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"We are pleased to report a strong start in 2010 with a robust 28%top-line and 61% adjusted bottom-line growth in the first quarter," said Mr.Chao Ming Zhao, Chief Executive Officer of China Biologic. "In addition to thestrong financial performance, we have begun the expansion of our network ofplasma collection centers with one acquisition and the approvals to build twonew plasma stations. We expect that these opportunities for increasedcollection capacity, coupled with our advancing new product pipeline, willposition us to gain market share and further strengthen the Company'sleadership in the PRC plasma market."
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First Quarter 2010 Results
Revenue for the first quarter of 2010 increased 28.1% to $27.1 million,from $21.1 million in the same 2009 period. The revenue growth is primarilyattributable to a general price increase ranging from 3.1% to 118.3% acrossthe Company's plasma-based product portfolio. The price increase is mainly dueto the continued supply shortage in China's plasma industry. The Companyanticipates the potential for some modest price increases in the future onselect products but has not factored in any price increases in its 2010guidance and outlook.
Human albumin product continues to be the largest product, accounting for46.9% of total sales, and has experienced the smallest average price increaseof 3.1%. The average price for the Company's most in-demand product, the humanimmunoglobulin for intravenous injection products, rose 34.2%, and contributedto 19.9% of total revenues, while, the average price for the Company's humanimmunoglobulin products contributed only 2.4% of total revenues, a 118.3%increase.
Gross profit for the first quarter of 2010 was $20.3 million, up 35.9%,from $14.9 million in the first quarter of 2009. Gross profit margin expandedto 74.9% from 70.6% in the same period a year ago and 72.6% in the fourthquarter of 2009. The gross profit margin expansion was primarily attributableto the increase in the average selling price of the Company's plasma productsyear-over-year and quarter-over-quarter.
Operating expenses in the first quarter increased 45.2% to $7.1 million,from $4.9 million in the same period last year. Higher expenses primarilyreflected the 149.9% increase in research and development spending, mostlyrelated to the development of two late stage pipeline projects, currentlyawaiting governmental approval. General and administrative expenses rose 29.8%in the 2010 period due to costs associated with the integration of multiplesites after the acquisition of Dalin, which was partially offset by lowerlegal and accounting expenses associated with the Dalin acquisition. Sellingexpenses increased 62.7% year-over-year due to higher salaries and promotionalexpenses associated with the Company's efforts to increase direct sales tohospitals and inoculation centers to drive volume growth. As a percentage ofrevenue, total operating expenses increased by 3.1% from 23.0% to 26.1% forthe same period in 2009.
Income from operations in the 2010 first quarter was $13.2 million, a31.4% increase from $10.1 million during the same period a year ago. Operatingmargin rose to 48.8% from 47.6% year-over-year.
Total net other income was $4.7 million in the 2010 first quarter, ascompared to net other expense of $0.8 million in the same 2009 period. Theincrease primarily reflected a $3.8 million gain related to change in the fairvalue of warrant liabilities.
Income taxes increased to $3.2 million in the 2010 first quarter, from$2.0 million in the prior year. The effective tax rate was 17.9% in the firstquarter, as compared to 21.9% same quarter last year.
Net income attributable to controlling interest for the 2010 first quarterwas $10.6 million, or $0.41 per diluted share, and included a $3.8 millionnon-cash gain related to change in the fair value of derivative liabilities.Net income during the 2009 first quarter was $4.3 million, or $0.20 perdiluted share, which included a non-cash $0.4 million charge related to changein the fair value of warrants.
Excluding non-cash employee compensation expenses, change in the fairvalue of derivative liabilities and interest related to the convertible notesunder the if-converted method, non-GAAP adjusted net income for the threemonths ended March 31, 2010 was $7.5 million, or $0.28 per diluted share, up60.6% from $4.7 million, or $0.22 per diluted share, in the same 2009 period.
