CORRECTING and REPLACING -- China Nuokang Bio-Pharmaceutical Inc. Reports Fourth Quarter and Full Year 2011 Financial Results

        Print
| Source: China Nuokang Bio-Pharmaceutical Inc.

BEIJING, March 14, 2012 (GLOBE NEWSWIRE) -- Following a release published earlier today by China Nuokang Bio-Pharmaceutical Inc. (Nasdaq:NKBP), please note that subheading for the non-GAAP adjusted net loss for the fourth quarter of 2011 has been updated for a typo and the accompanying financial tables have been updated for minor errors. The corrected release follows:

4Q11 Revenue was RMB57.0 Million ($9.1 Million)

4Q11 Non-GAAP Adjusted Net Loss was RMB6.3 Million ($1.0 million)

FY11 Revenue was RMB288.3 Million ($45.8 Million)

FY11 Non-GAAP Adjusted Net Income was RMB34.6 Million ($5.5 million)

Live conference call to be held Thursday, March 15, 2012 at 8:00 am ET

China Nuokang Bio-Pharmaceutical Inc. (Nasdaq:NKBP) ("Nuokang" or the "Company"), a leading China-based biopharmaceutical company focused on the research, development, manufacture, marketing and sales of hospital-based medical products, today announced unaudited financial results for the fourth quarter and full year of 2011.

Mr. Baizhong Xue, the Company's Chairman and Chief Executive Officer, stated, "We believe this quarter marked an important milestone in Nuokang's restructuring efforts. As we have noted in the past few months, including in our announcement of the recent changes in our management team, it became clear toward the end of 2011 that Nuokang needed to refocus our direction in order to achieve greater success as a publicly-listed and diversified pharmaceutical company. We are proud of the staff that helped Nuokang build Baquting into a market leader and successfully become a U.S.-listed company. At the same time, we believe that the changes in our management team will allow us to better lead Nuokang in the future. Financially, we have taken the steps to create a healthier balance sheet. We have paid down most of our debt, increased operating cash flow by decreasing days sales outstanding, removed the overhang of our lease obligations and expensed one-time costs to show a cleaner balance sheet. We believe these steps are necessary to prepare Nuokang to achieve its long-term potential.

"Our financial performance this quarter was affected by the aforementioned efforts. First, as we have noted before, we recognize that our exploration of certain strategic alternatives to increase shareholder value has negatively impacted our short-term results. While our externally managed marketing agent sales continued to grow and the volume of Baquting sales for the fourth quarter remained relatively stable, this performance was tempered by the decrease in our higher-margin and higher-price direct sales. This shift in revenue mix therefore resulted in a lower average price per unit and a noticeable sequential revenue decline. Second, we resolved our obligation through a recent contract for the Penglai plant for RMB13.4 million. We believe this action was prudent as it removes the financial overhang of the potential costs. Lastly, to present a cleaner balance sheet, we have conservatively incurred an allowance for non-trade receivables of RMB8.6 million. These efforts to strengthen our financial condition and the one-time and non-operational charge of RMB11.6 million related to exploration of strategic alternatives, led to a net loss for the fourth quarter of 2011. Moving forward, we are excited to have a stronger management team and healthier balance sheet to better support our future growth.

"Overall, we believe that our efforts have laid a solid foundation for a gradual but steady recovery from 2011. Despite the challenges of the fourth quarter, we are pleased to note that Baquting remains the leader in the hemocoagulase market with 36% market share. Looking forward, we are focused on maintaining this market leadership position while further strengthening management of our direct sales team to achieve a more favorable revenue mix and greater sales volume. Our new vice president of sales and marketing has proactively reached out to employees to cultivate greater confidence in and excitement for Nuokang's growth potential. In addition to Baquting, revenue from Kaitong has been steadily growing. For 2012, we expect to see revenue contribution from Kaitong and our newly acquired Alpha Lipoic Acid Capsule. We also expect our expenses to normalize in 2012 compared to the fourth quarter of 2011, during which we chose to conservatively recognize one-time, non-operational charges. Although the recovery process may be gradual, we are confident that 2012 will show sequential revenue and profitability growth compared to 2011."

