BEIJING, Nov. 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 third quarter of 2014.
Third Quarter 2014 Financial Highlights
- Total sales in the third quarter of 2014 increased 29.5% to $68.9 million from $53.2 million in the same quarter of 2013.
- Gross profit increased 29.4% to $46.6 million from $36.0 million in the same quarter of 2013. Gross margin was 67.6% in the third quarter of 2014, compared to 67.7% in the third quarter of 2013.
- Income from operations increased by 49.1% to $34.6 million from $23.2 million in the same quarter of 2013. Operating margin increased to 50.2% in the third quarter of 2014 from 43.6% in the same quarter of 2013.
- Net income attributable to the Company increased by 36.7% to $20.1 million from $14.7 million in the same quarter of 2013. Fully diluted net income per share was $0.76 in the third quarter of 2014 as compared to $0.53 in the same quarter of 2013.
- Non-GAAP adjusted net income attributable to the Company was $21.2 million, representing a 36.8% increase from $15.5 million in the same quarter of 2013. Non-GAAP adjusted net income per share was $0.81, compared to $0.56 in the same quarter of 2013.
Mr. David (Xiaoying) Gao, Chairman and Chief Executive Officer of China Biologic, commented, “We are very pleased to report strong financial results in the third quarter, and to raise our full year financial forecast. Incremental revenue growth and operating margin improvement were largely attributable to increased sales of IVIG and placenta polypeptide products. The successful implementation of our sales strategy allowed us to continue to capitalize on the substantial opportunities in tier-one cities for IVIG products. In anticipation of a favorable market environment and our increased sales capabilities this year, we reserved a large volume of our 2013 IVIG inventories to be sold throughout 2014. Further, added production capacity for placenta polypeptide products allowed us to expand sales volume, while we also managed to reduce selling expenses by utilizing internal resources to promote our placenta polypeptide products.”
Mr. Gao continued, “There were several important developments to our operations and product portfolio in recent months. Our two main production facilities are once again fully operational, and as a result, we are able to gradually increase albumin production and inventory levels. Our Guizhou Taibang facility received its GMP certificate earlier than expected, which has resulted in added production capacity at this facility. In early September, we acquired an additional 19.84% equity stake in Guizhou Taibang, which has significantly enhanced our control of its long-term strategy and development. In October, Shandong Taibang received approval from the China Food and Drug Administration for the commercial manufacturing of human prothrombin complex concentrate. On October 31, Shandong Taibang received approval from the Hebei Provincial Health and Family Planning Commission to build two new plasma collection stations in Hebei province. This approval is the first issued by the Hebei provincial government since plasma collection was privatized in China in 2006. Hebei, with a combined population of approximately 71 million, is an underdeveloped province for plasma collection as there are currently three stations only. We intend to acquire the requisite land use rights and obtain the construction permits as soon as it completes the site selection process, and will try to complete construction, staff recruitment and government inspection and certification process within approximately 12 months thereafter. The new collection stations may commence operations only after passing the government inspection and certification process and obtaining the collection licenses, and we expect these two stations to reach their designed annual collection capacities in approximately three years after obtaining the collection licenses.”
“Looking to the fourth quarter and into 2015, we remain confident in our sales team’s ability to continue to stabilize product pricing. Their performance has already exceeded our estimates set forth at the beginning of this year. Our ability to scale plasma collection and leverage our direct sales model positions us well to meet the rising demand for plasma-based products in China and strengthen our market leadership.”
Third Quarter 2014 Financial Performance
Total sales in the third quarter of 2014 were $68.9 million, an increase of 29.5% from $53.2 million in the same quarter of 2013. Excluding the foreign currency impact, the increase in sales was primarily attributable to the sales volume increases in IVIG and placenta polypeptide.
During the third quarter of 2014, human albumin and IVIG products remained the largest two sales contributors. The average price for both products remained stable as a result of the combined effect of an approximately 3% sales price premium due to a value added tax (“VAT”) rate decrease effective from July 1, 2014 and the discounts given to distributors in tier-one cities and new markets during the reporting quarter.
