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

Dragon Pharmaceutical Inc.

November 14, 2008 18:00 ET

Dragon Pharma Reports 2008 Third Quarter Financial Results

Earnings per share of $0.09 for the first nine months ended 2008

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Nov. 14, 2008) - Dragon Pharmaceutical Inc. ("Dragon Pharma" or the "Company") (TSX:DDD)(OTCBB:DRUG)(BBSE:DRP), a leading international pharmaceutical company, today announced its financial results for the third quarter and nine months ended September 30, 2008. Sales for the third quarter increased 54% over the same period last year to $35.48 million with gross margins of all production lines improved despite the planned overhaul of the 7-ACA and Clavulanic Acid facility during August. Net income was $1.06 million for the three months ended September 30, 2008 versus a net loss of $1.61 million for the same period of 2007.



In Thousand US$ Three months ended Change Nine months ended Change
(Except EPS) September 30 % September 30 %
---------------------------- -------------------------
2008 2007 2008 2007
---------------------------- -------------------------
Total Sales 35,482 23,101 +54% 115,498 59,981 +93%

Total Gross Profit 5,221 4,312 +21% 19,116 11,605 +65%

Net Income 1,056 (1,606) 5,939 (303)

EPS (Basic and
Diluted) 0.02 (0.03) 0.09 (0.01)


Financial Highlights for the Three Months Ended September 30, 2008

- Sales increased 54% to $35.48 million from $23.10 million for the third quarter of 2007

-- Cephalosporin Division's sales increased 37% to $25.06 million from $18.25 million

-- Penicillin Division's sales increased 115% to $10.42 million from $4.85 million

- Gross profit increased 21% to $5.22 million from $4.31 million for the same period of 2007

- Total operating expenses increased to $4.32 million from $3.00 million for the third quarter of 2007, mainly due to a $1.03 million expense specifically related to periodic overhaul of the 7-ACA & Clavulanic Acid facility in August 2008

- Net profit increased to $1.06 million from a net loss of $1.61 million for the same period of 2007

- Comprehensive income increased from a net loss of $1.01 million for the third quarter of 2007 to $1.16 million in this quarter, which included a gain on foreign currency translation of $0.11 million

- Basic and diluted earnings per share were $0.02 as compared to a net loss of $0.03 for the same period of 2007

Financial Highlights for Nine Months Ended September 30, 2008

- Sales increased 93% to $115.50 million from $59.98 million for the same period of 2007

-- Cephalosporin Division's sales increased 71% to $79.90 million from $46.61 million

-- Penicillin Division's sales increased 166% to $35.59 million from $13.37 million

- Gross profit increased 65% to $19.12 million from $11.61 million for the same period of 2007

- Total operating expenses increased to $11.47 million in the third quarter of 2008, including a $1.03 million expense specifically related to the periodic overhaul of the 7-ACA & Clavulanic Acid facility in August 2008, from $7.68 million for the same period of 2007. However, as percentage of total sales, the Company's total operation expenses declined to 10% as compared to 13% for the same period of 2007

- Net income increased to $5.94 million from a net loss of $0.30 million for the same period of 2007

- Basic and diluted earnings per share were $0.09 compared to a net loss of $0.01 for the same period of 2007

During the quarter, the Company took advantage of the traditional slow season of the summer to perform an overhaul of its production facility of 7-ACA and Clavulanic Acid. This was the first overhaul after four years of 24-hour year round non-stop production at the facility. The key objective of the overhaul was to restore the optimum status of systems through projects that could not be conducted concurrently with normal production, such as the refurbishment of a power distribution system with equipped capacity of 27000KVA, the clearing of a water recirculation system with a treatment capacity of 10,000 liters, and the servicing of heavy duty boilers that produce steam for the fermentation process. The production facility has been operating at a high utilization rate, and this planned overhaul surely helped to eliminate the solid sediment of systems accumulated over the years and ensure safer and smoother performance for the future.

Meanwhile, the company also took the opportunity to complete the renovation related to the enzymatic technology. As planned, the production of 7-ACA has been converted from chemical method into the biotech method using enzyme, which is more cost efficient and environmentally friendly. The process was revised for the most desirable configuration as required by the new technology.

