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Second Quarter 2009 Financial Results
Revenue for the second quarter of 2009 increased 40.6% to approximately$13.2 million compared to approximately $9.4 million for the second quarter of2008. The increase in revenues resulted from Biostar's enhanced marketing andsales efforts which increased sales of its Xin Aoxing Oleanolic Acid Capsule("Xin Aoxing Capsule") and Tianqi Dysmenorrhea Capsules ("Tainqi Capsule").Xin Aoxing Capsule, one of Biostar's flagship OTC products which treatssymptoms common to hepatitis B patients, contributed approximately 67.5% tototal revenues for the quarter, and increased $4.1 million, or 84.1% to $8.9million, compared to the second quarter of 2008. The increase was primarilydue to market penetration in two additional provinces through localwholesalers. Revenues generated by another core OTC product, Tianqi Capsule,which treats dysmenorrhea and bloating for women, increased 25.3% toapproximately $1.4 million from the second quarter of 2008. The increase insales of Tianqi Capsule was mainly due to the continued implementation of the"new rural cooperative medical supply network plan" which markets directly toconsumers in China's rural area through retail pharmacies.
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Cost of goods sold for the three months ended June 30, 2009 wasapproximately $3.5 million or 26.5% of revenue as compared to approximately$4.0 million or 42.8% of revenue for the three months ended June 30, 2008.
The Company yielded gross profits of $9.7 million and gross margins of73.5%, compared to $5.4 million of gross profits and a gross margin of 57.2%during the second quarter of fiscal 2008. Gross profits grew by 80.5% on ayear-over-year basis. The increase in gross profit was a result of increasedrevenue in Xin Aoxing Capsule and Tainqi Capsule and a decrease in rawmaterial prices of Xin Aoxing Capsule and Danshen Granule. The Sichuanprovince, the main region where herbs are cultivated for raw materials used inmanufacturing several of Biostar's OTC medicines, has resumed production afterrecovering from the earthquake. During the second quarter of 2009, grossmargin of three products is over 50%, Xin Aoxing Capsule (84%), Tianqi Capsule(64%) and Taohuasan Pediatrics Medicine (65%).
Operating expenses for the three months ended June 30, 2009 wereapproximately $4.3 million, up 26.6% from $3.4 million in the same period of2008. The increase was primarily a result of Biostar's expanded marketingefforts, including increased costs for TV advertising, promotion, andcommission associated with an expanded sales force.
Operating income for the second quarter of 2009 totaled approximately $5.5million, a 170.8% increase from the approximately $2.0 million reported forthe second quarter of 2008. Operating margins were 41.3% and 21.4% for thesecond quarter of 2009 and 2008, respectively. The increase in the operatingmargin was primarily due to increased revenues and decrease in cost of goodsold.
For the second quarter of 2009, net income was approximately $3.9 million,a 119.3% increase, compared to approximately $1.8 million for the secondquarter of 2008. Diluted earnings per share were $0.16 compared to $0.08 forthe second quarter of 2009 and 2008 respectively, based up on 23.7 million and23.2 million shares. The increase in net income during the second quarter of2009 was a result of increased revenues and improved profitability.
The Company had an effective tax rate of 26.1% and 12.3%, for the secondquarter of 2009 and 2008, respectively. The increase was primarily due to theexpiration of the 50% income tax reduction on December 31, 2008.
"We are very pleased to report strong revenue and net income growth andfurther improvement in our gross margins which benefited from the success ofour overall marketing strategy and solid sales increases, especially in XinAoxing Capsule. We anticipate that our strategy will increase sales and thatallocating incremental dollars to our marketing budget will improve our brandwhile allowing us to successfully penetrate new target markets whicheventually translate into both strong top and bottom-line growth," commentedMr. Ronghua Wang, Chairman and Chief Executive Officer of Biostar. "TheChinese government recently announced a new health care reform plan and willinvest $123 billion between 2009 and 2011 with a stated goal of covering 90%of the urban and rural residents with basic medical insurance. With continuedmarketing efforts, an expanding product portfolio and strong demand for ourhepatitis-B product, we are ideally positioned to capitalize on the long-termsecular growth occurring in our industry."
Six Month Results
For the six months ended June 30, 2009, revenues increased approximately27.5% to $20.7 million compared to the same period in 2008. Gross profit wasapproximately $14.5 million for the first six months of 2009, representing anincrease of 51.9% from the first six months of 2008. Gross margins were 70.2%for the first six months of 2009 compared to 58.9% for the same period in 2008.
Income from operations was $7.8 million for the first six months of 2009,representing an increase of 87.9% over the first six months of 2008.Operating margins were 37.6% for the first six months of 2009 compared to25.5% for the first six months of 2008. Net income was $5.7 million for thesix months ended June 30, 2009, an increase of approximately 58.8% from thesame period in 2008. Fully diluted earnings per share were $0.24 compared to$0.15 for the first six months of 2009 and 2008 respectively, based up on 23.7million and 23.2 million shares.
Balance Sheet and Cash Flow
The Company had a current ratio of 3.2 to 1 and approximately $1.9 millionin cash and cash equivalents on June 30, 2009 compared approximately $0.8million in cash and cash equivalents on December 31, 2008.
Accounts receivable was approximately $15.3 million on June 30, 2009versus approximately $11.7 million on December 31, 2008. The number of dayssales outstanding (i.e. days sales in accounts receivable) increased to 134for the six months ended June 30, 2009 from 117 for the same period last yeardue to slower payments of customers during the current economic slowdown.