Fourth Quarter 2011 Financial Highlights

  • Revenue was RMB57.0 million ($9.1 million)[1], compared to RMB79.3 million in the prior year period;
  • Baquting revenue was RMB52.2 million ($8.3 million), compared to RMB76.7 million in the prior year period;
  • Gross profit was RMB47.2 million ($7.5 million), compared to RMB70.0 million in the prior year period;
  • Gross margin was 82.7% compared to 88.2%, in the prior year period;
  • Operating loss was RMB36.8 million ($5.9 million), compared to an operating income of RMB4.2 million in the prior year period;
  • Net loss was RMB46.7 million ($7.4 million), or RMB2.42 ($0.39) per diluted ADS[2], compared to a net income of RMB278,000, or RMB0.01 per diluted ADS, in the prior year period; and
  • Non-GAAP adjusted net loss was RMB6.3 million ($1.0 million) compared to an adjusted net income of RMB3.9 million in the prior year period.

Fourth Quarter 2011 Financial Performance

Revenue for the fourth quarter of 2011 was RMB57.0 million ($9.1 million), compared to RMB79.3 million in the prior year period. Revenue from Baquting decreased to RMB52.2 million ($8.3 million) from RMB76.7 million in the prior year period, primarily attributable to a decline in the performance of the Company's direct sales channel. Baquting revenue as a percentage of total revenue was 91.6%, compared to 96.7% in the prior year period. Revenue from other products increased to RMB4.8 million ($0.8 million) from RMB2.6 million in the prior year period, driven by gradually increasing revenue contribution from Kaitong.

Gross profit was RMB47.2 million ($7.5 million), compared to RMB70.0 million in the prior year period. Gross margin was 82.7%, compared to 88.2% in the prior year period. This margin decline was due to a shift in revenue mix towards a greater proportion of lower-margin marketing agent sales.

Operating loss was RMB36.8 million ($5.9 million), compared to an operating income of RMB4.2 million in the prior year period. This is a reflection of the incurrence of one-time charges in the fourth quarter of 2011, including costs associated with the Company's exploration of certain strategic alternatives of RMB11.6 million ($1.8 million) and an increase in allowance for non-trade receivables of RMB8.6 million ($1.4 million).

Research and development expenses were RMB3.6 million ($0.6 million), compared to RMB4.2 million in the prior year period. Research and development expenses as a percentage of revenue was 6.4%, compared to 5.2% in the prior year period, primarily due to the lower revenue base for the fourth quarter of 2011.

Selling, marketing and distribution expenses decreased 7.0% to RMB44.8 million ($7.1 million) from RMB48.2 million in the prior year period due to lower revenues, partially offset by the Company's continued investment in market development of its new-to-market products.

General and administrative expenses was RMB35.5 million ($5.6 million), compared to RMB13.4 million in the prior year period, primarily as a result of significant one-time charges, such as costs associated with the Company's exploration of strategic alternatives and an increase in allowance for non-trade receivables. As these are non-recurring expenses, the Company expects general and administrative expenses to normalize in the coming quarters.

The Company recognized a tax benefit of RMB3.8 million ($0.6 million), compared to a tax expense of RMB1.5 million in the prior year period. The tax benefit is due to the loss it incurred in the fourth quarter of 2011.

Net loss was RMB46.7 million ($7.4 million), or RMB2.42 ($0.39) per diluted ADS, compared to a net income of RMB278,000, or RMB0.01 per diluted ADS, in the prior year period.

Non-GAAP adjusted net loss, excluding share-based compensation, foreign exchange gains and losses and other one-time, non-operational charges, was RMB6.3 million ($1.0 million), compared to a net income of RMB3.9 million in the prior year period.

For the quarter ended December 31, 2011, the Company had approximately 154.2 million weighted average diluted ordinary shares outstanding, or 19.3 million weighted average diluted ADSs.

Full Year Ended December 31, 2011 Financial Performance

For the full year ended December 31, 2011, revenue was RMB288.3 million ($45.8 million), compared to RMB315.8 million for the full year ended December 31, 2010. Gross profit was RMB249.8 million ($39.7 million), compared to RMB278.5 million in the prior year. Operating income was RMB18.7 million ($3.0 million), compared to RMB65.9 million in the prior year. Net loss was RMB14.0 million ($2.2 million), or RMB0.72 ($0.11) per diluted ADS, compared to a net income of RMB46.1 million, or RMB2.32 per diluted ADS, for the prior year. Non-GAAP adjusted net income was RMB34.6 million ($5.5 million), compared to RMB60.9 million in the prior year.

