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"With our successful integration of Dalin, China Biologic achieved recordtop and bottom line results and significant growth in fiscal 2009, said Mr.Chao Ming Zhao, Chief Executive Officer of China Biologic. "In addition, webelieve that the successful implementation of the Company's strategicmarketing efforts has attracted more donors to our plasma collection centersand has resulted in an increase in our overall collection volume. With acontinued shortage of plasma supply, the Company has continued to work toenhance our production plans and increase our output and we have been able tomaximize our yield per unit of plasma collected to realize a higher profitmargin. Fiscal 2009 was also a special year for us and our shareholders asthe Company's common stock began trading on the NASDAQ Global Market.
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During the full year 2009, the Company achieved the following keymilestones:
Fourth Quarter 2009 Results
For the three months ended December 31, 2009, total revenues reached arecord $37.6 million, up 185.6% from the same period a year ago. Excludingrevenues from Dalin, which was acquired in January 2009, revenues rose 46.7%to $19.3 million from $13.2 million a year ago. The strong organic growth waspartly attributable to increased demand for the Human immunoglobulin forintravenous injection product ("IVIG") product ahead of potential priceincrease in 2010.
Gross profit for the fourth quarter 2009 was $27.3 million, up 208.6% from$8.9 million in the comparable period a year ago. Gross margin also increasedto 72.7% from 67.2% year-over-year. The gross profit and margin increases wereprimarily attributable to the consolidation of Dalin and price increasesimplemented during the year.
Operating expenses increased 58.1% year-over-year to $6.6 million,primarily reflecting consolidation of Dalin in the 2009 quarter. Income fromoperations for the period was $20.8 million, a 342.3% increase from $4.7million a year ago.
Income taxes increased to $3.0 million from $0.2 million, primarilyreflecting a higher effective tax rate of 61.7% as compared to 3.7% in theyear ago quarter. The higher effective tax rate was due to non-cash expensesincurred in 2009 that are not deductible under PRC tax law.
GAAP net loss attributable to controlling interest for was $3.8 million,or $0.17 per diluted share, and included a $14.7 million charge related tochange in fair value of derivative liabilities, as compared to net income of$3.2 million, or $0.15 per diluted share, in the year ago quarter.
Excluding non-cash employee compensation expenses, change in the fairvalue of derivative liabilities and adding back interest related to theconvertible notes under the if-converted method, non-GAAP adjusted net incomefor the three months ended December 31, 2009 was $11.1 million, or $0.44 perdiluted share, up 242.4% from $3.2 million or $0.15 per diluted share in theyear ago quarter.
Full Year 2009 Results
Revenues for the full year 2009 increased 154.5% to a record $119.0million from $46.8 million in 2008. The increase in revenues is primarilyattributable to the consolidation of Dalin, which was acquired in April 2009,beginning January 2009. During 2009, Dalin accounted for $52.1 million inrevenues, or 43.8% of total revenues. Excluding Dalin, 2009 base revenues grew43.1% year-over-year to $66.9 million from $46.8 million. Growth in baserevenue was primarily due to increase in the prices of plasma-based products,higher sales volume and a modest increase related to foreign exchangetranslation.
Human albumin product revenues rose 118.9% year-over-year to $59.2 million,accounting for 49.7% of sales in 2009, as compared to 57.8% in 2008. Revenuegrowth reflected volume increase of 117.8% and an average selling price (ASP)increase of 0.5%. IVIG revenues grew 324.4% to $43.7 million in 2009 andrepresented 36.8% of total revenues, as compared to 22.0% of revenues in 2008.Increase in human immunoglobulin for intravenous injection revenues includedsales volume and ASP increases of 293.4% and 7.9%, respectively. Sales of thehuman tetanus immunoglobulin product rose 76.9% to $2.6 million, contributing2.2% of total revenues as compared to 3.1% in 2008. Sales volume and ASP forhuman tetanus immunoglobulin increased 40.2% and 26.2%, respectively. Salesvolume for human hepatitis B immunoglobulin and human rabies immunoglobulinproducts decreased, due to a temporary shortage of vaccines needed to generateeach type of raw material, by 0.5% and 5.1%, respectively.
