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Profits Slump at Biosensors International Group

Biotechnology company, Biosensors International Group (SGX: B20) announced its third quarter results on Wednesday after the markets closed. The company’s main business activity lies in the manufacture of various types of drug-eluting stents (DES) which are medical devices used to unclog blocked arteries. The company splits its revenue into four segments, namely, Critical Care, Interventional Cardiology, Cardiac Diagnostic and Licensing & Royalties.

For the three months ended 31 Dec 2013, Biosensors’ top-line (comprising of product revenue and licensing and royalties revenue) stood at US$82.5 million, a negligible 1% change from the revenue of US$81.3 million it earned a year ago. While there was lower royalty revenue coming from Terumo, a Japanese medical device manufacturer, it was partly mitigated by modest growth in product revenue through 3 initiatives: higher growth in the EMEA (Europe, Middle East, and Africa) and APAC (Asia Pacific) regions, commercialization of various new products, and the newly acquired Cardiac Diagnostic business in Spectrum Dynamics.

Despite flat revenue growth, the company’s net profits slumped 55% from US$24.94 million to US$11.12 million on a year-on-year basis. There are several reasons for the decline as highlighted below:

1) Gross margins fell from 82% in the previous year to 74%, attributed to lower gross margin mixture from 3 areas: Distribution activities of Nobori stents in Japan; recently acquired Cardiac Diagnostic business which has an inherently lower margin to begin with; overall price reduction for drug-eluting stents (DES) sold in China.

2) Secondly, the company’s expenses were mostly amplified with sales & marketing expenses increasing 9% from a year ago to US$28 million and R&D expenses (costs for new product development, clinical trials, patent registration and regulatory approval) jumping 40% year-on-year from US$5.62 million to US$9.95 million.

3) Lastly, financial expenses (i.e. interest payments on borrowings) skyrocketed 166% year-on-year to US$3.31 million. The increase was mainly due to US$240 million worth of new debt that Biosensors issued on Jan 2013. Those loans are due for repayment after four years and carry an interest rate of 4.875% per year.

Financial Position

Meanwhile, Biosensors’ balance sheet remains robust with a total debt load of US$276 million and a cash hoard worth US$496 million, putting them in a strong net cash position. There is also no immediate concern for its debt as the majority of it – some US$252 million worth, to be exact – is repayable at least 1 year later, leaving plenty of cash aside and making immediate plans for future fund raising activities unlikely.

Biosensor’s CEO, Dr Jack Wang, has this to comment on the third quarter and recent developments: “In the third quarter, the operating environment for our business continued to be challenging. EMEA and APAC were the leading drug-eluting stents (“DES”) sales growth regions, although lower average selling prices remained as headwinds. In China, the weak market sentiment continued to cause some pressure on our revenue there,”

Nevertheless, he tried to allay some of the concerns by explaining some of the measures the company would implement to drive growth going forward: “In the face of the current market environment, we remain committed to growing our Company by adding new product lines, reallocating management resources to focus on growth, implementing cost reduction measures to enhance efficiencies of our existing DES product line, as well as exploring new investment opportunities.”

As a result from the dip in profits, earnings per share was reported at 0.65 US cents, down from 1.41 US cents in the corresponding period last year. Net asset value (NAV) per share was US$0.74 as of 31 Dec 2013, up slightly from US$0.72 as of 31 March 2013.

Shares of Biosensors are currently trading at S$0.855 apiece, which represents a trailing price-to-earnings ratio of 18.1 and dividend yield of 2.93%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.