China Biologic Products Reports Second Quarter 2011 Results

PR Newswire
TAI'AN, China
Aug 9, 2011

TAI'AN, China, Aug. 9, 2011 /PRNewswire-Asia-FirstCall/ -- China Biologic Products, Inc. (NASDAQ: CBPO) ("China Biologic" or the "Company"), one of the leading plasma-based biopharmaceutical companies in the People's Republic of China ("PRC"), today reported its results for the three months ended June 30, 2011.

Financial highlights for the second quarter 2011

    --  Total sales in US dollars increased 1.9% in the second quarter 2011 to
        $41.7 million from the second quarter 2010, with the benefit of 4.8%
        foreign exchange translation gain. Total sales denominated in RMB
        decreased 2.9% in the second quarter from the second quarter of last
        year.
    --  Gross profit decreased 8.5% to $29.2 million in the second quarter 2011
        from the same period in 2010. The gross profit margin was 70.0% in the
        second quarter 2011 compared with 77.9% in the second quarter 2010.
    --  Income from operations decreased 24.3% to $17.2 million in the second
        quarter 2011 from the prior second quarter.
    --  GAAP Net income attributable to China Biologic increased 28.3% to $16.6
        million or $0.28 per diluted share in the second quarter 2011 from the
        second quarter 2010.
    --  Excluding non-cash employee stock compensation, non-cash gain related to
        change in fair value of derivative liability, and interest on
        convertible notes, the non-GAAP adjusted net income attributable to
        China Biologic was $8.7 million or $0.33 per diluted share in the second
        quarter 2011, a 20.5% decrease from $11.0 million or $0.41 per diluted
        share in last year's second quarter.

CEO Comments

Mr. Chao Ming Zhao, Chief Executive Officer of China Biologic, said, "We understand that investors have concerns about the unexpected closing of four of our plasma collection stations in Guizhou province that occurred on August 1, 2011 at the direction of the Guizhou Provincial government's newly imposed plan and policy. These stations accounted for about 34.1% of our total raw plasma volume collected in 2010."

"To mitigate the effects from the closing of the 4 plasma collection stations, we are working on alternative solutions and opportunities that include minimizing the write-off of already collected plasma from these 4 stations by performing all tests required by the 90-day quarantine rules, reallocating resources from the closed stations to maximize their utilization within the Company, and exploring new regions for new plasma stations."

"In addition, we are adjusting our production plan and sales strategy to leverage the available resources to maximize profit as we respond to the changing market dynamics. For example, given the limited supply of raw plasma in the future, we will focus on supplying our products, which are critical and irreplaceable to health care, via direct sales to our best customers. We remain committed to accelerating our earnings growth in the future -- by focusing on our direct institutional sales, broadening our geographic reach, finding and creating new raw plasma sources, continuing to develop a strong new product pipeline, and considering possible prudent acquisitions, mergers and potential international collaborations."

"Our sales, in terms of RMB, decreased slightly in the second quarter, mainly due to weaker product pricing in a more competitive market and lower revenue from high-value hyper-immune products due to unavailability of specific vaccinated plasma raw material. Additionally, we unified the labels and packaging of the products from our two subsidiaries so that our Taibang brand becomes our primary brand. It took us much longer to relabel and repackage the products than we expected, which resulted in delays in shipping and revenue recognition for IVIG products."

"Given that some factors are still evolving and it remains uncertain how they will be resolved, we have revised our guidance based on the current available information. For that reason, we recommend an extra measure of caution in interpreting our revised guidance."

"I assure you that we are working around the clock to recover from the unexpected loss of the 4 raw plasma collection stations in Guizhou. We plan to update you about our progress when we reach meaningful milestones."

Results for the three months ended June 30, 2011

Our revenue increased by 1.9% to $41.7 million during the second quarter 2011 from $40.9 million for the same period in 2010. The foreign exchange translation contributed a 4.8% increase in sales, which translated into a 2.9% decrease in sales denominated in RMB. The revenue decrease in terms of RMB was primarily a result of the combined effect of the fluctuation on both price and volume of plasma based products. Due to increased market competition, most of the Company's plasma products experienced general price decreases ranging from 4.2% to 16.2%.

Among all of products, only human immunoglobulin for intravenous injection ("IVIG"), which had an approximately 3.2% average selling price ("ASP"), increase as compared to the same quarter in 2010 year-over-year. Sales of Human Albumin remained the largest revenue contributor, accounted for 51.3% of the total sales. While experiencing approximately 4.2% ASP decline, sales volume of Human Albumin increased 18.3% year-over-year.

IVIG, the second largest revenue contributor which accounted for 38.6% of total sales, experienced an average year-over-year volume decrease of 2.7% in the second quarter of 2011.

Human Hepatitis B Immunoglobulin experienced the sharpest ASP decrease, down 16.2% compared to the same period of prior year, and contributed 4.5% of the total sales in the second quarter of 2011. The price decrease in human hepatitis B immunoglobulin products was mainly due to the Company's participation in a public health program sponsored by PRC's Ministry of Health benefiting migrant workers. The sales price for this public health program was lower than the normal retail price in order to benefit migrant workers.

Human tetanus immunoglobulin products experienced largest sales volume increase of 77.1%, with a 5.3% ASP decline, and contributed 4.7% of total sales in the second quarter of 2011. The significant volume variance of hyper-immune products year-over-year was attributable to the availability of specific vaccinated plasma and production lines.

Gross profit decreased $2.7 million or 8.5% to $29.2 million in the second quarter of 2011 from $31.8 million in the second quarter of 2010. Gross profit margin was 70.0% in the second quarter of 2011, as compared to the 77.9% for the same period in 2010. The decrease in gross profit margin was primarily attributable to the decrease in the ASP of most of products and increased cost of raw material plasma due to our efforts to increase plasma collection volume.

Total operating expenses in the second quarter of 2011 increased 31.3% to $11.9 million, as compared to $9.08 million in the second quarter of 2010. As a percentage of sales, total operating expenses increased to 28.6% in the second quarter of 2011, from 22.2% for the same period in 2010.

Selling expenses increased by $1.2 million, or 63.6%, to $3.0 million in the second quarter of 2011 from $1.9 million in the second quarter of 2010. Selling expenses as a percent of sales increased to 7.3% in the second quarter of 2011 from 4.5% for the same period in 2010. The increase in selling expenses was in line with our continuing effort to expand our customer base in hospital and inoculation centers throughout the PRC in a bid to counter the negative impact of the general price decreases of our products caused by heightened competitive pressures.

General and administrative expenses increased by $1.8 million, or 29.8%, to $7.7 million in the second quarter of 2011 from $5.9 million in the second quarter of 2010. General and administrative expenses as a percent of sales increased to 18.4% in the second quarter of 2011, from 14.4% in the same period of 2010. The increase in general and administrative expenses was primarily due to an increase in expenses related to payroll and employee benefits, as well as an increase of approximately $1.2 million in non-cash employee stock compensation expenses. The increase in payroll was mainly due to our efforts to enhance corporate governance with the addition of two directors during the first quarter of 2011, the addition of a new executive officer in December 2010, and the addition of our corporate offices in Beijing.

