Lotus Pharmaceuticals, Inc. (OTCBB:
LTUS) released its Q2 financial report, which showed the
company followed a theme similar to several other China biopharmas this quarter:
revenues are sharply higher, but net income fails to keep pace. In fact, Lotus
said its net income actually slipped lower than the year earlier period. In
terms of actual numbers, Lotus’ revenues climbed a more-than-respectable 51% to
$19.4 million, but profits were 27% lower at $2.2 million. Adding back in a
non-cash financing cost does not change the picture greatly. Lotus’ non-GAAP net
income was $2.5 million, a 26% decline from Q2 in 2007.
Lotus blamed the
shortfall on its sales costs, which were $5.9 million in the quarter. That was a
mammoth increase from $792,000 in last year’s Q2 and constituted an outsized 85%
of the company $6.9 million in operating expenses. The company said it
instituted a short-term sales incentive program and also awarded bonuses to
improve the collection of account receivables during Q2. They must have been
quite impressive programs, judging by their costs. The company’s accounts
receivable number was up by a relatively small $350,000 at $20,787,000 in the
first six months of the year. That is very reasonable, considering the large
rise in revenues, but it seems to have been attained at considerable cost to
profitability.
G&A expenses were actually lower in the quarter, not
something usually seen as a company expands its revenues. They dropped from just
under $1 million a year ago to $542,000 in 2008.
Looking to the future,
Lotus reminded investors that so far this year it has purchased the rights to
asthma drug Laevo-Bambutero and put a down payment on land rights in Inner
Mongolia for a manufacturing facility. The Laevo-Bambutero drug, which cost the
company $7 million upfront, will require a full complement of clinical trials
for approval. As a result, the asthma drug will not be marketed until 2012 at
the earliest. The land rights require Lotus to begin almost immediate
construction on the pharmaceutical factory. Lotus has said it will pay the $49
million cost of the project with a combination of bank loans and government
grants.
Earlier this year, Lotus raised $5 million in a private
placement. The financing contained a stringent “make good” clause that will
cause Lotus founders to give up 7.5 million of their shares if Lotus does not
achieve net income equaling 95% of $13.8 million in 2008 and 95% of $17.5
million in 2009. It now looks doubtful that Lotus will achieve those goals as
the company has booked just $3.2 million in the first six months of this year.
However, Lotus said in its release that it “remains confident” the targets will
be met.
On the positive side, Lotus said the increase in revenues during
Q2 was due to increased sales of third-party pharmaceuticals as well as higher
sales of the company’s own Brimonidine Tartrate Eyes, used for glaucoma. The
company intends to keep increasing the list of products it distributes. Also,
Lotus says it has 15 drugs currently awaiting SFDA approval.
