SHANGHAI, Nov. 21, 2011 /PRNewswire-Asia/ -- ShangPharma Corporation (NYSE: SHP) ("ShangPharma" or the "Company"), a leading China-based pharmaceutical and biotechnology research and development outsourcing company, today announced its unaudited financial results for the quarter ended September 30, 2011.

To help management and investors gain a better understanding of ShangPharma's operating performance, the Company presents certain non-GAAP measures, each of which excludes expenses relating to or the effect of share-based compensation. See "About Non-GAAP Financial Measures" and "Reconciliation of GAAP to Non-GAAP Financial Data" below for more information about the non-GAAP financial measures included in this press release.

Third Quarter 2011 Highlights


    --  Net revenues increased by 24.7% year-over-year to $28.8 million.
    --  Net revenues from China-based customers increased by 105.9%
        year-over-year to $3.1 million.
    --  GAAP gross margin was 31.2%, compared with 32.5% in the third quarter of
        2010. Non-GAAP gross margin was 33.4% compared with 33.3% in the third
        quarter of 2010.
    --  GAAP operating margin was 7.2%, compared with 13.4% in the third quarter
        of 2010. Non-GAAP operating margin was 13.4% compared with 14.6% in the
        third quarter of 2010, primarily due to the additional rental costs
        associated with our new facility dedicated to one of our top customers.
    --  Revenue per employee increased 15.4% year-over-year.
    --  Revenue from biologics services grew 184.5% year-over-year.

Management Comment

"We experienced robust top-line growth in Q3, as increasing customer appreciation of ShangPharma's integrated service platform and upgrades to our facilities and service quality have enabled us to improve our pricing structure for some projects," said Michael Xin Hui, founder and Chief Executive Officer of ShangPharma. "During the third quarter, we made a critical investment in a new facility, which is fully dedicated to one of our top customers. We expect the near-term margin pressure from this investment to be offset by rapid utilization and additional revenue beginning from 2012."

Mr. Hui continued, "We saw excellent revenue growth from our biggest multinational pharmaceutical and biotechnology customers, which expanded at a year-on-year rate of 24.3%. Based on our current pipeline of projects, we expect to experience continued strong growth in 2012. We also saw highly encouraging growth from our China-based customers, which more than doubled from the third quarter of 2010. Our success on these two fronts demonstrates strong execution on our strategy to expand cooperation with large multinationals, while diversifying our customer base at the same time."

William Dai, Chief Financial Officer, added, "In the third quarter, ShangPharma did an excellent job of managing our costs, while also experiencing 15.4% revenue per employee productivity gains. Excluding costs associated with the new facility for one of our largest customers, non-GAAP operating margins remained largely stable year-on-year."

Third Quarter 2011 Results

Net revenues were $28.8 million, an increase of 24.7% from $23.1 million in the third quarter of 2010, primarily due to higher volumes from the Company's top customers, an increase in the size of the customer base and greater cross-selling of services.

During the quarter, the Company's customer base grew to 362 customers, an increase from 237 customers as of December 31, 2010 and 316 as of June 30, 2011.

Revenue from customers based in China rose by 105.9%. The growth came both from local pharmaceutical companies and smaller domestic laboratories, as well as major multinational biotech and pharmaceutical companies' R&D centers in China.

Revenue from the Company's top-10 customers increased by 24.3% compared with the same period last year, and accounted for 62.2% of the total revenue compared with 62.4% in the same quarter last year. The growth is a result of multinational pharmaceutical companies expanding their scope of work with the Company.

Net revenues from full-time-equivalent ("FTE")-based services were $20.7 million, an increase of 24.1% from $16.7 million in the third quarter of 2010, due to an increase in FTE services.

Net revenues from fee-for-service-based services were $8.1 million, an increase of 26.3% from $6.4 million in the third quarter of 2010. Continued strong demand increases from China-based companies, successful service cross-selling and rapid increased demand for services such as biologics, were the primary drivers of this growth.

Gross profit was $9.0 million, an increase of 19.9% from $7.5 million in the third quarter of 2010, primarily due to the increase in revenues and operational efficiency improvements. Continued appreciation of the Renminbi and higher share-based compensation partially offset these increases.

Non-GAAP gross profit was $9.6 million, an increase of 25.2% from $7.7 million in the third quarter of 2010, primarily due to the increase in revenues and operational efficiency improvements, which was partially offset by the continued appreciation of the Renminbi.

Gross margin was 31.2%, compared with 32.5% in the third quarter of 2010, primarily due to continued Renminbi appreciation and higher share-based compensation expenses, which were partially offset by operational efficiency improvements.

