Dragon Pharmaceutical Inc.
OTC Bulletin Board : DRUG
TSX : DDD

Dragon Pharmaceutical Inc.

May 16, 2006 08:00 ET

Dragon Announces First Quarter 2006 Results

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - May 16, 2006) - Dragon Pharmaceutical Inc. (TSX:DDD)(OTCBB:DRUG)(BBSE:DRP) today announced financial results for the three months ended March 31, 2006.

Highlights for Q1, 2006

- Sales increased by 41% to $16.64M from $11.83M during the same period in 2005, mainly due to the increase in Chemical Division revenues.

- Net income was $1.09M, or $0.02 per share.

- Contribution of international market sales increased to 36% of the total sales compared to 15% of total sales for the first quarter in 2005.

- The sales and margins of Pharma Division and Biotech Division decreases due to lower selling prices of powder for induction and the intermission of international sales of EPO due to the relocation.

Financial Summary

Dragon reported sales of $16.64 million for the first quarter ended March 31, 2006, an increase of 41% compared to the same period of 2005. The increase in sales was mainly due to the growth of sales from the Chemical Division, which increased by 101% to $11.47M from $5.70M for the same period in 2005.

Gross profit and gross margin were $4.23 million and 25.44% for the first quarter in 2006 compared to $3.21 million and 27.13% for the same period in 2005. The slight decrease in gross margin was mainly due to the increase in sales of the Chemical Division, which carried a slightly lower gross margin than products from the other two divisions.

Net income was $1.09 million for the first quarter in 2006, or $0.02 per share compared to $1.24 million or $0.02 per share for the same period in 2005. Included in net income of $1.09 million for the first quarter of 2006 was the gain from the sale of Dragon's European EPO cell line resulting in a one-time gain of $1.0 million.

Market Segment

As the Company keeps on increasing the sales of its products, especially Chemical products, outside of China, the contribution of sales from the international markets, has been increasing and is expected to continue. In the first quarter of 2006, $10.66 million, or 64% of the sales were generated from the sales of products in the Chinese market, and the remaining $5.98 million or 36% were generated from the sales of products in the international markets. $10.11 million, or 85.5% of the sales for the first quarter in 2005 were generated from the sales of products in the Chinese market, and the remaining $1.72 million or 14.5% were generated from the sales of products in international markets.

Product Segment

In the first quarter of 2006, $4.56 million, or 27% of the sales, were from the Pharma Division, $11.48 million, or 69% of sales were from the Chemical Division and $0.60 million, or 4% of sales, were from the Biotech Division. For the same period in 2005, 45% of sales were from the Pharma Division, 48% of sales were from the Chemical Division and 7% of sales were from the Biotech Division. The increase in sales during the three months ended March 31, 2006 as compared to the same period for the prior year was primarily due to increases in sales from the Chemical Division.

The management summarized the operation of business of the first quarter as the following:

The sales of main chemical product exceeding the production output under a utility rate of 60%;

The production output for 7ACA was 88 tons in the first quarter, which was 60% of the utility rate comparing to the 600 tons annual capacity. The production output for Clavulanic Acid was 6 tons, which was 48% of the 50 tons annual capacity. The yet-to-be-filled utility rates were results of the 10-day overhaul happened during the Chinese New Year in February which is a normal procedure for the production once a year. As this is done for the whole year, the management is not expecting any technical incidents that will stop the ramping up of the production to its full capacity.

The sales of 7ACA were 91 tons, which is 103% of the production of the first quarter. The sales of Clavulanic Acid were 5.3 tons, which is 88% of the production. The management is confident in the marketability of the increasing production output as results of higher utility rates.

Price controls affect Pharma Division's margins and sales;

The gross margin of Pharma Division was 34.6% for the first quarter in 2006 as of 47.1% of the same time in 2005. Sales were $4.56 million, decreased for 14.28% compared to the $5.32 million in that of 2005. These decreases were mainly due to the reduction in the retail prices of certain prescription drugs imposed by the Chinese government.

The net income is a result of an operating income of $0.66 million and a total other income of $0.57 million;

Net income for the first quarter 2006 is $1.09 million compared to the net income of $1.24 million for the same period in 2005. Net income reflects an operating income of $0.66 million and other income of $1.47 million including gain on the sale of the European EPO cell line and the receipt of government grants in China.

The management believes the Chemical Division will still be the strong growth through out the year with increasing margins. "The first quarter operation is satisfactory to us, " said Mr. Yanlin Han, Chairman and CEO of the company. "The whole operation is well on the track in terms of production, marketing and sales, which has established a very solid foundation for us to carry out the business as planned for this year."

This press release contains forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statement. Factors that might cause such a difference include, but are not limited to, the following: (1) risks and uncertainties relating to the political and regulatory environment in China; (2) that the Company will be able increase its Chemical product production and operate more efficiently; and (3) that the Company will continue to increase revenues by increasing launch of products outside of China.

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, including its Form 10-KSB, filed with the Securities and Exchange Commission.


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