- As a percentage of total sales, revenue from human albumin products was 38.3% in the third quarter of 2014 as compared to 49.7% in the same quarter of 2013. Sales volume of human albumin products remained stable as a result of the combined effect of the increased sales volume at Guizhou Taibang and the decreased sales volume at Shandong Taibang. Guizhou Taibang resumed production in March 2014 and shipped its first batch of products in July 2014. This was offset by delayed shipments of certain batches of products awaiting government approval at Shandong Taibang in the third quarter of 2014.
- As a percentage of total sales, revenue from IVIG products was 41.7% in the third quarter of 2014 as compared to 32.3% in the same quarter of 2013. Sales volume of IVIG products increased significantly by 67.3% in the quarter, primarily due to the increased sales through distributors in tier-one cities and new markets supported by the increased output following the production resumption at Guizhou Taibang. In addition, the rise in the occurrence of Hand-Foot-and-Mouth Disease also contributed to the increase in IVIG sales volume during the reporting quarter.
- As a percentage of total sales, revenue from placenta polypeptide was 11.3% in the third quarter of 2014 as compared to 5.2% in the same quarter of 2013. The sales increase was generally in line with a 193% volume increase due to the expanded production of placenta polypeptide at Guizhou Taibang.
Cost of sales was $22.4 million in the third quarter of 2014 compared to $17.2 million in the same quarter of 2013. As a percentage of total sales, cost of sales was 32.4%, as compared to 32.3% in the same quarter of 2013.
Gross profit increased by 29.4% to $46.6 million in the third quarter of 2014 from $36.0 million in the same quarter of 2013. Gross margin was 67.6% and 67.7% for the third quarter of 2014 and 2013, respectively.
Total operating expenses in the third quarter of 2014 decreased by 7.0% to $11.9 million from $12.8 million in the same quarter of 2013. As a percentage of total sales, total operating expenses decreased to 17.3% from 24.1% in the same quarter of 2013.
Selling expenses in the third quarter of 2014 decreased by 7.7% to $2.4 million from $2.6 million in the same quarter of 2013. As a percentage of total sales, selling expenses were 3.5%, down from 4.8% in the same quarter of 2013. The decrease was primarily due to the decreased per unit selling expense of placenta polypeptide during the reporting quarter as Guizhou Taibang ceased outsourcing promotional services for its placenta polypeptide products.
General and administrative expenses in the third quarter of 2014 decreased by 16.3% to $7.7 million from $9.2 million in the same quarter of 2013. As a percentage of total sales, general and administrative expenses were 11.2% and 17.3% in the third quarter of 2014 and 2013, respectively. The decrease in G&A expenses was mainly due to a decrease in legal expenses and amortization expenses of intangible assets. During the third quarter of 2013, the Company incurred legal expenses in relation to a lawsuit with certain strategic investors of Guizhou Taibang. In addition, the Company incurred amortization expenses in the third quarter of 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 during the reporting quarter.
Research and development expenses in the third quarter of 2014 were $1.8 million, compared to $1.1 million in the same quarter of 2013. As a percentage of total sales, research and development expenses for the third quarter of 2014 and 2013 were 2.6% and 2.0%, respectively. The increase in R&D expenses was mainly due to the expenditure paid for certain clinical trial programs and the engagement of external experts for certain pipeline products.
Income from operations for the third quarter of 2014 was $34.6 million, an increase of 49.1% from $23.2 million in the same period of 2013. Operating margin increased to 50.2% in the reporting quarter from 43.6% in the same quarter of 2013.
Income tax expense in the third quarter of 2014 was $7.0 million, as compared to $4.9 million in the same quarter of 2013, representing an increase of 42.9%. The effective income tax rates were 19.9% and 19.6% for the third quarter of 2014 and 2013, respectively.
Net incomeattributable to the Company increased by 36.7% to $20.1 million in the third quarter of 2014, from $14.7 million in the same quarter of 2013. Net margins were 29.1% and 27.6% for the third quarter of 2014 and 2013, respectively. Fully diluted net income per share was $0.76, as compared to $0.53 in the third quarter of 2013.
Non-GAAP adjusted net income attributable to the Company was $21.2 million or $0.81 per diluted share in the third quarter of 2014, representing an increase of 36.8% from $15.5 million, or 44.6%, from $0.56 per diluted share in the same quarter of 2013.
