On August 5, 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 second quarter of 2019 (Press release, China Biologic Products, AUG 5, 2019, View Source [SID1234538148]).
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Second Quarter 2019 Financial Highlights
Total sales in the second quarter of 2019 increased by 20.4% in RMB terms and 12.7% in USD terms to $135.7 million from $120.4 million in the same quarter of 2018.
Gross profit increased by 9.9% to $90.9 million from $82.7 million in the same quarter of 2018. Gross margin decreased to 67.0% from 68.7% in the same quarter of 2018.
Income from operations increased by 34.3% to $48.2 million from $35.9 million in the same quarter of 2018. Operating margin increased to 35.5% from 29.8% in the same quarter of 2018.
Non-GAAP adjusted income from operations increased by 23.1% in RMB terms and 15.2% in USD terms to $56.7 million from $49.2 million in the same quarter of 2018.
Net income attributable to the Company increased by 55.2% in RMB terms and 45.5% in USD terms, to $41.6 million from $28.6 million in the same quarter of 2018. Fully diluted earnings per share increased to $1.06 compared to $0.83 in the same quarter of 2018.
Non-GAAP adjusted net income attributable to the Company increased by 29.1% in RMB terms and 21.1% in USD terms to $48.7 million from $40.2 million in the same quarter of 2018. Non-GAAP adjusted earnings per share increased to $1.24 from $1.17 in the same quarter of 2018.
"China Biologic continued to deliver solid financial results in the second quarter, driven primarily by higher-than-usual sales volumes of albumin and a high growth in sales volume for certain hyper-immunoglobulin products. However, IVIG sales remained sluggish, and the growth of albumin sales slowed down. While we closely monitor the impact of changes in the policy and market environment, we maintain our outlook for the year," said Joseph Chow, Chairman and CEO of China Biologic.
"As expected, the growth in albumin sales that we had experienced in the first quarter decelerated during the second quarter, reflecting the alleviation of the albumin supply shortage situation in the market due to relaxation of import constraints imposed in the earlier months of 2019. We expect growth in albumin sales to slow down further during the second half of the year, as a result of our relatively fixed level of annual production of albumin and the large volume of albumin which was oversold in the first half of the year. Sales of IVIG products during the second quarter still lagged behind our expectations, reflecting the continued negative impact of the policy controls on higher-unit-cost prescription drugs. Looking ahead, our polypeptide products may be included in China’s national and regional key drug lists for monitoring and prescription control, which we expect would significantly impact its sales. In addition, due to the increase of our account receivable turnover days relative to peer companies in the last two quarters, we have decided to begin a comprehensive review of our existing credit sale policies regarding pricing and credit terms, and to increase collection efforts to ensure our credit exposure is within the limits of our risk tolerance level. These measures could potentially impact our sales in the near term."
"In June, we obtained approval from the China National Medical Products Administration to begin human clinical trials on a Human von Willebrand Factor (VWF) product, which is intended to be used for the treatment of bleeding episodes including surgical bleeding in patients with von Willebrand disease. We expect that it will take approximately three years to complete the clinical trials. In late July, we received the operating permit for our new Wenchang plasma collection station in Hainan Province and immediately commenced commercial operations. We are also pleased to announce that in early August we completed the acquisition of the remaining 20% interest in TianXinFu and made it an indirect wholly-owned subsidiary of the Company, which will allow us to fully capture the growth potential of this leading player in the regenerative medical bio-material industry, better realize the synergies between TianXinFu’s business and China Biologic’s high-end coagulation factor business, and receive the full benefits and earnings accretion from existing and future TianXinFu products."
"Moving forward, with a stable and experienced team in place, we will continue our efforts to execute our sales and marketing strategies, including expanding our sales coverage and enhancing promotion of IVIG and high-end coagulation factor products to improve their prescription volumes in hospitals."
Appointment of Joseph Chow as CEO
The Company reported that its board of directors (the "Board") has appointed Mr. Joseph Chow as the CEO of the Company, effective August 5, 2019.
Mr. Chow is an experienced executive and has held managerial positions in various public and private companies. Mr. Chow has been a member of our Board since November 2014, our Chairman since February 2019 and our acting CEO since May 2019. After the departure of our former CEO in May 2019, the Board formed a search committee to seek a new CEO for the Company. After several months’ search and evaluation of both internal and external candidates, the search committee recommended Mr. Chow to the Board and the Board approved his appointment. The Board believes that, with his deep understanding of the Company and extensive experience in corporate finance and management, Mr. Chow is well qualified for the position and will lead the Company towards long-term sustainable growth.
