Shanghai Pharmaceuticals Achieves Steady Growth of Revenue and Profit for 1H2015

HONG KONG, Aug 26, 2015 - (ACN Newswire) - Shanghai Pharmaceuticals Holding Co., Ltd. ("Shanghai Pharmaceuticals" or the "Company" and, together with its subsidiaries, the "Group"; stock code: 601607.SH; 2607.HK), the pharmaceutical group in the PRC that has leading positions in both pharmaceutical product and distribution markets, today announced its interim results for the first half of 2015. 

In the first half of 2015, a number of factors, including macro-economic slowdown, reforms furthered in drug prices and public hospitals, control of medical insurance reimbursements, new round of drug tendering invitations, led to a slower revenue and profit growth in the pharmaceutical industry, Shanghai Pharmaceuticals accelerated its business development, improved management capability and fostered core competitiveness, made smooth progress in various aspects and met various operational objectives, which laid down a foundation for achieving a revenue of over RMB100 billion. In the first half of 2015, the Company's operating revenue was RMB50.950 billion, up by 15.76% on a year-on-year ("YOY") basis. Net profit attributable to the shareholders of the listed Company was RMB1.534 billion, representing an increase of 16.39% on a YOY basis. The operating profit margin after deducting sales and administration costs was 4.09%, on par with the same period of last year. Basic earnings per share amounted to RMB0.5705 and basic earnings per share after deducting nonrecurring profits and losses were RMB0.5413, representing an increase of 21.59% on a YOY basis. The Company's net cash flows from operating activities amounted to RMB482 million, up by 77.96% on a YOY basis. As at 30 June 2015, the owners' equity of the Company was RMB31.967 billion; its owners' equity after deducting minority interest was RMB28.491 billion and the total assets were RMB69.886 billion.

Pharmaceutical R&D Developed Smoothly; Pharmaceutical Manufacture Grew In-Line with Expectation

In the first half of 2015, the Company's R&D expenses amounted to a total of RMB266 million, accounting for approximately 4.37% of the Company's manufacturing sales revenue. The Company filed 52 invention patent applications and was granted 27 invention patents. As at the end of the first half of 2015, the Company owned a total of 244 invention patents. Sales revenue from the Company's new products launched through the R&D amounted to RMB986 million, representing approximately 16.20% of the Company's manufacturing sales revenue. The new drug SPH3127 in 1.1 Catalogue cooperated with Mitsubishi Tanabe was approved to go through clinical application acceptance, passed on-site verification and was on the process of national review. It was also listed on scientific significant matters in new drug creation and manufacture across the country in 2015, and therefore recommended as priority review type to CFDA, entering into fast review channel. The new drug Duteroporphyrin for injection in 1.1 Catalogue jointly researched by developed with Shanghai Fudan-Zhangjiang Bio-Pharmaceutical Co., Ltd. was on the process of phase II clinical research. "Recombinant Fusion Protein of Human Tumor Necrosis Factor Receptor Mutant-Fc Fragment Injection" cooperated with Fudan Zhangjiang was on phase I clinical trial. The clinical application on "Recombinant Humanized Anti-CD20 Monoclonal Antibody Injection", a cooperation project introduced by the Company, was accepted in 2014, and is currently under review by CDE.

In terms of the cooperation in Pharmaceutical R&D, the company cooperated with "Translational Medicine Alliance" of The People's Liberation Army Second Military Medical University of China invested RMB10 million to commence the collaborative research of 12 innovative drug projects in 2015; Entered into a strategic cooperation framework agreement with Shenyang Pharmaceutical University in respect to various aspects including pharmaceutical R&D.

In Pharmaceutical manufacturing, during the first half of 2015, the Company's sales revenue from the pharmaceutical business was RMB6.086 billion, representing a growth of 7.01% as compared with the corresponding period of last year; its gross profit margin was 49.19%, an increase of 1.4 percentage point as compared with the corresponding period of last year. The operating profit margin after deducting sales and administration costs was 13.16%, an increase of 0.43 percentage point as compared with the corresponding period of last year. The Company continued to implement its strategy to focus on key products. Sales revenue of 60 key products reached RMB3.261 million, up by 9.22% on a YOY basis, accounting for 53.58% of the revenue from manufacturing sales. Among the key products, 34 products achieved a growth rate higher than or equivalent to that of similar products of IMS Health Inc. 23 products whose sales revenue for the year exceeds RMB100 million are all key products.

On Aug 19, the Company announced that its subsidiary company, Shanghai Xinyi Pharmaceutical Co., Ltd.("SH Xinyi") received the notice from Healthcare Drug CTA, Health Canada, that the preclinical data of Bifid Lriple Viable produced by SH Xinyi has passed the censor of Health Canada, could enter phase I clinical trial. Bifid Lriple Viable is one of the key products of SH Pharmaceuticals, of which the sales revenue in 2014 is RMB355.6 million. The acquirement of the phase I clinical certification from Health Canada, is the first case that China's probiotics acquired clinical approval abroad as therapeutic drug, laying a foundation for the Company's global strategy. SH Xinyi will enter clinical trials as soon as possible, and aim to acquire the market access.

