ChinaSecurities

SHENZHEN, China--(BUSINESS WIRE)--Tongjitang Chinese Medicines Company (NYSE: TCM - News) (“Tongjitang” or the “Company”), a leading specialty pharmaceutical company focusing on the development, manufacturing, marketing and selling of modernized traditional Chinese medicine in China, today announced its financial results for the quarter ended September 30, 2009 and the repurchase of ordinary shares in a private transaction.

Financial Results for the Quarter Ended September 30, 2009

• Net revenue was RMB104.6 million ($15.3 million)¹, compared to RMB110.4 million in the prior year period.
• Gross margin was 57.6% in the third quarter of 2009, compared to 62.4% in the same period of 2008.
• Net loss attributable to the Company was RMB13.7 million ($2.0 million), which yielded net loss per ADS of RMB0.43 ($0.06) and net loss per share² of RMB0.11 ($0.02).
• Non-GAAP loss per share was RMB0.04 ($0.01), compared to non-GAAP earnings per share of RMB0.11 in the third quarter of 2008.

Net revenue for the third quarter of 2009 was RMB104.6 million ($15.3 million), a decrease of 5.3% from RMB110.4 million in the third quarter of 2008. Xianling Gubao (“XLGB”) sales were RMB60.6 million ($8.9 million) in the third quarter of 2009, compared to RMB78.7 million in the third quarter of 2008. Net revenue of the Company’s other core products, including Moisturizing & Anti-itching Capsules and Zaoren Anshen Capsules, increased 4.1% to RMB12.8 million ($1.9 million) from RMB12.3 million in the third quarter of 2008. Revenue contribution from Guizhou Long-Life Pharmaceutical Company Limited (”Guizhou LLF”) was RMB2.6 million ($376,000), compared to RMB5.1 million in the third quarter of 2008. Revenue contribution from Qinghai Pulante Pharmaceutical Co., Ltd. (“Pulante”) was RMB1.9 million ($278,000), roughly flat year over year. Revenue contribution from Anhui Jingfang Pharmaceutical Co., Ltd. (“Jingfang”), which was acquired at the end of the first quarter of 2009, was RMB17.6 million ($2.6 million), compared to RMB14.4 million in the second quarter of 2009.

Xiaochun Wang, Chief Executive Officer and Chairman of Tongjitang, stated, “Our third quarter performance reflects the introduction of the newly-launched sales rebate program to the majority of distributors. As a result of this rebate program, RMB6.2 million has been recorded against revenues year to date. Additionally, even though the Essential Drug List was announced by China’s Ministry of Health during this third quarter, uncertainties regarding execution details and pricing continued to cause hospitals and distributors to destock their inventory levels, leading to low sales during the quarter. However, we believe that such declines in purchases from hospitals and distributors should recover noticeably when the pending Chinese healthcare policies are finalized and disclosed.”

Gross profit was RMB60.3 million ($8.8 million) in the third quarter of 2009, down from RMB69.0 million in the third quarter of 2008. Gross margin was 57.6% in the third quarter of 2009, compared to 62.4% in the same period of 2008. Tongjitang’s decreased gross margin reflects reduced revenues from XLGB and Guizhou LLF (which enjoys a higher margin) and the introduction of sales rebates. The price of barrenwort, used in the production of XLGB, remained stable in the third quarter of 2009.

Operating loss in the third quarter of 2009 was RMB12.8 million ($1.9 million), compared to operating income of RMB7.7 million in the third quarter of 2008, primarily reflecting increased selling and marketing expenses related to Jingfang’s products.

Net loss attributable to the Company was RMB13.7 million ($2.0 million), which yielded net loss per ADS of RMB0.43 ($0.06) and net loss per share² of RMB0.11 ($0.02).