For the full year ended December 31, 2011, the Company had approximately 155.9 million weighted average diluted ordinary shares outstanding, or 19.5 million weighted average diluted ADSs.

As of December 31, 2011, the Company had cash and cash equivalents of RMB179.4 million ($28.5 million), compared to RMB191.8 million as of December 31, 2010.

New Product Performance

The Company continued to make progress on the commercialization of the following products:

Kaitong: The Company continued to make progress on market education and sales channel development for Kaitong. As of March 2012, the Company has won tenders in eight provinces and four military zones and continues its nationwide marketing campaign in order to drive awareness and understanding of Kaitong. Looking forward, the Company expects Kaitong revenues to grow steadily but gradually throughout 2012 as it continues to bid for additional regions.

Alpha Lipoic Acid Capsule ("ALA"): In January 2012, the Company expanded its product portfolio to the diabetic drug category by acquiring the manufacturing license and marketing rights for ALA, an antioxidant product that addresses diabetic neuropathy. The manufacturing license is being transferred to the Company's plant in Penglai from that of the seller. The Company has also already won tenders in four provinces and two military zones for ALA.

In-licensed Products: The Company has submitted testing results for Dianatal® for the final stage of import license approval to the SFDA. For the cardiovascular product, the Company is also awaiting SFDA review of testing results for the final stage before receiving the import license. The Company expects SFDA approval by the end of 2012 for both products.

Non-GAAP Measures

Adjusted net income (loss) is presented to better illustrate the Company's ongoing and core operational results. Adjusted net income (loss) is defined as net income excluding share-based compensation expense, foreign exchange losses, other one-time charges, other loss and tax expenses. Adjusted net income (loss) may be calculated differently, and therefore Nuokang's adjusted net income (loss) may not be comparable to similarly titled measures of other companies. Adjusted net income (loss) is not a measure of financial performance under U.S. generally accepted accounting principles (GAAP), and should not be considered in isolation or as an alternative to net income (loss), cash flows from operating activities and other measures determined in accordance with GAAP. Items excluded from adjusted net income (loss) are significant and necessary components to the operations of the Company's business, and, therefore, adjusted net income (loss) should only be used as a supplemental measure of operating performance.

Conference Call

The Company will hold a conference call at 8:00 am ET on Thursday, March 15, 2012 to discuss the fourth quarter and full year 2011 financial results. Listeners may access the call by dialing:

United States toll free: 1-855-500-8701
United States toll: 1-646-254-3515
China toll free: 400-1200654
Hong Kong toll free: 800-903737
United Kingdom toll free: 0800-0159724
Conference ID: 57093004

A telephone replay will be available beginning two hours after the conclusion of the call and will be available through March 28, 2012. Listeners may access the replay by dialing:

United States toll free: 1-866-214-5335
International: 1-718-354-1232
Conference ID: 57093004

A webcast will also be available through the Company's website www.nkbp.com.

About China Nuokang Bio-Pharmaceutical Inc.

China Nuokang Bio-Pharmaceutical Inc. (Nasdaq:NKBP) is a leading biopharmaceutical company in China focused on the research, development, manufacture, marketing and sales of hospital-based medical products. The Company provides a diversified portfolio of products across more than 3,000 hospitals in China. Nuokang's principal products include Baquting®, China's leading hemocoagulase product by market share, and Kaitong®, a lipid emulsion alprostadil product for the treatment of peripheral vascular diseases, cardiocerebral microcirculation disorders and post-surgery thrombosis. The Company's product pipeline includes product candidates under development in hematological, cardiovascular and cerebrovascular disease diagnosis, treatment and prevention. Please visit www.nkbp.com for more information.