Non-GAAP gross margin was 33.4%, compared with 33.3% in the third quarter of 2010. The improvement was primarily due to operational efficiency improvements, and was partially offset by continued Renminbi appreciation.

Operating expenses (selling and marketing, general and administrative) were $6.9 million, an increase of 57.6% from $4.4 million in the third quarter of 2010, primarily due to higher share-based compensation expenses, a build-up of corporate managerial and supporting infrastructure in the second half of 2010, and rental expenses from one additional building leased since July 2011. The new building was still under renovation as of September 30, 2011 and is expected to be put into operation in the end of 2011 for one of our major customers.

Non-GAAP operating expenses were $5.8 million, an increase of 33.5% from $4.3 million in the third quarter of 2010, primarily due to a build-up of corporate managerial and supporting infrastructure in the second half of 2010 and rental expenses from the additional building leased since July 2011.

The build-up of corporate managerial and supporting infrastructure was near completion at the end of 2010. The management team believes that the current infrastructure will be sufficient to support the future growth of the Company in the coming years.

Profit from operations was $2.1 million, a decrease of 33.5% from $3.1 million in the third quarter of 2010, primarily due to higher share-based compensation expenses, the continued appreciation of the Renminbi and rental expenses from the additional building leased since July 2011. The decline was partially offset by the increase in revenues and operational efficiency improvements.

Non-GAAP profit from operations was $3.9 million, an increase of 14.5% from $3.4 million in the third quarter of 2010. The rise was primarily due to higher gross profit and was partially offset by rental expenses from the additional building leased since July 2011.

Operating margin was 7.2%, compared with 13.4% in the third quarter of 2010. The operational efficiency improvements were offset by higher share-based compensation expenses, the continued appreciation of the Renminbi and rental expenses from the additional building leased since July 2011.

Non-GAAP operating margin was 13.4%, compared with 14.6% in the third quarter of 2010. The non-GAAP operating margin was impacted by rental expenses from the additional building leased since July 2011. Excluding costs associated with the opening of this building, which reduced non-GAAP operating margin by 1.0% in the third quarter of 2011, non-GAAP operating margin remained relatively stable compared with the third quarter of 2010.

Net income decreased 27.6% year-over-year to $2.6 million, primarily due to lower profit from operations and lower other income, including a smaller gain recognized on foreign exchange forward contracts. These factors were partially offset by higher interest income.

Non-GAAP net income was $4.4 million, an increase of 14.1% from $3.9 million in the third quarter of 2010, primarily due to higher non-GAAP profit from operations offset by lower other income.

Diluted earnings per ADS were $0.14, which compares with $0.22 in the third quarter of 2010.

Non-GAAP diluted earnings per ADS were $0.24, unchanged year-on-year.

Financial Position

As of September 30, 2011, the Company had cash and cash equivalents of $40.6 million and no debt. During the quarter, capital expenditures totaled $8.1 million.

Full Year 2011 Guidance

The Company reconfirms its guidance for full year 2011. The Company expects:

    --  Net revenues to be approximately $111.1 - $115.6 million, which
        represents growth of approximately 23.0% - 28.0% compared with full year
        2010.
    --  Non-GAAP gross margin to be approximately 33.5% - 35.5%, which is within
        the same range as non-GAAP gross margin of 34.5% in 2010.
    --  Capital expenditure to be $28 - $32 million, including $6 million
        rolling payment lag impact carried forward from 2010.

This reflects the Company's current view and is subject to change.

Conference Call

ShangPharma will host a conference call and live webcast at 8am New York time on November 21, 2011 (9pm Beijing time on November 21, 2011).

The dial-in details for the live conference call are as follows:




    - International:                  +1 718 354 1231

    - United States:  +1-866-519-4004
    - United Kingdom: +080-8234-6646
    - Hong Kong:      +852-2475-0994

    Passcode:  SHP

A live and archived webcast of the conference call will be available on the Investor Relations section of ShangPharma's website at www.shangpharma.com

A telephone replay of the call will be available for seven days after the conclusion of the conference call from 11am New York time on November 21, 2011 to 11:59pm New York time on November 28, 2011.

The dial-in details for the replay are as follows:




    - International: +61-2-8235-5000

    - Passcode:                      25392229

ABOUT SHANGPHARMA CORPORATION

ShangPharma Corporation (NYSE: SHP) is a leading China-based contract research organization providing high quality and cost-effective services for the pharmaceutical and biotechnology industry. It offers a broad range of high-quality, integrated services across the drug discovery and development process to help international and Chinese pharmaceutical and biotechnology companies discover and develop novel drug candidates efficiently. ShangPharma's services consist of discovery chemistry, discovery biology and preclinical development, pharmaceutical development and biologics services. For more information, please visit www.shangpharma.com.