Production output of 7-ACA and Clavulanic Acid resumed back to normal starting in September and the system has performed very well for the upcoming busy winter season. According to the industrial protocol, management expects that similar periodic overhaul will be scheduled for the year 2010.

Although sales of 7-ACA declined 29% from last year mainly due to lower production output during the overhaul period, total sales from the Cephalosporin Division increased 37% to $25.06 million for the third quarter of 2008. The achievement was mostly attributed to sales of Cephalosporin formulation drugs. The formulation facility was not involved in the scheduled maintenance, and subsequently, sales from the formulation products increased as planned.

During the past five years, the Cephalosporin formulation market has been growing at an annual growth rate of 24% in China. Driven by the growing market demand, the Company extended its cost competitive advantage from upstream 7-ACA to downstream formulation products and further enlarged its market share especially in rural areas in China. During the third quarter, sales revenues from formulation drugs increased 83% to $10.20 million while sale quantity increased 60% to 50.65 million units as compared to the same period of 2007. As of September 30, 2008, the Company's formulation drugs had been supplied to more than 400 wholesalers in 27 provinces in China.

Sales from the Penicillin Division increased 115% to $10.42 million in the third quarter of 2008. The Company had sufficient inventory to meet the market demand despite the production suspension during the overhaul period. Sales of Clavulanic Acid in China increased 39% while international sales outside of China increased 43% for the third quarter 2008 versus the same period of 2007. The sales quantity reached 18 tons as compared to 15 tons in the second quarter of 2008 and 11 tons in the third quarter of 2007. Gross margin of Clavulanic Acid increased to 35% from 27% for the same period of 2007, mainly driven by the reductions of production cost.

As a result of the increased sales and improved margins for all product lines, total gross profit for the third quarter of 2008 increased 21% to $5.22 million from $4.31 million for the same period of 2007. Net income for the third quarter of 2008 increased to $1.06 million or $0.02 per share (basic and diluted) from a net loss of $1.61 million or $0.03 per share (basic and diluted) for the same period of 2007.

"Despite the worldwide financial crisis, we believe that the fundamentals of our business remain healthy," said Mr. Han, the Chairman and CEO of the Company. "As the budgets for worldwide health care payers will get tighter due to the crisis, we expect more generic drugs will be used than expensive patented drugs. In China, the market continues to be driven by the Chinese government's accelerated reform in providing universal health care coverage for residents in both urban and rural areas. Further, since China is in a very favorable position in terms of cash liquidity in the worldwide financial market, the central bank has recently lowered interest rate to protect the manufacturing industry. As a result, we expect the renewal of bank loans at a lower interest rate than in the past."

About Dragon Pharmaceutical Inc.

Dragon Pharmaceutical, headquartered in Vancouver, Canada, is a leading manufacturer and distributor of a broad line of high-quality antibiotic products including 7-ACA, a key intermediate to produce cephalosporin antibiotics, clavulanic acid, and formulated cephalosporin antibiotic drugs. Dragon is the third largest 7-ACA producer and the first manufacturer and market leader of clavulanic acid products in China. Dragon utilizes its nationwide sales distribution network, close customer relationships, understanding of local markets and customer needs and low cost structure to outperform its international and domestic peers. With an annual capacity of 780 tons, Dragon is the largest exporter of 7-ACA in China. To learn more about Dragon Pharmaceutical Inc., please visit www.dragonpharma.com.

Safe Harbor Statement

This press release contains forward looking statements, including but not limited to, that the Company will continue to experience growth in sales of its main products, that it will continue to be able to improve its production technology, that it will continue to achieve continuous growth in business and profitability in the near future. 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 views 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 filed with the Securities and Exchange Commission.

Contact Information

  • Dragon Pharmaceutical Inc.
    Maggie Deng
    Chief Operating Officer
    (604) 669-8817 or North America Toll Free: 1-877-388-3784
    or
    Dragon Pharmaceutical Inc.
    Karen Huang
    Manager, Business Research & Development
    (604) 669-8817 or North America Toll Free: 1-877-388-3784
    Email: ir@dragonpharma.com
    Website: www.dragonpharma.com