Dragon Pharmaceutical Announces Business Update after the
Completion of Acquisition of Oriental Wave and Selected Unaudited
2004 Pro-forma Combined Financial Data VANCOUVER, April 4
/PRNewswire-FirstCall/ -- Dragon Pharmaceutical Inc. (TSX: DDD; OTC
BB: DRUG; BBSE: DRP) today announced a business update and selected
unaudited 2004 pro-forma financial data of the Company combined
with Oriental Wave Holding Limited. On January 12, 2005, Dragon
completed the acquisition of Oriental Wave Holding Limited. As a
result of the acquisition, Dragon has transformed itself into a
diversified and growth oriented generic pharmaceutical company with
three key business units: (1) Pharma division for 44 generic
prescription, over-the-counter and sterilized bulk drugs; (2)
Chemical division for bulk pharmaceutical chemicals and
intermediates (Clavulanic Acid and 7-ACA, Abamectin); and (3)
Biotech division for recombinant drugs (EPO and G-CSF). The
Company, after the acquisition, has significantly increased the
size of operations and now has four manufacturing facilities in
China (three in Datong city and one in Nanjing city), approximately
1,800 employees, with over 1,200 sales representatives in China,
and approximately 55 key products in 86 different dosages and
presentations currently in the market. The following is a
discussion of the 2004 business highlights for both Dragon and
Oriental Wave on a combined basis. Business Highlights for 2004
---------------------------- - Biotech Division: -----------------
- Launched rh-Erythropoietin ("EPO") product in Ecuador, Dominican
Republic, Kosovo and Trinidad-Tobago in 2004 in addition to the
earlier approved markets: China, India, Egypt, Peru and Brazil. -
Announced the relocation from Nanjing city, China and construction
of a brand new Biotech facility in Datong, China. - Entered into an
agreement with Suzhou Zhongkai Bio-Pharmaceuticals Company Limited
to in-license the exclusive right to commercialize its Recombinant
Human Granulocyte Colony Stimulating Factor ("rhG-CSF") product
worldwide, excluding China. - Chemical Division: ------------------
- Commenced operations of the brand new Clavulanic Acid and 7-ACA
production facilities during the first and third quarters of 2004
respectively. - Received import permit for Clavulanic Acid from the
Indian health authority during the third quarter of 2004. -
Shipment of initial quantities of 7-ACA and 2 Clavulanic Acid
products to Indian customers commenced during the fourth quarter of
2004. - Pharma Division: ---------------- - Receipt of additional
21 additional generic drug approvals from Chinese State Food and
Drug Administrator ("SFDA"), bringing the total number of drug
approvals to 306. - Establishment of a new freeze-dry production
line for temperature- sensitive products Divisional Business Review
and Update: -------------------------------------- Biotech Division
---------------- Relocation and building a brand new facility in
Datong ------------------------------------------------------ As
previously announced, the Company will build a brand new
state-of-the-art EPO production facility in Datong city, China and
relocate the EPO production from its current facility in Nanjing
city. The Company will construct the new EPO production site
adjacent to the campus of the Chemical division, which already
includes the entire basic infrastructure such as power, steam,
purified water supply and water treatment facilities. The
relocation of the EPO production site to Datong will allow the
Company to capitalize on the existing production infrastructure and
the efficiency of unified operational management. In the new
facility, the capacity for bulk EPO will be doubled and the
capacity for sterile filing will be tripled. Continued progress on
International EPO market approval
------------------------------------------------------- The Company
continues to achieve good progress by receiving four additional
market approvals during the second half of 2004: Ecuador, Dominican
Republic, Trinidad-Tobago and Kosovo in addition to the earlier
approved markets of China, Brazil, India, Egypt & Peru. It is
the Company's intention to supply the product from this new
facility to fulfill the demands of the Chinese and other developing
markets which are currently supplied from our China facility in
Nanjing. Dragon will use the EPO produced in Europe specifically
for the European market as well as for new indication developments
in the EPO field. Although the European patent for EPO expired in
most European countries in December 2004, the European regulatory
authority, EMEA, has not clearly indicated the approval process for
the EPO from generic competitors. However, the Company expects that
it will be among the early candidates to enter the market with the
Company's new European made EPO product. In-licensed rhG-CSF for
worldwide markets, excluding China
---------------------------------------------------------- Dragon
has entered into an agreement with Suzhou Zhongkai
Bio-Pharmaceuticals Company Limited to in-license the exclusive
right to commercialize its Recombinant Human Granulocyte Colony
Stimulating Factor ("rhG-CSF") product worldwide, excluding the
Chinese market. Dragon will leverage its regulatory approval
knowledge and expertise from launching its EPO internationally and
will also utilize its existing licensing partnerships developed
over time around the world to bring this rhG-CSF product to the
international market. This in-licensing deal will allow Dragon to
capture better economic value without incurring significant risk in
research and developing an in-house product and the high investment
to bring the drug into the production. Chemical Division
----------------- Commencement of the two Chemical Production
Facilities; Receipt of Import
-------------------------------------------------------------------------
License for 2 Clavulanic Acid Products from the Indian Health
Authority;
------------------------------------------------------------------------
Initial Shipment of 7-ACA and 2 Clavulanic Acid Products to Indian
------------------------------------------------------------------
Customers Started. ------------------ The approximately $45 million
investment in the two Chemical Division facilities were completed
during 2004 and the production of Clavulanic Acid and 7-ACA started
during the first and the third quarter respectively. Since the
commencement of operations, the Company has been supplying the
products mainly to the Chinese market. However, during the third
quarter of 2004, the Company received licenses from Drugs
Controller General of India to sell two Chemical products,
including clavulanate potassium and avecil (1:1) and clavulanate
potassium and syloid (1:1) into the Indian market. During the
fourth quarter of 2004, initial quantities of 7-ACA and both
Clavulanic Acid products had already been shipped and delivered to
customers in India. Pharma Division --------------- Establishment
of a new freeze-dried production line
--------------------------------------------------- Concurrent to
the relocation of the EPO production facility to Datong city, China
and as previously announced in January 2005, the Company plans to
build a new workshop for the freeze-drying of temperature sensitive
pharmaceutical products. Among these products is Levofloxacin, a
product marketed by the Company whose production is currently
outsourced to a third party contract manufacturer. This new
workshop will also be housed in an area adjacent to the Chemical
division's campus sharing the production infrastructure that was
newly built for the Chemical division. The construction of this new
workshop will not only allow the Company to improve its cost
structure from Chemical division's existing production
infrastructure, but will also increase the Pharma division's
existing manufacturing capabilities by adding to the six different
presentations that are already in production: tablets, granules,
suppositories, capsules, powders for injection and sterilized bulk
drug. Receipt of 21 Additional Generic Drug Approvals from Chinese
SFDA,
------------------------------------------------------------------
Bringing the Total Number of Drug Approvals to 306
-------------------------------------------------- During 2004, the
Company received product approvals for 12 products from the Chinese
SFDA. These 12 products, in 21 dosages, are mainly generic
prescription drugs that have been marketed through the Company's
comprehensive direct sales network in China with approximately
1,200 sales representatives all over the country. These newly
approved products include: - Mezlocillin Sodium and Sulbactam
Sodium for Injection - Ceftazidime for Injection - Aztreonam for
Injection - Cloxacillin Sodium for Injection - Levofloxacin
Hydrochloride for Injection - Ampicillin Sodium and Cloxacillin
Sodium for Injection - Mezlocillin Sodium for Injection -
Fosfomycin Sodium for Injection - Sulbactam Sodium and Amoxicillin
Sodium for Injection - Amoxicillin Sodium and Clavulanate Potassium
for Injection - Fosfomycin Calcium (bulk) - Aztreonam (bulk) The
Company's Pharma division now has 306 drug approvals received from
the Chinese SFDA included in the Company's current product license
portfolio and has expanded the product offering currently in the
Chinese market to 44 key products, altogether in 68 different
presentations and dosages. The comprehensive product portfolio
provides flexibility to the Company as it allows for adjustment to
the product mix according to market and competitive conditions. It
is the Company's plan to select additional products for
commercialization. In addition, through in-house development and
external collaborations with research institutions, the Company's
on-going strategy is to introduce ten to twenty new dosages or
presentations of new generic drugs or previously approved drugs
every year in the Chinese market. Overview of Unaudited Combined
Pro-forma Results ------------------------------------------------
The acquisition of Oriental Wave was completed on January 12, 2005
with the Company issuing 44,502,004 common shares of Dragon to the
shareholders of Oriental Wave so they owned 68.35% of the combined
companies. Therefore, the first quarter of 2005 will be the first
time when the financial results are reported as a combined entity.