Non-GAAP net loss in the third quarter of 2009 was RMB5.4 million ($790,000), compared to non-GAAP net income of RMB15.3 million in the third quarter of 2008. Non-GAAP loss per share was RMB0.04 ($0.01), compared to non-GAAP earnings per share of RMB0.11 in the third quarter of 2008. For the third quarter of 2009, the number of shares used in the computation of GAAP and non-GAAP net loss per share was 126.8 million. Please refer to the Company’s GAAP to non-GAAP reconciliation table provided below for additional details.

Wang continued, “During the third quarter, we are very pleased to see that our recently-integrated business, Jingfang, started to show great potential in sales. We also expect to see initial progress from our ongoing marketing campaign and the restructuring of Jingfang’s sales team in the fourth quarter. ”

Financial Results for the Nine Months Ended September 30, 2009

For the nine months ended September 30, 2009, revenue was RMB328.9 million ($48.2 million), down from RMB335.8 million in the first nine months of 2008. During this same time period, gross profit was RMB194.5 million ($28.5 million), down from RMB213.2 million. Operating loss was RMB11.3 million ($1.7 million), compared to operating income of RMB8.5 million in the first nine months of 2008. Net loss attributable to the Company was RMB7.9 million ($1.2 million), or RMB 0.06 ($0.01) per share, compared to net income attributable to the Company of RMB27.0 million, or RMB0.20 per share, in the first nine months of 2008. Net loss per ADS was RMB0.25 ($0.04) in the first nine months of 2009, compared with net income per ADS of RMB0.80 in the first nine months of 2008. The weighted average number of shares outstanding for the first nine months of 2009 was 128.6 million.

Balance Sheet

As of September 30, 2009, the Company had cash and cash equivalents of RMB310.6 million ($45.5 million). This compares to RMB473.7 million as of June 30, 2009.

Share Repurchase in a Private Transaction

On November 11, 2009, the Company completed a repurchase of 4.8 million ordinary shares in a private transaction. The purchase price of $1.025 per ordinary share was the same as the purchase price paid by the Company to certain non-affiliate and non-management investors in the recent share repurchases completed in September 2009 through privately negotiated transactions. Since the seller of these 4.8 million ordinary shares was a company controlled and owned by certain current and ex-senior management of the Company’s operating subsidiary in China, this transaction may be deemed a related party transaction. Due to such consideration, before the share repurchase was carried out, it was pre-approved by both the Company’s board of directors as well as the board’s audit committee.

About Non-GAAP Financial Measures

To supplement the Company’s unaudited condensed consolidated financial information presented in accordance with the United States Generally Accepted Accounting Principles ("GAAP"), the Company also provides non-GAAP financial measures, non-GAAP adjusted EBITDA and non-GAAP adjusted EBITDA per share, all of which exclude share-based compensation expenses recorded under Accounting Standards Codification 718: Compensation—Stock Compensation (Pre-Codification: Statement of Financial Accounting Standards 123R, “Share-Based Payment”). The Company’s management believes the non-GAAP financial measures facilitate better understanding of operating results from quarter to quarter and allows the management team to better plan and forecast future periods, as the non-GAAP financial measures provide additional information to the investors. The non-GAAP information is not in accordance with GAAP and may be different from non-GAAP methods of accounting and reporting used by other companies. The presentation of this additional information should not be considered a substitute for the GAAP results. A limitation of using these non-GAAP financial measures is that these non-GAAP measures exclude share-based compensation expenses that have been and will continue to be significant recurring expenses in the Company’s business for the foreseeable future. Reconciliations of the Company’s non-GAAP financial data to the most comparable GAAP data are included at the end of this press release.

Conference Call

The Company will hold a conference call on November 18 at 8:00 a.m. U.S. Eastern Time (9:00 p.m. Beijing/Hong Kong time) following the announcement. Listeners may access the call by dialing the following numbers:

An audio webcast of the call will also be available through the Company’s website at www.tongjitang.....

