PropThink: SCLN Guidance Likely To Be Raised On Lower Impact From Zadaxin Price Cut

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SciClone Pharmaceuticals SCLN announced this morning that, as expected, the Chinese government has reduced the list price for Zadaxin. This action has been expected for several quarters as the Chinese government reviews all pharmaceutical prices for products that have been added to the country's Reimbursement Drug List (RDL). While the top-line reduction is higher than the company had guided investors (18% vs. SCLN's estimated 15% reduction), the net impact is actually lower than expected. Based on agreements with its primary importers of Zadaxin in China, SCLN and its importers will share the price reduction, such that the company will realize less than a 5% impact to net income, vs. the company's initial expectation of a 7-8% impact. According to Tuesday morning's press release, the company stated that "the actual impact on SciClone's revenue and margins is anticipated to be significantly lower than the percentage reduction at the retail level, and is expected to be less than a 5% decrease, with the importation and distribution network taking the majority of the percentage decrease." Most importantly, the company stated that this lower-than-expected impact will be addressed when it announces 3Q 2012 earnings results and management updates guidance.

Given SCLN's focus on delivering financial performance and returning value to shareholders, it is logical to assume that guidance will be increased. Shares of SCLN are off ~20% since their highs in mid-August fueled by a downgrade by Cowen and Co. in advance of the anticipated price reduction. Expect SCLN to gain back this loss in value now that the price cut is behind the company, the net impact is lower than expected, and that Zadaxin is expected to continue to grow at rates that easily absorb the impact of the price cut.  

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PropThink is an intelligence service that delivers long and short trading ideas to investors in the healthcare and life sciences sectors. Our focus is on identifying and analyzing technically-complicated companies and equities that are grossly over or under-valued. We offer daily market coverage, weekly feature stories, and a newsletter to investors who subscribe on PropThink.com. To learn more, follow us on Twitter or visit us at http://www.propthink.com.

Disclaimer:

Use of PropThink's research is at your own risk. You should do your own research and due diligence before making any investment decision with respect to securities covered herein. You should assume that as of the publication date of any report or letter, PropThink, LLC (possibly along with or through our members, partners, affiliates, employees, and/or consultants) along with our clients and/or investors (collectively referred to as "PropThink") has a position in all stocks (and/or options of the stock) covered herein that is consistent with the position set forth in our research report. In connection with SCLN, PropThink has taken a long position. PropThink, LLC is not registered as an investment advisor. Our full disclaimer is available at http://www.propthink.com/disclaimer.





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Posted In: Press Releases
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