Research and development expenses decreased by $0.1 million, or 7.5%, to $1.2 million in the second quarter of 2011, from $1.3 million in the second quarter of 2010. As a percent of sales, research and development expenses were 2.9% and 3.2% in the second quarter of 2011 and 2010, respectively. The decrease in research and development expenses was primarily due to the decreased cost associated with the development of two new products, which we are waiting for the PRC's State Food and Drug Administration ("SFDA") approval. Due to the delay of SFDA approval process, we expect to receive the approval for these two new products in early 2012.

Income from operations decreased 24.3% to $17.2 million in the second quarter of 2011, as compared to $22.8 million in the second quarter of 2010. The operating income margin was 41.4% and 55.7% for the quarter ended June 30, 2011 and 2010, respectively.

For the quarter ended June 30, 2011 and 2010, we recognized a gain from the change in fair value of derivative liabilities in the amounts of $11.2 million and $2.3 million, respectively. The recognized gain from the change in the fair value of derivative liabilities in the second quarter of 2011 was mainly due to a decrease in the price of our common stock from $15.96 as of March 31, 2011 to $10.20 as of June 30, 2011.

Our provision for income taxes increased to $5.3 million in the second quarter of 2011, from $5.0 million in the second quarter of 2010, with effective income tax rate remained at 20%. The increase of income tax provision was mainly due to the increase in applicable income tax rate of Shandong Taibang and Guizhou Taibang from 15% to 25% for the three months ended June 30, 2011, compared with the same period in the prior year. Shandong Taibang is in the process of reapplying for the High and New Technology Enterprise qualification for an additional three years from 2011 to 2013. Guizhou Taibang, which was entitled to a preferential income tax rate of 15% under the previous 10-year Western Development Tax Concession, will apply for the Tax Concession in order to continue to enjoy the 15% preferential income tax rate from 2011 to 2020.

GAAP net income attributable to China Biologic in the second quarter of 2011 was $16.6 million, or $0.28 per diluted share, as compared to $12.9 million, or $0.41 per diluted share, in the same period of 2010. Non-GAAP adjusted net income was $8.7 million, or $0.33 per diluted share, in the second quarter of 2011, as compared to $11.0 million, or $0.41 per diluted share, in the second quarter of 2010. Non-GAAP adjusted net income and diluted earnings per share in the second quarter 2011 excluded an aggregate $11.2 million of gains, which are related to the change in the fair value of derivative liabilities, and added back $1.2 million of non-cash employee stock compensation expenses and $2.1 million of interest related to the convertible notes under the if-converted method. Please refer to the table at the end of this release for the reconciliation of our non-GAAP measures to the nearest comparable GAAP measures.

Six Months Results

For the first six months ended June 30, 2011, our sales increased 12.0% to $76.1 million as compared to $68.0 million for the same period last year. The foreign exchange translation contributed a 4.7% increase in sales, which translated into a 7.3% increase in sales denominated in RMB. The increase in sales during the 2011 period was primarily attributable to a general mix of increases in prices and volumes for certain of our plasma based products.

Gross profit for the first six months of 2011 was $54.3 million, increased 4.1% from $52.1 million in the same period in 2010. Gross profit margin for the first six months of 2011 was 71.3%, as compared to 76.7% for the same period in 2010. The decrease in gross profit margin was mainly due to the price decreases of certain of our products and increases in raw material costs.

Income from operations for the period was $31.8 million, down 11.8% from $36.0 million in the first six months of 2010. The decrease in income from operations was mainly due to a 96.0% increase in selling expenses and 39.2% increase in general and administrative expenses for the period as compared to the same period in 2010.

Net income for the first six months of 2011 was $30.5 million, down 11.6% from $34.5 million in the first six months of 2010. Fully diluted earnings per share were $0.53 for the first six months of 2011 as compared to $0.68 in the first six months of 2010. Excluding non-cash employee stock compensation expenses, change in the fair value of derivative liabilities and interest related to the convertible notes under the if-converted method, non-GAAP adjusted net income for the six months ended June 30, 2011 was $16.7 million, or $0.62 per diluted share, a decrease of 10.0% from non-GAAP net income of $18.6 million, or $0.70 per diluted share, for the six months ended June 30, 2010.

Financial Condition

As of June 30, 2011, the Company had $76.8 million in cash and cash equivalents, approximately $95.2 million in working capital, and a current ratio of 233.8%. Total shareholders' equity as of June 30, 2011 was $181.6 million, as compared with $145.0 million at December 31, 2010.

Guidance and business outlook for 2011

China Biologic expects the revised total 2011 sales in the range of approximately $140 million to $145 million. The Company expects 2011 adjusted net income to be in the range of $28 million to $31 million, excluding any non-cash charge or gain related to change in the fair value of derivative liabilities, stock-based compensation expense, any adjustments in the U.S. federal income tax provision in 2011 related to the look-through exception for Subpart F income which expiring on December 31, 2011 and non-cash impairment losses associated, if any, with the closures of 4 plasma collection stations in Guizhou. The Company has provided the revised outlook based on the following factors:

    1. The unexpected closure of 4 plasma collection stations in Guizhou, will
       limit our near-term future raw plasma supply. Additionally, the
       unexpected closure of a number of plasma collection stations in Guizhou
       may reduce China's plasma supply and could amplify the supply and demand
       imbalance for plasma products in China. Therefore, we have revised our
       sales and production strategies to maintain as smooth a product supply as
       possible to our key customers in a longer term.
    2. The Company may have less imminent flexibility in reducing the expenses
       for previously planned and ongoing marketing and sales efforts (to expand
       its geographic markets, add new customers, and increase direct sales to
       institutional customers), and in minimizing the general and
       administrative expenses related to the 4 closed plasma collection
       stations. Therefore, we anticipate lower adjusted net income for 2011
       despite the modest anticipated growth in sales in 2011.

Conference call

China Biologic will host a dial-in conference call at 7:00 a.m. EDT (New York) on August 10, 2011, to discuss its results for the second quarter 2011. To participate in the conference call, please dial the appropriate number about 10 minutes prior to the scheduled conference call time:

The dial-in details for the live conference call are:




    U.S. toll-free number                                       1 866 549 1292
    Mainland China toll-free number                               800 876 8626
    Hong Kong local access                                           3005 2050
    International toll number                                   +852 3005 2050
    Participant pass code               674 477#

A telephone replay of the call will be available after the conclusion of the conference all through 7:00 a.m. EDT on August 17, 2011.

The dial-in details for the telephone replay are:




    U.S. toll-free number                                       1 866 753 0743
    Mainland China toll free number                               800 876 8594
    Hong Kong local access                                           3005 2020
    International dial-in toll number                           +852 3005 2020
    Replay pass code                     138 012#

Use of non-GAAP financial measures

This news release contains non-GAAP financial measures that exclude non-cash compensation expenses related to options granted to employees and directors under the Company's 2008 Equity Incentive Plan and changes in the fair value of derivative liabilities, including warrants and derivative instruments (including the conversion option) embedded in the Company's Senior Secured Convertible Notes (after adding back interest related to the convertible notes under the if-converted method). 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 these non-GAAP measures provide 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 news 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 subsidiaries, Shandong Taibang Biological Products Co., Ltd. and Guiyang Dalin Biologic Technologies Co., Ltd, and its equity investment in Xi'an Huitian Blood Products Co., Ltd., is one of the leading plasma-based biopharmaceutical companies in China.