1. This announcement contains translations of certain Renminbi amounts into US dollars at specified rates solely for the convenience of readers. Unless otherwise noted, all translations from Renminbi to US dollars as of and for the quarter ended September 30, 2009 were made at the noon buying rate on September 30, 2009 in the City of New York for cable transfers in Renminbi per US dollar as certified for customs purposes by the Federal Reserve Bank of New York, which was RMB6.8262 to USD1.00. Tongjitang makes no representation that the Renminbi or US dollar amounts referred to in this release could have been or could be converted into US dollars or Renminbi, as the case may be, at any particular rate or at all.

2. All references to ‘shares’ are to our ordinary shares. Each of our American Depositary Shares, which are traded on the New York Stock Exchange, represents four ordinary shares.

About Tongjitang Chinese Medicines Company

Tongjitang Chinese Medicines Company, through its operating subsidiaries Tongjitang Pharmaceutical, Tongjitang Distribution, Tongjitang Chain Stores, Guizhou Long-Life Pharmaceutical Company Limited, Qinghai Pulante and Anhui Jingfang, is a vertically integrated specialty pharmaceutical company focused on the development, manufacturing, marketing and selling of modernized traditional Chinese medicine in China. Tongjitang’s principal executive offices are located in Shenzhen, China.

Tongjitang’s flagship product, Xianling Gubao, is the leading traditional Chinese medicine for the treatment of osteoporosis in China as measured by sales in Renminbi. In addition to Xianling Gubao, the Company manufactures and markets 36 other modernized traditional Chinese medicine products and 37 western medicines. Please visit www.tongjitang.com for more information.

Safe Harbor Statements

This press release contains forward-looking statements that are made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995. Although the Company believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Although the Company believes that the expectations expressed in these forward-looking statements are reasonable, they cannot assure you that their expectations will turn out to be correct, and investors are cautioned that actual results may differ materially from those described in the forward-looking statements in this press release. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: the Company’s heavy dependence on the success of Xianling Gubao; the Company’s ability to market Xianling Gubao to hospitals and to retail pharmacies; the retail prices of its principal products’ being subject to price control by the government authorities in China; the inclusion of the Company’s products in national and provincial medical catalogs of the National Medical Insurance Program in China; the Company’s ability to obtain approval from the State Food and Drug Administration in China to convert a provisional national production standard of the Company’s principal products to a national final production standard; the Company’s ability to continue having the exclusive production rights for its products; the Company’s ability to further improve its barrenwort extraction efficiency; the presence of certain side effects in the Company’s current products and the Company’s ability to identify side effects associated with its current or future products prior to their marketing and sale; the Company’s ability to obtain manufacturing or marketing approval for its future products; the Company’s dependence on a limited number of distributors for a significant portion of its net revenues; the Company’s exposure to the risk of product liability claims and its limited insurance coverage; the Company’s ability to manage the expansion of its operations and its future research and development projects successfully; the Company’s ability to protect its intellectual property rights and defend infringement or misappropriation claims by third parties; intense competition in the pharmaceutical market in China; the supply of quality medicinal raw materials; the Company’s U.S. tax status as a passive foreign investment company (“PFIC”) for the taxable year ended December 31, 2008 and the significant risk that the Company will be a PFIC for the current taxable year ending December 31, 2009; uncertainties with respect to the legal system in China, including uncertainty with respect to potential regulatory changes in China’s healthcare industry; if disruptions in the financial markets and other macro-economic challenges currently affecting the economy of the United States and other parts of the world continue or even worsen, it may adversely impact the economy and consumer confidence in China; and the Company’s ability to expand its business through organic growth and strategic acquisitions and investments. Further information regarding these and other risks is and will be included in the Company’s registration statement on Form F-1, its annual report on Form 20-F and other documents filed and to be filed with the U.S. Securities and Exchange Commission. The Company does not undertake any obligation to update any forward-looking statement, except as required under applicable law. All information provided in this press release is as of the date of this press release, and the Company undertakes no duty to update such information, except as required under applicable law.

ICR, Inc.
Ashley M. Ammon or Christine Duan
203-682-8200 (Investor Relations)