Pharmaceutical Services: Expanded Distribution Business, Solid Retail Business 

In the first half of 2015, the sales revenue from pharmaceutical distribution business was RMB45.207 billion, up by 17.39% on a YOY basis, with a gross profit margin of 5.98%, almost the same as the corresponding period of last year. The costs of sales and administration accounted for 3.13%, representing a decrease of 0.11 percentage point as compared with the corresponding period of last year. The operating profit margin after deducting the sales and administration expenses was 2.85%, up by 0.07 percentage point as compared with the corresponding period of last year.

By catching the trends of the national medical reform and the internet technological development and exploring the new pharmaceutical business model, in March 2015, the Company invested to set up the Shanghai Pharma Health Commerce Co., Ltd. ("SPH Commerce"). With a focus in the development of the online platform and offline network, the SPH Commerce is positioned as an e-commerce trader which provides patients with O2O sales of prescription drugs and health management services. In May 2015, the Company entered into Strategic Cooperation Framework Agreement with Beijing JD Century Trading Company Limited ("JD"), pursuant to which, both parties would cooperate to explore market and business opportunities, to achieve resources sharing, to complement each other, therefore to establish comprehensive strategic cooperation relationship in the field of strategies, capitals and businesses.

On Aug 18, the Company entered into share subscription and capital increase agreement with Shanghai Pharmaceutical Distribution Co., Ltd., JD, Beijing Harmony Growth Investment Centre LP ("IDG Capital") and e-commerce management team in relation to SPH Commerce. SPH Commerce placed 1,112,125,000 ordinary shares privately to SPH Holdings, JD and IDG Capital, after which the registered capital of SPH Commerce increased to RMB1.21 billion. Introduced strategic partners and financial investors through capital increase, setting up comprehensive strategic cooperation relationships in the fields of prescription drugs e-commerce and non-prescription drugs, including OTC, healthcare products and medical devices. By injecting relevant resources into SPH Commerce will help it to set up e-commerce platform and establish leading position in the industry, making preparation for separation between medical and pharmaceutical services and consolidating the leading position in pharmaceutical industry. Meanwhile, the capital increase also provided sufficient capital to SPH Commerce for its future development.

The sales revenue from the Company's pharmaceutical retail was RMB1.760 billion, up by 6.95% YOY; gross profit margin was 18.50%; and operating profit margin after deducting sales and administration costs was 1.08%. The Company had 1,718 chain retail pharmacies under its brand family, including 1,161 directly operated pharmacies. In the first half of 2015, Huashi Pharmacy, a subsidiary of the Company progressively to conduct "prescription drugs out-proportioning from designated pharmacy" as a pilot, and established a designated pharmacy in Changning and Zhabei, Shanghai respectively. Huashi Pharmacy could further improving its capability of serving mass patients, while having demonstration effects on exploring separation between medical and pharmaceutical services in PRC; the Group had 3 certificates on providing pharmaceutical trading service through Internet, recording online sales revenue of over RMB 50 million.

Internal Integration and External Mergers and Acquisitions

In terms of business mergers and acquisitions, the Company focused on the even-up in existing advantageous regions and the strategic development in blank regions, with completion of reorganization of Hangzhou Kailun Pharmaceutical Co., Ltd and holding 73% equity interest, acquisition of 70% equity interest in Jilin Keyuan Xinhai Pharmaceutical Co., Ltd and 100% equity interest in Yixing Pharmaceutical Co., Ltd., establishment of SPH Yancheng Pharmaceutical Co., Ltd. and holding 51% equity interest, and agreed to restructure Jiangxi Shangrao Medicinal Co., Ltd. and acquired its 55% equity interest; SPH Keyuan, a subsidiary of the Company, set up two companies in Jianghan and Enshi, Hubei respectively and one company in Shijiazhuang, Hebei; Shanghai Pharma Northern, a subsidiary of the Company, set up a logistics company in Hubei; Hangzhou Quandetang Pharmacy, a subsidiary of the Company, set up Quandetang Clinic Limited. The annualized sales revenue from the above-mentioned projects amounted to approximately RMB5.0 billion. In terms of manufacturing mergers and acquisitions, the Company focused on obtaining advantages and sustainable product resources to tap into vacant field, with completion of restructuring of Dali Zhonggu Hongdoushan Biological Co., Ltd. and holding its 67.5% equity interest, establishment of Liaoning SPH YiLai-kang Medical Device Co., Limited and holding its 100% equity interest. In addition, the Company has completed the contributions to subscribe for H shares in private placement from Tianda Pharmaceuticals Limited on 10 August.

In future, the Company will adhere to Internet+Healthcare Business as its main line, focus on advancing intelligent manufacturing and smart services as its main direction, solidify its advantages and complement its disadvantages and adjust its structure, in order to boost rapid development of its new businesses. During the second half, the Company will continue to optimize its marketing system to ensure the implementation of strategic products and key products with respective strategies, to continue the management of Lean Six Sigma and work efficiently with lower costs; will advance cooperation with electric businesses and business connection with them in field of commerce. Also, the company will continue to carry out extended supply chain service in various provinces and cities so as to increase market share and manage to delivery hundred billions in operating revenue for the Group.