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China Biologic Products Reports Strong Third Quarter 2008 Results

PRNewswire
Nov 12, 2008

TAI'AN, China, Nov. 12 /Xinhua-PRNewswire-FirstCall/ -- China Biologic Products, Inc. (OTC: CBPO) (BULLETIN BOARD: CBPO) ("China Biologic," the "Company"), one of the leading plasma-based pharmaceutical companies in the People's Republic of China ("PRC"), today reported financial results for the third quarter ended September 30, 2008.

  Third Quarter 2008 Highlights
  -- Revenues increased 54.4% year-over-year to $13.8 million
  -- Gross profit increased 45.1% to $9.7 million over the third quarter
     2007
  -- Gross margin was 70%, compared 74.5% for the same period last year
  -- Operating income totaled $7.0 million, up 97.3% from the previous year
  -- Net income totaled $4.5 million, or $0.21 per diluted share

"We are pleased to report strong revenue and net income results in the third quarter, primarily due to price increases for our plasma-based products and lower operating expenses," said Mr. Chao Ming Zhao, CEO of China Biologic Products, "During the quarter, the SFDA renewed our GMP certification for our newly constructed plasma-based products facility that has 700 tons of annual production capacity. We also received approval to commence clinical trials of Human Coagulation Factor VIII. More recently, we were pleased to announce two proposed acquisitions that will transform China Biologic into the largest non- state-owned plasma-based biopharmaceutical company in China."

  During the quarter, the Company achieved the following milestones:
  -- Received renewal of its certification of compliance with Good
     Manufacturing Practices ("GMP") set by the PRC's State Food and Drug
     Administration (the "SFDA")
  -- Received approval to commence clinical trial of Human Coagulation
     Factor VIII product ("FVIII"), a coagulation treatment for hemophilia
     and mass hemorrhaging

  Third Quarter 2008 Results

Revenues for the third quarter of 2008 were $13.8 million, up 54.4% compared to $8.9 million for the same period of 2007. The increase in revenues is primarily attributable to a general increase in prices of plasma-based products together with foreign exchange translation benefits. During the third quarter, plasma-based products experienced a price increase of approximately 22.4%, weighted average, period to period. This was offset by a decrease in the sales volume of our human tetanus immunoglobulin and human rabies immunoglobulin products, due primarily to the availability of these products in inventory.

Gross profit increased 45.1% to $9.7 million, while the gross margin was 70.0% for the third quarter of 2008, compared with $6.7 million and 74.5% in the third quarter of 2007, respectively. The decrease in gross margin is mainly due to the increased cost of raw material and the Company's newly implemented marketing strategies to increase plasma donations.

Total operating expenses for the third quarter of 2008 were $2.6 million, or 19.0% of revenue, down 15.2% from the same period in 2007. Selling expenses, as a percentage of revenues, were 5.7% and 19.5%, respectively, a decrease of 55.2% to $0.78 million. The decrease in selling expense is primarily due to higher expenses incurred during the third quarter of 2007 to initiate a new marketing strategy during that period. In addition, the decrease in selling expense is also due to management's ability to reduce traveling, meeting, conference and office expenses related to selling activities during the third quarter of 2008.

General and administrative ("G&A") expenses were $1.6 million or 11.7% of revenue, an increase of 42.8% from the same period last year. The increase in G&A is mainly due to the increase in personnel cost, costs associated with being a public company, and travel expenses as management pursued acquisition opportunities for the Company. A non-cash employee compensation expense of $0.02 million was created as on July 24, 2008 as a result of the Company's grant of options to purchase an aggregate of 60,000 shares of its common stock under the 2008 Equity Incentive Plan to its three independent directors.

Research and development expenses decreased 6% to $0.20 million, or 1.5% of revenues, compared to $0.21 million, or 2.4% of revenues in the same period last year. The dollar and percentage decrease was primarily due to the decrease in research activities and clinical trials for the Company's new products.