The Company is a fully integrated biologic products company with plasma collection, production and manufacturing, research and development, and commercial operations. The Company's plasma-based biopharmaceutical products are irreplaceable during medical emergencies and are used for the prevention and treatment of various diseases. The Company sells its products to hospitals and other healthcare facilities in China. Please see the Company's website www.chinabiologic.com for additional information.

Safe harbor statement

This release may contain certain "forward-looking statements" relating to the business of China Biologic Products, Inc. and its subsidiaries. All statements, other than statements of historical fact included herein are "forward-looking statements," including, among others, statements regarding: the Company's financial and business outlook in 2011, the closure of the plasma collection centers in Guizhou, its expected effect on the Company's financial performance, business operations and the industry, the Company's ability and plan to seek alternative solutions and opportunities, the Company's production plan, sales strategy and its ability to maximize profit and adapt to changing market, the ability of the Company to achieve its commercial objectives, the business strategy, plans, and objectives of the Company and its subsidiaries, including its ability to successfully implement its growth strategies, including its strategy to expand direct sales to hospitals and inoculation centers in order to boost future sales, 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, and involve known and unknown risks and uncertainties. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they 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 news 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 its potential inability to achieve the expected financial performance in 2011 and growth, potential inability to find alternative sources of plasma, potential inability to increase production at permitted sites, potential inability to mitigate the financial consequences through cost cutting or other efficiencies, and potential additional regulatory restrictions on its operations and those additional risks and uncertainties discussed in the Company's periodic reports that are filed with the Securities and Exchange Commission and available on the SEC 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.

Financial statements follow.



    CHINA BIOLOGIC PRODUCTS, INC. AND SUBSIDIARIES
      UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

                                                        For the three
                                                        months ended
                                                         -------------
                                                    June              June
                                                     30,               30,
                                                     2011             2010
                                                   -----             -----
    Sales
                  External customers             $41,664,996      $40,580,807
                  Related party                          462          327,509
                                                         ---          -------
    Total sales                                   41,665,458       40,908,316
                                                  ----------       ----------

    Cost of sales
                  External customers              12,512,359        9,012,168
                  Related party                          210           46,738
                                                         ---           ------
    Cost of sales                                 12,512,569        9,058,906
                                                  ----------        ---------

    Gross profit                                  29,152,889       31,849,410

    Operating expenses
                  Selling expenses                 3,038,143        1,856,881
                  General and
                   administrative expenses         7,665,306        5,905,950
                  Research and development
                   expenses                        1,218,977        1,317,483
                                                   ---------        ---------

    Income from operations                        17,230,463       22,769,096
                                                  ----------       ----------

    Other expenses / (income)
                  Equity in income of
                   equity method investee           (463,688)        (157,114)
                  Change in fair value of
                   derivative liabilities        (11,175,384)      (2,270,829)
                  Interest expense                 2,300,601          619,469
                  Interest income                   (269,594)        (180,464)
                  Other expenses /
                   (income), net                     846,051          102,465
                                                     -------          -------
    Total other income, net                       (8,762,014)      (1,886,473)
                                                  ----------       ----------

    Earnings before income
     tax expense                                  25,992,477       24,655,569

    Income tax expense                             5,317,249        4,961,895
                                                   ---------        ---------

    Net income                                    20,675,228       19,693,674

    Less: Net income
     attributable to the
     noncontrolling interest                       4,075,523        6,757,992
                                                   ---------        ---------

    Net income attributable
     to China Biologic
     Products, Inc.                              $16,599,705      $12,935,682
                                                 ===========      ===========

    Earnings per share:
                         Basic                         $0.67            $0.55
                                                       =====            =====
                         Diluted                       $0.28            $0.41
                                                       =====            =====

    Weighted average shares
     used in computation:
                         Basic                    24,632,774       23,511,435
                                                  ==========       ==========
                         Diluted                  26,738,279       26,599,255
                                                  ==========       ==========



                                                     For the six
                                                     months ended
                                                     -----------
                                                June              June
                                                 30,               30,
                                                 2011             2010
                                               -----             -----
    Sales
                  External customers         $76,060,234      $67,442,329
                  Related party                   76,046          564,540
                                                  ------          -------
    Total sales                               76,136,280       68,006,869
                                              ----------       ----------

    Cost of sales
                  External customers          21,789,563       15,811,022
                  Related party                   34,604           46,738
                                                  ------           ------
    Cost of sales                             21,824,167       15,857,760
                                              ----------       ----------

    Gross profit                              54,312,113       52,149,109

    Operating expenses
                  Selling expenses             5,488,056        2,799,789
                  General and administrative
                   expenses                   15,129,447       10,868,202
                  Research and development
                   expenses                    1,929,968        2,486,138
                                               ---------        ---------

    Income from operations                    31,764,642       35,994,980
                                              ----------       ----------

    Other expenses / (income)
                  Equity in income of equity
                   method investee              (734,082)        (345,655)
                  Change in fair value of
                   derivative liabilities    (12,197,249)      (6,104,406)
                  Interest expense             3,981,523          953,058
                  Interest income               (439,725)        (333,000)
                  Other expenses /(income),
                   net                         1,070,282         (717,504)
                                               ---------         --------
    Total other income, net                   (8,319,251)      (6,547,507)
                                              ----------       ----------

    Earnings before income tax
     expense                                  40,083,893       42,542,487

    Income tax expense                         9,580,465        8,033,042
                                               ---------        ---------

    Net income                                30,503,428       34,509,445

    Less: Net income
     attributable to the
     noncontrolling interest                   7,594,748       10,910,014
                                               ---------       ----------

    Net income attributable to
     China Biologic Products,
     Inc.                                    $22,908,680      $23,599,431
                                             ===========      ===========

    Earnings per share:
                         Basic                     $0.94            $1.01
                                                   =====            =====
                         Diluted                   $0.53            $0.68
                                                   =====            =====

    Weighted average shares
     used in computation:
                         Basic                24,492,728       23,449,508
                                              ==========       ==========
                         Diluted              26,802,683       26,541,685
                                              ==========       ==========



    CHINA BIOLOGIC PRODUCTS, INC. AND SUBSIDIARIES
         UNAUDITED CONSOLIDATED BALANCE SHEETS

                                               June            December
                                                  30,               31,
                                              -----           ---------
                                                   2011             2010
                                                   ----              ---
    ASSETS
    Current Assets
         Cash and cash equivalents          $76,841,679      $64,941,368
         Accounts receivable, net
          of allowance for doubtful
          accounts                           20,392,860        9,922,111
         Accounts receivable -a
          related party                               -          212,611
         Inventories                         62,598,637       52,300,447
         Other receivables                    2,103,222        2,727,110
         Prepayments and prepaid
          expenses                            2,044,279          855,338
         Deferred tax assets                  2,401,806        1,860,753
                                              ---------        ---------
                 Total Current Assets       166,382,483      132,819,738

