Profit Attributable to the Owners of the Company Up 3.0% to HK$125 Million;
Maintaining Steady Profitability Breaking New Ground in Drug Development
HONG KONG — Lee’s Pharmaceutical Holdings Limited (“Lee’s Pharm” or the “Group”, Stock Code: 950), an integrated research-driven and market-oriented pharmaceutical group in China, today announced its interim results for the six months ended 30 June 2017 (the “period under review”).
During the period under review, the Group managed to bring the net profit growth back to the positive territory with the aid of the encouraging momentum in both revenue and net profit growth during the second quarter. The Group’s quarterly sales grew in the double digit realm with major products achieving volume growth, which was the first time since first quarter of 2015, in spite of the persistent market headwind brought about by uncertainty in healthcare reform in China.
The Group has recorded revenue of HK$ 248,550,000 during the second quarter of 2017, increased by 10.9 % over same quarter last year. The accelerated growth was driven by increase in sales volume and value in major products the Group have in the market. The revenue growth of the Group’s major products such as Carnitene, Ferplex, Zanidip, Livaracine and Slounase in the second quarter were 4.9%, 68.4%, 13.0%, 9.3% and 3.0%, respectively.
As a result, for the first half of 2017, the Group recorded revenue of HK$474,750,000 with 5.6% growth over same period last year. Sales of licensed-in products accounted for 53.3% (30 June 2016: 51.5%) of the revenue while sales of proprietary products contributed 46.7% (30 June 2016: 48.5%).
During the second quarter of this year, the Group’s gross profit margin of 68.2% was 2.1 percentage points improved as compared to 66.1% achieved during the first quarter. Nevertheless, the gross profit margin for the period under review dropped by 5.7 percentage points to 67.2% (30 June 2016: 72.9%) due to product selling price pressure and increased production costs of proprietary products. Net profit attributable to the owners of the Company for the period upheld a mild growth of 3.0% and reached HK$125,070,000 despite gross profit margin erosion. The Board of Directors recommended an interim dividend of HK$0.034 per share (30 June 2016: HK$0.033).
Dr. Benjamin Li, Executive Director and Chief Executive Officer of the Group, said, “The decrease in gross profit margin and increase in research and development (“R&D”) spending put pressure on the net profit. However, helped by the sustainable cost saving achieved through the optimised cost structure in sales and marketing and by the one-time gained generated from the deemed disposal of CVie Therapeutics Limited (“CVie Taiwan”), the Group successfully brought the net profit growth back to the positive territory. ”
The Group’s sales and marketing efficiency enhancement program has proved to be sustainable and the selling expenses to revenue ratio has lowered further to 19.9% (30 June 2016: 24.6%). The savings therefrom continued to fund the Group’s R&D activities on new drugs. During the first half of the year, R&D expenses increased by 13.4% to HK$36,993,000.
On the quality system, production and manufacturing facilities front, the Group’s solid dose production facility in its Nansha manufacturing site is already in operation and the application for a Good Manufacturing Practice certification in the near future is expected. The construction work of the Group’s ophthalmic drugs production facility in its Nansha manufacturing site is in good progress and is on target for completion in 2017. It is expected to enhance the Group’s manufacturing capability, enabling it to move towards its goal as a fully integrated specialty pharma in China.
Meanwhile, the Group concluded another international partnership deal. In June 2017, the Group has entered into an exclusive license and collaboration agreement with an US company, Windtree Therapeutics, Inc. (“Windtree”) for the development and commercialization of KL4 surfactant products in select Asian markets using Windtree’s proprietary KL4 surfactant and aerosolization technologies. The agreement includes AEROSURF as well as the non-aerosol products SURFAXIN and SURFAXIN LS. Also, Windtree has granted the Group an exclusive license to manufacture KL4 surfactant in China for use in non-aerosol surfactant products in the licensed territory. Respiratory Distress Syndrome is a life-threatening problem for premature baby and surfactant is the only effective remedy. The estimated market size in China is reportedly more than RMB600 million. As SURFAXIN is the only approved non-animal derived product, it is expected to have a competitive edge over the existing product once it is launched in China.
The Group persisted its commitment to R&D and made measurable progress. There are more than 13 clinical studies in either operational or preparatory stage, such as the phase III clinical study of Adapalene and Clindamycin combination hydrochloride gel for acne vulgaris, Natulan registration study, phase IIb study of Anfibatide and development of two cardiovascular assets, namely Rostafuroxin and Istaroxime, under CVie Taiwan, a non-wholly owned subsidiary of the Group. The Group will go on with new drugs development to facilitate sustainable growth in the future.
Looking forward, the Group maintains its view that the operating environment in the pharmaceutical sector will be challenging. The Group expects regulators will continue to streamline and improve the rules and regulations in pharmaceutical industry which may alter each of the elements therein, such as manufacture, distribution, marketing, compliance, which may create additional burdens on its business operations. Nevertheless, the overall trend towards enhanced governance of the industry and the growing size of the market shall underpin the fundamentals of the market for safe and quality drugs in the long term, from which the Group is confident that sustainable long term growth of its business can be achievable.
Dr. Li said, “In fact, the reform in drug regulations has begun to benefit the Group’s development efforts and product’s time-to-clinic has been significantly shortened. In August 2017, the Group has obtained two more IND approvals for oncology and ophthalmic product respectively. The acceleration in product development will translate into faster time-to-market for the Group’s strong portfolio which in turn will catalyse a new growth trajectory in near future. “