Beijing, China
January 14, 2010
Origin Agritech Limited (NASDAQ: SEED) ("Origin" or the "Company"), a vertically integrated supplier of hybrid and genetically-modified crop seeds in China, today announced audited financial results for the year ended September 30, 2009. These audited twelve month results reflect the Company's financial statements during the period from October 1, 2008 to September 30, 2009. Origin prepares its financial statements in accordance with generally accepted accounting principles (GAAP) of the United States.
China's Blossoming Seed Industry
With the rapid growth in China prompting greater demands on domestic food production, and China rapidly becoming a net corn importer, as a result of the rising consumer desire for higher quality food products, the Chinese central government has taken several measures to deal with these core issues. Crop seed is the fundamental input in the corn industry, and this input which possesses the greatest upside in gains from technological improvements. According to research, corn seed plays the most active factor in the increase of yield gains, accounting for over 35.5% of the total contribution.
During the past years, the Chinese central government initiated a comprehensive USD 6 billion plan for the implementation of genetically modified food products throughout China. In 2009, they furthered this plan through further implementation, including the approval of the first genetically modified main crop seed in rice and corn. Compared with conventional varieties, the obvious advantages of transgenic varieties are high yield, high quality, disease-resistance, and herbicide resistance. Farmers plant transgenic varieties to both save time and cost, while also reducing the amount of fieldwork. Given Origin's unique position with our late stage product pipeline, we believe we are the beneficiary of such emerging trends affecting our industry for the next decade.
GMO Phytase Maize, World's First Approval for Commercial Use
We have pursued genetically modified research, and in November 2009, we received the Bio-Safety Certificate from the Ministry of Agriculture as a final approval for commercial use of the world's first genetically modified phytase corn. This is the first genetically modified corn seed product in China. We are also actively pursuing the approval of other GM seed products including glyphosate resistant corn and Bt Corn. Origin's focus remains in the production of higher quality seed products, whether proprietary or licensed.
Consequently, we established several plant genetic engineering technology platforms to meet the demands we foresee in the future. These include transforming genetically modified traits such as herbicide tolerance, insect resistance, nitrogen efficiency, and drought stress tolerance genes into corn inbred lines. As a domestic company, we are afforded the ability to proceed through all five phases of GMO approval, while international entities are restricted to phases one currently, and forbidden to proceed to phase 2 through 5. We have already had several products in the phase 2 to phase 4, and we will be the first company ready to sell and produce GM corn seed in China.
As an example, we have been successful in marketing genetically modified BT cotton varieties in China and plan to continue to develop other new seed varieties. Upon introduction, the Bt cotton gene was able to increase yield and production value. As a result, the farmers were willing to pay more for genetically modified seeds and prices increased roughly four-fold for genetically modified cotton seed as compared to standard hybrid seed. Today, almost all the planted acreage in China utilizes genetically modified cotton seed, exclusive of the Xinjiang region. We believe that other crop seeds can follow similar product adoption patterns.
GMO Catalysts
Glyphosate resistance and Bt corn, as highly successful products elsewhere in the world, remain "industry changers" in China. Origin Agritech retains the exclusive license rights to these specific traits, and expects to be the first company to commercialize these crops in China.
Worldwide, the largest segment of the transgenic crop market has been herbicide resistant crops. Specifically, glyphosate resistant crops have been widely accepted in cotton, corn, and canola in North America. Introduced in the US in 1998, the use of glyphosate resistant corn grew at a compounded annual growth rate of 51.9%, according to the US Department of Agriculture. The rapid historical adoption rate indicates farmers find this trait to extremely valuable. Additionally, Bt crops produce a protein toxic to specific insects used in areas with high levels of infestations of targeted pests. Introduced in 1996 in the US, acreage of Bt corn has grown at a compounded annual growth rate of 36.7%, according to the US Department of Agriculture.
We have roughly 100 total hybrid products in the market, and began to develop Origin's own proprietary hybrid seed varieties in 1998. As of December 2009, we have 23 proprietary corn seed products, 18 proprietary rice seed products, 3 proprietary cotton seed products and 3 proprietary canola seed products that are in commercial production and distribution. Currently, we have 9 breeding stations and employ 136 full time research personnel. Origin's longstanding, education-based distribution platform enables us to introduce higher quality products into the marketplace, as Origin's associated infrastructure affords us the ability to successfully launch genetically modified products.
FY 2009 Accomplishments
- Announcement of World's First Phytase Maize in Phase 5 of GMO Approval.
- Completion of the repurchase of the remaining outstanding convertible notes, US $17.26 million in principal at 104.
- Introduction of board members Dr. Yingqi Xia and Dr. James Kang, respected members of the Chinese economic development community and international biotech research community, respectively.
- Introduction of Mr. Irving H. Kau as Acting Chief Financial Officer.
- Introduction of a New Drying Facility in Northwestern China.
- Increase in the majority interest in Origin's subsidiary, Jilin Changrong.
- Compilation of the Strategic Advisory Committee of the Most Prominent Agro-Scientists in China.
FY 2010 Expectation
- FY 2010 Revenue Guidance: RMB 630 million to RMB 660 million
- Hybrid rice and corn seed supply levels at normal levels for FY 2010
- Further development in Origin's GM product pipeline
- Development of complementary product lines
Liang Yuan, President and Chief Executive Officer of Origin Agritech, commented, "We remain excited of the positive growth trends illustrated by results for the fiscal 2009 year period ended September 30, 2009. While most other industries remain uncertain, we show positive signs of significant improvement in both Origin's top-line and bottom-line numbers. As expected, Origin's financials for the fiscal 2009 period ended September 30, 2009 showed revenue growth, margin improvement, and bottom line increases from the fiscal year ended September 30, 2008. We expect these trends to continue into FY 2010. As the market trends more towards technology based products, we have managed Origin's R&D and operations in anticipation of bringing higher quality products to the market."
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