    Property, plant and
     equipment, net                          39,932,006       39,511,731
    Intangible assets, net                   13,124,987       14,559,020
    Land use rights, net                      4,954,026        4,701,450
    Prepayments and deposits
     for property, plant and
     equipment                                6,429,300        4,254,423
    Goodwill                                 18,129,811       17,778,231
    Equity method investment                  8,183,215        7,297,201
                                              ---------        ---------
                 Total Assets              $257,135,828     $220,921,794


    LIABILITIES AND
     STOCKHOLDERS' EQUITY
    Current Liabilities
         Short-term bank loans              $18,564,000       $3,034,000
         Accounts payable                     5,593,488        4,392,772
         Due to related parties               3,262,995        3,192,140
         Other payables and accrued
          expenses                           21,738,685       21,606,730
         Advance from customers               4,496,574        3,560,018
         Income tax payable                   9,555,911        6,659,805
         Other taxes payable                  2,759,165        2,146,868
         Convertible notes                            -        1,196,233
         Derivative liabilities -
          embedded conversion
          option in convertible
          notes                                       -       14,561,661
         Derivative liabilities -
          warrants                            5,188,004       11,095,592
                                              ---------       ----------
                 Total Current Liabilities    71,158,822       71,445,819
         Other payable                          338,604          333,008
         Deferred tax liabilities             3,999,634        4,098,834
                                              ---------        ---------
                 Total Liabilities           75,497,060       75,877,661
                                             ----------       ----------

    Stockholders' Equity
         Common stock: par value
          $.0001; 100,000,000
          shares authorized;
          25,551,125 and 24,351,125
          shares issued and
          outstanding at June 30,
          2011 and December 31,
          2010, respectively                      2,555          2,435
         Additional paid-in
          capital                            46,160,371       35,435,139
         Retained earnings                   78,647,781       55,739,101
         Accumulated other
          comprehensive income               11,129,413        8,023,121
                                             ----------        ---------
         Total stockholders' equity
          attributable to China
          Biologic Products, Inc.           135,940,120       99,199,796

         Noncontrolling interest             45,698,648       45,844,337
                                             ----------       ----------

                 Total Equity               181,638,768      145,044,133
                                            -----------      -----------

         Commitments and
          contingencies


                 Total Liabilities and
                  Equity                   $257,135,828     $220,921,794



    CHINA BIOLOGIC PRODUCTS, INC. AND SUBSIDIARIES
    UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                              For the six
                                                 months ended
                                             ------------
                                         June              June
                                             30,               30,
                                             2011              2010
                                        -----             -----
    CASH FLOWS FROM OPERATING
     ACTIVITIES:
    Net income                       $30,503,428       $34,509,445
    Adjustments to reconcile
     net income to cash
     provided by operating
     activities:
                  Depreciation         2,192,436         1,670,321
                  Amortization         1,769,484         1,740,659
                  Loss on sale of property,
                   plant and equipment        133,218             3,020
                  (Reversal) /provision for
                   doubtful accounts, net        (14,674)          423,922
                  Write-down of obsolete
                   inventories           151,014           219,897
                  Deferred tax benefit       (677,477)         (311,476)
                  Stock compensation      2,418,287           617,841
                  Change in fair value of
                   derivative liabilities    (12,197,249)       (6,104,406)
                  Amortization of deferred
                   note issuance cost         91,945           171,667
                  Amortization of discount on
                   convertible notes      3,503,767           312,259
                  Equity in income of equity
                   method investee       (734,082)         (345,655)
       Change in operating assets
        and liabilities:
                  Accounts receivable -third
                   parties           (10,150,102)       (3,861,953)
                  Accounts receivable -a
                   related party         214,587            (6,264)
                  Other receivables         27,582           (95,231)
                  Inventories         (9,319,703)       (6,351,255)
                  Prepayments and prepaid
                   expenses           (1,299,510)         (849,198)
                  Accounts payable      1,200,716          (446,713)
                  Other payables and accrued
                   expenses              378,573         1,252,134
                  Accrued interest -
                   noncontrolling interest
                   shareholders                -        (2,068,526)
                  Advance from customers        857,251           169,398
                  Income tax payable      2,735,990        (1,294,805)
                  Other taxes payable        563,983                 -
                                         -------               ---
    Net cash provided by
     operating activities             12,349,464        19,355,081
                                      ----------        ----------

    CASH FLOWS FROM INVESTING
     ACTIVITIES:
       Acquisition of a
        subsidiary, net of cash
        acquired                               -        (4,022,288)
       Purchase of property, plant
        and equipment                 (4,596,500)       (6,154,212)
       Purchase of intangible
        assets and land use right       (413,925)         (559,436)
                                        --------          --------
    Net cash used in investing
     activities                       (5,010,425)      (10,735,936)
                                      ----------       -----------



           CHINA BIOLOGIC PRODUCTS, INC. AND SUBSIDIARIES
    UNAUDTIED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                                                       For the six
                                                            months
                                                            ended
                                                        -----------
                                                   June             June
                                                      30,              30,
                                                     2011             2010
                                                  -----            -----

    CASH FLOWS FROM FINANCING
     ACTIVITIES:
       Proceeds from warrants
        exercised                                        -          689,160
       Proceeds from stock option
        exercised                                  100,000                -
       Proceeds from short term bank
        loans                                   18,373,200        5,867,600
       Repayment of short term bank
        loans                                   (3,062,200)      (4,449,295)
       Acquisition of noncontrolling
        interest                                (7,635,000)               -
       Repayment of noncontrolling
        interest shareholder loan                        -       (3,652,500)
       Dividend paid by subsidiaries
        to noncontrolling interest
        shareholders                            (5,589,920)      (4,864,240)
                                                ----------       ----------
    Net cash used in /(provided
     by) financing activities                    2,186,080       (6,409,275)
                                                 ---------       ----------

    EFFECTS OF EXCHANGE RATE
     CHANGE IN CASH                              2,375,192          209,310
                                                 ---------          -------

    NET INCREASE IN CASH                        11,900,311        2,419,180
                                                ==========        =========

    Cash and cash equivalents,
     beginning of period                        64,941,368       53,843,951
                                                ==========       ==========

    Cash and cash equivalents,
     end of period                             $76,841,679      $56,263,131


    Supplemental cash flow
     information
       Cash paid for income taxes               $7,521,952       $9,500,399

       Cash paid for interest
        expense (net of capitalized
        interest)                                 $370,918         $161,684

       Noncash investing and
        financing activities:
             Convertible notes conversion      $12,972,000       $2,498,957

             Reclassification of warrant
              liability to paid-in
              capital upon warrants
              conversion                   $             -       $1,747,765
                                                       ===
             Utilization of prepayments
              and deposits to acquire
              intangible assets            $             -         $440,070
                                                       ===
             Utilization of prepayments
              and deposits to acquire
              property, plant and
              equipment                           $836,000         $629,166




                RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
              FOR THE THREE MONTHS ENDED JUNE 30, 2011 AND 2010

