China Biologic Products Announces Third Quarter 2009 Results

Tuesday, November 17, 2009 General News
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TAI'AN, China, Nov. 16 China BiologicProducts, Inc. (OTC Bulletin Board: CBPO) ("China Biologic," or the"Company"), one of the leading plasma-based biopharmaceutical companies in thePeople's Republic of China ("PRC"), operating through its indirect majority-owned subsidiaries, Shandong Taibang Biological Products Co. Ltd. ("Taibang")and Guiyang Dalin Biologic Technologies Co., Ltd. ("Dalin") and its equityinvestment in Xi'an Huitian Blood Products Co., Ltd. ("Huitian"), todayreported financial results for the third quarter ended September 30, 2009.

"In the third quarter of 2009, we maintained our leadership position inthe industry by continuing to provide high margin, plasma-based products tothe market. Our operating income nearly doubled year-over-year, due to thecontribution of our recently acquired Dalin subsidiary and healthy organicgrowth," said Mr. Chao Ming Zhao, Chief Executive Officer. "Furthermore, wemade major steps forward in expanding our research and developmentcapabilities by engaging an expert in plasma-based research to serve as ourdirector of R&D, and we entered into a collaboration agreement with a well-known blood institute in Sichuan Province. We believe that these measures willallow us to make tangible progress toward our goal of becoming the leadingplasma-based pharmaceutical company in China."

During the third quarter of 2009, the Company achieved the followingmilestones:

Third Quarter Results

Revenues for the third quarter of 2009 increased 95.9% to a record $27.0million, compared to $13.8 million for the same period last year. The increasein revenues is primarily attributable to the consolidation of Dalin, a generalincrease in the price of plasma-based products, which was partially offset bya decline in sales volume by one of the Company's products, and a 0.3%increase due to foreign exchange translation. During the third quarter of2009, Dalin accounted for $10.0 million in revenue, or 37.1% of totalrevenues, and Taibang accounted for $17.0 million in revenue, or 62.9% oftotal revenues. Revenues, excluding the acquisition of Dalin, increased 23.2%year-over-year, as prior to January 1, 2009, Taibang accounted for 100% of theCompany's revenues.

Gross profit for the third quarter of 2009 was $20.1 million, up 107.8%from $9.7 million in the third quarter of 2008. Gross margin was 74.3%, up 430basis points from 70.0% in the third quarter of 2008. The increase in grossprofit margin was primarily due to general price increases and an increase insales of higher margin products, which was partially offset by an increase inraw material costs.

Total operating expenses in the third quarter of 2009 increased 131.4% to$6.1 million versus $2.6 million in the prior year period. Selling expensesdecreased 20.6% to $0.6 million, compared to $0.8 million in the third quarterof 2008. The decrease in selling expenses was primarily due to the reductionin marketing and promotion activities initiated in 2008, which was offset bythe consolidation of Dalin's selling activities, as well as increasedmarketing efforts to increase direct sales to new hospitals. As a percentageof sales, selling expenses in the third quarter of 2009 were 2.3%, down from5.7% in the third quarter last year. General and administrative ("G&A")expenses increased 216.3% to $5.2 million. As a percentage of sales, G&Aexpenses increased to 19.1% for the third quarter of 2009, from 11.8% for thesame period in 2008. The increase in G&A expenses was mainly due to expensesrelated to the acquisition of Dalin, such as additional professional servicecharges and personnel-related costs and depreciation and amortizationexpenses. The Company also incurred $7,314 in non-cash employee compensationexpenses as a result of grants to employees, consultants and directors madeunder the 2008 Equity Incentive Plan, compared to $20,613 for the same periodin 2008.

Research and development expenses increased 30.6% to $0.3 million, or 1.0%of total revenues, compared to $0.2 million, or 1.5% of total revenue, in thethird quarter of 2008. The dollar increase was due primarily to theconsolidation of Dalin and increased costs from continuing clinical trials onnew products.

