SciClone Pharmaceuticals (NASDAQ:SCLN) announced Tuesday 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.