                                Three months Ended   Three months Ended
                                  June 30, 2011         June 30, 2010
                                  -------------         -------------
    Net Income (Loss)
     Diluted EPS             Net Income        EPS   Net Income       EPS
    -----------------        ----------        ---   ----------       ---
    Adjusted Net Income
     for diluted net
     income per share -
     Non GAAP                $8,744,754     $0.33  $10,994,991     $0.41
    -------------------      ----------     -----  -----------     -----
    Non-cash employee
     stock compensation     $(1,243,405)              $(45,948)
    -------------------     -----------               --------
    Adjusted Net Income
     for diluted net
     income per share        $7,501,349     $0.28  $10,949,043     $0.41
    -------------------      ----------     -----  -----------     -----
    Interest on the Notes   $(2,077,028)             $(284,190)
    Gain from change in
     fair value of
     embedded conversion
     option in the Notes     $5,781,624             $1,752,403
    Gain from change in
     fair value of
     warrants                $5,393,760               $518,426
    Net Income
     attributable to
     controlling interest   $16,599,705            $12,935,682
    Weighted average number
     of Shares               26,738,279             26,599,255




                RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
               FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010

                               Six months Ended          Six months Ended
                                June 30, 2011             June 30, 2010
                                -------------             -------------
    Net Income (Loss)
     Diluted EPS           Net Income        EPS       Net Income         EPS
    -----------------      ----------        ---       ----------         ---
    Adjusted Net Income
     for diluted net
     income per share -
     Non GAAP             $16,709,885     $0.62      $18,569,177       $0.70
    -------------------   -----------     -----      -----------       -----
    Non-cash employee
     stock compensation   $(2,418,287)                 $(617,841)
    Adjusted Net Income
     for diluted net
     income per share     $14,291,598     $0.53      $17,951,336       $0.68
    -------------------   -----------     -----      -----------       -----
    Interest on the
     Notes                $(3,580,167)                 $(456,311)
    Gain from change in
     fair value of
     embedded
     conversion option
     in the Notes       $6,289,661        $3,809,745
    Gain from change in
     fair value of
     warrants              $5,907,588                 $2,294,661
    Net Income
     attributable to
     controlling
     interest             $22,908,680                $23,599,431
    Weighted average
     number of Shares      26,802,683                 26,541,685




    Company Contact
    Mr. Y. Tristan Kuo
    Chief Financial Officer
    China Biologic Products, Inc.
    Telephone: +86-538-6202206
    Email: ir@chinabiologic.com
    www.chinabiologic.com

SOURCE China Biologic Products, Inc.

SOURCE: China Biologic Products, Inc.

China Biologic Products Reports Second Quarter 2011 Results

PR Newswire

TAI'AN, China, Aug. 9, 2011 /PRNewswire-Asia-FirstCall/ -- China Biologic Products, Inc. (NASDAQ: CBPO) ("China Biologic" or the "Company"), one of the leading plasma-based biopharmaceutical companies in the People's Republic of China ("PRC"), today reported its results for the three months ended June 30, 2011.

Financial highlights for the second quarter 2011

  • Total sales in US dollars increased 1.9% in the second quarter 2011 to $41.7 million from the second quarter 2010, with the benefit of 4.8% foreign exchange translation gain. Total sales denominated in RMB decreased 2.9% in the second quarter from the second quarter of last year.
  • Gross profit decreased 8.5% to $29.2 million in the second quarter 2011 from the same period in 2010. The gross profit margin was 70.0% in the second quarter 2011 compared with 77.9% in the second quarter 2010.
  • Income from operations decreased 24.3% to $17.2 million in the second quarter 2011 from the prior second quarter.
  • GAAP Net income attributable to China Biologic increased 28.3% to $16.6 million or $0.28 per diluted share in the second quarter 2011 from the second quarter 2010.
  • Excluding non-cash employee stock compensation, non-cash gain related to change in fair value of derivative liability, and interest on convertible notes, the non-GAAP adjusted net income attributable to China Biologic was $8.7 million or $0.33 per diluted share in the second quarter 2011, a 20.5% decrease from $11.0 million or $0.41 per diluted share in last year's second quarter.

CEO Comments

Mr. Chao Ming Zhao, Chief Executive Officer of China Biologic, said, "We understand that investors have concerns about the unexpected closing of four of our plasma collection stations in Guizhou province that occurred on August 1, 2011 at the direction of the Guizhou Provincial government's newly imposed plan and policy. These stations accounted for about 34.1% of our total raw plasma volume collected in 2010."

"To mitigate the effects from the closing of the 4 plasma collection stations, we are working on alternative solutions and opportunities that include minimizing the write-off of already collected plasma from these 4 stations by performing all tests required by the 90-day quarantine rules, reallocating resources from the closed stations to maximize their utilization within the Company, and exploring new regions for new plasma stations."

"In addition, we are adjusting our production plan and sales strategy to leverage the available resources to maximize profit as we respond to the changing market dynamics. For example, given the limited supply of raw plasma in the future, we will focus on supplying our products, which are critical and irreplaceable to health care, via direct sales to our best customers. We remain committed to accelerating our earnings growth in the future -- by focusing on our direct institutional sales, broadening our geographic reach, finding and creating new raw plasma sources, continuing to develop a strong new product pipeline, and considering possible prudent acquisitions, mergers and potential international collaborations."

"Our sales, in terms of RMB, decreased slightly in the second quarter, mainly due to weaker product pricing in a more competitive market and lower revenue from high-value hyper-immune products due to unavailability of specific vaccinated plasma raw material. Additionally, we unified the labels and packaging of the products from our two subsidiaries so that our Taibang brand becomes our primary brand. It took us much longer to relabel and repackage the products than we expected, which resulted in delays in shipping and revenue recognition for IVIG products."

"Given that some factors are still evolving and it remains uncertain how they will be resolved, we have revised our guidance based on the current available information. For that reason, we recommend an extra measure of caution in interpreting our revised guidance."  

"I assure you that we are working around the clock to recover from the unexpected loss of the 4 raw plasma collection stations in Guizhou. We plan to update you about our progress when we reach meaningful milestones."

Results for the three months ended June 30, 2011

Our revenue increased by 1.9% to $41.7 million during the second quarter 2011 from $40.9 million for the same period in 2010. The foreign exchange translation contributed a 4.8% increase in sales, which translated into a 2.9% decrease in sales denominated in RMB. The revenue decrease in terms of RMB was primarily a result of the combined effect of the fluctuation on both price and volume of plasma based products. Due to increased market competition, most of the Company's plasma products experienced general price decreases ranging from 4.2% to 16.2%.

Among all of products, only human immunoglobulin for intravenous injection ("IVIG"), which had an approximately 3.2% average selling price ("ASP"), increase as compared to the same quarter in 2010 year-over-year. Sales of Human Albumin remained the largest revenue contributor, accounted for 51.3% of the total sales. While experiencing approximately 4.2% ASP decline, sales volume of Human Albumin increased 18.3% year-over-year.

IVIG, the second largest revenue contributor which accounted for 38.6% of total sales, experienced an average year-over-year volume decrease of 2.7% in the second quarter of 2011.

Human Hepatitis B Immunoglobulin experienced the sharpest ASP decrease, down 16.2% compared to the same period of prior year, and contributed 4.5% of the total sales in the second quarter of 2011. The price decrease in human hepatitis B immunoglobulin products was mainly due to the Company's participation in a public health program sponsored by PRC's Ministry of Health benefiting migrant workers. The sales price for this public health program was lower than the normal retail price in order to benefit migrant workers.

