China Biologic Products Reports Financial Results For The Fourth Quarter And Fiscal Year 2016

-- 4Q16 Total Sales Up 13.6% YoY to $77.6 Million and Net Income Up 19.0% YoY to $19.4 Million in USD terms, or

Total Sales Up 21.7% YoY and Non-GAAP Adjusted Net Income Up 40.7% YoY in RMB terms --

-- FY16 Total Sales Up 15.1% YoY to $341.2 Million and Net Income Up 17.8% YoY to $104.8 Million in USD terms, or

Total Sales Up 22.8% YoY and Non-GAAP Adjusted Net Income Up 35.1% YoY in RMB terms --

--Issue Forecast for FY17 --

BEIJING, Feb. 23, 2017 /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 financial results for the fourth quarter and fiscal year of 2016.

Fourth Quarter 2016 Financial Highlights

• Total sales in the fourth quarter of 2016 increased by 21.7% in RMB terms, or increased by 13.6% in USD terms to $77.6 million from $68.3 million in the same quarter of 2015.
• Gross profit increased by 13.3% to $46.8 million from $41.3 million in the same quarter of 2015. Gross margin decreased to 60.3 % from 60.5% in the same quarter of 2015.
• Income from operations increased by 2.7% to $23.2 million from $22.6 million in the same quarter of 2015. Operating margin decreased to 29.9% from 33.1% in the same quarter of 2015.
• Net income attributable to the Company increased by 19.0% to $19.4 million from $16.3 million in the same quarter of 2015. Fully diluted net income per share increased to $0.69 from $0.59 in the same quarter of 2015.
• Non-GAAP adjusted net income attributable to the Company increased by 40.7% in RMB terms, or 31.9% in USD terms, to $26.9 million from $20.4 million in the same quarter of 2015. Non-GAAP adjusted net income per share increased to $0.95 from $0.74 in the same quarter of 2015.

Fiscal Year 2016 Financial Highlights

• Total sales in 2016 increased by 22.8% in RMB terms, or 15.1% in USD terms, to $341.2 million from $296.5 million in 2015.
• Gross profit increased by 14.3% to $217.2 million from $190.0 million in 2015. Gross margin decreased to 63.6% in 2016 from 64.1% in 2015.
• Income from operations increased by 8.6% to $144.0 million from $132.6 million in 2015. Operating margin decreased to 42.1% in 2016 from 44.7% in 2015.
• Net income attributable to the Company increased by 17.8% to $104.8 million from $89.0 million in 2015. Fully diluted net income per share increased to $3.74 from $3.27 in 2015.
• Non-GAAP adjusted net income attributable to the Company increased by 35.1% in RMB terms, or 26.7% in USD terms, to $126.8 million from $100.1 million in 2015. Fully diluted non-GAAP adjusted net income per share increased to $4.52 from $3.68 in 2015.

Mr. David (Xiaoying) Gao, Chairman and Chief Executive Officer of China Biologic, commented, “We are pleased to maintain strong year-over-year growth, despite the negative impact associated with RMB depreciation throughout 2016. We met our upwardly revised revenue and profit forecast from last quarter, supported by modest product price increases, optimization of our product portfolio mix, continued penetration into tier-one markets, greater financial contribution from Guizhou Taibang due to an increase in equity interest and from a stronger-than-expected minority interest contribution from our Xi’an Huitian facility.

We achieved a new milestone in 2016 as plasma collection volume surpassed one thousand metric tonnes for the first time through a combination of internal plasma collection and outsourced plasma growth, and we were pleased to broaden our presence in Shandong Province by receiving approvals to build new collection facilities in the province. We also achieved significant progress on the R&D front in 2016 and received CFDA approvals to commence clinical trials of three new products -- Human Coagulation Factor IX, Human Antithrombin III and Human Cytomegalovirus Immunoglobulin (pH4) for Intravenous Injection (“CMV IVIG”) products. Our new fractionation facility under development in Shandong province is expected to complete the GMP certificate inspection process and commence operation at the end of 2017. We are working diligently to stock sufficient inventory to ensure adequate product supply prior to the shutdown of the older facility, and our increased inventory position in the fourth quarter is reflective of such efforts.