Total other expenses in the third quarter of 2009 were $14.3 million.Between June 30, 2009 and September 30, 2009, the Company's stock priceincreased from $4.03 per share to $7.52 per share. As a result, the Companyrecognized a loss of $13.2 million from changes in the fair value ofderivative liabilities, including warrants and derivative instruments(including the conversion option) embedded in the Company's Senior SecuredConvertible Notes. No such charge occurred in the third quarter of 2008. Inaddition, the Company recorded a loss of $31,051 in equity income inconnection with its 35% equity interest in Huitian, the Company'sunconsolidated affiliate, compared to a net gain of $90,390 in the secondquarter of 2009, due to the additional depreciation and amortization expensesarising from the write-up of assets as a result of the equity investment. Netinterest expense was $0.7 million for the third quarter of 2009 compared tointerest income of $21,713 for the same period in 2008. The increase ininterest expense is primarily due to financing related to the acquisition ofDalin.

Provision for income taxes increased 61.2% to $2.5 million for the thirdquarter of 2009, compared to $1.6 million for the same period last year. Theincrease in provision for income taxes is mainly due to the consolidation ofDalin, which was offset by the decrease of Taibang's provision for incometaxes. Taibang accrued its 2008 taxes at 25% before it was granted a 15%preferential tax rate for the 2008 tax year in early 2009. Net lossattributable to controlling interest for the third quarter of 2009 was $6.2million, compared to net income attributable to controlling interest of $4.5million in the third quarter of 2008. Fully diluted loss per share was $0.29for the third quarter of 2009, compared to earnings per share of $0.21 in thethird quarter of 2008.

Non-GAAP net income in the third quarter of 2009 was $7.1 million or $0.31per fully diluted share, an increase of 56.8% from non-GAAP net income of $4.5million, or $0.21 per fully diluted share in the third quarter of 2008.(*)

Nine Month Results

For the first nine months of 2009, total revenue was $81.4 million, up142.4% from the first nine months of 2008. Revenues excluding the acquisitionof Dalin increased 41.8% year-over-year to $47.6 million, compared to $33.6million a year ago. Gross profit for the first nine months of 2009 was $59.0million, up 147.5% from $23.8 million in the comparable period a year ago.Gross margin increased 200 basis points to 73.0% from 71.0% in the same periodlast year. Income from operations for the period was $40.6 million, up 159.7%from $15.6 million in the first nine months of 2008. Net income for the firstnine months of 2009 was $5.0 million, down 42.7% from $8.8 million in thefirst nine months of 2008. Fully diluted earnings per share was $0.23 for thefirst nine months of 2009 compared to $0.40 in the first nine months of 2008.Adjusting for non-cash employee compensation expenses and changes in the fairvalue of derivative liabilities, including warrants and derivative instruments(including the conversion option) embedded in the Company's Senior SecuredConvertible Notes, non-GAAP net income for the first nine months of 2009 was$20.0 million, or $0.92 per fully diluted share, an increase of 99.7% fromnon-GAAP net income of $10.1 million or $0.46 per fully diluted share for thefirst nine months of 2008.

Financial Condition

As of September 30, 2009, the Company had $50.3 million in cash and cashequivalents, approximately $26.8 million in working capital, and a currentratio of 1.4:1. Total shareholder's equity at the end of the third quarter of2009 was $78.3 million, compared to $42.0 million at the end of 2008. TheCompany generated $35.5 million in net cash from operating activities for thefirst nine months of 2009 compared to $14.7 million in the same period of2008.

Recent Developments

China Biologic was named to Forbes Magazine's fifth annual list of Asia's"200 Best Under a Billion" for the year 2009.

Business Outlook

Mr. Zhao added, "We believe that as a result of our recent equityinvestments in Dalin and Huitian, and as the only approved manufacturer ofplasma-based biopharmaceuticals in Shandong Province, we are well-positionedto capitalize on the opportunities in our market. The acquisition of equityinterests in Dalin and Huitian has accelerated our geographic expansion,diversified our customer base, and enhanced our technological capabilities,and has provided us with ownership interests in three of the 32 approvedplasma-based biopharmaceutical manufacturers in China.

"During the fourth quarter of 2009 and into 2010, we expect to continue toexperience strong demand for our products and services, as the tight supplyand demand situation for plasma-based products in China is expected topersist. In the interim, we continue to invest in our research and developmentefforts aimed at expanding our product line to include higher-margin,technologically more advanced plasma-based biopharmaceutical products."