Human tetanus immunoglobulin products experienced largest sales volume increase of 77.1%, with a 5.3% ASP decline, and contributed 4.7% of total sales in the second quarter of 2011. The significant volume variance of hyper-immune products year-over-year was attributable to the availability of specific vaccinated plasma and production lines.

Gross profit decreased $2.7 million or 8.5% to $29.2 million in the second quarter of 2011 from $31.8 million in the second quarter of 2010. Gross profit margin was 70.0% in the second quarter of 2011, as compared to the 77.9% for the same period in 2010. The decrease in gross profit margin was primarily attributable to the decrease in the ASP of most of products and increased cost of raw material plasma due to our efforts to increase plasma collection volume.

Total operating expenses in the second quarter of 2011 increased 31.3% to $11.9 million, as compared to $9.08 million in the second quarter of 2010. As a percentage of sales, total operating expenses increased to 28.6% in the second quarter of 2011, from 22.2% for the same period in 2010.

Selling expenses increased by $1.2 million, or 63.6%, to $3.0 million in the second quarter of 2011 from $1.9 million in the second quarter of 2010. Selling expenses as a percent of sales increased to 7.3% in the second quarter of 2011 from 4.5% for the same period in 2010. The increase in selling expenses was in line with our continuing effort to expand our customer base in hospital and inoculation centers throughout the PRC in a bid to counter the negative impact of the general price decreases of our products caused by heightened competitive pressures.

General and administrative expenses increased by $1.8 million, or 29.8%, to $7.7 million in the second quarter of 2011 from $5.9 million in the second quarter of 2010. General and administrative expenses as a percent of sales increased to 18.4% in the second quarter of 2011, from 14.4% in the same period of 2010. The increase in general and administrative expenses was primarily due to an increase in expenses related to payroll and employee benefits, as well as an increase of approximately $1.2 million in non-cash employee stock compensation expenses. The increase in payroll was mainly due to our efforts to enhance corporate governance with the addition of two directors during the first quarter of 2011, the addition of a new executive officer in December 2010, and the addition of our corporate offices in Beijing.

Research and development expenses decreased by $0.1 million, or 7.5%, to $1.2 million in the second quarter of 2011, from $1.3 million in the second quarter of 2010. As a percent of sales, research and development expenses were 2.9% and 3.2% in the second quarter of 2011 and 2010, respectively. The decrease in research and development expenses was primarily due to the decreased cost associated with the development of two new products, which we are waiting for the PRC's State Food and Drug Administration ("SFDA") approval. Due to the delay of SFDA approval process, we expect to receive the approval for these two new products in early 2012.

Income from operations decreased 24.3% to $17.2 million in the second quarter of 2011, as compared to $22.8 million in the second quarter of 2010. The operating income margin was 41.4% and 55.7% for the quarter ended June 30, 2011 and 2010, respectively.

For the quarter ended June 30, 2011 and 2010, we recognized a gain from the change in fair value of derivative liabilities in the amounts of $11.2 million and $2.3 million, respectively. The recognized gain from the change in the fair value of derivative liabilities in the second quarter of 2011 was mainly due to a decrease in the price of our common stock from $15.96 as of March 31, 2011 to $10.20 as of June 30, 2011.

Our provision for income taxes increased to $5.3 million in the second quarter of 2011, from $5.0 million in the second quarter of 2010, with effective income tax rate remained at 20%. The increase of income tax provision was mainly due to the increase in applicable income tax rate of Shandong Taibang and Guizhou Taibang from 15% to 25% for the three months ended June 30, 2011, compared with the same period in the prior year. Shandong Taibang is in the process of reapplying for the High and New Technology Enterprise qualification for an additional three years from 2011 to 2013. Guizhou Taibang, which was entitled to a preferential income tax rate of 15% under the previous 10-year Western Development Tax Concession, will apply for the Tax Concession in order to continue to enjoy the 15% preferential income tax rate from 2011 to 2020.

GAAP net income attributable to China Biologic in the second quarter of 2011 was $16.6 million, or $0.28 per diluted share, as compared to $12.9 million, or $0.41 per diluted share, in the same period of 2010. Non-GAAP adjusted net income was $8.7 million, or $0.33 per diluted share, in the second quarter of 2011, as compared to $11.0 million, or $0.41 per diluted share, in the second quarter of 2010. Non-GAAP adjusted net income and diluted earnings per share in the second quarter 2011 excluded an aggregate $11.2 million of gains, which are related to the change in the fair value of derivative liabilities, and added back $1.2 million of non-cash employee stock compensation expenses and $2.1 million of interest related to the convertible notes under the if-converted method. Please refer to the table at the end of this release for the reconciliation of our non-GAAP measures to the nearest comparable GAAP measures.

Six Months Results

For the first six months ended June 30, 2011, our sales increased 12.0% to $76.1 million as compared to $68.0 million for the same period last year. The foreign exchange translation contributed a 4.7% increase in sales, which translated into a 7.3% increase in sales denominated in RMB. The increase in sales during the 2011 period was primarily attributable to a general mix of increases in prices and volumes for certain of our plasma based products.

Gross profit for the first six months of 2011 was $54.3 million, increased 4.1% from $52.1 million in the same period in 2010. Gross profit margin for the first six months of 2011 was 71.3%, as compared to 76.7% for the same period in 2010. The decrease in gross profit margin was mainly due to the price decreases of certain of our products and increases in raw material costs.

Income from operations for the period was $31.8 million, down 11.8% from $36.0 million in the first six months of 2010. The decrease in income from operations was mainly due to a 96.0% increase in selling expenses and 39.2% increase in general and administrative expenses for the period as compared to the same period in 2010.

Net income for the first six months of 2011 was $30.5 million, down 11.6% from $34.5 million in the first six months of 2010. Fully diluted earnings per share were $0.53 for the first six months of 2011 as compared to $0.68 in the first six months of 2010. Excluding non-cash employee stock compensation expenses, change in the fair value of derivative liabilities and interest related to the convertible notes under the if-converted method, non-GAAP adjusted net income for the six months ended June 30, 2011 was $16.7 million, or $0.62 per diluted share, a decrease of 10.0% from non-GAAP net income of $18.6 million, or $0.70 per diluted share, for the six months ended June 30, 2010.

Financial Condition

As of June 30, 2011, the Company had $76.8 million in cash and cash equivalents, approximately $95.2 million in working capital, and a current ratio of 233.8%. Total shareholders' equity as of June 30, 2011 was $181.6 million, as compared with $145.0 million at December 31, 2010.

Guidance and business outlook for 2011

China Biologic expects the revised total 2011 sales in the range of approximately $140 million to $145 million. The Company expects 2011 adjusted net income to be in the range of $28 million to $31 million, excluding any non-cash charge or gain related to change in the fair value of derivative liabilities, stock-based compensation expense, any adjustments in the U.S. federal income tax provision in 2011 related to the look-through exception for Subpart F income which expiring on December 31, 2011 and non-cash impairment losses associated, if any, with the closures of 4 plasma collection stations in Guizhou. The Company has provided the revised outlook based on the following factors:

  1. The unexpected closure of 4 plasma collection stations in Guizhou, will limit our near-term future raw plasma supply. Additionally, the unexpected closure of a number of plasma collection stations in Guizhou may reduce China's plasma supply and could amplify the supply and demand imbalance for plasma products in China. Therefore, we have revised our sales and production strategies to maintain as smooth a product supply as possible to our key customers in a longer term.
  2. The Company may have less imminent flexibility in reducing the expenses for previously planned and ongoing marketing and sales efforts (to expand its geographic markets, add new customers, and increase direct sales to institutional customers), and in minimizing the general and administrative expenses related to the 4 closed plasma collection stations. Therefore, we anticipate lower adjusted net income for 2011 despite the modest anticipated growth in sales in 2011.