Looking ahead, we expect to achieve healthy growth in 2017 even with factoring the impact of our plant transition in Shandong and continue to focus on key long-term operational growth strategies. We expect to achieve revenue growth of 13%-15% and adjusted net income growth of 18%-20% in RMB terms in 2017 over 2016.” concluded Mr. Gao.

Fourth Quarter 2016 Financial Performance

Total sales in the fourth quarter of 2016 increased by 21.7% in RMB terms, or increased by 13.6% in USD terms to $77.6 million from $68.3 million in the same quarter of 2015. The increase was primarily attributable to the sales volume increase in human albumin products and the sales price increase in human tetanus immunoglobulin products.

Cost of sales was $30.8 million in the fourth quarter of 2016, compared to $27.0 million in the same quarter of 2015. As a percentage of total sales, cost of sales was 39.7%, compared to 39.5% in the same quarter of 2015.

Gross profit increased by 13.3% to $46.8 million in the fourth quarter of 2016 from $41.3 million in the same quarter of 2015. Gross margin was 60.3% and 60.5% in the fourth quarter of 2016 and 2015, respectively.

Total operating expenses in the fourth quarter of 2016 increased by $4.9 million, or 26.2%, to $23.6 million from $18.7 million in the same quarter of 2015, including $1.7 million, $1.6 million, and $1.6 million increases in selling expenses, general and administrative expenses and research and development expenses, respectively. As a percentage of total sales, total operating expenses increased to 30.4% in the fourth quarter of 2016 from 27.4% in the same quarter of 2015.

Income from operations for the fourth quarter of 2016 increased by 2.7% to $23.2 million from $22.6 million in the same period of 2015. Operating margin decreased to 29.9% in the fourth quarter of 2016 from 33.1% in the same quarter of 2015.

Net incomeattributable to the Company increased by 19.0% to $19.4 million in the fourth quarter of 2016 from $16.3 million in the same quarter of 2015. Net margin increased to 25.0% from 23.9% in the same quarter of 2015. Fully diluted net income per share increased to $0.69 in the fourth quarter of 2016 from $0.59 in the same quarter of 2015.

Non-GAAP adjusted net income attributable to the Company increased by 40.7% in RMB terms, or 31.9% in USD terms, to $26.9 million in the fourth quarter of 2016 from $20.4 million in the same quarter of 2015. Non-GAAP net margin increased to 34.7% in the fourth quarter of 2016 from 29.9% in the same quarter of 2015. Non-GAAP adjusted net income per diluted share increased to $0.95 in the fourth quarter of 2016 from $0.74 in the same quarter of 2015.

Fiscal Year 2016 Financial Performance

Total sales in 2016 increased by 22.8% in RMB terms, or 15.1% in USD terms, to $341.2 million from $296.5 million in 2015. The increase in sales was primarily driven by the increases in sales volume of human albumin products, placenta polypeptide and human tetanus immunoglobulin products and the increase in sales price of human tetanus immunoglobulin products, partially offset by the decrease in sales volume of IVIG products.

During 2016, human albumin and IVIG products remained the Company’s two largest sales contributors, while the revenue contribution from the Company’s other products continued to grow. As a percentage of total sales, sales from human albumin products increased to 39.2% in 2016 compared to 37.6% in 2015, while sales from IVIG products decreased to 34.6%, compared to 42.2% in 2015, and sales from hyper-immune products increased to 11.8% of total sales, compared to 7.6% in 2015.

The sales volume of human albumin products increased by 26.2% due to enhanced production volume at Shandong Taibang and Guizhou Taibang as a result of increased plasma supply volume, while the sales volume of IVIG products decreased by 3.6% mainly due to the depletion of previously reserved IVIG pastes in 2015 and the allocation of more production to human tetanus immunoglobulin products, whose sales volume increased by 41.9% in 2016, as compared to 2015.

