ShangPharma revs up in Q4, but margins narrow

By Gareth Macdonald

- Last updated on GMT

Related tags: Cent, Revenue, Contract research organization, Generally accepted accounting principles

ShangPharma said it saw revenue climb on higher customer spending in the fourth quarter, but that margins slid due to currency effects and higher share-based compensation.

The Chinese contract research organisation (CRO) posted net revenue of $90.3m, up 25 per cent, and cited a 17 per cent increase to $17.7m in the contribution from ‘full-time-equivalent’ (FTE) deals with long term customers.

The firm, like many in the contract research sector, has signed a number of strategic deals with pharmaceutical customers, the most recent​ of which was the accord with Shenogen Pharma formed by its ChemPartner unit.

Shang’s fee-for-services business also expanded in the three months to December, 31. Revenue grew 68 per cent to $7.8m due largely, according to the CRO, to the contribution from its newer discovery and preclinical offerings.

In contrast with the revenue gains, operating profit for the fourth quarter was down around 66 per cent to $900,000. Shang said that the decrease was due to higher share-based compensation costs and infrastructure spending.

Shang cited its construction of a manufacturing facility in Fengxian, China, the first stage of which was completed​ in January, as a key focus of its investment spending and likely future growth driver.

However, these costs, coupled with the continued appreciation of the Renminbi, cut the firm’s operating margin to 3.6 per cent from 13.5 per cent and offset efficiency improvements achieved during Q4.

Operating costs also increased in the final three months of 2010, reaching $7.3m, up 94.5 per cent. Again Shang attributed this to higher share based compensation as well as a one-time cost associated with the IPO it completed last October​.

Full year 2010

Overall for the year the picture was similar to Q4. Net revenue for the period increased, climbing 24.9 per cent to $90.3m, while operating profit increased 1.4 per cent to $10.4m but was impacted by higher compensation and costs.

And, for the combing 12-months, Shang expects its revenue growth to continue, predicting that it will be in the $111m to $115m range, which is 23 to 28 per cent higher than in 2010.

The firm also plans to spend between $28m and $32m on capital projects and expansion, but did not provide additional details.

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