China Medicine's 2009 revenues up 20.7%

China Medicine Corporation (OTC Bulletin Board: CHME) ("China Medicine" or "the Company"), primarily a manufacturer, leading distributor and developer of Western pharmaceuticals, traditional Chinese medicines ("TCM"), and other nutraceuticals, today announced its fourth quarter and full year 2009 results.

Full Year 2009 Highlights: -- Revenues increased 20.7% to $64.8 million -- Gross profit grew 21.9% to $19.0 million -- Operating income rose 12.3% to $12.3 million -- Adjusted net income, excluding a non-cash expense related to change in fair value of warrants in 2009, was $9.0 million, or $0.58 per diluted share -- GAAP net income was $1.7 million, or $0.11 per diluted share -- Completed acquisition of Guangzhou LifeTech Pharmaceuticals, Co. Ltd ("LifeTech"), a developer, manufacturer and marketer of a portfolio of 39 TCM and Western medicine products -- Entered into a $69.6 million financing agreement with One Equity Partners ("OEP"), the global private equity investment arm of JP Morgan Chase & Co Fourth Quarter 2009 Highlights: -- Total revenues of $20.4 million -- Gross profit of $6.8 million; gross margin rose to 33.5% from 23.9% last year -- Operating margins increased to 20.5% as compared to 17.2% in Q4 2008 -- Adjusted net income, excluding a non-cash expense related to change in fair value of warrants in 2009, was $3.0 million, or $0.19 per diluted share -- GAAP net loss was $2.1 million, or $(0.13) per diluted share

"I am proud to report a very productive fiscal year 2009, including the achievement of record revenues, the closing of a transformational acquisition and a meaningful financing agreement with a world-class private equity firm," Mr. Senshan Yang, Chairman and CEO of China Medicine Corporation. "In the fourth quarter, we successfully introduced LifeTech's higher margin prescription product portfolio into our distribution network and, through the Guangdong Sunshine Bidding System, expanded the products' market penetration from locally in Guangdong province to all provinces throughout China. As a result, our gross margin increased to 33.5% in Q4 2009 from 23.9% in the same period last year. Looking ahead, we anticipate continued growth in our profitability level as we accelerated our transition from a pharmaceutical distributor into a vertically-integrated pharmaceutical company with a broad portfolio of self-owned products sold through our extensive distribution network."

Fourth Quarter 2009 Results

China Medicine's total revenues decreased 16.3% in the fourth quarter to $20.4 million compared to the corresponding period of 2008 as we mainly allocated our resources in the acquisition of LifeTech in the fourth quarter 2009.

Product sales in the fourth quarter totaled $20.2 million and accounted for 99% of total revenues. Sales of Western prescription and over-the-counter (OTC) products accounted for 46.5% of total revenues in the fourth quarter of 2009. Sales of TCM prescription and over-the-counter products accounted for 44.3% of total revenues. Sales of dietary supplements, medical formula, medical equipment and others accounted for the remaining 9.2% of revenues.

Gross profit in the quarter was $6.8 million, an increase of 17.1% over the fourth quarter of 2008. Gross margin increased to 33.5% from 23.9% in the fourth quarter of 2008, primarily reflecting sales contribution from LifeTech's higher margin pharmaceutical product for the first time.

Operating expenses were $2.7 million, up 61.7% from $1.6 million in the year ago quarter. The increase was primarily due to higher selling, general and administrative expenses related payroll and depreciation and amortization. Operating expenses represented 13.0% of total revenues in the fourth quarter of 2009, as compared to 6.7% in the fourth quarter of 2008.

Operating income was $4.2 million, essentially unchanged compared to that in fourth quarter of 2008. Operating margin rose to 20.5% from 17.2% in the same period a year ago, primarily reflecting the year-over-year gross margin improvement.

The Company's provision for income taxes was $1.2 million in the four quarter of 2009, as compared to $0.8 million for the comparable period in 2008. The increase was due to the change of income tax rate. The Company adopted the usual enterprise tax rate of 25% in 2009 following the expiration of a lower tax rate in 2008.