As a result of the decrease in operating expenses, income from operations significantly increased 97.3% to $7.0 million during the third quarter of 2008, representing an operating margin of 51.1%, as compared to $3.6 million and 40% in the same period of 2007.

Provision for income taxes increased 180.8% year over year to $1.6 million due to the increase in net profit during the third quarter of 2008 and the commencement of China's new unified income tax rate. The Company provisioned its income tax for the third quarter of 2008 at the new PRC corporate income tax rate of 25%, as compared with the 15% preferential tax rate during the 2007 fiscal year. The Company is in the process of applying for status as a new or high-technology company in order to qualify for the favorable tax rate of 15%. During the third quarter of 2008, the Company received a tax rebate in the amount of approximately $0.3 million for its reinvestment of its dividends back into Shandong Taibang at the end of the 2007 fiscal year. The tax rebate was recorded as an offset to the Company's provision for income tax in the third quarter of 2008.

Net income for the third quarter of 2008 grew 98.3% year over year, to $4.5 million or $0.21 per fully diluted share. Net margin during the period was 32.5%, compared to 25.3% in the same quarter of last year. The significant increase in net income was primarily attributable to higher sales revenue combined with the decreases in operating expenses and foreign exchange translation. Foreign exchange translation accounted for a 17.6% increase in net income, period to period, while our revenues increased in RMB terms by 80.7%, as compared to the same period in 2007.

Nine Months Results

For the first nine months of 2008, total revenue was $33.6 million, up 32% from the first nine months of 2007. Gross profit for the first nine months of 2008 was $23.8 million, up 39.1% from $17.1 million in the comparable period a year ago. Gross margin was 71% compared to 67.4% for the first nine months of 2008 and 2007, respectively. Income from operations for the period was $15.6 million, up 36.9% from $11.4 million in the first nine months of 2007. Net income for the first nine months of 2008 was $8.8 million, up 15.5% from $7.6 million in the first nine months of 2007. Fully diluted earnings per share were $0.40 for the first nine months of 2008 compared to $0.35 in the first nine months of 2007.

Non-GAAP net income in the first nine months of 2008 was $10.1 million or $0.46 per fully diluted share, a 32.4% increase from net income of $7.6 million, or $0.35 per fully diluted share in first nine months of 2007.*

  * Excludes Stock Based Compensation ("SBC").  See Table 1 for a
    reconciliation of Net Income and EPS to exclude SBC.

  Financial Condition

As of September 30, 2008, the Company had $14.6 million in cash, approximately $16.6 million in working capital and a current ratio of 2.2. Shareholder's equity at the end of the third quarter of 2008 was $34.5 million compared to $22.4 million at the end of 2007. The Company generated $14.7 million net cash from operating activities for the nine months ended September 30, 2008.

  Recent Developments
  (1) Announced two proposed acquisitions, subject to completion of due
      diligence, which would transform the Company into the largest non-
      state-owned plasma-based biopharmaceutical company in China

     -- Entered into agreement to acquire 90% controlling interest in
        Chongqing Dalin Biologic Technologies Co., Ltd., which owns 54% of
        the equity interest in Qianfeng Biological Products Co., Ltd., one
        of the largest plasma-based biopharmaceutical companies in Guiyang,
        China
     -- Entered into agreement to acquire 35% of the equity interest in
        Xi'an Huitian Blood Products Co., Ltd., a biopharmaceutical company
        in Xi'an, China
  (2) Provided preliminary guidance for revenues in 2009 of $90 million to
      $100 million and net income of $18 million to $22 million; targeted
      combined revenue for 2008 to be in the range of $48 million to $50
      million and combined net income to be between $9 million to $10
      million, subject to completion of acquisitions and due diligence.

  Business Outlook

For the most recent quarter, the PRC's State Food and Drug Administration (the "SFDA") granted China Biologic's production facility in Tai'an City renewal of its certification of compliance with Good Manufacturing Practices ("GMP") set by the SFDA.

