Lotus Pharmaceuticals reports $5.4 million net earnings for third-quarter 2009

Lotus Pharmaceuticals, Inc. (OTC Bulletin Board: LTUS) ("Lotus" or the "Company") a growing developer and producer of prescriptions drugs and licensed national seller of pharmaceutical products in the People's Republic of China, today reported third-quarter 2009 net earnings were $5.4 million, or $0.11 per diluted share, compared with $3.2 million, or $0.07 per diluted share, in 2008. Net revenues were $14.5 million during the third quarter of 2009, compared with $16.7 million in the third quarter of 2008.

The third quarter was highlighted by continued strong performance in the Company's wholesale business. Profitability increased due to increased sales demand and successful cost-reduction actions.

Third-Quarter 2009 Results -- Earnings Before Interest and Taxes (EBIT) for the third quarter ended September 30, 2009, were $6.0 million, compared with EBIT of $3.7 million during the same period in 2008. -- EBIT was $15.3 million for the first nine months of 2009, compared with EBIT of $7.8 million during the same period of 2008. -- Gross margin as a percentage of net revenues was 59 percent in the third quarter of 2009, compared with 51 percent in the same period of 2008. -- Selling expenses were $1.9 million, less than for the same period in 2008.

"I'm pleased with our strong third-quarter results," said Dr. Zhong Yi Liu, chairman and chief executive officer. "By slowing down our buildup of new manufacturing facility in Inner Mongolia, we have set our priority in improving our operational efficiency in Beijing by preparing for moving the separated operation units into one single location. We will maintain our focus on improving operation efficiency and maintaining client relationships, and believe we will finish the year well-positioned to enter 2010."

Outlook

Lotus believes it is on track to meet its earnings guidance for 2009. The Company improved its cash position in the third quarter, which stood at $2.6 million as of September 30th, 2009, as compared to $1.3 million as of December 31, 2008.

In the wholesale segment which accounted for 80% of net revenues in the third quarter, the Company believes demand will continue to increase given the increases in distributor and product offerings, as well as increasing demand from existing distributors. In response to market conditions, unit average price of wholesale drugs in this segment decreased to follow deflation in raw material costs from the beginning of this year. As a result of our success in reducing purchase prices for drugs we sell but produced by third parties, prices we offer to our distributors have reduced and remained stable since the beginning of 2009, indirectly increasing incentives for them to promote our drugs. In addition, our cost reductions have proven to be effective as we managed to reduce selling expenses by reducing commissions paid to our sales representatives. Offsetting the impact of a 42% decrease in average unit selling price resulted in higher sales volume by 39% in the past nine months. The impact of these combined efforts resulted in EBIT margin in this quarter being 41%, compared to 22% in the same period last year.

In the retail segment which accounted for 19% of net revenues in the third quarter, although there was a 4% decrease from the same period last year, Lotus believes the demand for drugs treating influenza is expected to increase through the remainder of 2009 due to the upcoming of influenza season.