The average price for human albumin products, excluding foreign exchange impact, would have increased by 1.5% in RMB terms, or decreased by 4.9% in USD terms, in 2016 compared to 2015. The average price for IVIG products, excluding foreign exchange impact, would have increased by 4.2% in RMB terms, or decreased by 2.3% in USD terms, in 2016 compared to 2015.

Revenue from other plasma products including human coagulation factor VIII and human prothrombin complex concentrate increased by 68.0% in 2016, representing 5.0% of total sales, compared to 2015. Revenue from placenta polypeptide products increased by 18.4% in 2016, representing 9.4% of total sales, compared to 2015.

Cost of sales was $124.0 million in 2016, compared to $106.5 million in 2015. Cost of sales as a percentage of total sales was 36.4%, as compared to 35.9% in the same period of 2015. The increase in cost of sales as a percentage of total sales was mainly due to the higher concentration of outsourced raw plasma with higher cost, which was partially offset by the increase in the average sales price of certain plasma products and a more profitable product mix.

Gross profit increased by 14.3% to $217.2 million in 2016 from $190.0 million in 2015. Gross margin was 63.6% in 2016, compared to 64.1% in 2015.

Total operating expenses in 2016 increased 27.5% to $73.2 million from $57.4 million in 2015. As a percentage of total sales, total operating expenses increased to 21.5% for 2016 from 19.4% in 2015, mainly due to the increase in both selling expenses and general and administrative expenses.

Selling expenses in 2016 increased by 17.0% to $11.7 million from $10.0 million in 2015. As a percentage of total sales, selling expenses remained stable at 3.4% compared with 2015. The increase in selling expenses was in line with the sales growth in 2016 as compared to 2015.

General and administrative expenses in 2016 increased by 31.6% to $54.5 million from $41.4 million in 2015. As a percentage of total sales, general and administrative expenses were 16.0% and 14.0% in 2016 and 2015, respectively. The increase in general and administrative expenses was mainly due to a $12.3 million increase in share-based compensation expenses. Excluding the impact of share-based compensation expenses, non-GAAP general and administrative expenses would have been 8.8% and 9.9% as a percentage of total sales in 2016 and 2015, respectively.

Research and development expenses in 2016 were $7.0 million, or 2.1% of total sales, compared to $6.0 million, or 2.0% of total sales, in 2015. During 2016 and 2015, the Company received government grants totaling $0.8 million and $1.2 million, respectively, and recognized them as a reduction of research and development expenses. Excluding this impact, non-GAAP research and development expenses increased by $0.6 million in 2016 from 2015, and these non-GAAP expenses as a percentage of total sales decreased from 2.4% to 2.3%.

Income from operations in 2016 increased by 8.6% to $144.0 million from $132.6 million in 2015. Operating margin was 42.1% in 2016, compared to 44.7% in 2015.

Income tax expense in 2016 was $25.1 million, as compared to $21.0 million in 2015. The effective income tax rate was 16.3% and 15.5% for 2016 and 2015, respectively.

Net incomeattributable to the Company increased by 17.8% to $104.8 million for 2016 from $89.0 million in 2015. Net margin was 30.7% and 30.0% for 2016 and 2015, respectively. Fully diluted net income per share for 2016 increased to $3.74 from $3.27 for 2015.

Non-GAAP adjusted net income attributable to the Company increased by 35.1% in RMB terms, or 26.7% in USD terms, to $126.8 million for 2016 from $100.1 million in the same period of 2015. Non-GAAP net margin increased to 37.2% from 33.8% in 2015. Non-GAAP adjusted net income per diluted share increased to $4.52 for 2016 from $3.68 in 2015.

Non-GAAP adjusted net income and diluted earnings per share for 2016 exclude $22.0 million of non-cash employee share-based compensation expenses.