Commencing January of 2008, the SFDA implemented stricter pharmaceutical GMP inspection standards designed to intensify supervision of drug producers and ensure drug quality. The new inspection standards include 259 articles, up from 225 articles in the previous standards, covering areas such as the sourcing of raw materials, manufacturing processes, self-inspection processes at each stage of production and transportation. China Biologic's newly constructed facility with 700 tons of annual production capacity for plasma- based products was certified to be in compliance with the new standards. The renewed GMP Certification replaces the current GMP certification for the production facility, which was renewed in 2004. The GMP certification is valid for five years following the date of issuance.

The Company's continued focus on research and development represents the key to becoming a leader in the biopharmaceutical industry. The Company has received SFDA approval for the clinical trials of Human Coagulation Factor VIII ("FVIII"), a coagulation treatment for hemophilia and mass hemorrhaging. It has commenced preparations for the clinical study and expects to receive results by mid-2009. If the clinical study is successful, management expects to get SFDA's approval for production to launch the product at the beginning of 2010. Therefore, for the next few quarters, the Company expects higher research and development expenses as it increases its clinical trial activities.

Currently, China Biologic is the only approved manufacturer of plasma- based biopharmaceuticals in Shandong Province, which has a population of 93 million. China Biologic currently produces about 200 tons of plasma-based products per year and has 700 tons of annual production capacity. The Company is pursuing an aggressive acquisition strategy aimed at becoming the largest non-state-owned producer of plasma-based products in China.

On September 26, 2008, the Company agreed to acquire a 90% controlling interest in Chongqing Dalin Biologic Technologies Co., Ltd. ("Dalin"). Dalin owns 54% of the equity interest in Qianfeng Biological Products Co., Ltd. ("Qianfeng"), one of the largest plasma-based biopharmaceutical companies in China, located in Guiyang, Guizhou Province. The acquisition will increase plasma collection to almost double current levels and significantly increase the Company's production capacity, and established market share in Guizhou Province. Qianfeng is one of the largest plasma-based biopharmaceutical companies in China and the only operating manufacturer in Guizhou Province, which has a population of 39 million. Qianfeng produces about 250 tons of products per year with annual production capacity of 400 tons. China Biologic believes that Qianfeng currently has approximately 9.5% market share in China, as compared to the Company's 6.1%, which would result in a combined market share of approximately 15.6%. The top 6 largest plasma-based biopharmaceutical companies in China including Qianfeng have a total market share of approximately 50%.

On October 10, 2008, the Company entered into an agreement to acquire 35% of the equity interest in Xi'an Huitian Blood Products Co., Ltd. ("Huitian"), a biopharmaceutical company based in Xi'an, Shaanxi Province. The acquisition will enable China Biologic to increase its plasma collection, add to production capacity and expand into Shaanxi Province, which has had historically high collection volumes. Huitian is the only biopharmaceutical manufacturer in Shaanxi Province, which has a population of 37 million. Huitian produces about 80 tons of plasma-based products per year and has 200 tons of annual production capacity. China Biologic believes that Huitian currently has approximately 1.2% market share in China, which would result in a combined market share of approximately 17% if the Dalin acquisition is also included.

The closings of the Dalin and Huitian acquisitions are subject to customary closing conditions, including the completion to the Company's reasonable satisfaction of its business, legal, accounting, and regulatory due diligence review of the two companies, including their operations, financial condition, capitalization and regulatory compliance programs.

The Company has targeted combined revenue for 2008 to be in the range of $48 million to $50 million and combined net income to be between $9 million to $10 million, including only a portion of the 4th quarter operations from the two acquisitions. Assuming the full year consolidation of the two acquisitions, management estimates revenues for 2009 will be in the range of $90 million to $100 million with net income between $18 million to $22 million. The Company will continue to evaluate the potential synergies that may emerge from the two acquisitions, which remain subject to due diligence efforts in process.

"We are excited about the year ahead as we seek to integrate the acquisitions we announced," remarked Mr. Zhao. "In addition to securing the plasma supply, increasing our production capacity and expanding geographically, we see significant potential synergies through sharing of technological know-how, leveraging China Biologic's strong brand name and cross-sell opportunities."