Financial Condition
As of March 31, 2010, the Company had $51.2 million in cash and cashequivalents, approximately $49.2 million in working capital, and a currentratio of 2.0x. Total stockholder's equity at the end of the quarter was $66.6million, up from $50.5 million at the end of 2009.
The Company generated $2.1 million in net cash from operating activitiesin the first quarter of 2010, as compared to $7.1 million in the same periodof 2009. The decline in operating cash flow was primarily due to an increasein inventory and accounts receivable and income taxes paid. Higher inventoryreflected increased plasma collection and timing of SFDA approval of finishedplasma goods, while higher accounts receivable reflects increased end-usersales to hospitals.
Recent Events and Updates
On April 5, 2010, Shandong Taibang, the Company's subsidiary wasrecognized by the Shandong Province Department of Science and Technology as aNational Center of Excellence for New Drug and Technology Development. Theaward indicates provincial expectation that Shandong Taibang will serve as anindustry model and help drive the development of the pharmaceutical industryin Shandong province. As a result of the award, Shandong Taibang along withother National Centers of Excellence companies, will have increasedopportunities to collaborate on research and development opportunities andwill be eligible for government funding and other support programs for use innew drug development efforts.
On May 12, 2010, China Biologic announced the achievement of a significantmilestone with the receipt of Shandong provincial government approval to buildtwo new plasma stations in Shandong. Once the new plasma stations areoperational, the Company will have 18 total plasma stations and expects thetwo new plasma stations will increase aggregate plasma collection capacity byup to an additional to 80 metric tons over the next few years.
2010 Guidance and Business Outlook
China Biologic is guiding to 2010 revenues in the range of $142 millionand $149 million and 2010 adjusted net income in the range of $34 million and$36 million. The first quarter of each year is typically the slowest periodfor the Company, mainly due to the Chinese New Year holiday that temporarilyreduces customer purchase volume and slows the SFDA approval for the releaseof finished goods. In the first quarter of 2010, the Company saw the samepattern with a limited supply of certain plasma products due to the timing ofgovernment approval of new batches of products for commercialization.Management is confident in continuing strong growth for the remainder of 2010.
Guidance for 2010 adjusted net income excludes any non-cash gain or lossrelated to change in the fair value of derivative liabilities, stock-basedcompensation expense and any adjustments in the U.S. federal income taxprovision in 2010 related to the expiration of the look-through exception forSubpart F income on December 31, 2009, and excluded any acquisitions, newproduct approvals or operational impact from new plasma stations. The guidancealso does not assume any material price or volume increases during the year.As a matter of policy, the Company does not intend to update this guidanceduring the year.
China Biologic's applications for Human Prothrombin Complex Concentrateand Human Coagulation Factor VIII remain under SFDA review. Management expectsto commercially launch these two products in late 2010 or early 2011. The newproducts will enrich the Company's product portfolio and enhance itscompetitive position in the plasma-based product market.
Mr. Zhao added, "Supply in China's plasma industry remains tight due tohigh government standards. At China Biologic, we are actively evaluatingopportunities to expand our plasma market share by increasing the capacity ofour existing plasma stations, expanding the target population of potentialplasma donors and acquiring or building new plasma stations. Our acquisitionof Yuncheng Ziguang Biotech earlier this year and the recent approval to buildtwo new plasma stations in Shandong demonstrate the Company's commitment togrowing the business for the long-term. We are off to a strong start in 2010and we look forward to sharing our exciting development in the comingquarters."
Conference Call
China Biologic will host a conference call at 8:00 a.m. EDT on Monday, May17, 2010, to discuss the first quarter of 2010 financial results. Toparticipate in the conference call, please dial the following number five toten minutes prior to the scheduled conference call time: 877-409-5468.International callers should dial +1-702-894-2400. The pass code for the callis 74929602. If you are unable to participate in the call at this time, areplay will be available for 14 days starting on Monday, May 17, 2010 at 9:00a.m. EDT. To access the replay, dial 800-642-1687, international callersshould dial +1-706-645-9291. The conference pass code is 74929602.