Gross profit for 2009 was $86.4 million, up 164.1% from $32.7 million in2008. Gross margin was 72.6% in 2009, as compared to 70.0% in the prior year.The increase in gross profit and margin were primarily due to theconsolidation of Dalin operations, an increase in the ASP across the productsand management's ability to maintain efficiencies in the production process.
Total operating expenses in the full year 2009 increased 102.0% to $25.0million, versus $12.4 million in the prior year period. As a percentage ofsales revenue, total expenses decreased to 21.0% for the full year 2009 from26.5% in 2008.
Selling expenses increased 59.5% to $3.5 million from $2.2 million in 2008.The dollar increase in selling expenses was primarily due to the consolidationof Dalin's selling activities, increased marketing efforts to increase directsales to new hospitals, and expansion of the sales force in Qianfeng to expandinto new sales territories.
General and administrative ("G&A") expenses rose 120.2% to $19.8 million.As a percentage of sales, G&A expenses decreased to 16.6% in 2009 from 19.2%for full year 2008. The dollar increase in G&A expenses was mainly due to anincrease in the administrative salary and employee benefit costs, higherdepreciation and amortization expenses and professional service charge inconnection with the Dalin acquisition. The Company incurred $62,281 in non-cash stock-based compensation expense, as compared to $1.3 million for thefull year 2008.
Research and development expenses in 2009 increased 42.5% to $1.7 million,or 1.4% of total revenues, as compared to $1.2 million, or 2.5% of totalrevenue, in 2008. The dollar increase was primarily due to the consolidationof Dalin and increased costs from continuing clinical trials on new productsduring the 2009 period.
Total net other expenses in the full year 2009 were $33.3 million, ascompared to $0.4 million in the prior year, primarily reflecting a chargerelated to change in the fair value of warrant liabilities and higher interestexpenses in 2009. The Company recognized a loss of $29.6 million related tochange in the fair value of warrant liabilities. No such charge was requiredin 2008. Net interest expense increased to $3.9 million for the full year 2009from $0.4 million in 2008, primarily due to higher interest expense related tofinancing in the acquisition of Dalin, as well as the interest accrued toQianfeng's strategic investors.
Provision for income taxes increased 128.7% to $10.5 million in 2009, from$4.6 million in 2008. The effective tax rate for 2009 was 37.4%, as comparedto 23.1% in 2008. The increase in effective tax rate was due to the $29.6million non-cash expense incurred in 2009 that is not deductible under PRC taxlaw, resulting in an overstated effective tax rate.
GAAP net income attributable to controlling interest in 2009 was $1.3million, as compared to net income attributable to controlling interest of$12.0 million in 2008. Diluted earnings per share were $0.07 as compared toearnings per share of $0.56 a year ago. Non-GAAP adjusted net income for 2009was $31.3 million or $1.38 per diluted share, an increase of 135% from $13.3million, or $0.62 per diluted share for the full year 2008. Non-GAAP adjustednet income and diluted earnings per share in 2009 exclude $29.6 million chargerelated to change in the fair value of derivative liabilities, non-cashemployee compensation expenses, and adding back interest related to theconvertible notes under the if-converted method.
Financial Condition
As of December 31, 2009, the Company had $53.8 million in cash and cashequivalents, approximately $44.4 million in working capital, and a currentratio of 1.9x. Total shareholder's equity for the fiscal year ended onDecember 31, 2009 was $50.5 million, as compared to $37.8 million at the endof 2008. The Company generated $50.3 million in net cash from operatingactivities in 2009 as compared to $20.0 million in 2008.
The Company believes that it has sufficient funds to support its strategicgrowth outlook, including capital expenditure plans of approximately $15million in 2010 to expand the plasma collection network, both for newconstructions and for the scale up existing collection stations, and upgradingthe fractionation facility in Qianfeng.
Recent Developments
On February 2, 2010, China Biologic appointed Dr. Xiangmin Cui to serve asan independent member of its board of directors, as the Chairman of theCompensation Committee, and as a member on the Audit and Nominating Committees.Dr. Cui filled the vacancy left by Dr. Gan's January 8, 2010 resignation todedicate more time to her other professional activities.
On March 1, 2010, China Biologic's special committee of independentdirectors appointed by the Company's board of directors in the wake of therecent allegations against certain directors and an employee of the Companyhas retained O'Melveny & Myers LLP, an international law firm, to advise thespecial committee and to assist in the investigation of the allegations.
