On May 10, 2019 China Biologic Products Holdings, Inc. (NASDAQ: CBPO, "China Biologic" or the "Company"), a leading fully integrated plasma-based biopharmaceutical company in China, reported its unaudited financial results for the first quarter of 2019 (Press release, China Biologic Products, MAY 10, 2019, View Source [SID1234536177]).
Schedule your 30 min Free 1stOncology Demo!
Discover why more than 1,500 members use 1stOncology™ to excel in:
Early/Late Stage Pipeline Development - Target Scouting - Clinical Biomarkers - Indication Selection & Expansion - BD&L Contacts - Conference Reports - Combinatorial Drug Settings - Companion Diagnostics - Drug Repositioning - First-in-class Analysis - Competitive Analysis - Deals & Licensing
Schedule Your 30 min Free Demo!
First Quarter 2019 Financial Highlights
Total sales in the first quarter of 2019 increased by 22.3% in RMB terms and 15.4% in USD terms to $129.8 million from $112.5 million in the same quarter of 2018.
Gross profit increased by 8.6% to $85.6 million from $78.8 million in the same quarter of 2018. Gross margin decreased to 65.9% from 70.0% in the same quarter of 2018.
Income from operations increased by 12.8% to $44.0 million from $39.0 million in the same quarter of 2018. Operating margin decreased to 33.9% from 34.7% in the same quarter of 2018.
Non-GAAP adjusted income from operations increased by 10.5% in RMB terms and 4.2% in USD terms to $52.2 million from $50.1 million in the same quarter of 2018.
Net income attributable to the Company increased by 26.5% in RMB terms and 19.3% in USD terms, to $37.7 million from $31.6 million in the same quarter of 2018. Fully diluted earnings per share increased to $0.94 compared to $0.92 in the same quarter of 2018.
Non-GAAP adjusted net income attributable to the Company increased by 14.3% in RMB terms and 7.7% in USD terms to $44.5 million from $41.3 million in the same quarter of 2018. Non-GAAP adjusted earnings per share decreased to $1.11 from $1.21 in the same quarter of 2018.
"China Biologic achieved better-than-expected financial results for the first quarter, with growth in operating profit that exceeded expectations. Despite this welcome news, the challenging policy headwinds and heightened competition within the Chinese plasma industry persist and we maintain our overall outlook for the year," said Joseph Chow, Chairman of the China Biologic Board of Directors.
"This quarter’s outperformance in terms of operating profit growth can be largely attributed to higher-than-expected sales of albumin. This was due to a temporary shortage of albumin supply in the market related to lower import volumes combined with increased plasma fractionation capability at our new Shandong facility launched last February. However, sales of IVIG products did not meet our expectations, due to reduced purchase volumes at many regional hospitals as mandated by government controls on healthcare spending. The performance of our placenta polypeptide product was largely in line with expectations, with sales down 50% year over year. As market prices decline for our major products, our gross margin continues to be negatively impacted. Although our prior efforts and investments towards improving our sales and marketing capabilities have been successful in broadening our sales channel coverage and reducing Guizhou Taibang’s IVIG inventory, the prescription volumes of IVIG and certain high-unit-price coagulation products remain sluggish."
"We recently received Dr. Bing Li’s resignation as CEO and also from the Board of Directors due to personal reasons. We thank Dr. Li for his contribution in helping China Biologic optimize our sales and marketing team and improve corporate governance. The Board has formed a search committee comprised of independent directors to seek a new CEO and in the interim has appointed me as the acting CEO."
"Looking ahead to the rest of the year, given the relatively fixed annual volume of our available plasma inventory and the oversold albumin volume in the first quarter, the overall albumin sales growth rate in the remaining quarters of this year will likely decelerate. Our new sales and marketing talent will leverage our expanded sales coverage in various channels to offer a variety of products, with renewed efforts towards improving the prescription volumes at regional hospitals and educating doctors about the benefits of IVIG, PCC and other coagulation factor products in treating patients across a wide range of clinical indications. We expect these efforts to help decrease our IVIG inventory position, which is currently above the normal level, both internally and with our distributors."