GAAP net loss for the fourth quarter of 2009 was $2.1 million, or $(0.13) per share, which included a $5.1 million non-cash expense related to the change in the fair value of warrants, compared to GAAP net income of $3.5 million or $0.23 per diluted share, in the fourth quarter of 2008. The non- cash charge reflected adoption of a new accounting policy that became effective January 1, 2009, requiring changes in the fair value of warrants to be recognized in earnings each quarter. Excluding this expense, adjusted net income for the fourth quarter of 2009 was $3.0 million, or $0.19 per fully diluted share.

Full Year 2009 Results

In 2009, total revenues increased to $64.8 million, up 20.7% from $53.6 million in 2008. Gross profit rose 21.9% to $19.0 million in 2009 from $15.6 million in 2008. Gross margin was 29.3%, as compared to 29.0% in 2008. Operating income increased 12.3% to $12.3 million from $10.9 million a year ago. GAAP net income in 2009 was $1.7 million or $0.11 per diluted share, as compared to $9.1 million, or $0.60 per diluted share in 2008. Adjusted net income, excluding non-cash expense of $7.2 million related to change in fair value of warrants, was $9.0 million in 2009, or $0.58 per diluted share. The slight decline in adjusted net income was primarily due to a tax rate of 25% in 2009 versus a lower tax rate in 2008.

Financial Condition

As of December 31, 2009, China Medicine had $0.5 million in cash and cash equivalents, with working capital of approximately $16.0 million. Accounts receivable stood at $22.3 million at year-end 2009, as compared to $19.3 million at the end of 2008. Stockholders' equity as of December 31, 2009 was $45.0 million, as compared to $42.8 million on December 31, 2008. In 2009, cash generated from operating activities was $17.0 million, an increase from $4.2 million in 2008, and primarily reflected decreases in inventories and advances to suppliers. Cash used in investing activities was $13.5 million in 2009, and reflected $3.4 million for purchase of equipment to expand rADTZ production capacity and $8.2 million for the LifeTech acquisition.

Subsequent to the end of 2009, the Company closed the equity private placement with OEP and raised net proceeds of $66.5 million. China Medicine received approximately $8.9 million of the net proceeds, which is available for working capital and general corporate purpose. The remaining $57.6 million of net proceeds was placed in escrow and will be released to fund additional capital expenditures and acquisitions upon approval by OEP and the Company's board of directors.

Business Outlook

"We will continue to focus the growth of Houerhuan Capsules and Shuangdan Tablets, both of which are very high margin products with limited competition. The Company plans to aggressively promote these two products through our extensive distribution network and expect to increase our overall profitability in 2010" commented Mr. Yang.

China Medicine's proprietary recombinant Aflatoxin Detoxifizyme (rADTZ), used for removing aflatoxins in food and animal feed, is pending Chinese Ministry of Agriculture (MOA) approval. The Company has been in communication with the MOA and is currently working on reformatting the statistical data, based on MOA request, for resubmission in the near term. "We are encouraged by our conversations with the MOA and remain confident in the quality of our data submission, despite the delay in receiving the production approval to commercial launch rADTZ," said Mr. Yang. "The Company anticipates rADTZ approval by the end of 2010, although we cannot predict the actual timing of MOA review. China Medicine completed trial production of rADTZ in 2009 and does not anticipate additional sales of the product until the full commercial launch.

"We would like to thank OEP for its confidence in our outlook and for the funding support that provides the Company with greater resources to execute our acquisition strategy and commercialization plans for rADTZ. We anticipate that 2010 will be a transformational year for China Medicine, focused on strengthening our pharmaceutical manufacturing capabilities, expanding our extensive product pipeline to include more of self-owned products that will support sustainable margin expansion, continuing our R&D effort on new product development and deepening our distribution network to cover more tier II and III cities and towns in China," concluded Mr. Yang.