China Sky One Medical reports financial results for third-quarter 2009

China Sky One Medical, Inc. ("China Sky One Medical" or "the Company") (Nasdaq: CSKI), a leading fully integrated pharmaceutical company in the People's Republic of China ("PRC"), today announced record financial results for the third quarter of 2009.

Third Quarter 2009 Highlights -- Total revenues increased 45.5% year-over-year to $43.2 million -- Gross profit increased 44.8% year-over-year to $32.3 million -- Operating income increased 27.8% to $16.1 million -- Net income increased 25.3% year-over-year to $12.5 million, or $0.74 per diluted share -- Obtained renewal of GMP certificate for Peng Lai Jin Chuang Pharmaceutical Company subsidiary from the State Food and Drug Administration ("SFDA") valid through June 2014 -- Appointed new independent director who serves as a member in the audit committee -- Submitted application to the SFDA to perform clinical trials for two new eye drugs -- Expanded international sales by exporting Pain Relief patches to Canada -- Held first Annual Meeting of Shareholders on September 24th 2009 in Harbin

"We are delighted to report another quarter of excellent results. We achieved record financial performance in the third quarter driven by strong product sales and the strength of our growing sales and distribution network. Sales of ointment and spray products increased as we promoted our skin-care products under the 'Yu Fu' brand. Sales of diversified products from our business acquisitions in 2008 also made a strong contribution to our third quarter results as we continued to execute our business strategy," said Mr. Yan-Qing Liu, Chairman and CEO of China Sky One Medical.

Third Quarter 2009 Results

Total revenues increased 45.5% year-over-year to $43.2 million for the three months ended September 30, 2009. The increase was primarily attributable to the strong performance of the Company's larger sales team and great number of sales agents, as well as contributions from its business acquisitions in 2008.

Sales of patch products totaled $11.8 and accounted for 27.3% of revenue in the third quarter of 2009, versus $13.0 million and 43.6% of revenue for the same period last year due to a change in the Company's marketing strategy after the acquisition of Heilongjiang Tianlong Pharmaceutical, Inc. and Peng Lai Jin Chuang Pharmaceutical Company to focus on certain of their products. Sales of ointments rose 38.0% year-over-year to $10.8 million, accounting for 25.0% of revenue, versus $7.8 million, or 26.4% of revenue a year ago. Sales of spray products approximately doubled to $6.8 million and accounted for 15.6% of revenue, versus 10.7% a year ago. The increase in spray products was primarily due to increased sales of mouth sprays resulting from the outbreak of the H1N1 virus. Sales of bio-engineering products, which comprise the Company's three diagnostic testing kits, rose 8.5% year-over-year to $2.6 million, accounting for 6.1% of revenue. Sales of the Company's other 48 products reached $11.2 million for the third quarter of 2009, compared to $3.3 million for its other same products in the same period last year. The higher sales in this category were mainly due to an increase in diversified products from the acquisitions of Heilongjiang Tianlong Pharmaceutical, Inc. and Peng Lai Jin Chuang Pharmaceutical Company in 2008.

Gross profit in the third quarter of 2009 was $32.3 million, an increase of 44.8% over the same period a year ago. Gross margin was 74.8% in the third quarter, a slight decrease compared to gross margin of 75.2% for the third quarter of 2008.

Operating expenses in the third quarter of 2009 were $16.3 million, up 66.8% from $9.8 million in the third quarter of 2008. The increase was mainly the result of higher research and development expenses associated with ongoing clinical trials for proposed products, the development of patents, licenses and other technologies acquired in 2008, and higher selling, general and administrative expenses primarily attributable to increased selling and marketing costs used to support the Company's sales growth.

Operating income was $16.1 million for the third quarter of 2009, representing a 27.8% increase from $12.6 million in the third quarter of 2008. Operating margin was 37.1%, compared to 42.3% in the third quarter of 2008.

Provision for income taxes was $3.6 million in the third quarter of 2009, compared to $2.6 million in the same period last year.

Net income for the third quarter of 2009 was $12.5 million, or $0.74 per diluted share, compared to net income of $9.9 million, or $0.60 per diluted share, in the third quarter of 2008. Diluted earnings per share were calculated using a weighted average share count of 16.7 million in the third quarter of 2009, compared to 15.5 million a year ago.

Nine Month Operating Highlights

Total revenues for nine months ended September 30, 2009 increased 52.2% year-over-year to $100.2 million as a result of the Company's expanded distribution channels and successful acquisitions. Gross margin was about 75.4% compared to 76.1% for the first nine months of 2008. Net income for the first nine months of 2009 reached $29.2 million, or $1.76 per diluted share, compared to net income of $21.9 million, or $1.39 per diluted share, in the same period of 2008.

Financial Condition

As of September 30, 2009, China Sky One Medical had $56.3 million in cash and cash equivalents, or $3.38 per common share outstanding, approximately $79.1 million in working capital, and no debt. Stockholders' equity at September 30, 2009, was $124.4 million, a 31.1% increase over the $94.9 million recorded at December 31, 2008.

The Company generated $25.9 million in net cash flow from operating activities in the first nine months of 2009. As of September 30, 2009, the Company had spent approximately $9.9 million in constructing a new corporate headquarters in Harbin Song Bei New Development District. Construction is expected to be completed by the end of 2009. The estimated cost of this project is approximately $13 million. The Company is moving its administration offices and R&D laboratories to the new facility in November 2009. It is expected that this facility will also house a cord stem cell and tissue bank in the future. The Company believes that combining its operations into one centralized location will result in greater efficiency and will make it easier for management to conduct business activities. The company plans to fund the entire project using its internal funds.

Business Outlook and Guidance

"We are confident about the prospects for our business in 2009 and will continue to focus on increasing market share by both strengthening and further refining our sales and distribution network, building and enhancing our brand image, and seeking out strategic acquisitions that support our growth. In the first nine months of 2009, we increased our number of sales representatives to roughly 1,500 from 1,300. Currently, our products are sold in approximately 5,500 pharmacies in 24 provinces in China compared to 4,500 pharmacies in 22 provinces in 2008. Over the long term, we will continue to focus on developing and manufacturing our biological diagnostic kits and on our cord stem cell bank initiative, areas that we believe have very promising market opportunities," said Mr. Liu.

"Based on our progress so far this year, we are reaffirming our guidance for the year," added Mr. Liu. "We expect 2009 full year revenue to increase by 40%, or approximately $37.0 million, to $130 million, driven by growth in all of our product sales categories. We estimate that 2009 gross margin to be approximately 75%, which factors in market competition and possibly higher raw material costs. We expect 2009 net income will increase to approximately $39 million, resulting in net profit margin of approximately 30%."