3-S Bio (SSRX $13.25) reported excellent on target Q3 results. The company accelerated research and marketing in the period. That caused income to finish relatively flat with the prior year at $.22 a share. Revenues improved 22% to $28.7 million. Further margin compression is anticipated in upcoming quarters. The Chinese government implemented a national health insurance program in 2010. That legislation expanded the potential market. But also gave the central authorities greater control over pricing. One round of price reductions was implemented last year. Another is slated for the first half of 2013. Those will vary by product and they might be phased in. The ultimate impact is expected to be in the 10% range.
Unit volume continues to expand. 3-S Bio expanded its marketing organization in 2012 to penetrate smaller cities and rural markets. The company already had a leading market share for its principal products in the major population centers. Those efforts promise to keep volume rising at above average rates well into the decade. 3-S Bio also tripled its production capacity in 2010. The company still has ample room to expand within its current facilities. That should reduce unit costs, helping offset the coming price reductions.
3-S Bio's CEO is leading an investor group to take the company private at $15.00 a share. An committee comprised of outside directors is evaluating the proposal. 3-S Bio still holds approximately $6.00 a share in cash, following the write-down of an R&D investment. Other bids are possible. But the current deal appears likely to proceed in light of the CEO's involvement.
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