On June 30, 2009, the Company had stockholders' equity of $29.0 million,with total assets of $36.3 million versus total liabilities of $7.3 million.
For the first six months of 2009, the Company generated approximately $1.2million in cash from operations versus approximately $1.7 million use inoperations for the same period in 2008, with the variance principally comingfrom the increase in net income.
Business Development
During the second quarter of 2009, Biostar finished the engineering designand commenced construction for its new raw material processing facilityexpected to be operational during the fourth quarter of 2009. The rawmaterial processing facility is part of the Company's herbal plantation base.The plantation base will be utilized to service Biostar's own raw materialdemand ensuring the Company's product quality, lowering its overall productioncosts and providing incremental revenue by selling excess raw materials intothe market.
During the second quarter of 2009, Biostar commenced the fullimplementation of the new rural cooperative medical drug supply network plan.In April, Biostar deployed over 30 salesmen to set up a network coveringapproximately 1,320 sales outlets in the rural areas of 10 counties locatedthroughout the Shaanxi province. This is the initial phase of Biostar'stwo-year plan to build a rural supply network covering 10,000 sales outletsthroughout six provinces. The goal is to build the largest regionalpharmaceutical supply network in rural areas of the PRC in order to capitalizeon the growth opportunity driven by an increase in disposable income offarmers and government's significant capital commitment to rural communitiesthroughout the PRC.
Biostar received approval from the local government to produce YiziCapsules, Tangning Capsules, and Shengjing Capsules. The Company has launchedthese products through its domestic market channels and initial revenues havebeen generated by late July, 2009.
"We are making progress on all aspects of our business. From commencingconstruction for our new raw material processing facility, to establishing1,320 rural sales outlets, to receiving three new product approvals whichfurther diversifies our portfolio, we have set the foundation for long-termgrowth and profitability in our business. We remain focused on introducinghigher margin products and building brand value which will enable us toachieve further market share gains," concluded Mr. Wang.
Conference Call
The Company will host a conference call to discuss the 2009 second quarterfinancial results on Friday, August 14, 2009 at 10:30 a.m. EDT. Interestedparticipants should call 877-941-1848 within the United States, or US+1-480-629-9722 if calling internationally. The conference ID is 4139784. Itis advisable to dial in approximately 5-10 minutes prior to 10:30 a.m. EDT.This call is being web cast by ViaVid Broadcasting and can be accessed atViaVid's website at http://www.viavid.netor at the following link:http://viavid.net/dce.aspx?sid=00006906 .
About Biostar Pharmaceuticals, Inc.
Biostar Pharmaceuticals, Inc., through its wholly-owned subsidiary inChina, develops, manufactures and markets pharmaceutical and medical nutrientproducts for a variety of diseases and conditions. The Company's most popularproduct is its Xin Ao Xing Oleanolic Acid Capsule, an over-the-counter ("OTC")medicine for chronic hepatitis B, a disease affecting approximately 10% of theChinese population. In addition to its hepatitis product, Biostarmanufactures two broad-based OTC products, two prescription-basedpharmaceuticals and thirteen nutrients. The Company has adopted internationalstandards and is in the process of applying for three patents.
Safe Harbor
Certain statements in this release concerning our future growth prospectsare forward-looking statements, within the meaning of Section 27A of the U.S.Securities Act of 1933, as amended, and Section 21E of the U.S. SecuritiesExchange Act of 1934, as amended, which involve a number of risks anduncertainties that could cause actual results to differ materially from thosein such forward-looking statements. The risks and uncertainties relating tothese statements include, but are not limited to, risks and uncertaintiesregarding the success of our investments, risks and uncertainties regardingfluctuations in earnings, our ability to sustain our previous levels ofprofitability including on account of our ability to manage growth, intensecompetition, wage increases in China, our ability to attract and retain highlyskilled professionals, time and cost overruns on fixed-price, fixed-time framecontracts, client concentration, our ability to successfully complete andintegrate potential acquisitions, withdrawal of governmental fiscal incentives,political instability and regional conflicts and legal restrictions on raisingcapital or acquiring companies outside China. Additional risks that couldaffect our future operating results are more fully described in our UnitedStates Securities and Exchange Commission filings including our S-1 dated June27, 2008, our Quarterly Report on Form 10-Q for the quarter ended March 31,2009, our 10-K for the year ended December 31, 2008, and other recent filings.These filings are available at http://www.sec.gov . We may, from time to time,make additional written and oral forward-looking statements, includingstatements contained in our filings with the Securities and ExchangeCommission and our reports to shareholders. We do not undertake to update anyforward-looking statements that may be made from time to time by or on ourbehalf.SUMMARY FINANCIALS Second Quarter 2009 Results Q2 2009 Q2 2008 CHANGE Net Sales $13.2 million $9.4 million +40.6% Gross Profit $9.7 million $5.4 million +80.5% Net Income $3.9 million $1.8 million +119.3% EPS (Fully Diluted) $0.16 $0.08 +100% Six Month 2009 Results 1H 2009 1H 2008 CHANGE Net Sales $20.7 million $16.2 million +27.5% Gross Profit $14.5 million $9.6 million +51.9% Net Income $5.7 million $3.6 million +58.8% EPS (Fully Diluted) $0.24 $0.15 +60%
SOURCE Biostar Pharmaceuticals, Inc.