As of December 31, 2016, the Company had $183.8 million in cash and cash equivalents, primarily consisting of cash on hand and demand deposits.

Net cash provided by operating activities for 2016 was $123.3 million, as compared to $109.4 million for 2015. The increase in net cash provided by operating activities was largely consistent with the improvements in the results of operations in 2016, as compared to the same period in 2015, partially offset by the increases in accounts receivable and inventories.

Accounts receivable increased by $11.0 million during 2016, as compared to $7.1 million in 2015. The accounts receivable turnover days for plasma products increased to 41 days during 2016 from 34 days in 2015. To enhance the business relationship with certain key customers, the Company granted longer credit term to certain qualified hospitals during 2016.

Inventories increased by $40.1 million in 2016, as compared to $32.1 million in 2015, mainly due to an increase in the inventory of outsourced raw plasma as well as the increase of finished goods in preparation for Shandong facility transition.

Net cash used in investing activities for 2016 was $52.5 million, as compared to $89.8 million for 2015. During 2016 and 2015, the Company paid $51.0 million and $52.3 million, respectively, for the acquisition of property, plant and equipment, intangible assets and land use rights for Shandong Taibang and Guizhou Taibang. During 2016 and 2015, the Company granted a loan of $12.3 million and $40.7 million, respectively, to our plasma outsourcing partner. In addition, the Company received a refund of $10.3 million from the local government of Guiyang with respect to deposits of land use rights in 2016.

Net cash used in financing activities for 2016 was $22.1 million, as compared to net cash of $51.6 million provided by financing activities for 2015. The net cash used in financing activities in 2016 mainly consisted of payment of $58.1 million to former minority shareholders of Guizhou Taibang in connection with their capital withdrawal from Guizhou Taibang and a dividend of $7.9 million paid to the minority shareholder by Shandong Taibang, partially offset by the maturity of a $37.8 million time deposit as a security for a bank loan which was fully repaid in June 2015 and the proceeds of $3.6 million from stock options exercised. The net cash provided by financing activities for 2015 mainly consisted of net proceeds of $80.6 million from a follow-on offering of the Company’s stock in June 2015, proceeds of $63.2 million from the maturity of deposit used as security for bank loans, proceeds of $15.8 million from a short-term bank loan, and proceeds of $7.7 million from stock options exercised, partially offset by the repayment of bank loans totaling $113.5 million and a dividend payment of $3.7 million held in escrow by a trial court in connection with disputes with a minority shareholder of Guizhou Taibang.

Financial Outlook

For the full year of 2017, factoring into the impact of approximately three months of production suspension at our Shandong facility in connection with plant transition, the Company expects total sales to grow 13% to 15% in RMB terms and non-GAAP adjusted net income to grow 18% to 20% in RMB terms over 2016 financial results.

This guidance does not factor in any potential foreign currency translation impact. Having previously adopted an exchange rate of approximately RMB6.63 = $1.00 based on weighted average quarterly exchange rates in 2016 in translating 2016 financial results, the Company expects that the total sales and non-GAAP adjusted net income in USD terms in 2017 will be adversely affected by the foreign currency translation impact.

This guidance assumes only organic growth, excluding potential acquisitions, and necessarily assumes no significant adverse product price changes during 2017. 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 7:30 am Eastern Time on Friday, February 24, 2017, which is 8:30 pm Beijing Time on February 24, 2017, to discuss its results for the fourth quarter and fiscal year 2016 and answer questions from investors. Listeners may access the call by dialing:

A telephone replay will be available one hour after the conclusion of the conference all through March 4, 2017. The dial-in details are:

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 Products, Inc. (NASDAQ: CBPO) is a leading fully integrated 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 dosage forms of plasma products through its majority owned subsidiary, Shandong Taibang Biological Products Co., Ltd., and its wholly owned subsidiary, 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, distributors and other healthcare facilities 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 and restricted shares 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 performance.

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