EXHIBIT 99
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, 2005. 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
- ----------------------------
o Biotech Division:
----------------
o 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.
o Announced the relocation from Nanjing city, China and construction of
a brand new Biotech facility in Datong, China.
o 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.
o Chemical Division:
o Commenced operations of the brand new Clavulanic Acid and 7-ACA
production facilities during the first and third quarters of 2004
respectively.
o Received import permit for Clavulanic Acid from the Indian health
authority during the third quarter of 2004.
o Shipment of initial quantities of 7-ACA and 2 Clavulanic Acid products
to Indian customers commenced during the fourth quarter of 2004.
o Pharma Division:
o 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.
o 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:
o Mezlocillin Sodium and Sulbactam Sodium for Injection
o Ceftazidime for Injection
o Aztreonam for Injection
o Cloxacillin Sodium for Injection
o Levofloxacin Hydrochloride for Injection
o Ampicillin Sodium and Cloxacillin Sodium for Injection
o Mezlocillin Sodium for Injection
o Fosfomycin Sodium for Injection
o Sulbactam Sodium and Amoxicillin Sodium for Injection
o Amoxicillin Sodium and Clavulanate Potassium for Injection
o Fosfomycin Calcium (bulk)
o 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% $29.73 100%
======================= =======================
China remains as the Company's core market accounting for 93% of the total
pro-forma revenues in 2004. The Pharma division, which accounted for 76% of the
total revenues, derived all of its revenues from China. However, the proportion
of the revenues from international markets outside of China has increased to 7%
in 2004 from 5% in 2003. These international revenues were mainly contributed by
the Biotech and Chemical divisions since the products of these two divisions
have already started exporting from China. Our EPO products from the Biotech
division has been approved in eight countries (India, Egypt, Brazil, Dominican
Republic, Trinidad-Tobago, Ecuador, Kosovo and Peru) outside of China and
initial quantities of 7-ACA and Clavulanic Acid products from the Chemical
division has also been shipped to Indian customers during the second half of
2004. It is anticipated that revenues from the international markets will
continue to increase with the continued launch of our EPO products in Europe and
developing countries as well as the increasing export of our Chemical division
products.
Product Segment Analysis
- ------------------------
Sales 2004 2003
- ----- --------------------------- -----------------------
(in US$ million) $ % $ %
- - - -
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 Margin Gross 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: irdragon@dragonpharma.com
Website: www.dragonpharma.com
or
Renmark Financial Communications Inc.
John Boidman : jboidman@renmarkfinancial.com
Sylvain Laberge : slaberge@renmarkfinancial.com
Media - Cynthia Lane : clane@renmarkfinancial.com
Telephone: +1-(514) 939-3989
Website: 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 Dragon Oriental Wave Adjustment Pro-forma
(in US $) ------ ------------- ---------- -----------
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 Dragon Oriental Wave Adjustment Pro-forma
(in US $) ------ ------------- ---------- ---------
Cash and Short-term Securities $2,161,781 $910,425 - $3,072,206
Total Current Assets $4,531,192 $25,283,300 $(301,306) (a) $29,513,186
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) (b) $37,540,266
Total Long-term Liabilities - $30,388,395 - $30,388,395
Total Shareholders' Equity $6,228,291 $22,661,673 $2,118,694(a,b) $31,008,658
============== ============ ================ ============
Total Assets $7,776,435 $91,462,190 $(301,306)(a) $98,937,319
SELECTED 2004 UNAUDITED PRO-FORMA COMBINED CONSOLIDATED STATEMENT OF CASH FLOW
For the year ended December 31, 2004
(in US $) Dragon Oriental 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 $394,634 - $(570,252) $(964,886)
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 Dragon Oriental Wave Adjustment Pro-forma
(in US $) ------ ------------- ---------- ---------
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 Dragon Oriental Wave Adjustment Pro-forma
(in US $) ------ ------------- ---------- ---------
Cash and Short-term Securities $3,126,667 $515,791 - $3,642,458
Total Current Assets $5,622,402 $12,390,299 $500,100 (c) $18,512,801
Total Other Assets $3,424,298 $2,739,607 $(500,100) (c) $5,663,805
Total Fixed Assets $2,089,352 $37,996,606 - $40,085,958
============== ============= =============== ===========
Total Current Liabilities $1,428,257 $27,835,859 $(5,100,000) (b) $24,164,116
Total Long-term Liabilities - $10,291,288 $2,680,000 (b) $12,971,288
Total Shareholders' Equity $9,707,795 $14,999,365 $2,420,000 (b) $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.