Safe-Harbor Statement

This press release contains statements of a forward-looking nature. These statements, including the management quotations and the statements relating to the Company's new product development, are made under the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, including certain plans, expectations, goals, and projections, which are subject to numerous assumptions, risks, and uncertainties. These forward-looking statements may include, but are not limited to, statements containing words such as "may," "could," "would," "plan," "anticipate," "believe," "estimate," "predict," "potential," "expects," "intends" and "future" or similar expressions. Among other things, the statements relating to the Company's expected progress on the product portfolio and future financial results may contain forward-looking statements. These forward-looking statements speak only as of the date of this press release and are subject to change at any time. These forward-looking statements are based upon management's current expectations and are subject to a number of risks, uncertainties and contingencies, many of which are beyond the Company's control that may cause actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. The Company's actual results could differ materially from those contained in the forward-looking statements due to a number of factors, including those described under the heading "Risk Factors" in the Company's filings with the U.S. Securities and Exchange Commission, including its annual report on Form 20-F.

[1] This announcement contains translations of certain Renminbi amounts into US dollars at specified rates solely for the convenience of readers. Unless otherwise noted, all translations from Renminbi to US dollars as of and for the quarter ended December 31, 2011, were made at the noon buying rate of RMB6.2939 to USD1.00 on December 30, 2011 in the City of New York for cable transfers in Renminbi per US dollar as certified for customs purposes by the Federal Reserve Bank of New York. China Nuokang Bio-Pharmaceutical Inc. makes no representation that the Renminbi or US dollar amounts referred to in this press release could have been or could be converted into US dollars or Renminbi, at any particular rate or at all.

[2] The Company's American Depositary Shares, which are traded on the NASDAQ, each of which represents eight ordinary shares of the Company.

CONSOLIDATED STATEMENTS OF INCOME
FOR THE MONTHS ENDED DECEMBER 31, 2010 AND 2011
             
   Full Year 2010 Full Year 2011 4Q 2010 4Q 2011
  (RMB'000) (RMB'000) (US$'000) (RMB'000) (RMB'000) (US$'000)
             
Net revenue  315,789  288,269  45,801  79,317  57,016  9,059
Cost of revenue  (37,304)  (38,458)  (6,110)  (9,348)  (9,856)  (1,566)
             
Gross profit  278,485  249,811  39,691  69,969  47,160  7,493
             
Operating expenses            
Research and development costs  (13,504)  (15,737)  (2,500)  (4,156)  (3,635)  (578)
Selling, marketing and distribution expenses  (145,549)  (144,228)  (22,916)  (48,196)  (44,821)  (7,121)
General and administrative expenses  (53,527)  (71,188)  (11,311)  (13,418)  (35,531)  (5,645)
             
Total operating expenses  (212,580)  (231,153)  (36,727)  (65,770)  (83,987)  (13,344)
             
Operating profit/(loss)  65,905  18,658  2,964  4,199  (36,827)  (5,851)
Interest income  1,198  1,508  240  317  290  46
Interest expense  (7,147)  (3,096)  (492)  (1,093)  (126)  (20)
Exchange losses  (5,825)  (5,142)  (817)  (2,141)  (667)  (106)
Other income/(loss), net  2,473  (13,400)  (2,129)  524  (13,225)  (2,101)
             
Income/(loss) before income tax expense   56,604  (1,472)  (234)  1,806  (50,555)  (8,032)
Income tax expense/(benefit)  (10,606)  (12,662)  (2,012)  (1,547)  3,810  605
             
Net income/(loss)  45,998  (14,134)  (2,246)  259  (46,745)  (7,427)
             
Net loss attributable to non-controlling interest  64  128  20  19  23  4
             
Net income/(loss) attributed to             
ordinary shares  46,062  (14,006)  (2,226)  278  (46,722)  (7,423)
             
Net income/(loss) per share            
Basic   0.29  (0.09)  (0.01) 0.00  (0.30)  (0.05)
Diluted  0.29  (0.09)  (0.01) 0.00  (0.30)  (0.05)
             
Shares used in net income/(loss) per share computation            
Basic  158,466,428  155,872,950  155,872,950  158,490,942  154,227,532  154,227,532
Diluted  158,797,628  155,872,950  155,872,950  159,147,942  154,227,532  154,227,532
             
Net income/(loss) per ADS            
Basic   2.33  (0.72)  (0.11)  0.01  (2.42)  (0.39)
Diluted  2.32  (0.72)  (0.11)  0.01  (2.42)  (0.39)
             
