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"Our first quarter fiscal 2010 results reflect the restructuring of ourdistribution and sales system, which we began in January 2009," said Mr. WuboCao, Chairman and Chief Executive Officer. "Although summer is usually theslowest season for our sales, we believe that we were able to still achievestrong growth in our operating income as we efficiently managed our sellingand marketing expenses. We believe that our strong cash position will provideus with significant flexibility to pursue continued organic growth andstrategic acquisitions."
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First Quarter Results
Total revenue was $24.4 million, an 11.5% decrease compared to $27.6million for the first quarter of 2009. While the quantities sold forClarithromycin sustained-released tablets and Baobaole chewable tabletsincreased this quarter compared to the same period last year, the decrease inthe total revenue was primarily attributable to the decrease of the per unitprice by an average of 26% for Clarithromycin sustained-released tablets,Itopride Hydrochloride granules and Baobaole chewable tablets, the Company'stop three selling products, for the period ended September 30, 2009. The threeproducts accounted for approximately 86.5% of total revenue for the quarter.
In January 2009, the Company restructured its distribution and salessystem to sell its products primarily through 28 large independent regionaldistributors and lowered the per unit prices of the three major products tothe distributors. The Company also significantly reduced the commission paidto its sales representatives on those products.
The decrease in the revenue generated from the three major products waspartially offset by the increase in revenue from Radix Isatidis dispersibletablets which were first released in the second quarter of fiscal year 2009.Radix Isatidis dispersible tablets experienced a significant increase indemand caused by H1N1 concerns during the three months ended September 30,2009.
In the first quarter of fiscal 2010, sales of traditional Chinesemedicines ("TCMs") accounted for 39.2% of total revenues, compared to 26.7%for the comparable period of fiscal 2009.
Gross profit decreased 16.9% to $18.1 million from $21.8 million in thecomparable period of fiscal 2009. Gross margin was 74.3%, compared to 79.1% inthe first quarter of fiscal 2009, primarily due to the lower unit pricecharged as a result of the previously mentioned sales network restructuring.
Selling, general and administrative expenses decreased 67.5% to $4.3million from $13.4 million in the same period of fiscal 2009, primarilybecause the Company significantly reduced the commissions paid to its salesrepresentatives and better managed its marketing, advertising, and promotionalspending.
Operating income rose 72.6% to $12.7 million, as compared to $7.3 millionin the same period of fiscal 2009. Operating margin as a percentage of revenueincreased 25 percentage points to 52.0% from 26.7% in the same period offiscal 2009.
Other expenses were $7.4 million compared to $2.2 million for the threemonths ended September 30, 2008. The increase in other expenses was primarilydue to non-cash expenses related to the change in fair value from derivativeliabilities of $4.8 million, which the Company did not incur in the priorcorresponding period, and the amortization of debt discount and debt issuancecosts related to convertible debentures of $2.3 million versus $0.7 million inthe prior year period.
Net income was $2.0 million, or $0.18 per fully diluted share, versus $3.1million, or $0.32 per fully diluted share, in the same period last year.Excluding non-cash expenses related to the change in fair value fromderivative liabilities of $4.8 million and the amortization of debt discountand debt issuance costs related to convertible debentures of $2.3 million,non-GAAP adjusted net income was $9.1 million, or $0.60 per fully dilutedshare, for the three months ended September 30, 2009, up 128.5% from non-GAAPadjusted net income of $4.0 million, or $0.28 per fully diluted share, for thequarter ended September 30, 2008.(*)
Financial Condition
As of September 30, 2009, the Company had $122.9 million in cash and anadditional $14.6 million in restricted cash, as compared to $104.4 million and$7.3 million, respectively, at the end of fiscal 2009. Working capital was$66.3 million versus $99.8 million as of June 30, 2009. Shareholder's equitywas $90.2 million, as compared to $126.1 million at the end of fiscal 2009.The decrease in working capital and shareholder's equity is the result of thereclassification of the Company's derivative instruments from the equitysection to the liability section of the balance sheet. The Company generated$17.9 million in cash flow from operating activities for the first quarter offiscal 2010.
Business Outlook and Guidance
While the Company expects its sales from TCMs to continue to grow, itssales from western pharmaceutical medicines will have minimal growth as bothClarithromycin sustained-release tablets and Itopride Hydrochloride granuleshave entered into their maturity phase. In terms of its TCM business, theCompany expects sales of Radix Isatidis dispersible tablets to remain strong,in part due to the threat posed by the H1N1 flu. In addition, the Companyexpects its TCM business to benefit from the renovation of the Hongruiproduction facility, which is on track and scheduled to be fully online byApril 2010. The Company believes that Hongrui's TCM products have good salespotential, and some of those products have been classified by the PRCgovernment as appropriate for early treatment of the H1N1 flu. The Companycontinues to expect that once production has been ramped up, Hongrui'sproducts should contribute between $4.5 million and $8 million in revenues peryear.