Use of Non-GAAP Financial Measures
This press release contains non-GAAP financial measures that excludenon-cash compensation expenses related to options granted to employees anddirectors under the Company's 2008 Equity Incentive Plan and changes in thefair value of derivative liabilities, including warrants and derivativeinstruments (including the conversion option) embedded in the Company's SeniorSecured Convertible Notes. To supplement the Company's condensed consolidatedfinancial statements presented on a GAAP basis, the Company has providednon-GAAP financial information excluding the impact of this item in thisrelease. The Company's management believes that these non-GAAP measuresprovide investors with a better understanding of how the results relate to theCompany's historical performance. A reconciliation of the adjustments to GAAPresults appears in the table accompanying this press release. This additionalnon-GAAP information is not meant to be considered in isolation or as asubstitute for GAAP financials. The non-GAAP financial information that theCompany provides also may differ from the non-GAAP information provided byother companies.
About China Biologic Products, Inc.
China Biologic Products, Inc., through its indirect majority-ownedsubsidiaries, Shandong Taibang Biological Products Co. Ltd. and Guiyang DalinBiologic Technologies Co., Ltd, and its equity investment in Xi'an HuitianBlood Products Co., Ltd., is currently the largest non-state-owned plasma-based biopharmaceutical company in China. The Company is a fully integratedbiologic products company with plasma collection, production and manufacturing,research and development, and commercial operations. The Company's plasma-based biopharmaceutical products are irreplaceable during medical emergencies,and are used for the prevention and treatment of various diseases. The Companysells its products to hospitals and other healthcare facilities in China.Please see the Company's website http://www.chinabiologic.com for additionalinformation.
Safe Harbor Statement
This release may contain certain "forward-looking statements" relating tothe business of China Biologic Products, Inc. and its subsidiaries. Allstatements, other than statements of historical fact included herein are"forward-looking statements," including statements regarding: the ability ofthe Company to achieve the financial guidance provided by the management; theability of the Company to win SFDA approval for its research and developmentpipeline projects, and commercially launch new products; the Company's abilityto build new or expand existing plasma collection stations and increase plasmacollection capacity; the Company's ability to otherwise achieve its commercialobjectives, including its ability to gain market share and further strengthenthe Company's leadership in the PRC plasma market; the business strategy,plans and objectives of the Company and its subsidiaries; and any otherstatements of non-historical information. These forward-looking statements areoften identified by the use of forward-looking terminology such as "believes,""expects" or similar expressions, and involve known and unknown risks anduncertainties. Although the Company believes that the expectations reflectedin these forward-looking statements are reasonable, they do involveassumptions, risks and uncertainties, and these expectations may prove to beincorrect. Investors should not place undue reliance on these forward-lookingstatements, which speak only as of the date of this press release. TheCompany's actual results could differ materially from those anticipated inthese forward-looking statements as a result of a variety of factors,including those discussed in the Company's periodic reports that are filedwith the Securities and Exchange Commission and available on its website(http://www.sec.gov). All forward-looking statements attributable to theCompany or persons acting on its behalf are expressly qualified in theirentirety by these factors. Other than as required under the securities laws,the Company does not assume a duty to update these forward-looking statements.First Quarter 2010 Highlights -- Revenues increased 28.1% year-over-year to $27.1 million -- Gross profit rose 35.9% year-over-year to $20.3 million, representing a gross margin of 74.9%, as compared to 70.6% a year ago -- Operating income grew 31.4% to $13.2 million -- GAAP net income attributable to controlling interest was $10.6 million, or $0.41 per diluted share, including a $3.8 million non-cash gain from change in the fair value of derivative liabilities -- Excluding the non-cash gain, interest on convertible notes and non-cash employee compensation, non-GAAP adjusted net income was $7.5 million or $0.28 per diluted share, a 60.6% increase from $4.7 million or $0.22 per diluted share a year ago
SOURCE China Biologic Products, Inc.