  Non-GAAP reconciliation table

                               *TABLE 1
            CHINA BIOLOGIC PRODUCTS, INC. AND SUBSIDIARIES

             RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
   FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND
                                 2007

                                      Three Months Ended  Three Months Ended
  Adjusted Net Income                 September 30, 2008  September 30, 2007

                                                  Diluted            Diluted
  Net Income (Loss) Diluted EPS       Net Income    EPS   Net Income   EPS

  Adjusted Amount - Non GAAP           $4,499,159  $0.21  $2,258,514  $0.11
  Non-cash employee compensation (1)      $20,613  $0.00          --     --
  Amount per consolidated statement
   of operations                       $4,478,546  $0.21  $2,258,514  $0.11


  Adjusted Net Income                 Nine Months Ended   Nine Months Ended
                                      September 30, 2008  September 30, 2007

                                                  Diluted            Diluted
  Net Income (Loss) Diluted EPS        Net Income   EPS   Net Income   EPS

  Adjusted Amount - Non GAAP          $10,064,301  $0.46  $7,600,857  $0.35
  Non-cash employee compensation (1)   $1,283,801  $0.06          --     --
  Amount per consolidated statement    $8,780,500  $0.40  $7,600,857  $0.35
   of operations

  (1) Both non-cash compensation expenses are in connection with adoption of
      the equity incentive plan granting share options on the Company's
      common stock to employees and directors

  Use of Non-GAAP Financial Measures

GAAP results for the three months ended September 30, 2008 include non- cash stock based compensation charges. To supplement the Company's condensed consolidated financial statements presented on a GAAP basis, the Company has provided non-GAAP financial information excluding the impact of this item in this release. The Company's management believes that this non-GAAP measure provides 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 press 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.

About China Biologic Products, Inc.

China Biologic Products, Inc., through its indirect majority-owned subsidiary Shandong Taibang, is currently the only plasma-based biopharmaceutical company approved by the government of Shandong Province, the second largest province with a population of 93 million. The company is engaged primarily in research, manufacturing, and sale of plasma-based biopharmaceutical products to hospitals and other health care facilities in China. Plasma-based Human Albumin is used mainly to increase blood volume while Immunoglobulin is used for disease prevention and treatment.

Safe Harbor Statement

This release may contain certain "forward-looking statements" relating to the business of China Biologic Products, Inc. and its subsidiary companies. All statements, other than statements of historical fact included herein are "forward-looking statements," including statements regarding: the Company's proposed acquisitions and acquisition strategy, the benefits of proposed acquisitions, the ability of the Company to achieve its commercial objectives; the business strategy, plans and objectives of the Company and its subsidiaries; and any other statements of non-historical information. These forward-looking statements are often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions, involve known and unknown risks and uncertainties. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company's periodic reports that are filed with the Securities and Exchange Commission and available on its website ( http://www.sec.gov/ ). All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements.

                CHINA BIOLOGIC PRODUCTS, INC. AND SUBSIDIARIES

       CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
   FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
                                 (Unaudited)

                            Three  months ended       Nine months ended
                               September 30,            September 30,
                             2008         2007        2008         2007

  REVENUES                $13,799,915  $8,938,186  $33,574,764  $25,442,097

  COST OF SALES             4,138,077   2,281,280    9,725,103    8,293,628

  GROSS PROFIT              9,661,838   6,656,906   23,849,661   17,148,469

  OPERATING EXPENSES
   Selling expenses           780,246   1,741,829    1,785,340    2,444,297
   General and
    administrative
    expenses                1,613,620   1,129,785    4,472,286    2,838,126
   Research and
    development expenses      201,037     213,865      664,652      435,500
   Stock-based
    compensation expense       20,613          --    1,283,801           --
     Total operating
      expenses              2,615,516   3,085,479    8,206,079    5,717,923

