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China Biologic Products Reports Financial Results For The Second Quarter Of 2014



8/6/2014 8:09:23 AM

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BEIJING, Aug. 5, 2014 /PRNewswire/ -- China Biologic Products, Inc. (NASDAQ: CBPO, "China Biologic" or the "Company"), a leading fully integrated plasma-based biopharmaceutical company in China, today announced its unaudited financial results for the second quarter of 2014.

Second Quarter 2014 Financial Highlights

  • Total sales in the second quarter of 2014 increased by 12.1% to $60.1 million from $53.6 million in the same quarter of 2013.
  • Gross profit increased by 9.9% to $41.2 million from $37.5 million in the same quarter of 2013. Gross margin stood at 68.5% in the second quarter of 2014, compared to 69.9% in the second quarter of 2013.
  • Income from operations increased by 14.2% to $28.9 million from $25.3 million in the same quarter of 2013. Operating margin increased to 48.1% in the second quarter of 2014 from 47.2% in the same quarter of 2013.
  • Net income attributable to the Company increased by 21.6% to $19.7 million from $16.2 million in the same quarter of 2013. Fully diluted net income per share was $0.79 in the second quarter of 2014 as compared to $0.57 in the same quarter of 2013.
  • Non-GAAP adjusted net income attributable to the Company was $20.5 million, representing a 17.9% increase from $17.4 million in the same quarter of 2013. Non-GAAP adjusted net income per share was $0.82, compared to $0.62 in the same quarter of 2013.

Mr. David (Xiaoying) Gao, Chairman and Chief Executive Officer of China Biologic, commented, "We are pleased to report another healthy quarter, with sales and net income both achieving double-digit growth. During the quarter, market demand for plasma products remained strong and we continued to make progress with our penetration into first-tier markets. Guizhou Taibang has resumed production which we believe will contribute to increased sales of plasma-based products in the second half of the year."

Mr. Gao continued, "We are encouraged by our outlook for the remainder of the year. First, we expect the growth momentum we experienced in the first half of 2014 to continue in the second half. Second, Chinese authorities recently issued a notice to reduce the value added tax ("VAT") rate on a wide range of products, effective July 1, 2014. We believe the reduction in the VAT rate from 6% to 3% will have a favorable impact on the sales of all plasma-based products in the second half. We also expect our plasma utilization efficiency to further improve in the second half of the year with the expected launch of our human prothrombin complex concentrate ("PCC") products in the fourth quarter of 2014."

"Finally, we are pleased to announce the completion of our follow-on offering which raised net proceeds of approximately $33.2 million for our Company. Through this transaction, we further broadened our shareholder base and improved liquidity in our stock. We are encouraged with our opportunities for continued growth as we move forward," concluded Mr. Gao.

Second Quarter 2014 Financial Performance

Total sales in the second quarter of 2014 were $60.1 million, an increase of 12.1% from $53.6 million in the same quarter of 2013. Excluding foreign exchange translation effect, the increase in sales was primarily attributable to the volume increases in certain plasma-based products and placenta polypeptide product.

During the second quarter of 2014, human albumin products and IVIG products remained the largest two sales contributors. The average price for both products declined 1.4% and 2.7% respectively, during the quarter, mainly as a result of the Company's efforts to increase the market share of human albumin products and IVIG products in tier one cities through distributors by lowering sales prices.

  • As a percentage of total sales, human albumin product revenue was 34.1% in the second quarter of 2014 as compared to 42.5% in the same quarter of 2013. The sales volume of human albumin products decreased by 9.4% in the reporting quarter compared to the same quarter of 2013, which was primarily due to the decreased sales volume at Guizhou Taibang, partially offset by increased sales volume at Shandong Taibang. The decrease in the sales volume at Guizhou Taibang was primarily due to the depletion of inventory of finished products as most of newly produced albumin products were still awaiting government batch approval after Guizhou Taibang resumed production in March 2014.
  • As a percentage of total sales, IVIG revenue was 44.0% in the second quarter of 2014 as compared to 39.4% in the same quarter of 2013. The sales volume of IVIG products increased by 28.2% in the reporting quarter, mainly due to increased sales through distributors in tier-one cities. In addition, the outbursts of Hand-Foot-and-Mouth Disease, or HFMD, also contributed to the increase in the sales volume of IVIG during the reporting quarter.

Cost of sales was $18.9 million in the second quarter of 2014 compared to $16.1 million in the same quarter of 2013. As a percentage of total sales, cost of sales was 31.5%, as compared to 30.1% in the same quarter of 2013. The increase in cost of sales was largely in line with the increases in sales volume and plasma collection costs.

Gross profit increased by 9.9% to $41.2 million in the second quarter of 2014 from $37.5 million in the same quarter of 2013. Gross margin was 68.5% and 69.9% for the three months ended June 30, 2014 and 2013, respectively.