The Company anticipates that it will receive final SFDA approval for theproduction of Felodipine sustained release tablets in the third quarter offiscal 2010, which is expected to have a gross margin of approximately 85%.The Company continues to expect revenues for fiscal 2010 of between $96million and $98 million and operating income of between $42 million and $44million. The Company's current outlook reflects only the drugs that it has inproduction today and will be subject to update as the Company upgrades itsHongrui production facility, prepares for the introduction of new drugs, andpursues additional opportunities for both organic growth and potentialstrategic acquisitions.
Mr. Cao concluded, "We continue to remain confident with respect to ourfuture prospects. We are leveraging our sales network and expect to maximizethe contribution of our products that are in their maturity phase. We believethat our TCM business is healthy, with strong growth in our Radix Isatidisdispersible tablets product. Additionally, we are looking forward to the fullre-opening of our Hongrui production facility in a couple of months. Overall,we continue to believe that fiscal 2010 will be a transition year for theCompany, as we lay the groundwork and make the investments necessary for ournext phase of growth."
Conference Call
Jiangbo Pharmaceuticals, Inc. management will host a conference call at9:00 a.m. Eastern Time on Wednesday, November 18, 2009, to discuss financialresults for the first quarter of fiscal year 2010, three months endedSeptember 30, 2009. Mr. Wubo Cao, Chairman and CEO, and Ms. Elsa Sung, CFO, ofJiangbo will host the conference call. To participate in this live conferencecall, please dial the following number five to ten minutes prior to thescheduled conference call time: (800) 688-0796. International callers shouldcall +1 (617) 614-4070. The conference passcode is 61681613. A replay of theconference call will be available from Wednesday, November 18, 2009, at 11:00a.m. Eastern Time for 14 days. To access the replay, call (888) 286-8010.International callers should call +1 (617) 801-6888. The conference passcodeis: 46413398.
Use of Non-GAAP Adjusted Financial Information
This press release includes certain financial information, non-GAAPadjusted net income and non-GAAP adjusted fully diluted earnings per share,which are not presented in accordance with GAAP. Non-GAAP adjusted net incomewas derived by taking net income and adjusting it with non-cash expensesrelated to the change in fair value from derivative liabilities and theamortization of debt discount and debt issuance costs related to convertibledebentures. The Company's management believes that these non-GAAP adjustedmeasures provide investors with a better understanding of the Company'shistorical results from its core business operations. To supplement theCompany's condensed consolidated financial statements presented on a non-GAAPadjusted basis, the Company has provided non-GAAP adjusted financialinformation, which is non-GAAP adjusted net income and non-GAAP adjustedearnings per share, excluding the impact of these items in this press release.The non-GAAP adjusted information is not meant to be considered in isolationor as a substitute for GAAP financials. The non-GAAP adjusted financialinformation provided by the Company may also differ from non-GAAP adjustedinformation provided by other companies. A table at the end of this pressrelease provides a reconciliation of the non-GAAP adjusted financialinformation to the nearest GAAP measure.
About Jiangbo Pharmaceuticals, Inc.
Jiangbo Pharmaceuticals, Inc. is a U.S. public company engaged in theresearch, development, production, marketing and sales of pharmaceuticalproducts in the People's Republic of China. Its operations are located inEastern China in an Economic Development Zone in Laiyang City, Shandongprovince. Jiangbo is a major pharmaceutical company in China producing bothwestern and Chinese herbal-based medical drugs in tablet, capsule, granule,syrup and electuary (sticky syrup) form. http://www.jiangbopharma.com
Safe Harbor Statement
Certain statements in this press release that are not historical facts are"forward-looking statements" within the meaning of the Private SecuritiesLitigation Reform Act of 1995. Such statements are not guarantees of futureperformance and are subject to risks and uncertainties that could cause theCompany's actual results and financial position to differ materially fromthose included within the forward-looking statements. Forward-lookingstatements involve risks and uncertainties, including those relating to theCompany's ability to introduce, manufacture and distribute new drugs. Actualresults may differ materially from predicted results, and reported resultsshould not be considered as an indication of future performance. The potentialrisks and uncertainties include, among others, the Company's ability to obtainraw materials needed in manufacturing, the continuing employment of keyemployees, the failure risks inherent in testing any new drug, the possibilitythat regulatory approvals may be delayed or become unavailable, patent orlicensing concerns that may include litigation, direct competition from othermanufacturers and product obsolescence. More information about the potentialfactors that could affect the Company's business and financial results isincluded in the Company's filings, available via the United States Securitiesand Exchange Commission.First Quarter Fiscal Year 2010 Highlights: -- Revenues were $24.4 million -- Gross profit was $18.1 million -- Operating income rose 72.6% year-over-year to $12.7 million compared to $7.3 million in the first quarter of fiscal year 2009 -- Net income was $2.0 million, or $0.18 per fully diluted share -- Excluding non-cash expenses related to the change in fair value from derivative liabilities of $4.8 million and the amortization of debt discount and debt issuance costs related to convertible debentures of $2.3 million, non-GAAP adjusted net income was $9.1 million, or $0.60 per fully diluted share for the three months ended September 30, 2009, up 128.5% from non-GAAP adjusted net income of $4.0 million, or $0.28 per fully diluted share, for the quarter ended September 30, 2008.(*)
SOURCE Jiangbo Pharmaceuticals, Inc.