Conference call

China Biologic will host a dial-in conference call at 7:00 a.m. EDT (New York) on August 10, 2011, to discuss its results for the second quarter 2011. To participate in the conference call, please dial the appropriate number about 10 minutes prior to the scheduled conference call time:

The dial-in details for the live conference call are:


U.S. toll-free number

1 866 549 1292

Mainland China toll-free number

800 876 8626

Hong Kong local access

3005 2050

International toll number

+852 3005 2050

Participant pass code

674 477#




A telephone replay of the call will be available after the conclusion of the conference all through 7:00 a.m. EDT on August 17, 2011.

The dial-in details for the telephone replay are:


U.S. toll-free number            

1 866 753 0743

Mainland China toll free number

800 876 8594

Hong Kong local access

3005 2020

International dial-in toll number  

+852 3005 2020

Replay pass code          

138 012#




Use of non-GAAP financial measures

This news release contains non-GAAP financial measures that exclude non-cash compensation expenses related to options granted to employees and directors under the Company's 2008 Equity Incentive Plan and changes in the fair value of derivative liabilities, including warrants and derivative instruments (including the conversion option) embedded in the Company's Senior Secured Convertible Notes (after adding back interest related to the convertible notes under the if-converted method). 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 these non-GAAP measures provide 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 news 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 subsidiaries, Shandong Taibang Biological Products Co., Ltd. and Guiyang Dalin Biologic Technologies Co., Ltd, and its equity investment in Xi'an Huitian Blood Products Co., Ltd., is one of the leading plasma-based biopharmaceutical companies in China.

The Company is a fully integrated biologic products company with plasma collection, production and manufacturing, research and development, and commercial operations. The Company's plasma-based biopharmaceutical products are irreplaceable during medical emergencies and are used for the prevention and treatment of various diseases. The Company sells its products to hospitals and other healthcare facilities in China. Please see the Company's website www.chinabiologic.com for additional information.

Safe harbor statement

This release may contain certain "forward-looking statements" relating to the business of China Biologic Products, Inc. and its subsidiaries. All statements, other than statements of historical fact included herein are "forward-looking statements," including, among others, statements regarding: the Company's financial and business outlook in 2011, the closure of the plasma collection centers in Guizhou, its expected effect on the Company's financial performance, business operations and the industry, the Company's ability and plan to seek alternative solutions and opportunities, the Company's production plan, sales strategy and its ability to maximize profit and adapt to changing market, the ability of the Company to achieve its commercial objectives, the business strategy, plans, and objectives of the Company and its subsidiaries, including its ability to successfully implement its growth strategies, including  its strategy to expand direct sales to hospitals and inoculation centers in order to boost future sales, 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, and involve known and unknown risks and uncertainties. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they 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 news 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 its potential inability to achieve the expected financial performance in 2011 and growth, potential inability to find alternative sources of plasma, potential inability to increase production at permitted sites, potential inability to mitigate the financial consequences through cost cutting or other efficiencies, and potential additional regulatory restrictions on its operations and those additional risks and uncertainties discussed in the Company's periodic reports that are filed with the Securities and Exchange Commission and available on the SEC 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.

Financial statements follow.


CHINA BIOLOGIC PRODUCTS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME



For the three months ended


 For the six months ended



June 30, 2011


June 30, 2010


June 30, 2011


June 30, 2010

Sales









              External customers

$

41,664,996

$

40,580,807

$

76,060,234

$

67,442,329

              Related party


462


327,509


76,046


564,540

Total sales


41,665,458


40,908,316


76,136,280


68,006,869










Cost of sales









              External customers


12,512,359


9,012,168


21,789,563


15,811,022

              Related party


210


46,738


34,604


46,738

Cost of sales


12,512,569


9,058,906


21,824,167


15,857,760










Gross profit


29,152,889


31,849,410


54,312,113


52,149,109










Operating expenses









              Selling expenses


3,038,143


1,856,881


5,488,056


2,799,789

              General and administrative expenses


7,665,306


5,905,950


15,129,447


10,868,202

              Research and development expenses


1,218,977


1,317,483


1,929,968


2,486,138










Income from operations


17,230,463


22,769,096


31,764,642


35,994,980










Other expenses / (income)









              Equity in income of equity method investee


(463,688)


(157,114)


(734,082)


(345,655)

              Change in fair value of derivative liabilities


(11,175,384)


(2,270,829)


(12,197,249)


(6,104,406)

              Interest expense


2,300,601


619,469


3,981,523


953,058

              Interest income


(269,594)


(180,464)


(439,725)


(333,000)

              Other expenses / (income), net


846,051


102,465


1,070,282


(717,504)

Total other income, net


(8,762,014)


(1,886,473)


(8,319,251)


(6,547,507)










Earnings before income tax expense


25,992,477


24,655,569


40,083,893


42,542,487










Income tax expense


5,317,249


4,961,895


9,580,465


8,033,042










Net income


20,675,228


19,693,674


30,503,428


34,509,445










Less: Net income attributable to the noncontrolling interest


4,075,523


6,757,992


7,594,748


10,910,014










Net income attributable to China Biologic Products, Inc.

$

16,599,705

$

12,935,682

$

22,908,680

$

23,599,431










Earnings per share:









                     Basic

$

0.67

$

0.55

$

0.94

$

1.01

                     Diluted

$

0.28

$

0.41

$

0.53

$

0.68










Weighted average shares used in computation:









                     Basic


24,632,774


23,511,435


24,492,728


23,449,508

                     Diluted


26,738,279


26,599,255


26,802,683


26,541,685






CHINA BIOLOGIC PRODUCTS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS



June 30,

2011


December 31,

2010

ASSETS





Current Assets





     Cash and cash equivalents

$

76,841,679

$

64,941,368

     Accounts receivable, net of allowance for doubtful accounts


20,392,860


9,922,111

     Accounts receivable - a related party


-


212,611

     Inventories


62,598,637


52,300,447

     Other receivables


2,103,222


2,727,110

     Prepayments and prepaid expenses


2,044,279


855,338

     Deferred tax assets


2,401,806


1,860,753

             Total Current Assets


166,382,483


132,819,738






Property, plant and equipment, net


39,932,006


39,511,731

Intangible assets, net


13,124,987


14,559,020

Land use rights, net


4,954,026


4,701,450

Prepayments and deposits for property, plant and equipment


6,429,300


4,254,423

Goodwill


18,129,811


17,778,231

Equity method investment


8,183,215


7,297,201

             Total Assets

$

257,135,828

$

220,921,794






LIABILITIES AND STOCKHOLDERS' EQUITY





Current Liabilities





     Short-term bank loans

$

18,564,000

$

3,034,000

     Accounts payable


5,593,488


4,392,772

     Due to related parties


3,262,995


3,192,140

     Other payables and accrued expenses


21,738,685


21,606,730

     Advance from customers


4,496,574


3,560,018

     Income tax payable


9,555,911


6,659,805

     Other taxes payable


2,759,165


2,146,868

     Convertible notes


-


1,196,233

     Derivative liabilities - embedded conversion option in convertible notes


-


14,561,661

     Derivative liabilities - warrants


5,188,004


11,095,592

             Total Current Liabilities


71,158,822


71,445,819

     Other payable


338,604


333,008

     Deferred tax liabilities


3,999,634


4,098,834

             Total Liabilities


75,497,060


75,877,661






Stockholders' Equity





     Common stock: par value $.0001; 100,000,000 shares authorized; 25,551,125 and 24,351,125 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively


2,555


2,435

     Additional paid-in capital


46,160,371


35,435,139

     Retained earnings


78,647,781


55,739,101

     Accumulated other comprehensive income


11,129,413


8,023,121

     Total stockholders' equity attributable to China Biologic Products, Inc.


135,940,120


99,199,796






     Noncontrolling interest


45,698,648


45,844,337






             Total Equity


181,638,768


145,044,133






     Commitments and contingencies










             Total Liabilities and Equity

$

257,135,828

$

220,921,794






CHINA BIOLOGIC PRODUCTS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS



For the six months ended



June 30, 2011


June 30, 2010

CASH FLOWS FROM OPERATING ACTIVITIES:





Net income

$

30,503,428

$

34,509,445

Adjustments to reconcile net income to cash provided by operating activities:





              Depreciation


2,192,436


1,670,321

              Amortization


1,769,484


1,740,659

              Loss on sale of property, plant and equipment


133,218


3,020

              (Reversal) / provision for doubtful accounts, net


(14,674)


423,922

              Write-down of obsolete inventories


151,014


219,897

              Deferred tax benefit


(677,477)


(311,476)

              Stock compensation


2,418,287


617,841

              Change in fair value of derivative liabilities


(12,197,249)


(6,104,406)

              Amortization of deferred note issuance cost


91,945


171,667

              Amortization of discount on convertible notes


3,503,767


312,259

              Equity in income of equity method investee


(734,082)


(345,655)

   Change in operating assets and liabilities:





              Accounts receivable - third parties


(10,150,102)


(3,861,953)

              Accounts receivable - a related party


214,587


(6,264)

              Other receivables


27,582


(95,231)

              Inventories


(9,319,703)


(6,351,255)

              Prepayments and prepaid expenses


(1,299,510)


(849,198)

              Accounts payable


1,200,716


(446,713)

              Other payables and accrued expenses


378,573


1,252,134

              Accrued interest - noncontrolling interest shareholders


-


(2,068,526)

              Advance from customers


857,251


169,398

              Income tax payable


2,735,990


(1,294,805)

              Other taxes payable


563,983


-

Net cash provided by operating activities


12,349,464


19,355,081






CASH FLOWS FROM INVESTING ACTIVITIES:





   Acquisition of a subsidiary, net of cash acquired


-


(4,022,288)

   Purchase of property, plant and equipment


(4,596,500)


(6,154,212)

   Purchase of intangible assets and land use right


(413,925)


(559,436)

Net cash used in investing activities


(5,010,425)


(10,735,936)






CHINA BIOLOGIC PRODUCTS, INC. AND SUBSIDIARIES

UNAUDTIED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)



For the six months ended



June 30, 2011


June 30, 2010






CASH FLOWS FROM FINANCING ACTIVITIES:





   Proceeds from warrants exercised


-


689,160

   Proceeds from stock option exercised


100,000


-

   Proceeds from short term bank loans


18,373,200


5,867,600

   Repayment of short term bank loans


(3,062,200)


(4,449,295)

   Acquisition of noncontrolling interest


(7,635,000)


-

   Repayment of noncontrolling interest shareholder loan


-


(3,652,500)

   Dividend paid by subsidiaries to noncontrolling interest shareholders


(5,589,920)


(4,864,240)

Net cash used in / (provided by) financing activities


2,186,080


(6,409,275)






EFFECTS OF EXCHANGE RATE CHANGE IN CASH


2,375,192


209,310






NET INCREASE IN CASH


11,900,311


2,419,180






Cash and cash equivalents, beginning of period


64,941,368


53,843,951






Cash and cash equivalents, end of period

$

76,841,679

$

56,263,131






Supplemental cash flow information





   Cash paid for income taxes

$

7,521,952

$

9,500,399

   Cash paid for interest expense (net of capitalized interest)

$

370,918

$

161,684

   Noncash investing and financing activities:





         Convertible notes conversion

$

12,972,000

$

2,498,957

         Reclassification of warrant liability to paid-in capital upon warrants conversion

$

-

$

1,747,765

         Utilization of prepayments and deposits to acquire intangible assets

$

-

$

440,070

         Utilization of prepayments and deposits to acquire property, plant and equipment

$

836,000

$

629,166







RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

FOR THE THREE MONTHS ENDED JUNE 30, 2011 AND 2010




Three months Ended
June 30, 2011


Three months Ended
June 30, 2010

Net Income (Loss) Diluted EPS


Net Income


EPS



Net Income


EPS

Adjusted Net Income for diluted net income per share - Non GAAP

$

8,744,754

$

0.33


$

10,994,991

$

0.41

Non-cash employee stock compensation

$

(1,243,405)




$

(45,948)



Adjusted Net Income for diluted net income per share

$

7,501,349

$

0.28


$

10,949,043

$

0.41

Interest on the Notes

$

(2,077,028)




$

(284,190)



Gain from change in fair value of embedded conversion option in the Notes

$

5,781,624




$

1,752,403



Gain from change in fair value of warrants

$

5,393,760




$

518,426



Net Income attributable to controlling interest

$

16,599,705




$

12,935,682



Weighted average number of Shares


26,738,279





26,599,255









RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010




Six months Ended
June 30, 2011


Six months Ended
June 30, 2010

Net Income (Loss) Diluted EPS


Net Income


EPS



Net Income


EPS

Adjusted Net Income for diluted net income per share - Non GAAP

$

16,709,885

$

0.62


$

18,569,177

$

0.70

Non-cash employee stock compensation

$

(2,418,287)




$

(617,841)



Adjusted Net Income for diluted net income per share

$

14,291,598

$

0.53


$

17,951,336

$

0.68

Interest on the Notes

$

(3,580,167)




$

(456,311)



Gain from change in fair value of embedded conversion option in the Notes

$

6,289,661




$

3,809,745



Gain from change in fair value of warrants

$

5,907,588




$

2,294,661



Net Income attributable to controlling interest

$

22,908,680




$

23,599,431



Weighted average number of Shares


26,802,683





26,541,685








Company Contact

Mr. Y. Tristan Kuo

Chief Financial Officer

China Biologic Products, Inc.

Telephone: +86-538-6202206

Email: ir@chinabiologic.com

www.chinabiologic.com




SOURCE China Biologic Products, Inc.

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


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