Total operating expenses in the second quarter of 2014 increased slightly by 1.7% to $12.3 million from $12.1 million in the same quarter of 2013. As a percentage of total sales, total operating expenses decreased to 20.4% in the second quarter of 2014 from 22.7% in the same quarter of 2013.

Selling expenses in the second quarter of 2014 increased by 37.5% to $3.3 million from $2.4 million in the same quarter of 2013. As a percentage of total sales, selling expenses were 5.5%, up from 4.6% in the same quarter of 2013. Volume and percentage increases in selling expenses were primarily due to increased sales of placenta polypeptide products. Compared with other products, placenta polypeptide has a relatively higher per unit selling expenses.

General and administrative expenses in the second quarter of 2014 decreased by 20.2% to $7.1 million from $8.9 million in the same quarter of 2013. As a percentage of total sales, general and administrative expenses were 11.8% and 16.5% in the second quarter of 2014 and 2013, respectively. The decrease in general and administrative expenses was mainly due to a decrease in legal expenses. During the second quarter of 2013, the Company incurred legal expenses in relation to the take-over defense against a direct competitor in China. In addition, the Company incurred amortization expenses in the three months ended June 30, 2013 with respect to the GMP certificates and certain other intangible assets which were part of the acquisition of Guizhou Taibang in 2008. Because such intangible assets had been fully amortized by the end of 2013, the Company did not incur corresponding expenses in the three months ended June 30, 2014.

Research and development expenses in the second quarter of 2014 were $1.8 million, compared to $0.8 million in the same quarter of 2013. As a percentage of total sales, research and development expenses for the three months ended June 30, 2014 and 2013 were 3.1% and 1.6%, respectively. The increase in research and development expenses was primarily due to the expenditure paid for certain clinical trial programs and the engagement of external experts for select pipeline products.

Income from operations for the three months ended June 30, 2014 was $28.9 million, an increase of 14.2% from $25.3 million in the same period of 2013. Operating margin increased to 48.1% in the reporting quarter from 47.2% in the same quarter of 2013.

Income tax expense in the second quarter of 2014 was $4.5 million, as compared to $3.7 million in the same quarter of 2013, representing an increase of 21.6%. The effective income tax rates were 14.4% and 14.0% for the three months ended June 30, 2014 and 2013, respectively.

Net incomeattributable to the Company increased by 21.6% to $19.7 million in the second quarter of 2014, from $16.2 million in the same quarter of 2013. Net margins were 32.8% and 30.2% for the three months ended June 30, 2014 and 2013, respectively. Fully diluted net income per share was $0.79 in the second quarter of 2014, as compared to $0.57 in the second quarter of 2013.

Non-GAAP adjusted net income attributable to the Company was $20.5 million or $0.82 per diluted share in the second quarter of 2014, compared to $17.4 million or $0.62 per diluted share in the same quarter of 2013.

Non-GAAP adjusted net income and diluted earnings per share for the three months ended June 30, 2014 excluded $0.8 million of non-cash employee share-based compensation expenses.

First Half 2014 Financial Performances

Total sales in the first half of 2014 were $116.3 million, an increase of 8.1% from $107.6 million in the same period of 2013. The increase in sales was primarily driven by increased sales at Shandong Taibang during the first half of 2014, partially offset by reduced sales volume at Guizhou Taibang in the period due to production suspension. The increased sales volume of placenta polypeptide products also contributed to the sales increase.

As a percentage of total sales, sales from human albumin products and IVIG products were 38.1% and 40.4%, respectively, for the six months ended June 30, 2014.

Cost of sales increased by 11.9% to $36.6 million in the first half of 2014, from $32.7 million in the same period of 2013. Cost of sales as a percentage of total sales was 31.5%, as compared to 30.4% in the same period of 2013.

Gross profit increased by 6.4% to $79.7 million in the first half of 2014 from $74.9 million in the same period of 2013. Gross margin was 68.5% in the first half of 2014, compared to 69.6% in the same period of 2013. 

Total operating expenses in the first half of 2014 decreased by 3.0% to $22.9 million from $23.6 million in the same period of 2013. The decrease of total operating expenses was a combined effect of the decrease in the general and administrative expenses and the increase in the selling expenses and research and development expenses. As a percentage of total sales, total operating expenses decreased to 19.6% for the six months ended June 30, 2014, from 21.9% in the same period of 2013.

Income from operations for the six months ended June 30, 2014 was $56.9 million, an increase of 10.9% from $51.3 million in the same period of 2013.

