HAIKOU CITY, China, March 31, 2017 /PRNewswire/ -- China Pharma Holdings, Inc. (NYSE MKT: CPHI) ("China Pharma," the "Company" or "We"), an NYSE MKT listed corporation with its fully-integrated specialty pharmaceuticals subsidiary based in China, today announced financial results for the year ended December 31, 2016.
Full Year Highlights
- Revenue decreased 23.5% to $15.6 million in fiscal year 2016 from $20.4 million in fiscal year 2015;
- Gross margin was 20.7% in fiscal year 2016, compared to 7.2% in fiscal 2015. Without the effect of inventory obsolescence, management estimates that our gross profit would have been approximately 20.7% in fiscal year 2016 and 22.5% in fiscal year 2015;
- Loss from operations was $8.2 million in fiscal year 2016 compared to $14.3 million in 2015, a decrease of $6.1 million;
- Net loss was $9.2 million in fiscal year 2016 compared to $15.4 million in 2015. Loss per common share was $(0.21) per basic and diluted share in fiscal 2016 compared with $(0.35) per basic and diluted share in fiscal year 2015.
"We completed construction of our manufacturing facilities and received new GMP certificates for our dried powder and liquid injectable product lines produced at our new manufacturing facility in 2014; and completed upgrading and received new GMP certificates for our tablet and capsule product lines and for the cephalosporin product lines at our old factories in 2015. Solid manufacturing facility like this put us in a very good position to secure the foundation for steady business growth in the future. However, the missed provincial biddings back in 2014 still negatively impacted our market shares previously secured in those areas, and dragged our sales in 2016. In addition, the rectification on pharmaceutical distributors initiated by Chinese CFDA in middle 2016 also negatively impacted our sales because that the distributors' time and efforts were focused on passing CFDA inspection, which delayed their ordinary promotion efforts and purchase and distribution activities." said Ms. Zhilin Li, China Pharma's Chairman and CEO. Ms Li continued, "Nevertheless, to increase our sales remains our top priority. Management will continue to vigorously promote sales by actively participating in the recent opening of the new provincial drug tender and participation in drug promotion activities like exhibitions. And we continue to believe that demand for pharmaceutical products is huge and steady in China. The ongoing generic drug consistency evaluations and reform of China's drug production registration and review policies will have major impact on the future development of our industry and may change its business patterns. We will continue to actively adapt to state policy guidance and further evaluate market conditions for our current existing products, pipeline products, and competition in the market in order to optimize our development strategy."
Full Year Results
Revenue decreased by 23.5% to $15.6 million for the year ended December 31, 2016, as compared to $20.4 million for the year ended December 31, 2015. This decrease was primarily due to the focus of our distributor customers with the CFDA rectification of pharmaceutical distributors in the second and third quarters of 2016, despite our efforts to promote sales in an attempt to regain market share during 2016.
Gross profit for the year ended December 31, 2016 was $3.2 million, compared to $1.5 million in 2015. Our gross profit margin in 2016 was 20.7% compared to 7.1% in 2015. Without the effect of inventory obsolescence, management estimates that our gross profit would have been approximately 20.7% in 2016 and 22.5% in 2015. With the national implementation of full coverage health insurance almost completed, and the positive effect of its expansion policy gradually diminished, and taking into account many unfavorable market factors such as Medicare cost-control, and price pressures from drug tenders, we have experienced general decline in profit margins in recent years. Going forward, we expect to see continued pricing pressure on most of our products. However, new products could help support overall gross margin once they are launched.
Our selling expenses for the year ended December 31, 2016 were $4.0 million, a decrease of $0.3 million, compared to $4.3 million for the year ended December 31, 2015. Selling expenses accounted for 25.9% of the total revenue in 2016 compared to 21.1% in 2015. The increase was mainly the result of additional marketing, consulting and product promotional efforts in certain Chinese provinces. Because of adjustments in our sales practices resulting from healthcare reform policies, despite the overall decrease in sales, we require additional personnel and expenses to support our sales and the collection of accounts receivable.