Non-GAAP adjusted net income and diluted earnings per share for the third quarter of 2014 excluded $1.2 million of non-cash employee share-based compensation expenses.
First Nine Months 2014 Financial Performances
Total sales in the first nine months of 2014 were $185.3 million, an increase of 15.2% from $160.8 million in the same period of 2013. The increase in sales was primarily due to the sales volume increases in IVIG and placenta polypeptide.
As a percentage of total sales, sales from human albumin products and IVIG products were 38.1% and 40.9%, respectively, for the first nine months of 2014.
Cost of sales increased by 18.2% to $59.0 million in the first nine months of 2014, from $49.9 million in the same period of 2013. Cost of sales as a percentage of total sales was 31.8%, as compared to 31.0% in the same period of 2013.
Gross profit increased by 13.9% to $126.3 million in the first nine months of 2014 from $110.9 million in the same period of 2013. Gross margin was 68.2% in the first nine months of 2013 compared to 69.0% in the same period of 2013.
Total operating expenses in the first nine months of 2014 decreased by 4.4% to $34.8 million from $36.4 million in the same period of 2013. The decrease of total operating expenses was mainly a combined effect of the decrease in G&A expenses and the increase in R&D expenses. As a percentage of total sales, total operating expenses decreased to 18.8% for the first nine months of 2014, from 22.6% in the same period of 2013.
Income from operations for the first nine months of 2014 was $91.5 million, an increase of 22.8% from $74.5 million in the same period of 2013.
Income tax expense in the first nine months of 2014 was $16.8 million, an increase of 27.3% from $13.2 million in the same period of 2013. The effective income tax rates were 17.6% and 16.9% for the first nine months of 2014 and 2013, respectively. The tax rate applicable to the Company’s major operating subsidiaries in China for 2014 and 2013 is 15%.
Net incomeattributable to the Company increased by 26.9% to $58.1 million for the first nine months of 2014, from $45.8 million in the same period of 2013. Net margins were 31.3% and 28.5% for the first nine months of 2014 and 2013, respectively.
Non-GAAP adjusted net income attributable to the Company was $60.8 million or $2.34 per diluted share for the first nine months of 2014, representing an increase of 23.1% from $49.4 million or 32.2% from $1.77 per diluted share in the same period of 2013.
Non-GAAP adjusted net income and diluted earnings per share in the first nine months of 2014 excluded $2.8 million of non-cash employee share-based compensation expenses.
As of September 30, 2014, the Company had cash and cash equivalents of $74.6 million, compared to $144.1 million as of December 31, 2013.
Net cash provided by operating activities for the first nine months of 2014 was $64.1 million, as compared to $58.5 million for the same period of 2013. The increase in net cash provided by operating activities was mainly due to the impact from the changes in net income and accounts receivable, partially offset by the impact from the changes in prepayment and other assets and inventories during this period. Accounts receivable increased by $7.5 million, in-line with the sales increase during the first nine months of 2014, as compared to $10.8 million during the same period in 2013, primarily due to the increased sales proportion of placenta polypeptide with full prepayment in advance of the delivery. The prepayment and other assets increased by $8.6 million during the first nine months of 2014, as compared to $0.7 million during the same period in 2013, primarily due to an advance payment totaling $5.0 million made by Shandong Taibang to certain employees on behalf of a real estate developer under an employee housing development project during the first nine months of 2014. Inventories increased by $8.7 million during the first nine months of 2014, as compared to $5.9 million during the same period in 2013, primarily due to an increase in raw materials as a result of the continued supply of plasma from the plasma stations of Guizhou Taibang pending its production suspension from June 2013 to March 2014 and an increase in work-in-progress after its production resumption in March 2014.
Net cash used in investing activities for the first nine months of 2014 was $8.3 million compared to $17.5 million in the prior year nine month period. During the first nine months of 2014 and 2013, the Company paid $16.8 million and $18.2 million, respectively, for the acquisition of property, plant and equipment, intangible assets and land use right for Shandong Taibang and Guizhou Taibang. On the other hand, during the first nine months of 2014, the Company received a refund of deposit of $1.6 million from the local government due to the decrease in the size of a parcel of land granted to the Company in Guizhou, and had a time deposit of $6.6 million mature.
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