The 2004 combined pro-forma financials reported in this press
release have not been audited but have been derived from the
December 31, 2004 financial statements of the both companies which
were prepared in accordance with United States Generally Accepted
Accounting Principles and audited by their respective Independent
Registered Public Accounting Firms. Assuming the acquisition of
Oriental Wave was completed at the beginning of 2003, the selected
pro-forma financials for the Company are as follows: SELECTED
UNAUDITED PRO-FORMA COMBINED CONSOLIDATED STATEMENT OF
---------------------------------------------------------------
OPERATIONS ---------- For the year ended December 31 (in US $) 2004
2003 ---- ---- Sales $ 32,728,391 $ 29,734,241 Gross Profit $
15,042,058 $ 14,495,924 Gross Profit Margin 46% 49% Net Income for
the year $ 6,543,591 $ 5,589,238 ------------------------------
------------------------------ Net Income per share - basic and
diluted $ 0.10 $ 0.09 ------------------------------
------------------------------ Weighted average number of common
shares outstanding: Basic 65,053,444 64,839,402 Overall pro-forma
sales for the year ended December 31, 2004 were $32.7 million, a
10.1% increase from the year of 2003. The increase in sales was
mainly due to the introduction of the Chemical Division during the
year. Pro-forma gross profit for the years ended December 31, 2004
and 2003 was $15 million (46% Gross Profit Margin) and 14.5 million
(49% Gross Profit Margin), respectively. The gross profit margin
for 2004 was slightly lower than the 2003 figures because the
Chemical Division was at the initial stage of operations and
therefore, margin contributed by the division was unusually low.
Pro-forma net income for the year ended December 31, 2004 was $6.5
million, representing a 17% increase from the previous year. On a
pro-forma earning per share basis, the Company achieved $0.10 per
share in 2004 as compared to $0.09 per share in 2003. Market
Segment Analysis ----------------------- Sales 2004 2003 -----
------------------------------------------- (in US$ million) % %
China $ 30.51 93% $ 28.34 95% International $ 2.22 7% $ 1.39 5%
-------------------------------------------------------------------------
Total $ 32.73 100% $ 29.73 100%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
China remains as the Company's core market accounting for 93% of
the total pro-forma revenues in 2004. The Pharma division, which
accounted for 76% of the total revenues, derived all of its
revenues from China. However, the proportion of the revenues from
international markets outside of China has increased to 7% in 2004
from 5% in 2003. These international revenues were mainly
contributed by the Biotech and Chemical divisions since the
products of these two divisions have already started exporting from
China. Our EPO products from the Biotech division has been approved
in eight countries (India, Egypt, Brazil, Dominican Republic,
Trinidad-Tobago, Ecuador, Kosovo and Peru) outside of China and
initial quantities of 7-ACA and Clavulanic Acid products from the
Chemical division has also been shipped to Indian customers during
the second half of 2004. It is anticipated that revenues from the
international markets will continue to increase with the continued
launch of our EPO products in Europe and developing countries as
well as the increasing export of our Chemical division products.
Product Segment Analysis ------------------------ 2004 2003
------------------------------------------- (in US$ million) $ % $
% Sales Chemical Division $ 4.25 13% - - Pharma Division $ 24.77
76% $ 26.08 88% Biotech Division $ 3.71 11% $ 3.65 12%
-------------------------------------------------------------------------
Total $ 32.73 100% $ 29.73 100%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2004 2003 ------------------------------------------- Gross Gross
Margin Margin ------ ------ Gross Profit $ % $ % ------------ (in
US$ million) Chemical Division $ 0.22 5% - - Pharma Division $
12.66 51% $ 12.04 46% Biotech Division $ 2.16 58% $ 2.46 67%
-------------------------------------------------------------------------
Total $ 15.04 46% $ 14.50 49%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Biotech Division ---------------- Sales for the year of 2004 was
$3.7 million (11% of total revenues) compared to sales of $3.6
million for the year ended December 31, 2003 (12% of total
revenues). During 2004, an 18% growth in sales was achieved in
China, which was partially offset by lower international sales
outside of China. During 2004, the Company implemented a new
non-fixed sales compensation system for the Company's direct sales
team in China, which provided more incentive for the Company's
sales representatives to focus on delivering results. International
sales in 2004 were lower than those in 2003 because the Company
sold product with a limited shelf life at a reduced price in Brazil
during 2003, and we did not experience similar sales during 2004.