Income tax expense in the first half of 2014 was $9.8 million, as compared to $8.4 million in the same period of 2013. The effective income tax rates were 16.2% and 15.7% for the six months ended June 30, 2014 and 2013, respectively. The tax rate applicable to the Company's major operating subsidiaries in the PRC for 2014 and 2013 is 15%.

Net incomeattributable to the Company increased by 22.2% to $38.0 million for the six months ended June 30, 2014, from $31.1 million in the same period of 2013. Net margins were 32.7% and 28.9% for the six months ended June 30, 2014 and 2013, respectively.

Non-GAAP adjusted net income attributable to the Company was $39.6 million or $1.53 per diluted share for the six months ended June 30, 2014 compared with $33.8 million or $1.21 per diluted share in the same period of 2013.

Non-GAAP adjusted net income and diluted earnings per share in the six months ended June 30, 2014 excluded $1.6 million of non-cash employee share-based compensation expenses.

As of June 30, 2014, the Company had cash and cash equivalents of $103.2 million, compared to $144.1 million as of December 31, 2013. Restricted deposits were $102.1 million as of June 30, 2014, compared to $30.5 as of December 31, 2013. The increase was primarily due to a deposit of $72.3 million as cash collateral for certain long-term bank loans in connection with a payment of $70.0 million for share repurchase. Net cash provided by operating activities for the six months ended June 30, 2014 was $39.0 million, as compared to $37.9 million for the six months ended June 30, 2013. The increase in net cash provided by operating activities was primarily due to the increase in net income for the six months ended June 30, 2014 as compared to the same period in 2013, partially offset by the increase of accounts receivable and the inventories during this period. Accounts receivable increased by $7.5 million, in line with the sales increase during the six months ended June 30, 2014, as compared to $6.3 million during the same period in 2013. Inventories increased by $6.9 million during the six months ended June 30, 2014, as compared to $3.6 million during the same period in 2013. This increase was primarily due to an increase in raw materials as a result of the continued supply of plasma, a primary raw material, by plasma stations of Guizhou Taibang while its production of plasma products had been suspended from June 2013 to March 2014.

Outlook

For the full year of 2014, the Company reiterates its full year financial forecast of total sales in the range of $230 million to $240 million and full year non-GAAP adjusted net income in the range of $67 million to $69 million. This guidance assumes only organic growth and excludes acquisitions and necessarily assumes no significant adverse product price changes during 2014.

This forecast reflects the Company's current and preliminary views, which are subject to change.

Conference Call

The Company will host a conference call at 8:00 am, Eastern Time on Wednesday, August 6, 2014, which is 8:00 pm, Beijing Time on August 6, 2014, to discuss second quarter 2014 results and answer questions from investors. Listeners may access the call by dialing:

US:

+1 877 870 4263

International:

+1 412 317 0790

Hong Kong:

800 905 945

Mainland China:

400 120 1203

Passcode:

China Biologic Products Inc.

A telephone replay will be available one hour after the conclusion of the conference all through 9:00 am, Eastern Time on August 13, 2014. The dial-in details are:

US:

+1 877 344 7529

International:

+1 412 317 0088

Passcode:

10050434

A live and archived webcast of the conference call will be available through the Company's investor relations website at http://chinabiologic.investorroom.com.

About China Biologic Products, Inc.

China Biologic is a leading plasma-based biopharmaceutical company in China. The Company's products are used as critical therapies during medical emergencies and for the prevention and treatment of life-threatening diseases and immune-deficiency related diseases. China Biologic is headquartered in Beijing and manufactures over 20 different dosages of plasma-based products through its indirect majority-owned subsidiaries, Shandong Taibang Biological Products Co., Ltd. and Guizhou Taibang Biological Products Co., Ltd. The Company also has an equity investment in Xi'an Huitian Blood Products Co., Ltd. The Company sells its products to hospitals and inoculation centers, as well as distributors, in China. For additional information, please see the Company's website www.chinabiologic.com.

Non-GAAP Disclosure

This news release contains non-GAAP financial measures that exclude non-cash compensation expenses related to options granted to employees and directors under the Company's 2008 Equity Incentive Plan. To supplement the Company's unaudited condensed consolidated financial statements presented on a GAAP basis, the Company has provided non-GAAP financial information excluding the impact of these items in this release. The Company's management believes that these non-GAAP measures provide investors with a better understanding of how the results relate to the Company's historical performance. A reconciliation of the adjustments to GAAP results appears in the table accompanying this news release. This additional non-GAAP information is not meant to be considered in isolation or as a substitute for GAAP financials. The non-GAAP financial information that the Company provides also may differ from the non-GAAP information provided by other companies.

Safe Harbor Statement

This news release may contain certain "forward-looking statements" relating to the business of China Biologic Products, Inc. and its subsidiaries. All statements, other than statements of historical fact included herein, are "forward-looking statements."

To read full press release, please click here.

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