2010 Guidance and Business Outlook
China Biologic expects 2010 revenue to be in the range between $142million and $149 million. This guidance assumes only organic growth and doesnot include and excludes acquisitions or approval for the construction of newplasma collection stations. The guidance does not assume any material price orvolume increases during 2010.
The Company expects 2010 adjusted net income to be in the range of $34million to $36 million, excluding any non-cash charge related to change in thefair value of derivative liabilities and stock-based compensation expense, andany adjustments in the U.S. federal income tax provision in 2010 related tothe expiration of the look-through exception for Subpart F income on December31, 2009.
As a matter of policy, the Company does not intend to update this guidanceduring the year.
Mr. Zhao added, "Through the dedication and commitment of our hard workingemployees, we have been able to successfully increase our presence in theplasma-based biopharmaceutical product market in China. We estimate ourcurrent market share is at approximately 18%. We plan to continue ourmarketing efforts to increase public awareness of plasma donation, as well asprovide appropriate nutritional supplement compensation to plasma donor, andapply for the construction of additional plasma collection stations."
"With our aggressive research and development efforts in the past fewyears, Human Prothrombin Complex Concentrate and Human Coagulation Factor VIIIhave successful completed clinical trials and have submitted applications tothe SFDA for official production permit and product certification. The Companylooks forward to SFDA approval of these products in the second half of 2010and expects to launch the commercial production of the products in late 2010or early 2011. We believe that the addition of these two new products willbroaden our product portfolio and improve our mix, enhance the Company'scompetitive position and maximize the yield from our current plasma supply."
Conference Call
China Biologic will host a conference call at 9:00 a.m. EDT on Wednesday,March 24, 2010, to discuss the fourth quarter 2009 and year-end financialresults. To participate in the conference call, please dial the followingnumber five to ten minutes prior to the scheduled conference call time: 877-409-5468. International callers should dial +1-702-894-2400. The pass code forthe call is 64404888. If you are unable to participate in the call at thistime, a replay will be available for 14 days starting on Wednesday, March 24,2010 at 11:00 a.m. EDT. To access the replay, dial 800-642-1687, internationalcallers should dial +1-706-645-9291. The conference pass code is 64404888.
Use of Non-GAAP Financial Measures
This press release contains non-GAAP financial measures that exclude non-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 provided non-GAAP financial information excluding the impact of this item in this release.The Company's management believes that these non-GAAP measures provideinvestors 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: theachievability of the financial guidance provided by the management; thesuccess of the R&D pipeline projects, SFDA approval and commercial launch ofnew products; the Company's ability to build new or expand existing plasmacollection stations; the Company's ability to achieve its commercialobjectives; the business strategy, plans and objectives of the Company and itssubsidiaries; and any other statements of non-historical information. Theseforward-looking statements are often identified by the use of forward-lookingterminology such as "believes," "expects" or similar expressions, and involveknown and unknown risks and uncertainties. Although the Company believes thatthe expectations reflected in these forward-looking statements are reasonable,they do involve assumptions, risks and uncertainties, and these expectationsmay prove to be incorrect. Investors should not place undue reliance on theseforward-looking statements, which speak only as of the date of this pressrelease. The Company's actual results could differ materially from thoseanticipated in these forward-looking statements as a result of a variety offactors, including those discussed in the Company's periodic reports that arefiled with 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.Fourth Quarter 2009 Highlights -- Revenues increased 185.6% year-over-year to $37.6 million -- Excluding Dalin, revenues rose 46.7% year-over-year to $19.3 million or 51.4% of total revenue -- Gross profit increased 208.6% year-over-year to $27.3 million, representing a gross margin of 72.7% as compared to 67.2% a year ago -- Operating income grew 342.3% year-over-year to $20.8 million, representing an operating margin of 55.2% -- GAAP net loss attributable to controlling interest was $3.8 million, or $0.17 per share, including a $14.7 million charge related to change in the fair value of derivative liabilities -- Non-GAAP adjusted net income was $11.1 million or $0.44 per diluted share, a 242.4% increase from $3.2 million or $0.15 per diluted share in the fourth quarter of 2008 -- The Company's common stock began trading on the NASDAQ Global Market on December 2, 2009
SOURCE China Biologic Products, Inc.