Gross margin for 2004 was 58% as compared to 67% in 2003. The lower
gross margin in 2004 was due to the $400,000 write-down of the cost
of bulk EPO produced from a cell line for which no approval from
the Chinese SFDA has been sought and which will be sold exclusively
for research purposes. Chemical Division ----------------- Sales
for the year of 2004 were $4.2 million (13% of total revenues) with
a gross profit of $0.2 million. Since the Chemical division
facilities was new in operation during 2004 and is currently at the
initial stage of ramping up the production level, the gross profit
achieved remained at an unusually low level due to the depreciation
and amortization of the newly built production facilities. However,
it is anticipated that the revenue and margin contribution from the
Chemical division will continue to increase as the ramp up of the
production level and will remain to be a key growth driver for the
Company in the short-run. Pharma Division --------------- Sales for
the full year of 2004 were $24.8 million (76% of the total
revenues) compared to sales of $26.1 million for 2003 (80% of total
revenues). The slight decrease in revenues in 2004 was mainly due
to the reduction in retail price of certain prescription drugs
imposed by the Chinese government. However, the gross profit margin
in 2004 was 51%, a 500 basis point improvement compared to 2003's
figure. The increase in the gross profit margin was mainly due to
the increase in production level, the use of certain self-produced
chemicals from the Chemical division and the increase in proportion
of non-prescription drug revenues in the revenue mix, which is
generally not affected by the retail price control measure imposed
by the government. For further information please contact: Dragon
Pharmaceutical Inc. Garry Wong, CFA, IMBA Telephone:
+1-(604)-669-8817 or North America Toll Free: 1-877-388-3784 Email:
Website: http://www.dragonpharma.com/ or Renmark Financial
Communications Inc. John Boidman: Sylvain Laberge: Media - Cynthia
Lane: Telephone: +1-(514) 939-3989 Website:
http://www.renmarkfinancial.com/ 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 to successfully construct and operate a
biotech facility in Datong, China that will be able increase
production and operate more efficiently than its facility in
Nanjing; (3) that the Company will be able to successfully sell its
EPO product in Europe and to commercialize the in-licensed G-CSF
internationally outside of China; (4) that the Company will be able
to successfully construct and operate a freeze-dried facility in
Datong, China; (5) that the Company will be able to commercialize
or to obtain additional product licenses from SFDA; (6) that the
Company will continue to increase revenues by increasing launch of
products outside of China and (7) that the Company will be able to
increase the production and therefore generate additional revenues
from the Chemical division. 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.
SELECTED 2004 UNAUDITED PRO-FORMA COMBINED CONSOLIDATED STATEMENT
OF
--------------------------------------------------------------------
OPERATIONS ---------- For the year ended December 31, 2004 (in US
$) Oriental Dragon Wave Adjustment Pro-forma ------ --------
---------- --------- Sales $ 3,705,261 $ 29,023,130 - $ 32,728,391
Gross Profit $ 2,159,233 $ 12,882,825 - $ 15,042,058 Gross Profit
Margin 58% 44% 46% Net Income for the year $ (942,718) $ 7,486,309
- $ 6,543,591
--------------------------------------------------------
-------------------------------------------------------- Net Income
per share - basic and diluted $ (0.05) $ 149.73 $ 0.10
--------------------------------------------------------
-------------------------------------------------------- Weighted
average number of common shares outstanding: Basic 20,551,440
50,000 65,053,444 SELECTED 2004 UNAUDITED PRO-FORMA COMBINED
CONSOLIDATED BALANCE SHEET
---------------------------------------------------------------------
DATA ---- As of December 31, 2004 (in US $) Oriental Dragon Wave
Adjustment Pro-forma ------ -------- ---------- --------- Cash and
Short- term Securities $ 2,161,781 $ 910,425 - $ 3,072,206 Total
Current Assets $ 4,531,192 $ 25,283,300 $ (301,306) $ 29,513,186
(a) Total Other Assets $ 2,372,207 $ 2,658,688 - $ 5,030,895 Total