  INCOME FROM OPERATIONS    7,046,322   3,571,427   15,643,582   11,430,546

  OTHER EXPENSES
   Interest income            (36,841)    (13,628)     (67,331)     (30,741)
   Interest expense            15,128      49,300       59,800      112,637
   Other income               (19,409)    (42,870)     (19,976)     (46,963)
   Other expense               77,224     146,167      130,243      173,302
     Total other expenses      36,102     138,969      102,736      208,235

  INCOME BEFORE PROVISION
   FOR INCOME TAXES AND
   MINORITY INTEREST        7,010,220   3,432,458   15,540,846   11,222,311

  PROVISION FOR INCOME
   TAXES                    1,572,816     560,030    4,437,141    1,858,992

  NET INCOME BEFORE
   MINORITY INTEREST        5,437,404   2,872,428   11,103,705    9,363,319

  LESS MINORITY INTEREST      958,858     613,914    2,323,205    1,762,462

  NET INCOME                4,478,546   2,258,514    8,780,500    7,600,857

  FOREIGN CURRENCY
   TRANSLATION GAIN           121,814     336,137    1,992,939      799,229

  OTHER COMPREHENSIVE
   INCOME                  $4,600,360  $2,594,651  $10,773,349   $8,400,086

  BASIC EARNINGS PER
   SHARE
   Weighted average number
    of shares              21,434,942  21,434,942   21,434,942   21,434,942
   Earnings per share           $0.21       $0.11        $0.41        $0.35

  DILUTED EARNINGS PER
   SHARE
   Weighted average number
    of shares              21,504,629  21,434,942   21,713,170   21,434,942
   Earnings per share           $0.21       $0.11        $0.40        $0.35



               CHINA BIOLOGIC PRODUCTS, INC. AND SUBSIDIARIES

                         CONSOLIDATED BALANCE SHEETS
               AS OF SEPTEMBER 30, 2008 AND DECEMBER 31, 2007

                            A S S E T S
                                         September 30,      December 31,
                                              2008              2007
                                          (Unaudited)
  CURRENT ASSETS:
    Cash                                 $14,223,956        $5,010,033
    Restricted cash                          345,268                --
    Accounts receivable, net of
     allowance for doubtful accounts
     of $1,221,956 and $1,238,772
     as of September 30, 2008 and
     December 31, 2007, respectively         607,662           316,869
    Notes receivable                              --            41,130
    Other receivables                        438,131           425,163
    Other receivable - related party         308,324           290,307
    Inventories                           13,415,093         9,505,074
    Prepayments and deferred expense         510,334           138,756
       Total current assets               29,848,768        15,727,332

  PLANT AND EQUIPMENT, net                18,627,057        15,434,124

  OTHER ASSETS:
    Long term prepayments                  2,415,631           711,459
    Long term prepayment - related party     551,112           516,456
    Intangible assets, net                   904,747           915,874
       Total other assets                  3,871,490         2,143,789

          Total assets                   $52,347,315       $33,305,245

  L I A B I L I T I E S   A N D   S H A R E H O L D E R S'   E Q U I T Y

  CURRENT LIABILITIES:
    Accounts payable                      $2,931,432        $2,677,587
    Short term loans - bank                       --           685,500
    Short term loan - minority
     shareholder                             771,169           722,674
    Other payables and accrued
     liabilities                           2,574,761         1,200,068
    Other payable - land use right           324,907           305,571
    Dividend payable                       1,906,713           506,626
    Customer deposits                        817,099           398,794
    Taxes payable                          3,959,221           384,788
       Total current liabilities          13,285,302         6,881,608

  COMMITMENT AND CONTINGENCIES                41,011           142,120

  MINORITY INTEREST                        4,568,137         3,885,892

  SHAREHOLDERS' EQUITY:
    Common stock, $0.0001 par value,
     100,000,000 shares authorized,
     21,434,942 shares issued and
     outstanding at September 30, 2008
     and December 31, 2007, respectively       2,143             2,143
    Paid-in-capital                       10,672,106         9,388,305
    Statutory reserves                     5,897,569         4,513,077
    Retained earnings                     13,279,314         5,883,306
    Accumulated other comprehensive
     income                                4,601,733         2,608,794
       Total shareholders' equity         34,452,865        22,395,625

