance

• Revenue decreased 8.4% to $17.6 million from $19.2 million in the prior year period.

• Gross margin was 33.1%, compared to 30.5% in the prior year period.

• Operating income was $2.5 million, compared to $4.5 millionin the prior year period, which was mainly due to the R&D expenditure on a diabetes drug.

• Net income available to common shareholders decreased to $2.2 million, or $0.06 per diluted share, from $3.2 million, or $0.21 per diluted share, in the prior year period.

Mr. Senshan Yang, Chairman and CEO of China Medicine Corporation, stated, "We had a very challenging quarter, impacted by a combination of margin pressure on distributing prescription drugs due to the government's influence on the drug distribution bidding system, and rising prices of certain raw materials used in our proprietary products.   We responded to these challenges by continually executing our 'high-margin focus' strategy.  In addition, we expedited the pace of completing the required clinical trials for Zhimu Huangtong, a patented TCM drug used to treat diabetes, and expect to launch this breakthrough diabetic product in 2012.  We are very confident that we will survive this challenging time and achieve long-term success, because we are well positioned and well prepared amid the rapidly changing industry.  We will continue to strive to work responsibly and aggressively on behalf of our shareholders."

Full Year 2010 Financial Guidance

Due to these challenges, we have revised our expectations for the full year 2010.  

• Revenue is now expected to increase 5% to 8% year over year to $68 to $70 million, compared to the $72 to $76 million range we announced previously.  

• We maintain our expectation that gross margin will be in the range of 33% to 38%, as compared to 29.3% in 2009.  

• We now believe full year operating expenses will represent approximately 16-18% of revenue, up from 12-15% of revenue as announced previously.

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 China continues to grow, and our efforts to capitalize on this growth are progressing very well. We believe that we are well-positioned to be a leading consolidator in this fragmented industry and we'll strive to work responsibly and aggressively on behalf of our shareholders."

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.
    
• 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.

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.

GUANGZHOU, China, July 9 /PRNewswire-Asia/ -- China Medicine Corporation (OTC Bulletin Board: 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 that its board of directors authorized a stock repurchase program. The program authorizes a buyback of the Company's common stock up to a value of $2.0 million. The authorization is valid through July, 2011. The program utilizes funds currently held in the escrow account pursuant to the Company's agreement with its principal shareholder, OEP CHME Holdings, LLC, an affiliate of One Equity Partners, the private equity arm of JP Morgan, dated January 28, 2010.

Mr. Senshan Yang, Chairman and CEO of China Medicine Corporation stated, "We have the fundamental strength to pursue a variety of opportunities with our cash, and today's authorization is an appropriate and strategic decision that brings us additional flexibility to leverage our strong balance sheet. We are committed to enhancing shareholder value, and we have confidence in our long-term growth plan to expand the Company's product portfolio and geographical footprint in China."

First quarter of the year is typically the slowest period for China Medicine due to lower customer purchases during the Chinese New Year holiday. Additionally, the repositioning of LifeTech's products via the newly developed sales channel and China Medicine's well established existing distribution network could improve pricing opportunity and expand customer base to accelerate revenue growth and margin increase in the quarters ahead.

China Medicine expects full year 2010 

• revenues in the range of $72 to $76 million, or 11% to 17% growth.
  
• gross margin in the range of 33% to 38%, as compared to 29.3% in 2009. 
  
• operating expenses to represent approximately 10% of revenues, as compared to 18% reported in the first quarter 2010.

This guidance reflects China Medicine's current and preliminary views, which are subject to change.

The GeoTeam has calculated that CHME guidance works out to about $0.65 on low end of its assumptions.

For 2009 CHME Adjusted net income, excluding non-cash expense of $7.2 million related to change in fair value of warrants, was $9.0 million in 2009, or $0.58 per diluted share

"I am proud to report a very productive fiscal year 2009, including the achievement of record revenues, the closing of a transformational acquisition and a meaningful financing agreement with a world-class private equity firm," Mr. Senshan Yang, Chairman and CEO of China Medicine Corporation. Looking ahead, we anticipate continued growth in our profitability level as we accelerated our transition from a pharmaceutical distributor into a vertically-integrated pharmaceutical company with a broad portfolio of self-owned products sold through our extensive distribution network."

 "We would like to thank OEP for its confidence in our outlook and for the funding support that provides the Company with greater resources to execute our acquisition strategy and commercialization plans for rADTZ. We anticipate that 2010 will be a transformational year for China Medicine, focused on strengthening our pharmaceutical manufacturing capabilities, expanding our extensive product pipeline to include more of self-owned products that will support sustainable margin expansion, continuing our R&D effort on new product development and deepening our distribution network to cover more tier II and III cities and towns in China," concluded Mr. Yang.

Source: PR Newswire (March 29, 2010)