China Sky One Medical's 2009 fourth-quarter total revenues up 15.0%

China Sky One Medical, Inc. ("China Sky One Medical" or "the Company") (Nasdaq: CSKI), a leading fully integrated pharmaceutical company producing over-the-counter drugs in the People's Republic of China ("PRC"), today announced financial results for the fourth quarter and fiscal year ended December 31, 2009. The Company also announced its earnings guidance for full year 2010.

Fourth Quarter 2009 Highlights -- Total revenues increased 15.0% year-over-year to $29.9 million -- Gross profit rose 18.5% to $22.9 million -- Operating income increased 1.8% to $9.1 million -- Net income decreased 23.6% year-over-year to $5.3 million, or $0.32 per diluted share -- Excluding the effect of recording certain non-cash expense items; (i) share-based compensation of $1.2 million and (ii) a registration rights liability of $1.3 million (" the registration rights liability") due to the Company's failure to cause a registration statement covering the warrant shares to be declared effective as set forth in the Registration Rights Agreement of the Company's January 2008 private placement, our pro forma non-GAAP basis adjusted net income amounted to $7.9 million, or $0.47 per diluted share, as compared to $6.9 million or $0.45 per diluted share a year ago -- Engaged a new sales agent to distribute the Company's Sumei Slim Patch in the U.S. -- Signed Guangdong Mediacy Kind Medical Devices Industry Service Company as exclusive sales agent for AMI Diagnostic Kit and Human Urinary Albumin Elisa Kit in Southeast Asia -- Had 30 medicines included in the 2009 Edition of the National Basic Medical Insurance Directory -- Completed first phase of construction for new headquarters in Harbin Song Bei New Development District, Harbin, China.

Full Year 2009 Highlights -- Total revenues increased 41.7% to $130.1 million, in-line with management guidance -- Gross profit grew 41.8% to $98.4 million -- Operating income rose 29.7% to $46.3 million -- Net income increased 19.4% to $34.5 million, or $2.07 per diluted share -- Excluding the effect of recording certain non-cash expense items: (i) shared-based compensation and (ii) the registration rights liability; the Company's pro forma non-GAAP basis adjusted net income increased 28.3% to $37.0 million, or $2.22 per diluted share -- Received SFDA final approval for nine new drugs -- Signed agreement with Taiwan Golden Biotechnology Corporation for the development of new anti-cancer drug Antroquinonol, which was approved by the U.S. FDA to enter into first stage clinical trials

"The Company's record revenues in 2009 were primarily driven by positive contribution from the strategic acquisitions that we completed in 2008, heightened consumer brand awareness and expansion of our sales network. Our full year net income was slightly below our expectations due to increased operating costs from several acquisitions in 2008 and our new corporate headquarters and other non-cash expense items as previously discussed," said Mr. Yan-Qing Liu, Chairman and CEO of China Sky One Medical, Inc. "Looking ahead, the Company plans to make significant investment in the development of high margin branded drugs to support long-term sustainable growth. With a growing distribution network and a growing pipeline of SFDA License for drug batch lots, China Sky One is well positioned to be a leading pharmaceutical company in China."

Fourth Quarter 2009 results

In the fourth quarter of 2009, China Sky One's total revenues increased 15.0% to $29.9 million comparing to $26.0 million in the same quarter last year. This increase was primarily attributable to the strong performance of the Company's sales network and the addition of direct territory managers and sales agents, as well as increased marketing and advertising activities. As of December 31, 2009, China Sky One had 1,491 sales and marketing staff. The head count included approximately 1,100 sales representatives stationed in pharmacies to educate consumers about the benefits of the Company's products and to drive end users' buying decisions.

Sales of patch products were essentially flat year-over-year at $9.9 million or 33.2% of revenue in the fourth quarter of 2009. Sales of ointments were down modestly in the 2009 fourth quarter to $5.3 million, accounting for 17.8% of revenues, compared to $5.8 million or 22.3% of revenues in the year ago quarter. Sales of spray products increased by 56% to $4.0 million and accounted for 13.4% of revenues, versus $2.5 million or 9.7% of revenues 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 diagnostic testing kits decreased to $0.8 million or 2.8% of revenues from $2.4 million or 9.1% of revenues a year ago. Sales of the Company's Other Product Category totaled $9.8 million or 32.8% of revenues, representing a 133.5% increase from $4.2 million sales and 16.2% of revenues in 2008. 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 rose 18.5% to $22.9 million in the fourth quarter of 2009. Gross margin increased to 76.6%, compared to 74.4% in the fourth quarter of 2008, primarily reflecting the Company's better production cost control.

Operating expenses increased 32.9% to $13.8 million in the fourth quarter of 2009 comparing to the same period of 2008. The increase was principally due to higher general and administrative expenses associated with the non-cash stock compensation expenses and registration rights liability. Depreciation and amortization expenses increased 170% year-over-year to $0.9 million due to the increased amortization resulting from the Company's newly acquired proprietary technologies in 2008 as well as the acquired proprietary technologies during the fourth quarter of 2009.

