Monday, July 16, 2012

3-S Bio ( Nasdaq - SSRX ) -- No Government Reimbursement Ruling Yet

3-S Bio (SSRX $12.00) appears on track to report excellent on target Q2 results.  The Chinese drug provider still is operating on the government's old price list, so margins probably widened in the period.  Volume has been expanding, producing economies of scale at 3-S Bio's manufacturing facility.  That plant still is operating at approximately 50% of capacity, so further leverage is likely.  The central government is expected to slash reimbursement by 10% or so when new regulations are implemented.  Adoption of national health insurance expanded the market dramatically in 2010.  Reduced prices are on way the government hopes to make the program affordable.  Meantime, export sales continue to rise quickly.  A joint venture with U.S. based Davita is on schedule.  That deal promises to leverage 2013 performance.  Our estimates already reflect a price cut for the current year.  So a somewhat stronger showing is possible if the new scheme isn't adopted soon.

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