Shares used in net income/(loss) per ADS computation            
Basic 19,808,304 19,484,119 19,484,119 19,811,368 19,278,442 19,278,442
Diluted 19,849,704 19,484,119 19,484,119 19,893,493 19,278,442 19,278,442
 
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2010 and DECEMBER 31, 2011
       
  31-Dec 31-Dec
  2010 2011
  (RMB'000) (RMB'000) (US$'000)
       
ASSETS      
Current assets:      
Cash and cash equivalents  191,822  179,385  28,501
Other investment - Current  29,868  --   -- 
Accounts receivable (net of allowance for doubtful accounts of RMB393,860 and RMB393,860
(US$62,578) as of December 31, 2010 and December 31, 2011, respectively)
 132,504  60,767  9,655
Bills receivable  86,587  109,256  17,359
Inventories  16,789  15,846  2,518
Prepayments and other receivables  20,116  30,633  4,867
Prepaid income tax  5,117  8,179  1,300
Deferred tax assets  1,518  1,040  165
       
Total current assets 484,321  405,106  64,365
       
Non-current assets:      
Property, plant and equipment, net 155,786 214,171  34,028
Land use rights, net 35,800 35,121  5,580
Intangible assets, net 23,587 21,212  3,370
Other Investments-Non current 3,414 3,414  542
Prepayment for the exclusive distribution right 37,713 15,884  2,524
Deferred tax assets 4,258 7,406 1,177
       
Total non-current assets 260,558 297,208 47,221
       
TOTAL ASSETS 744,879 702,314 111,586
       
LIABILITIES AND SHAREHOLDERS' EQUITY      
Current liabilities:      
Short-term bank loans 47,000 7,000  1,112
Accounts payable 1,764 1,501  238
Accrued expenses and other payables 22,281 35,715  5,675
Income tax payable 253 3,312  526
Unrecognized tax benefits 809 2,656 422
       
Total current liabilities 72,107 50,184 7,973
       
Non-current liabilities:      
Deferred tax liabilities 2,054 2,036 323
Deferred government grants 21,621 23,185  3,684
Long-term payable 11,299 12,082  1,920
       
Total non-current liabilities 34,974 37,303  5,927
       
Commitments and contingencies  --   --   -- 
       
Shareholders' equity:      
Ordinary shares (par value US$0.0005 per share, 474,200,000 shares authorized and 158,490,942 shares
issued and outstanding as of December 31, 2010; 474,200,000 shares authorized and 153,921,470 shares
issued and outstanding as of December 31, 2011)
597 582  92
Additional paid-in capital 460,981 452,159  71,841
Retained earnings 174,133 160,127  25,442
       
Total shareholders' equity 635,711 612,868  97,375
       
Non-controlling interests 2,087 1,959  311
       
TOTAL EQUITY 637,798 614,827  97,686
       
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 744,879 702,314 111,586
 
CONSOLIDATED RECONCILIATION OF NON-GAAP ADJUSTED NET INCOME (LOSS)
FOR THE MONTHS ENDED DECEMBER 31, 2010 AND 2011
             
   Full Year 2010 Full Year 2011 4Q 2010 4Q 2011
  (RMB'000) (RMB'000) (US$'000) (RMB'000) (RMB'000) (US$'000)
             
GAAP net income (loss)  46,062  (14,006)  (2,225)  278  (46,722)  (7,423)
       --       -- 
Foreign exchange loss  5,825  5,142  817  2,141  667  106
Share-based compensation expenses  9,007  7,944  1,262  1,484  4,237  673
Accrual for restructuring charges  --   11,639  1,849  --   11,639  1,849
Resolution of lease obligation expense  --   13,421  2,132  --   13,421  2,132
Allowance for non-trade receivables  --   8,600  1,366  --   8,600  1,366
Fin 48 adjustment  --   1,847  293  --   1,847  293
             
Non-GAAP net income (loss)  60,894  34,587  5,494  3,903  (6,311)  (1,004)
ICR, Inc.
Mr. Rob Koepp
Tel: (+86) 10-6583-7516
Ms. Wen Lei Zheng
Tel: (+86) 10-6583-7510
U.S. Tel: (646) 405-5180