Fixed Assets $ 873,036 $ 63,520,202 - $ 64,393,238
--------------------------------------------------------
-------------------------------------------------------- Total
Current Liabilities $ 1,548,144 $ 38,412,122 $ (2,420,000) $
37,540,266 (b) Total Long-term Liabilities - $ 30,388,395 - $
30,388,395 Total Shareholders' Equity $ 6,228,291 $ 22,661,673 $
2,118,694 $ 31,008,658 (a,b)
--------------------------------------------------------
-------------------------------------------------------- Total
Assets $ 7,776,435 $ 91,462,190 $ (301,306) $ 98,937,319 (a)
SELECTED 2004 UNAUDITED PRO-FORMA COMBINED CONSOLIDATED STATEMENT
OF
--------------------------------------------------------------------
CASH FLOW --------- For the year ended December 31, 2004 (in US $)
Oriental Dragon Wave Adjustment Pro-forma ------ --------
---------- --------- Cash Flow From/ (Used in) Operating Activities
$ (963,253) $ 18,439,027 - $ 17,475,774 Cash Flow From/ (Used in)
Investing Activities $ (71,372) $(28,160,006) - $(28,231,378) Cash
Flow From/ (Used in) Financing Activities $ 72,500 $ 10,115,613 - $
10,188,113 (Gain)/Loss on cash held in Foreign Currency $ (2,761) -
- $ (2,761)
-------------------------------------------------------- Net
Increase/ (Decrease) in Cash and Cash Equivalents $ (964,886) $
394,634 - $ (570,252) Cash and cash equivalents, beginning of
period $ 3,126,667 $ 515,791 - $ 3,642,458
-------------------------------------------------------- Cash and
cash equivalents, end of period $ 2,161,781 $ 910,425 - $ 3,072,206
--------------------------------------------------------
-------------------------------------------------------- SELECTED
2003 UNAUDITED PRO-FORMA COMBINED CONSOLIDATED BALANCE SHEET
---------------------------------------------------------------------
DATA ---- For the year ended December 31, 2003 (in US $) Oriental
Dragon Wave Adjustment Pro-forma ------ -------- ----------
--------- Sales $ 3,648,149 $ 26,086,092 - $ 29,734,241 Gross
Profit $ 2,463,253 $ 12,268,794 - $ 14,495,924 Gross Profit Margin
68% 47% 49% Net Income for the year $ (1,994,734) $ 7,583,972 - $
5,589,238 --------------------------------------------------------
-------------------------------------------------------- Net Income
per share - basic and diluted $ (0.10) $ 151.68 $ 0.09
--------------------------------------------------------
-------------------------------------------------------- Weighted
average number of common shares outstanding: Basic 20,348,195
50,000 64,839,402 SELECTED 2003 UNAUDITED PRO-FORMA COMBINED
CONSOLIDATED BALANCE SHEET
---------------------------------------------------------------------
DATA ---- As of December 31, 2003 (in US $) Oriental Dragon Wave
Adjustment Pro-forma ------ -------- ---------- --------- Cash and
Short- term Securities $ 3,126,667 $ 515,791 - $ 3,642,458 Total
Current Assets $ 5,622,402 $ 12,390,299 $ 500,100 $ 18,512,801 (c)
Total Other Assets $ 3,424,298 $ 2,739,607 $ (500,100) $ 5,663,805
(c) Total Fixed Assets $ 2,089,352 $ 37,996,606 - $ 40,085,958
--------------------------------------------------------
-------------------------------------------------------- Total
Current Liabilities $ 1,428,257 $ 27,835,859 $ (5,100,000) $
24,164,116 (b) Total Long-term Liabilities - $ 10,291,288 $
2,680,000 $ 12,971,288 (b) Total Shareholders' Equity $ 9,707,795 $
14,999,365 $ 2,420,000 $ 27,127,160
--------------------------------------------------------
-------------------------------------------------------- Total
Assets $ 11,136,052 $ 53,126,512 - $ 64,262,564 Note: ----- The
above selected pro-forma data has been adjusted for:
-------------------------------------------------------- (a) the
legal and other costs associated with the acquisition of Oriental
Wave; (b) the conversion of $2.42 million in debt owing to Oriental
Wave shareholders to equity; (c) the reclassification at December
2003 of amounts due from a director. DATASOURCE: Dragon
Pharmaceuticals Inc. CONTACT: Dragon Pharmaceutical Inc., Garry
Wong, CFA, IMBA, Telephone: (604) 669-8817 or North America Toll
Free: 1-877-388-3784, Email: , Website:
http://www.dragonpharma.com/; or Renmark Financial Communications
Inc., John Boidman: ; Sylvain Laberge: ; Media - Cynthia Lane: ;
Telephone: (514) 939-3989, Website:
http://www.renmarkfinancial.com/
Copyright