Biostar Pharmaceuticals, Inc. Announces 2012 First Quarter Financial Results

XIANYANG, China, May 15, 2012 /PRNewswire-Asia/ -- Biostar Pharmaceuticals, Inc. (NASDAQ GM: BSPM) (“Biostar” or “the Company”), a PRC-based manufacturer and marketer of pharmaceutical and health supplement products in China for a variety of diseases and conditions, today announced its financial results for the first quarter ended March 31, 2012.

First Quarter 2012 vs. First Quarter 2011

• Net sales increased 4.0% to $15,899,541 from $15,288,927;
• Gross margin decreased to 68.2% as compared to 69.9%;
• Income from operations decreased to $3,187,824, as compared to $3,728,163; and,
• Net income decreased to $2,167,415, or $0.23 per diluted share, as compared to $2,723,513, or $0.30 per diluted share.(1)
• Net income for first quarter of 2012 included $791,127 in research and development (R&D) expense which was not included in the first quarter of 2011. Excluding that expense, net income for the first quarter of 2012 was $2,958,542, or $0.32 per diluted share.

(1) Note: earnings per share for the first quarter of 2012 and 2011 are calculated based on 9,398,892 and 9,132,404 diluted weighted average shares outstanding, which retroactively reflect the reverse split effective April 3, 2012.

Additional Quarterly Highlights by Product/Facility

* Biostar’s products are manufactured at two facilities: Xianyang and Weinan. Xin Aoxing, the Company’s flagship product is manufactured at the Xianyang facility.
** There were no sales reported in the first quarter of 2011 for Weinan facility as Shaanxi Weinan was acquired in October 2011.

Ronghua Wang, Biostar’s Chief Executive Officer and Chairman commented, “The 4% increase in total net sales for the 2012 first quarter was due to approximately $1.6 million of net sales of products manufactured at the Weinan facility, offset by a slight decrease in sales for Xin Aoxing and all other products manufactured at the Xianyang facility.”

Mr. Wang continued, “Net sales and gross margin for the current first quarter were affected by fierce competition in the marketplace and also by the PRC government’s essential drug list price control policy. Specifically for the Xianyang facility:

• Net sales of our flagship product Xin Aoxing decreased to $10.4 million as compared to $11.1 million in the first quarter of 2011. During the current first quarter, we continued the “Buy 3 Get 1 Free” promotion for Xin Aoxing and we have gained market share as a result. Due to this promotion, sales volume increased by over 19% but gross margin decreased to 79% as compared to 85% in the same period of 2011.
• Net sales for the other Xianyang products decreased to $3.9 million as compared to $4.2 million in the first quarter of 2011. The exceptions were the Gan Wang and Shengjing capsules for which sales increased by 4.5% and 37%, respectively. Gross margin for all other Xianyang products increased to 45% as compared to 30% in 2011’s first quarter, mainly due to a substantially improved gross margin of 56% for Taohuasan, compared to a negative margin in the same period of last year when raw material costs were unusually high.”

Mr. Wang continued, “Selling and advertising expenses both in US dollars and as percentage of net sales decreased mainly due to a 9% decrease in advertising expenses as compared to the first quarter of last year. General and administrative (G&A) expenses as a percentage of net sales increased slightly, mainly due to expenses incurred at the Weinan facility, acquired in October 2011, which in the current first quarter accounted for 32% of total G&A expenses, offset by a 17% decrease in G&A expenses at our Xianyang facility.

“R&D expenses accounted for 5% of total net sales; we did not incur R&D expenses in the first quarter of last year. During the year 2011, we deposited 20,000,000 RMB (approximately $3.2 million) as part of the 4-year R&D contract to develop a new drug for the treatment of cardiovascular disease, which was recorded as a long-term deposit at December 31, 2011. During the first quarter of 2012, we evaluated the progress of the clinical tests (stage one and stage two) of the R&D project and expected the tests would be completed within a year. In addition, the Company agrees that such deposits paid would be utilized as a reimbursement of research and development expenses incurred instead of purchase acquisition, provided that the Company’s total commitment and benefits in respect of the project would be remained unchanged. Accordingly, the long-term deposit was reclassified into current assets and we started to amortize the R&D expense during 2012. As of March 31, 2012, $791,127 was amortized as expense, and $2,371,654 was reclassified as prepaid R&D expenses in current assets.”

Biostar’s CFO, Zack Pan noted, “Our balance sheet remains strong. Total current assets at March 31, 2012 were $66.9 million vs. total current liabilities of $6.5 million for a 10:1 current ratio. We continue to fund our business from our free cash flow. As of March 31, 2012, we had cash and cash equivalents of approximately $22 million compared with approximately $17 million at year-end 2011. The Company’s cash balance at year-end 2011 held in financial institutions in China has been verified by its independent registered public accounting firm. This independent verification was completed in March of 2012, prior to the issuance of 2011 full year results and was done by members of the auditing firm visiting each of the institutions and physically observed bank employees printing or otherwise preparing or completing documentation which substantiated the cash balance for the accounts. Because of the internal controls we have in place, such costly independent on-site verification, as part of the audit procedures, will only be done once a year. Net cash provided by operating activities through March 31, 2012 was approximately $5.7 million and net cash used in investing activities in the first quarter of 2012 was approximately $0.8 million. We believe our existing cash and cash equivalents are sufficient to fund our current operations.”

Mr. Wang also added, “In response to questions about product safety related to the pharmaceutical gelatin used to manufacture capsule drugs in China, last month China‘s State Food and Drug Administration (SFDA) launched an investigation into the use of industrial gelatin, which contains higher chromium content than edible gelatin, by several capsule manufacturers based in Zhejiang, Hebei and Jiangxi provinces. To address this issue, on April 27, 2012, SFDA promulgated a set of regulations, requiring all producers of pharmaceutical gelatin, capsules and capsule drugs to (a) inspect their inventory by employing toxic substance detection devices (we have purchased the capsule inspection equipment to ensure that all of the gel capsules we purchased and use comply with the regulatory chromium content requirements) and immediately recall from the market any type of product found to contain excessive levels of chromium, and (b) conduct strict checks into every batch of raw materials in every category prior to production. Additionally, the Shaanxi Province branch of SFDA dispatched an investigation group for onsite inspection and investigation of pharmacies and plants within its jurisdiction. We have not purchased any capsules from these manufacturers and none of our products are on the list of pharmaceutical products maintained and published by SFDA inspectors in connection with the gel capsule safety investigation. All capsules purchased by the Company maintain quality inspection certificates from the manufacturing facilities and have passed quality inspections by municipal department of SFDA.”

He added, “As a result, while this inspection continues, we expect the current second quarter to be adversely affected by lower consumer demand. Once SFDA concludes its investigation in late May or early June, and the above referenced remedial inspection measures have been fully implemented, we expect consumer demand to significantly improve in the third quarter and for the remainder of the year. Currently, since the investigation is still ongoing, and the restoration of consumer confidence in capsule products may take additional time, we therefore are not in a position to provide guidance for 2012. As circumstances change, we will revisit this subject.”

Mr. Wang concluded, “Our 2012 goals are to grow our business by: