Tongjitang first-quarter net revenue up 25.6% to $16.6 million

Tongjitang Chinese Medicines Company (the "Company" or "Tongjitang") (NYSE: TCM), a leading specialty pharmaceutical company focusing on the development, manufacturing, marketing and selling of modernized traditional Chinese medicine in China, today announced its financial results for the quarter ended March 31, 2010.

Financial Results for the Quarter Ended March 31, 2010 -- Net revenue increased 25.6% to RMB 113.3 million ($16.6 million), from RMB 90.2 million in the prior year period. -- Operating loss was RMB 9.7 million ($1.4 million), compared to an operating loss of RMB 10.3 million in the prior year period. -- Net loss attributable to the Company was RMB 13.4 million ($2.0 million), which yielded net loss per ADS of RMB 0.52 ($0.08) and net loss per share(note 2) of RMB 0.13 ($0.02). -- Non-GAAP loss per share was RMB 0.04 ($0.01), compared to non-GAAP loss per share of RMB 0.01 in the first quarter of 2009.

Xiaochun Wang, Chief Executive Officer and Chairman of Tongjitang, stated, "Our first quarter performance reflects strong revenue improvement in our pharmaceutical business. During the first quarter, we expanded our sales networks into community hospitals to better align ourselves with the government's reform efforts, which focused on rural areas. Even though the pace of National Essential Drug List ("EDL") implementation by the local governments has been much slower than expected, we anticipate a notable increase in sales of EDL drugs beginning in the later part of this year."

Net revenue in the first quarter of 2010 increased 25.6% to RMB 113.3 million ($16.6 million) from RMB 90.2 million in the first quarter of 2009. Xianling Gubao ("XLGB") sales were RMB 54.5 million ($8.0 million) in the first quarter of 2010, compared to RMB 54.8 million in the first quarter of 2009. Net revenue from Moisturizing & Anti-itching Capsules and Zaoren Anshen Capsules reached RMB 14.7 million ($2.2 million) in the first quarter of 2010, compared to RMB 15.0 million in the first quarter of 2009. Net revenue from the Company's other products increased 116.2% to RMB 44.1 million ($6.4 million) from RMB 20.4 million in the first quarter of 2009. Revenue contribution from Anhui Jingfang Pharmaceutical Co., Ltd. ("Jingfang"), which was acquired at the end of the first quarter of 2009, was RMB 18.8 million ($2.8 million), compared to RMB14.0 million in the fourth quarter of 2009.

Gross profit increased 18.7% to RMB 62.3 million ($9.1 million) in the first quarter of 2010 from RMB 52.5 million in the first quarter of 2009. Gross margin was 55.0% in the first quarter of 2010, compared to 58.2% in the same period of 2009. Tongjitang's gross margin reflects higher revenue contribution from lower-margin products, as well as increased costs of raw materials, other than barrenwort, related to herbal medicines. Market price of barrenwort has remained relatively stable and we have maintained adequate inventory.

Operating loss in the first quarter of 2010 was RMB 9.7 million ($1.4 million), compared to an operating loss of RMB 10.3 million in the first quarter of 2009. Operating loss was mainly attributable to: 1) increased selling and marketing expenses, reflecting the Company's efforts to invest in its sales team's infrastructure and EDL sales network; and 2) expenses incurred in enhancing the branding and marketing effort of Guizhou Gui Liquor Co., Ltd., a company we restructured and renamed in connection with our acquisition of a state-owned distillery business in Guiyang at the beginning of the first quarter of 2010.

Net loss attributable to the Company was RMB 13.4 million ($2.0 million), which yielded net loss per ADS of RMB 0.52 ($0.08) and net loss per share(note 2) of RMB 0.13 ($0.02).

Non-GAAP adjusted EBITDA in the first quarter of 2010 was negative RMB 3.7 million ($0.5 million), compared to negative RMB 1.9 million in the first quarter of 2009. Non-GAAP adjusted EBITDA per share was negative RMB 0.04 ($0.01) in the first quarter of 2010, compared to negative RMB 0.01 in the first quarter of 2009. For the first quarter of 2010, the number of shares used in the computation of GAAP earnings per share and Non-GAAP adjusted EBITDA per share was 104.1 million, compared to 135.2 million in the prior year period. Please refer to the Company's GAAP to non-GAAP reconciliation table provided below for additional details.

Balance Sheet

As of March 31, 2010, the Company had cash and cash equivalents of RMB 208.1 million ($30.5 million). This compares to RMB 237.6 million as of December 31, 2009 and RMB 488.4 million as of March 31, 2009.

Business Updates

On April 8, 2010, the Company announced that it received a letter proposing to acquire all of the outstanding ordinary shares of the Company, including ordinary shares outstanding in the form of American Depositary Shares ("ADSs"), in a transaction under Cayman Islands law that would, if the proposal is accepted, result in the Company becoming a privately-held company. The proposal was from Hanmax Investment Limited, a company controlled by Mr. Xiaochun Wang, chairman of the Company's board of directors (the "Board") and chief executive officer of the Company, and Fosun Industrial Co., Limited, a company incorporated in Hong Kong. On April 12, 2010, the Company announced that it established a special committee of the Board ("Independent Committee"), comprised of the Company's three independent directors, to evaluate the proposal. On June 1, 2010, the Independent Committee announced that Morgan Stanley Asia Limited has been appointed as its independent financial advisor. In addition, the Independent Committee retained Sheppard, Mullin, Richter & Hampton LLP to serve as its United States law counsel and Thorp Alberga to serve as its Cayman Islands law counsel.