Safe Harbor: Forward-Looking Statements

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements can be identified by terminology such as "may," "will," "expect," "anticipate," "aim," "estimate," "intend," "plan," "believe," "likely to" or other similar expressions. The Company has based these forward-looking statements largely on its current expectations and projections about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy and financial needs. Among other things, the section titled "Full Year 2011 Guidance" and quotations from management in this press release, as well as the Company's strategic and operational plans, contain forward-looking statements. The Company may also make written or oral forward-looking statements in its reports filed or furnished with the U.S. Securities and Exchange Commission, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about the Company's beliefs and expectations, are forward-looking statements and are subject to change, and such change may be material and may have a material adverse effect on the Company's financial condition and results of operations for one or more periods. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained, either expressly or impliedly, in any of the forward-looking statements in this press release. The Company expects to face potential risks and uncertainties related to its ability to, among other things, attract, train, motivate and retain skilled scientists; diversify its customer base and adapt to potential loss of sales to, or significant reduction in orders from, any of its major customers; adapt its business to industry trends, such as fluctuations in the R&D budgets of pharmaceutical and biotechnology industry participants; protect the intellectual property rights of its customers; comply with applicable regulations and industry standards; compete effectively in its industry, which may subject it to increasing pricing pressure and reduce the demand for its services; expand and market its services and manage its growth; and develop and maintain effective internal control over financial reporting; as well as other risks outlined in the Company's filings with the U.S. Securities and Exchange Commission. All information provided in this press release and in the attachments is as of the date of this press release, and the Company does not undertake any obligation to update any such information, except as required under applicable law.

About Non-GAAP Financial Measures

To supplement the Company's consolidated financial results presented in accordance with United States Generally Accepted Accounting Principles ("GAAP"), the Company uses the following non-GAAP financial measures: (1) gross profit, (2) gross margin, (3) profit from operations, (4) operating expenses, (5) operating margin, (6) net income, and (7) diluted earnings per ADS, each of which excludes expenses relating to or the effect of share-based compensation. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the table captioned "Reconciliation of GAAP and non-GAAP Financial Data" set forth at the end of this press release.

The Company believes that these non-GAAP financial measures provide meaningful supplemental information regarding its operating performance by excluding expenses relating to or the effect of share-based compensation that may not be indicative of its operating performance. The Company believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing its operating performance and when planning and forecasting future periods. These non-GAAP financial measures also facilitate management's internal comparisons to the Company's historical performance. The Company computes its non-GAAP financial measures using the same consistent method from quarter to quarter. The Company believes these non-GAAP financial measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. A limitation of using non-GAAP financial measures excluding expenses relating to or the effect of share-based compensation is that these expenses and effects have been and will continue to be significant recurring expenses in the Company's business for the foreseeable future. Management compensates for these limitations by providing specific information regarding the GAAP amount excluded from each non-GAAP measure. The accompanying tables have more details on the reconciliation between non-GAAP financial measures and their most comparable GAAP financial measures.

For further information, please contact:

ShangPharma Corporation

Lan Xie

VP of Finance and Operations

E-mail: IR@shangpharma.com

Brunswick Group

Josh Gartner

E-mail: shangpharma@brunswickgroup.com

Phone: 86-10-5960-8600


                        SHANGPHARMA CORPORATION
                 UNAUDITED CONSOLIDATED BALANCE SHEET
    (in thousands of U.S. dollars, except for ordinary share data)



                                                     December   September
                                                        31,        30,
                                                         2010        2011
                                                         ----        ----

    ASSETS
    Current assets:
      Cash and cash equivalents                        49,160      40,590
      Restricted cash                                     688         774
      Accounts receivable, net                         16,908      20,437
      Amounts due from related parties                      -         111
      Inventories                                       1,259       2,209
      Prepayments and other current assets              4,779       4,895
      Deferred tax assets                                 315           -
                                                          ---         ---
    Total current assets                               73,109      69,016
    Non-current assets:
      Derivative assets                                   261           -
      Property, plant, equipment and software, net     60,147      78,646
      Land use right, net                               4,221       6,608
      Other long-term assets                              204       1,263
                                                                    -----
    Total non-current assets                           64,833      86,517
                                                       ------      ------
    Total assets                                      137,942     155,533
                                                      =======     =======