Our general and administrative expenses for the year ended December 31, 2016 were $2.3 million, which represented an increase of $0.4 million compared to $1.9 million in 2015. General and administrative expenses accounted for 14.6% and 9.3% of our total revenues in 2016 and 2015, respectively.
For the year ended December 31, 2016, the Company's bad debt expense was $1.1 million, compared to a bad debt expense of $6.0 million in 2015. During 2015, we also recognized bad debt expenses of $4.2 million related to advances made to suppliers based our evaluations of the realization likelihood of payments. The decline in our bad debt expenses was mainly the result of the decline in our revenues in recent years, which also led to the corresponding decline in the net amount of accounts receivable aging over one year (according to our current accounting policy, we are required to recognize a bad debt allowance at 70% of the accounts receivable that are between 365 days to 720 days old).
Our impairments for the year ended December 31, 2016 were $4.0 million, compared to $0.1 million in 2015. As a pharmaceutical company, we have been focusing on the development and maintenance of our intangible assets, mainly in the form of medical formulas. Because of recently implemented government policies such as consistency evaluations, our management made certain assessments regarding the impairment of our intangible assets in 2016, and identified five formulas that would likely be unable to generate positive cash flow in the foreseeable future and therefore recognized impairment loss on them accordingly.
Our income tax rate was 15% for each of the years ended December 31, 2016 and 2015.Our income tax expense was $0.3 million and $0.06 million for the years ended December 31, 2016 and 2015, respectively. The expense arose as a result of certain deferred tax liabilities recognized in prior years. We renewed our "National High-Tech Enterprise" status with the Chinese government in the third quarter of 2013. With this designation, for the years ending December 31, 2014, 2015 and 2016, we enjoy a preferential tax rate of 15%, which is notably lower than the statutory income tax rate of 25%. However, our recent net loss results have put the Company in an unfavorable position for the potential renewal of "National High-Tech Enterprise" status in 2017, and after evaluating the feasibility of such a renewal, the Company has decided not to renew this status. As a result, our tax rate for 2017 and the foreseeable future will be 25%.
Net loss for the year 2016 was $9.2 million, or $(0.21) per basic and diluted share, compared to net loss of $15.4 million, or $(0.35) per basic and diluted share for the year 2015. The decrease in net loss was mainly a result of the increase in inventory obsolescence and bad debt expenses.
Financial Condition
As of December 31, 2016, the Company had cash and cash equivalents of $2.7 million compared to $6.2 million as of December 31, 2015. Year-over-year, working capital decreased to $7.1 million in 2016 from $12.2 million in 2015 and the current ratio was 1.7 times in 2016, decreased from 1.9 times in 2015.
Our accounts receivable balance decreased to $4.0 million as of December 31, 2016 from $5.2 million as of December 31, 2015. The decrease was mainly due to $1.1 million of bad debt expenses recognized in 2016.
For the year ended December 31, 2016, cash flow from operating activities was $2.9 million, as compared to $3.4 million in 2015.
Pipeline Update
In order to support our existing products package under the unfavorable economic environment, we have remained focused on pipeline development. We have experienced delays in obtaining approval for the products in our pipeline due to revisions and enhancements in the approval criteria and processes issued by China Food and Drug Administration (the "CFDA") which result in additional supplemental materials and trials, higher cost, and longer approval time for certain applications. In March 2016, the PRC State Council issued the "Opinions on Carrying out Consistency Evaluation on Quality and Efficacy of Generic Drugs" which requires all chemical generic pipeline products to carry out consistency evaluation before final registration approval and therefore further prolongs the registration process for our pipeline products.
Due to the detailed implementation rules of consistency evaluations that are still being introduced, our decision making has been impacted by those uncertainties, and we suspended the development of our pipeline products in 2016.
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