Conference Call

China Biologic will host a conference call at 8:00 a.m. ET on Monday,November 16, 2009, to discuss the 2009 third quarter financial results. Toparticipate in the conference call, please dial the following number five toten minutes prior to the scheduled conference call time: 866-356-3093.International callers should dial +1-617-597-5381. The pass code for the callis 91606809. If you are unable to participate in the call at this time, areplay will be available for 14 days starting on Monday, November 16, 2009 at10:00 a.m. ET. To access the replay, dial 888-286-8010. International callersshould dial +1-617-801-6888. The conference pass code is 78299906.

Use of Non-GAAP Financial Measures

GAAP results for the three months and nine months ended September 30,2009, and September 30, 2008, include non-cash compensation expenses relatedto options granted to employees and directors under the Company's 2008 EquityIncentive Plan and changes in the fair value of derivative liabilities,including warrants and derivative instruments (including the conversionoption) embedded in the Company's Senior Secured Convertible Notes. Tosupplement the Company's condensed consolidated financial statements presentedon a GAAP basis, the Company has provided non-GAAP financial informationexcluding the impact of this item in this release. The Company's managementbelieves that this non-GAAP measure provides investors with a betterunderstanding of how the results relate to the Company's historicalperformance. A reconciliation of the adjustments to GAAP results appears inthe table accompanying this press release. This additional non-GAAPinformation is not meant to be considered in isolation or as a substitute forGAAP financials. The non-GAAP financial information that the Company providesalso may differ from the non-GAAP information provided by other companies.

About China Biologic Products, Inc.

China Biologic Products, Inc. (the "Company"), through its indirectmajority-owned subsidiaries, Shandong Taibang Biological Products Co. Ltd. andGuiyang Dalin Biologic Technologies Co., Ltd, and its equity investment inXi'an Huitian Blood Products Co., Ltd., is currently the largest non-state-owned plasma-based biopharmaceutical company in China. The Company is a fullyintegrated biologic products company with plasma collection, production andmanufacturing, research and development, and commercial operations. TheCompany's plasma-based biopharmaceutical products are irreplaceable duringmedical emergencies, and are used for the prevention and treatment of variousdiseases. The Company sells its products to hospitals and other healthcarefacilities in China.

Safe Harbor Statement

This release may contain certain "forward-looking statements" relating tothe business of China Biologic Products, Inc. and its subsidiary companies.All statements, other than statements of historical fact included herein are"forward-looking statements," including statements regarding: the significanceof the Company's acquisitions and acquisition strategy and the benefits ofsuch acquisitions, including the expected impact on the Company's 2009revenues and net income; the ability of the Company to achieve its commercialobjectives; the business strategy, plans and objectives of the Company and itssubsidiaries, including its goal of becoming the leading plasma-basedbiopharmaceutical company in China; and any other statements of non-historicalinformation. These forward-looking statements are often identified by the useof forward-looking terminology such as "believes," "expects" or similarexpressions, and involve known and unknown risks and uncertainties. Althoughthe Company believes that the expectations reflected in these forward-lookingstatements are reasonable, they do involve assumptions, risks anduncertainties, and these expectations may prove to be incorrect. Investorsshould not place undue reliance on these forward-looking statements, whichspeak only as of the date of this press release. The Company's actual resultscould differ materially from those anticipated in these forward-lookingstatements as a result of a variety of factors, including those discussed inthe Company's periodic reports that are filed with the Securities and ExchangeCommission and available on its website ( ). All forward-looking statements attributable to the Company or persons acting on its behalfare expressly qualified in their entirety by these factors. Other than asrequired under the securities laws, the Company does not assume a duty toupdate these forward-looking statements.Third Quarter 2009 Highlights -- Revenues increased 95.9% year-over-year to $27.0 million -- Revenues excluding the acquisition of Dalin increased 23.2% year-over-year to $17.0 million -- Gross profit increased 107.8% year-over-year to $20.1 million, representing a gross margin of 74.3% -- Operating income increased 99.1% year-over-year to $14.0 million, representing an operating margin of 51.9% -- Net loss attributable to controlling interest was $6.2 million, or ($0.29) per diluted share, including the impact of a $13.2 million non-cash expense -- Non-GAAP net income(*) was $7.1 million or $0.33 per diluted share, a 56.8% increase over $4.5 million or $0.21 per diluted share in the third quarter of 2008 (*) Excluding non-cash employee compensation expenses and changes in the fair value of derivative liabilities. See "About Non-GAAP Financial Measures" as well as the reconciliation table of non-GAAP net income to GAAP net income at the end of the press release.

SOURCE China Biologic Products, Inc.

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