    LIABILITIES
    Current liabilities:
      Short-term bank borrowings                          755           -
      Accounts payable                                 10,549      13,865
      Amounts due to related parties                    1,025         354
      Salary and welfare payable                        4,040       3,524
      Income tax payable                                1,910       1,392
      Advance from customers                            1,650       1,129
      Other payables and accruals                       4,477       6,039
      Deferred tax liabilities                              -         210
                                                          ---
    Total current liabilities                          24,406      26,513
                                                       ------      ------
    Total liabilities                                  24,406      26,513
    Commitments and contingencies

    EQUITY
    Ordinary shares (US$0.001 par value;
     429,999,350 shares authorized;                       336         336
    335,600,000 and 336,108,932 shares issued and
     outstanding as of
    December 31, 2010 and September 30, 2011,
     respectively)
    Additional paid in capital                         78,989      83,239
    Statutory reserves                                  6,795       6,795
    Retained earnings                                  23,655      32,612
    Accumulated other comprehensive income              3,761       6,475
       Less: Treasury stock                                 -        (437)
                                                          ---        ----
    Total equity                                      113,536     129,020
                                                      -------     -------
    Total liabilities and equity                      137,942     155,533
                                                      =======     =======



                             SHANGPHARMA CORPORATION
             UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
     (in thousands of U.S. dollars, except for ADS(1) data and per ADS data)



                                          Three months ended
                                            September 30,
                                          2010        2011%
                                          ----        ----  Change
                                                            ------

    Net revenue                         23,118      28,836     24.7%
    Cost of revenue                    (15,615)    (19,843)    27.1%
                                       -------     -------     ----
    Gross profit                         7,503       8,993     19.9%

    Operating expenses
         Selling and marketing            (516)       (654)    26.7%
         General and
          administrative                (3,880)     (6,326)    63.0%
         Other operating income(2)           -         157
         Other operating
          expenses(2)                        -        (103)
    Total operating expenses            (4,396)     (6,926)    57.6%
                                        ------      ------     ----

    Profit from operations               3,107       2,067    -33.5%

    Other income, net:                     978         867    -11.3%
                                           ---         ---    -----
    Income from operations
     before income taxes                 4,085       2,934    -28.2%

    Income taxes                          (505)       (341)   -32.5%
                                          ----        ----    -----
    Net income                           3,580       2,593    -27.6%
                                         =====       =====    =====

    Allocation to preferred
     shareholders                         (901)          -   -100.0%
                                          ----         ---   ------
    Net income attributable
     to ordinary shareholders            2,679       2,593     -3.2%

    Net income attributable
     to ordinary shareholders
     per ADS
         Basic                            0.23        0.14    -39.1%
         Diluted                          0.22        0.14    -36.4%

    Weighted average ADS
     outstanding
         Basic                      11,555,888  18,663,303
         Diluted                    11,955,735  18,715,098




                                          Nine months ended
                                            September 30,
                                          2010        2011%
                                          ----        ----  Change
                                                            ------

    Net revenue                         64,673      81,118     25.4%
    Cost of revenue                    (42,824)    (54,977)    28.4%
                                       -------     -------     ----
    Gross profit                        21,849      26,141     19.6%

    Operating expenses
         Selling and marketing          (1,590)     (1,715)     7.9%
         General and
          administrative               (10,784)    (17,107)    58.6%
         Other operating income(2)           -         157
         Other operating
          expenses(2)                        -        (103)
    Total operating expenses           (12,374)    (18,768)    51.7%
                                       -------     -------     ----

    Profit from operations               9,475       7,373    -22.2%

    Other income, net:                   2,428       3,270     34.7%
                                         -----       -----     ----
    Income from operations
     before income taxes                11,903      10,643    -10.6%

    Income taxes                        (1,452)     (1,687)    16.2%
                                        ------      ------     ----
    Net income                          10,451       8,956    -14.3%
                                        ======       =====    =====

    Allocation to preferred
     shareholders                       (2,631)          -   -100.0%
                                        ------         ---   ------
    Net income attributable
     to ordinary shareholders            7,820       8,956     14.5%

    Net income attributable
     to ordinary shareholders
     per ADS
         Basic                            0.68        0.48    -29.4%
         Diluted                          0.66        0.48    -27.3%

    Weighted average ADS
     outstanding
         Basic                      11,555,888  18,653,889
         Diluted                    11,846,880  18,827,730



                             SHANGPHARMA CORPORATION
           RECONCILIATION OF UNAUDITED GAAP TO NON-GAAP FINANACIAL DATA
     (in thousands of U.S. dollars, except for ADS (3) data and per ADS data)


