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Published Date: 2007-11-14
Dragon Pharmaceutical Inc. (TSX: DDD; OTCBB: DRUG; BBSE: DRP) today announced that it has entered an agreement with an unaffiliated party for the sale of its EPO business which accounted for less than 3% of Dragon’s consolidated revenue for the first nine months of 2007. The decision was made based on the studies of the EPO market which showed limited growth potential, if not downward trend, during the next three years. The Company considers this decision an important part of Dragon’s ongoing strategy to fully focus on its core business of antibiotic product lines that have shown tremendous growth over the past years.
Over the past three years, Dragon’s revenues from antibiotic products increased from $31.23 million for the year of 2005 to approximately $60 million for the first nine months of 2007, reflecting the strong market demand as well as enhanced competitiveness of the Company in antibiotic products. Mainly due to the strong growth of antibiotic products, EPO business only accounted for less than 3% of total revenues for the first nine months of 2007, as compared to 11% of the total revenues for the year of 2005. Since EPO business is no longer a significant and growing component of our product portfolio, the Company decided that it is in the best interests of its shareholders to sell its EPO business and concentrate all its resources on the antibiotic product lines which offered the greatest growth potential.
According to the agreement, the EPO business will be sold for $2.08 million. The transaction is expected to be completed during the fourth quarter of 2007. Because of this disposal, the Company recorded a non-cash impairment charge of $2.64 million during the current quarter related to the write down of the intangible assets and goodwill associated with the Biotech division which was created as a result of the reverse take-over of Dragon Pharmaceutical Inc. by Oriental Wave Holdings Limited on January 12, 2005. During the three and nine months ended September 30, 2007, the Company recognized $0.97 million and $2.12 million after-tax income from continuing operations.
“Our EPO business performed well during the past years. However, an in-depth review of the EPO business has concluded that it is very demanding in market resources but with very limited growth potential,” said Mr. Yanlin Han, Chairman and CEO of the Company, “We are focusing our efforts in the antibiotic market which we intend to lead while showing a sustainable and growing profit. In addition, the Company is also actively exploring additional business opportunities in broadening its core antibiotic product offerings and increasing production capacities. We are confident that the benefits of all these initiatives will be reflected in the Company’s performance in the future.”
This press release contains forward looking statements such as the Company’s Chemical and formulation business to be competitive and successful in the marketplace. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward looking statements. Readers should not place undue reliance on forward looking statements, which only reflect the view of management as of the date hereof. The Company does not undertake the obligation to publicly revise these forward looking statements to reflect subsequent events or circumstances. Readers should carefully review the risk factors and other factors described in its periodic reports with the Securities and Exchange Commission.
Dragon Pharmaceutical Inc. (TSX: DDD; OTC BB: DRUG; BBSE: DRP) today announced its financial results for the three and nine months ended September 30, 2007, showing strong growth in sales and profits for its core antibiotic business. Meanwhile, the Company also announced the sale of its EPO operation to an unaffiliated party through a separate press release.
Highlights for the three and nine months ended September 30, 2007
* Sales for the third quarter increased 102% to $23.10 million from $11.41 million for the same period of 2006. Sales for the first nine months reached $59.98 million, with an increase of 60% as compared to the same period of 2006;
* Gross profit and gross margin for the third quarter were $4.31 million and 18.66% compared to $0.73 million and 6.38% for the same period of 2006;
* Operating income increased 347% to $1.31 million for this quarter from a net loss of $0.53 million for same period of 2006;
* Net cash inflow generated from operating activities for the quarter was $2.08 million, as compared to a net cash outflow of $1.23 million for same period of 2006;
* Net income from continuing operations for the third quarter amounted to $0.97 million, up 200% from a net loss of $0.97 million for the same period of 2006;
* A net loss of $2.57 million was shown from discontinuing operations, which was due to the impact of a $2.64 million non-cash impairment charge of intangible assets and goodwill related to EPO disposal.
As the result of the EPO disposal, the Company will be focusing on core antibiotic business with vertical product lines covering intermediates, active pharmaceutical ingredients and formulation drugs, which all grew strongly over the last quarters.
The sale momentum from Chemical Division that contains intermediates and API products actually started from the fourth quarter of last year, and continued through all three quarters of this year. As one of dominating producers of 7ACA, the Company further strengthened its market position and delivered 183% year-over-year revenue growth in Chinese market during the third quarter of 2007. Mainly driven by strong market demand, the Company realized 138 tons of sales in the third quarter, which was 99% of 140 tons of total production output. Meanwhile, the Company successfully increased its sales by 84% in China and by 66% in the international market for Clavulanic Acid, reflecting the strong market acceptance of our high production quality. Under the favorable market conditions, the Company realized a utilization rate of 93% for 7ACA and 80% for Clavulanic Acid. The higher facility utilization, combined with our continuous efforts in technology improvement, led to lowering of our per unit production costs. As a result, the Chemical Division’s gross margin increased to 27.57% in this quarter from 10.68% for the same period of 2006. Moreover, as previously disclosed, the Company has successfully established a new production line producing 7ACA using the biotech method, adding an additional annual production capacity of 120 tons 7ACA. Management believes that the increased capacity will enable the Company to promptly respond to the strong customer demand and gain further market share.
The Company also achieved substantial sales increase and improved gross margin for the Pharma Division that contains formulation business as the Company further expanded its market share in the Chinese market. During the third quarter, the sales increased by 266% to $5.59 million as compared to the same period of 2006, accounting for 24% of the total revenues of the Company. The total sales quantity reached 33 million units as compared to 20 million units in the second quarter and 15 million units in the first quarter of 2007.
Mainly due to the significant revenue growth, improved productivity and increased gross margins for all our products, net income from continuing operations for the third quarter increased 200% to $0.97 million from a net loss of $0.97 million for the same period of 2006. Net income from continuing operations for the nine months amounted to $2.12 million as compared to a net loss of $0.86 million for the same quarter of 2006. The net cash inflow generated from operating activities amounted to $2.08 million, which provided the Company greater flexibility to expand the operations in its core business. Meanwhile, due to the impact of a $2.64 million non-cash impairment charge of intangible assets and goodwill related to EPO disposal as disclosed in the separate press release dated November 14, 2007, the Company had a net loss of $1.61 million for the third quarter, which was the net of $0.97 million net income from continuing operations and $2.57 million net loss from discontinuing operations.
“The solid performance of our core antibiotic operation once again demonstrates the strength of our business model and our ability to achieve growth in revenues, profitability and cashflow,” said Mr. Yanlin Han, Chairman and CEO of the Company. “We are focusing our efforts in the antibiotic market which we intend to lead while showing a sustainable and growing profit. In addition, the Company is also actively exploring additional business opportunities in broadening its core antibiotic product offerings and increasing production capacities. We are confident that the benefits of all these initiatives will be reflected in the Company’s performance in the future.”
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