Share Repurchase Program
In late April 2019, the Company completed the share repurchase program previously authorized by its Board of Directors in 2018, repurchasing 1,074,376 shares at a total of $100 million.
In May 2019, the Company’s Board of Directors authorized a new share repurchase program under which China Biologic may repurchase up to US$150 million worth of shares over the next 12 months.
The Company’s repurchases may be made from time to time on the open market at prevailing market prices, in negotiated transactions off the market, in block trades or through other legally permissible means. The timing and extent of any purchases will depend upon market conditions, the trading price of its shares and other factors, and are subject to the restrictions relating to volume, price and timing under applicable law.
First Quarter 2019 Financial Performance
Total sales in the first quarter of 2019 increased by 22.3% in RMB terms, or 15.4% in USD terms, to $129.8 million from $112.5 million in the same quarter of 2018.
Total sales for biopharmaceutical products (including plasma products and placenta polypeptide products) increased by 22.2% in RMB terms, or 15.2% in USD terms, to $116.5 million from $101.1 million in the same quarter of 2018, as a result of increases in the sales of human albumin products and coagulation factor products, which was partly offset by decreases in the sales of IVIG and placenta polypeptide products. For plasma products, total sales in the first quarter of 2019 increased by 35.8% in RMB terms, or 28.0% in USD terms, to $108.8 million from $85.0 million in the same quarter of 2018.
Total sales for biomaterial products in the first quarter of 2019 increased by 23.8% in RMB terms, or 16.7% in USD terms, to $13.3 million from $11.4 million in the same quarter of 2018, as a result of higher sales concentration in higher-unit-price artificial dura mater products.
During the first quarter of 2019, human albumin and IVIG products remained the Company’s two largest sales contributors. Revenue from human albumin increased by 78.2% in RMB terms, or 68.0% in USD terms, from $33.8 million in the first quarter of 2018 to $56.8 million in the first quarter of 2019. Revenue from IVIG products decreased by 3.1% in RMB terms, or 8.8% in USD terms, from $31.8 million in the first quarter of 2018 to $29.0 million in the first quarter of 2019. As a percentage of total sales, sales from human albumin and IVIG products were 43.8% and 22.4%, respectively, in the first quarter of 2019.
The sales volume of human albumin products increased by 85.8% for the first quarter of 2019, primarily due to increased sales volumes in the distributor and pharmacy channels, supplemented by increased direct sales to hospitals and inoculation centers. The sales volume of IVIG products increased by 1.1% for the first quarter of 2019 as a result of increased sales through the distributor channel.
The average prices for human albumin and IVIG products decreased by 4.1% and 4.2%, respectively, in RMB terms in the first quarter of 2019 compared to the same quarter of 2018 because of higher sales volume in the distributor channel and lower prices to certain distributors reflecting intensified market competition for major plasma products. In USD terms, the average price for human albumin and IVIG products decreased by 9.5% and 9.7%, respectively, in the first quarter of 2019 compared to the same quarter of 2018.
Revenue from other immunoglobulin products increased by 6.6% in RMB terms, or 0.5% in USD terms in the first quarter of 2019 compared to the same quarter of 2018, reaching 10.1% of total sales as compared to 11.6% of total sales in the same quarter of 2018. The revenue increase was mainly attributable to increased sales volume of human tetanus immunoglobulin products.
Revenue from other plasma products, including human coagulation factor VIII, human prothrombin complex concentrate, and human fibrinogen products, increased by 64.2% in RMB terms, or 54.9% in USD terms, in the first quarter of 2019 compared to the same quarter of 2018, representing 7.6% of total sales in the first quarter of 2019. The growth mainly came from increased sales through the distributor channel.
Revenue from placenta polypeptide products decreased by 52.4% in USD terms for the first quarter of 2019 as compared to the same quarter of 2018, accounting for 5.9% of total sales compared to 14.3% of total sales in the first quarter of 2018, mainly in line with a decrease in sales volume as a result of the inclusion of placenta polypeptide products in regional adjuvant drug lists, which put a downward pressure on their prescription volume.