                                     Three months ended
                                       September 30,
                                    2010        2011%
                                    ----        ----
    GAAP gross profit              7,503       8,993     19.9%
    GAAP gross margin               32.5%       31.2%
    Adjustments:
        Share-based
         compensation                195         643    229.7%
                                     ---         ---    -----
    Non-GAAP gross profit          7,698       9,636     25.2%
    Non-GAAP gross margin           33.3%       33.4%
                                    ----        ----

    GAAP operating expenses       (4,396)     (6,926)    57.6%
    Adjustments:
        Share-based
         compensation                 80       1,164   1355.0%
                                     ---       -----   ------
    Non-GAAP operating
     expenses                     (4,316)     (5,762)    33.5%
                                  ------      ------     ----

    GAAP profit from
     operations                    3,107       2,067    -33.5%
    GAAP operating margin           13.4%        7.2%
    Adjustments:
        Share-based
         compensation                275       1,807    557.1%
                                     ---       -----    -----
    Non-GAAP profit from
     operations                    3,382       3,874     14.5%
    Non-GAAP operating
     margin                         14.6%       13.4%
                                    ----        ----

    GAAP net income                3,580       2,593    -27.6%
    GAAP net margin                 15.5%        9.0%
    Adjustments:
        Share-based
         compensation                275       1,807    557.1%
                                     ---       -----    -----
    Non-GAAP net income            3,855       4,400     14.1%
    Non-GAAP net margin             16.7%       15.3%
                                    ----        ----

    GAAP net income
     attributable to
     ordinary shareholders
     per ADS, diluted :             0.22        0.14    -36.4%
    Adjustments:
        Share-based
         compensation               0.02        0.10
                                    ----        ----
    Non-GAAP net income
     attributable to
     ordinary shareholders
     per ADS, diluted:              0.24        0.24      0.0%
                                    ----        ----      ---

    Weighted average ADS
     outstanding - basic
     (Non-GAAP)               11,555,888  18,663,303
    Weighted average ADS
     outstanding - diluted
     (Non-GAAP)               11,955,735  18,715,098



                                     Nine months ended
                                       September 30,
                                    2010        2011%
                                    ----        ----
    GAAP gross profit             21,849      26,141     19.6%
    GAAP gross margin               33.8%       32.2%
    Adjustments:
        Share-based
         compensation                446       1,631    265.7%
                                     ---       -----    -----
    Non-GAAP gross profit         22,295      27,772     24.6%
    Non-GAAP gross margin           34.5%       34.2%
                                    ----        ----

    GAAP operating expenses      (12,374)    (18,768)    51.7%
    Adjustments:
        Share-based
         compensation                182       2,894   1490.1%
                                     ---       -----   ------
    Non-GAAP operating
     expenses                    (12,192)    (15,874)    30.2%
                                 -------     -------     ----

    GAAP profit from
     operations                    9,475       7,373    -22.2%
    GAAP operating margin           14.7%        9.1%
    Adjustments:
        Share-based
         compensation                628       4,525    620.5%
                                     ---       -----    -----
    Non-GAAP profit from
     operations                   10,103      11,898     17.8%
    Non-GAAP operating
     margin                         15.6%       14.7%
                                    ----        ----

    GAAP net income               10,451       8,956    -14.3%
    GAAP net margin                 16.2%       11.0%
    Adjustments:
        Share-based
         compensation                628       4,525    620.5%
                                     ---       -----    -----
    Non-GAAP net income           11,079      13,481     21.7%
    Non-GAAP net margin             17.1%       16.6%
                                    ----        ----

    GAAP net income
     attributable to
     ordinary shareholders
     per ADS, diluted :             0.66        0.48    -27.3%
    Adjustments:
        Share-based
         compensation               0.04        0.23
                                    ----        ----
    Non-GAAP net income
     attributable to
     ordinary shareholders
     per ADS, diluted:              0.70        0.71      1.4%
                                    ----        ----      ---

    Weighted average ADS
     outstanding - basic
     (Non-GAAP)               11,555,888  18,653,889
    Weighted average ADS
     outstanding - diluted
     (Non-GAAP)               11,846,880  18,827,730



    (1) Assumes all outstanding ordinary shares are represented by ADSs.
     Each ADS represents 18 ordinary shares.
    (2) Certain government subsidies net of the related costs were
     reclassified to other operating profits in the third quarter of 2011
     to better reflect the nature of such transactions.
    (3) Assumes all outstanding ordinary shares are represented by ADSs.
     Each ADS represents 18 ordinary shares.

SOURCE ShangPharma Corporation