          Total liabilities and
           shareholders' equity          $52,347,315       $33,305,245



               CHINA BIOLOGIC PRODUCTS, INC. AND SUBSIDIARIES

                    CONSOLIDATED STATEMENTS OF CASH FLOWS
           FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
                                 (UNAUDITED)

                                                2008               2007

  CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                $8,780,500        $7,600,857
    Adjustments to reconcile net
     income to cash provided
     by operating activities:
      Minority Interest                        2,323,205         1,762,462
      Depreciation                               914,575           611,020
      Amortization                                80,753            64,168
      Loss on disposal of equipment               73,310             6,077
      Stock-based compensation                 1,283,801                --
    Change in operating assets and
     liabilities:
      Accounts receivable                       (353,412)        1,491,832
      Notes receivable                            43,011            76,424
      Other receivables                           15,251          (604,324)
      Inventories                             (3,206,654)       (1,667,404)
      Prepayments and deferred
       expenses                                 (355,012)          221,553
      Accounts payable                            72,681           277,185
      Other payables and accrued
       liabilities                             1,267,099           183,946
      Customer deposits                          383,703           200,832
      Taxes payable                            3,477,543           725,644
      Contingent liability                      (108,430)               --
         Net cash provided by
          operating activities                14,691,924        10,950,272

  CASH FLOWS FROM INVESTING ACTIVITIES:
    Additions to plant and equipment          (3,154,996)       (6,377,620)
    Additions to intangible assets                (9,620)         (233,537)
    Proceeds from sale of equipment               53,078            26,199
    Advances for potential acquisition        (1,463,000)
    Advances on building, equipment
     and intangible assets purchases            (160,256)         (621,600)
          Net cash used in investing
           activities                         (4,734,794)       (7,206,558)

  CASH FLOWS FINANCING ACTIVITIES:
    Change in restricted cash                   (338,353)               --
    Repayments to shareholders                        --          (134,095)
    Proceeds from short term loans - bank             --         1,292,000
    Payments on short term loans - bank         (716,850)       (2,593,000)
    Payments on long term debt                        --          (261,280)
    Dividends paid to minority shareholder      (286,740)         (476,597)
          Net cash used in financing
           activities                         (1,341,943)       (2,172,972)

  EFFECTS OF EXCHANGE RATE CHANGE IN CASH        598,736           284,751

  INCREASE IN CASH                             9,213,923         1,855,493

  CASH, beginning of period                    5,010,033         4,268,220

  CASH, end of period                        $14,223,956        $6,123,713

  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
   Income taxes paid                          $1,830,589        $1,086,987
   Interest paid (net of capitalized interest)   $47,197          $128,879
   Non-cash transactions
      Accounts receivables in
       exchange for accrued liabilities         $887,720          $596,398


  For more information, please contact:

  Company Contact:
   Mr. Y. Tristan Kuo
   CFO
   China Biologic Products, Inc.
   Tel:      +86-538-620-2206
   Email:    IR@chinabiologic.com
   Web site: http://www.chinabiologic.com/

  Investor Relations Contact:
   Mr. Crocker Coulson
   President
   CCG Investor Relations
   Tel:      +1-646-213-1915 (NY office)
   Email:    crocker.coulson@ccgir.com
   Web site: http://www.ccgirasia.com/

http://www.ccgirasia.com

SOURCE: China Biologic Products, Inc.

CONTACT: Mr. Y. Tristan Kuo, CFO, China Biologic Products, Inc, +86-538-
620-2206, IR@chinabiologic.com or Mr. Crocker Coulson, President, CCG Investor
Relations, +1-646-213-1915, crocker.coulson@ccgir.com for China Biologic
Products, Inc.

Web site: http://www.chinabiologic.com/


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