Cost of sales increased by 31.2% to $44.2 million in the first quarter of 2019 from $33.7 million in the same quarter of 2018. As a percentage of total sales, cost of sales increased to 34.1% from 30.0% in the same quarter of 2018, mainly because of decreased sales prices for most of the Company’s plasma products, increased plasma collection costs, and increased depreciation expenses due to the launch of the Company’s new facility in Shandong in February 2018.
Gross profit increased by 8.6% to $85.6 million in the first quarter of 2019 from $78.8 million in the same quarter of 2018. Gross margin was 65.9% and 70.0% in the first quarter of 2019 and 2018, respectively.
Total operating expenses in the first quarter of 2019 increased by $1.8 million, or 4.5%, to $41.6 million from $39.8 million in the same quarter of 2018. This increase mainly consisted of an increase of $3.2 million in general and administrative expenses, partially offset by a decrease of $2.0 million in selling expenses. As a percentage of total sales, total operating expenses decreased to 32.0% in the first quarter of 2019 from 35.4% in the same quarter of 2018.
Selling expenses in the first quarter of 2019 decreased by $2.0 million, or 9.7%, to $18.7 million from $20.7 million for the first quarter of 2018. As a percentage of total sales, selling expenses decreased to 14.4% for the first quarter of 2019 from 18.4% in the same quarter of 2018. The decrease in selling expenses is primarily due to a decrease in marketing and promotion expenses related to placenta polypeptide products, which is partly offset by increased selling expenses for plasma products.
General and administrative expenses in the first quarter of 2019 increased by $3.2 million, or 18.4%, to $20.6 million from $17.4 million in the same quarter of 2018. As a percentage of total sales, general and administrative expenses increased to 15.9% for the first quarter of 2019 from 15.5% for the same quarter of 2018. The increase in general and administrative expenses was mainly a combined result of the increased allowance for doubtful accounts receivable and increased depreciation expenses for the Company’s new facility in Shandong, which was partially offset by the decrease in share-based compensation expenses.
Research and development expenses in the first quarter of 2019 increased by $0.6 million, or 35.3%, to $2.3 million from $1.7 million in the same quarter of 2018. In the first quarter of 2019 and 2018, the Company received government grants totaling $0.4 million and $0.1 million, respectively, and the Company recognized them as a reduction of the research and development expenses. Excluding this impact, research and development expenses increased by $0.9 million for the first quarter of 2019 from the same quarter of 2018. As a percentage of total sales, research and development expenses, excluding the impact of these recognized government grants, increased to 2.1% for 2019 from 1.6% compared to the same quarter of 2018.
Income from operations in the first quarter of 2019 increased by 19.4% in RMB terms, or 12.8% in USD terms, to $44.0 million from $39.0 million in the same quarter of 2018. Operating margin decreased to 33.9% in the first quarter of 2019 from 34.7% in the first quarter of 2018.
Income tax expense in the first quarter of 2019 increased by $1.2 million, or 17.9%, to $7.9 million from $6.7 million in the same period of 2018. The effective income tax rate was 15.0% and 15.1% for the first quarter of 2019 and 2018, respectively.
Net income attributable to the Company increased by 26.5% in RMB terms, or 19.3% in USD terms, to $37.7 million in the first quarter of 2019 from $31.6 million in the same period of 2018. Net margin increased to 29.1% in the first quarter of 2019 from 28.1% in the same period of 2018. Diluted net earnings per share increased to $0.94 in the first quarter of 2019 compared to $0.92 in the same period of 2018.
Non-GAAP adjusted income from operations increased by 10.5% in RMB terms, or 4.2% in USD terms, to $52.2 million in the first quarter of 2019 from $50.1 million in the same period of 2018.
Non-GAAP adjusted net income attributable to the Company increased by 14.3% in RMB terms and 7.7% in USD terms, to $44.5 million in the first quarter of 2019 from $41.3 million in the same period of 2018. Non-GAAP net margin decreased to 34.3% in the first quarter of 2019 from 36.7% in the same period of 2018. Non-GAAP adjusted net income per diluted share decreased to $1.11 in the first quarter of 2019 from $1.21 in the same period of 2018.