Operating income was $9.1 million, representing an operating margin of 30.4%, as compared to $8.9 million, or 34.4% margin, a year ago.

During the fourth quarter of 2009, the Company recorded a $1.3 million non-cash registration rights liability. The Company recorded no such expense in the year ago period.

Provision for income taxes was $2.5 million in the fourth quarter of 2009, as compared to $2.1 million in the same period of last year.

Net income for the fourth quarter of 2009 was $5.3 million, compared to $6.9 million in the fourth quarter of 2008. Excluding the effect of recording certain non-cash expense items: (i) share-based compensation and (ii) the registration rights liability expenses; the Company's pro forma non-GAAP adjusted net income was $7.9 million, or $0.47, as compared to $6.9 million or $0.45 per diluted share.

Full Year 2009 Results

For the full year 2009, total revenues were $130.1 million, up 41.7% from $91.8 million in 2008. Of the 91 products commercialized by China Sky One Medical in 2009, patches, ointments, sprays and diagnostic kits accounted for 31.3%, 22.2%, 14.2% and 7.9% of total revenues respectively.

The Company's top 10 products, including Sumei Slim Patch, Hemorrhoids Ointment, Compound Camphor Cream, Stomatitis Spray, AMI Diagnostic Kit and Naftopidil Dispersible Tablet, together accounted for approximately 68% of total revenues. Sales from export were $10.1 million, representing 7.8% of total revenues.

Gross profit was $98.4 million, an increase of 41.8% from $69.4 million in 2008. Gross margin was little changed at 75.7% and 75.6% in 2009 and 2008, respectively.

Operating income was $46.3 million, up 29.7% from $35.7 million in 2008. Operating margin was 35.6% in 2009 versus 38.8% in 2008.

Net income for 2009 rose 19.4% to $34.5 million, or a net profit margin of 26.5%, from $28.9 million or a 31.4% net margin. The decrease in net margin was primarily attributable to higher selling and R&D expenses incurred in 2009. Excluding the effect of recording certain expense items: (i) share-based compensation and (ii) the registration rights liability; the Company's pro forma non-GAAP basis adjusted net income was $37.0 million, or $2.22 per diluted share, as compared to $29.2 million or $1.89 per diluted share.

Financial Condition

As of December 31, 2009, China Sky One had $52.8 million in cash and equivalents, with a quick ratio of 7.9. Average Days Sales Outstanding increase to 51.6 days from 45.5 days principally due to the increased average accounts receivable balances on September 30 and December 31 and less increase of average daily sales during the fourth quarter of 2009 comparing to the same period in 2008. Working capital was approximately $67.0 million. Stockholders' equity at December 31, 2009, was $131.0 million, a 38.0% increase over the $94.9 million recorded at December 31, 2008.

The Company generated $33.4 million in net cash flow from operating activities in 2009, up from $27.5 million in 2008.

Recent Events

As of January 4, 2010, China Sky One Medical's common shares were listed on the NASDAQ Global Select Market.

Also in January, the Company completed its two office buildings and relocated its headquarters to Harbin Song Bei New Development District and consolidated administration, research and development, accounting and sales functions to streamline operations and improve efficiency. Following the move of its headquarters, the Company also received local government-supported preferential policies, such as discounted land transfer fees and green channel to expedite project permits, which are expected to facilitate more cost effective expansion in the future.

In addition, the Company's AMI Diagnostic Kit was recently recognized by the National Development and Reform Commission as a "National Innovation Project," a designation given to innovative projects in key high technology industries.

2010 Outlook and Guidance

The Company's top priority in 2010 is to further optimize its distribution channels by locating and cooperating with more reputable distributors with extensive market coverage.

"We are confident in our 2010 outlook and plan to focus on enhancing and broadening our product portfolio to include proprietary new drugs so as to support sustainable long-term growth," said Mr. Yan-Qing Liu, Chairman and CEO of China Sky One Medical, Inc. "Our financial guidance assumes only organic growth and does not reflect any potential acquisitions or other strategic deals in 2010. The Company is committed to delivering shareholder value and will pursue opportunities to acquire new proprietary drugs, advanced technologies or companies that can increase our growth potential."

For the full year 2010, the Company expects net revenue growth of approximately 20% or $156 million. Management developed the revenue guidance based upon a careful review of sales and marketing plans submitted by our sales team, as well as detailed analysis of each product's growth outlook and marketing plan. The sales forecast is calculated mainly based on the factors of sales plans submitted by the Company's sales agents, the estimate of increase and decrease of certain products managed on our internal sales and marketing force rather than through distributors or agents, and the estimate of promotion or discontinuance of sales of certain current products. The gross margin guidance is 68%, below historical levels due to our potential lower sales price to support our new sales model, as well as anticipated increases in raw materials costs and related overhead costs. Net income is anticipated to approximate $39 million, representing a net profit margin of 25%. The expected decline in net margin primarily reflects the increase in R&D spending which is expected to be 15% of total revenue for the year of 2010. We are dedicated to advancing our major research and development projects in the current R&D pipeline and also shifting our focus to Cardiovascular medicine and antibiotic drugs.

SOURCE China Sky One Medical, Inc.