Non-GAAP adjusted income from operations for the first quarter of 2019 excludes $6.3 million in non-cash employee share-based compensation expenses, and $2.1 million in amortization expense of intangible assets and land use rights related to the acquisition of TianXinFu.
Non-GAAP adjusted net income and diluted earnings per share for the first quarter of 2019 exclude $5.5 million in non-cash employee share-based compensation expenses, and $1.4 million in amortization expense of intangible assets and land use rights related to the acquisition of TianXinFu.
As of March 31, 2019, the Company had $99.0 million in cash on hand and demand deposits, $653.8 million in time deposits, and $171.2 million in short term investments.
Net cash provided by operating activities for the first quarter of 2019 was $32.2 million as compared to $23.3 million for the same period of 2018. The $8.9 million increase in net cash provided by operating activities was a combined result of the increase in both net income and non-cash expenses, which mainly include depreciation expenses and allowance for doubtful accounts receivable.
Accounts receivable increased by $11.6 million during the first quarter of 2019 as compared to $15.5 million during the same period of 2018. The accounts receivable turnover days for plasma products increased to 100 days during the first quarter of 2019 from 84 days during the same period of 2018, reflecting longer credit terms to hospitals as a result of the nationwide implementation of healthcare reform measures and intensified competition in the distributor channel.
Inventories increased by $4.0 million in the first quarter of 2019, which was milder than the increase of $10.8 million in the same period of 2018, mainly comprised of increased raw material plasma both out-sourced and from the Company’s own collection stations.
Net cash used in investing activities for the first quarter of 2019 was $214.7 million as compared to $135.5 million for the same period of 2018. During the first quarter of 2019, the Company paid $7.9 million for the acquisition of property, plant and equipment, intangible assets and land use rights, and the Company also purchased time deposits and short-term investments in the amount of $937.4 million. This was partly offset by $730.6 million from the maturity of time deposits and short term investments. Net cash used in investing activities in the first quarter of 2018 mainly consisted of $264.7 million payment for purchase of time deposits and short term investments, $11.3 million for the acquisition of property, plant and equipment, intangible assets, and land use rights, which was partly offset by $97.7 million cash received upon acquisition of TianXinFu and the maturity of $42.8 million time deposits and short term investments.
Net cash used in financing activities for the first quarter of 2019 was $60.0 million as compared to net cash provided by financing activities of $0.3 million for the same period of 2018. In the first quarter of 2019, $60.0 million was remitted to an investment bank by the Company to execute the previously approved share repurchase program on behalf of the Company. As of March 31, 2019, 415,356 shares had been repurchased at a total amount of $36.8 million with the remaining $23.2 million as down payment to the investment bank for further repurchases. Net cash provided by financing activities in the first quarter of 2018 represented proceeds of $0.3 million from stock options exercised.
Financial Outlook
The Company reiterates its forecast for the full year 2019. The company expects both non-GAAP adjusted income from operations and non-GAAP adjusted net income to increase by 4% to 6% in RMB terms over full year 2018 financial results.
This guidance does not factor in any potential foreign currency translation impact. Having previously adopted an exchange rate of approximately RMB6.59 = $1.00 based on weighted average quarterly exchange rates in 2018 in translating 2018 financial results, the Company expects that the total sales and non-GAAP adjusted net income in USD terms in 2019 could be affected by the foreign currency translation impact.
This guidance excludes potential acquisitions, and necessarily assumes no significant adverse product price changes during 2019. This forecast reflects the Company’s current and preliminary views, which are subject to change.
Conference Call
The Company will host a conference call at 7:30 am Eastern Time on May 13, 2019, which is 7:30 pm Beijing Time on May 13, 2019, to discuss its first quarter 2019 results and answer questions from investors. Listeners may access the call by dialing:
US:
1 888 346 8982
International:
1 412 902 4272
Hong Kong:
800 905 945
China:
400 120 1203
A telephone replay will be available one hour after the conclusion of the conference all through May 20, 2019. The dial-in details are:
US:
1 877 344 7529
International:
1 412 317 0088
Passcode:
10131286
A live and archived webcast of the conference call will be available through the Company’s investor relations website at View Source