Mr. Chow will continue to serve as a director and the Chairman of the Company. In order to fully devote to the affairs of the Company, Mr. Chow has resigned from all positions he previously held at Centurium Capital and no longer holds any interest in Centurium Capital or funds managed by it.
Mr. Chow stated, "I am thankful for the confidence and trust the Board has placed in me as the Company’s new CEO. I am looking forward to working with the management, employees and partners to redevelop the future roadmap for our business that charts its course and ensures long-term improved and sustainable growth."
Share Repurchase Program
In May 2019, the Board authorized a share repurchase program under which China Biologic may repurchase up to US$150 million worth of shares over a 12-month period. As of June 30, 2019, the Company had repurchased 121,852 shares at a total of $11.0 million under this program.
Second Quarter 2019 Financial Performance
Total sales in the second quarter of 2019 increased by 20.4% in RMB terms, or 12.7% in USD terms, to $135.7 million from $120.4 million in the same quarter of 2018.
Total sales for biopharmaceutical products (including plasma products and placenta polypeptide products) increased by 21.6% in RMB terms, or 14.0% in USD terms, to $122.3 million from $107.3 million in the same quarter of 2018, as a result of increased sales of human albumin products, certain hyper-immune products and coagulation factor products, which was partly offset by decreased sales of placenta polypeptide products. For plasma products, total sales in the second quarter of 2019 increased by 31.2% in RMB terms, or 22.8% in USD terms, to $111.0 million from $90.3 million in the same quarter of 2018.
Total sales for biomaterial products in the second quarter of 2019 increased by 9.9% in RMB terms, or 3.1% in USD terms, to $13.4 million from $13.0 million in the same quarter of 2018, as a result of higher sales concentration of higher-unit-price artificial dura mater products.
During the second quarter of 2019, human albumin and IVIG products remained the Company’s two largest sales contributors. Revenue from human albumin increased by 36.9% in RMB terms, or 28.3% in USD terms, from $38.1 million in the second quarter of 2018 to $48.9 million in the second quarter of 2019. Revenue from IVIG products increased by 4.0% in RMB terms, or decreased by 2.5% in USD terms, from $28.1 million in the second quarter of 2018 to $27.4 million in the second quarter of 2019. As a percentage of total sales, sales from human albumin and IVIG products were 36.0% and 20.2%, respectively, in the second quarter of 2019.
Sales volume of human albumin products increased by 38.2% for the second 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 5.3% for the second quarter of 2019 as a result of increased sales through the direct sales channel.
The average prices for human albumin and IVIG products decreased by 0.9% and 1.2%, respectively, in RMB terms in the second 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 7.2% and 7.5%, respectively, in the second quarter of 2019 compared to the same quarter of 2018.
Revenue from other immunoglobulin products increased by 31.9% in RMB terms, or 23.5% in USD terms in the second quarter of 2019 compared to the same quarter of 2018, reaching 14.0% of total sales as compared to 12.8% of total sales in the same quarter of 2018. The revenue increase was mainly attributable to increased sales volume of human rabies immunoglobulin and human tetanus immunoglobulin products.
Revenue from other plasma products, including human coagulation factor VIII, human prothrombin complex concentrate, and human fibrinogen products, increased by 92.7% in RMB terms, or 80.5% in USD terms, in the second quarter of 2019 compared to the same quarter of 2018, representing 11.5% of total sales in the second quarter of 2019. The growth mainly came from increased sales through the distributor channel.
Revenue from placenta polypeptide products decreased by 29.0% in RMB terms, or 33.5% in USD terms for the second quarter of 2019 as compared to the same quarter of 2018, accounting for 8.3% of total sales compared to 14.1% of total sales in the second 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 19.1% to $44.8 million in the second quarter of 2019 from $37.6 million in the same quarter of 2018. As a percentage of total sales, cost of sales increased to 33.0% from 31.2% in the same quarter of 2018, mainly due to decreased sales prices for most of the Company’s plasma products and increased plasma collection costs.
Gross profit increased by 9.9% to $90.9 million in the second quarter of 2019 from $82.7 million in the same quarter of 2018. Gross margin was 67.0% and 68.7% in the second quarter of 2019 and 2018, respectively.
Total operating expenses in the second quarter of 2019 decreased by $4.2 million, or 9.0%, to $42.7 million from $46.9 million in the same quarter of 2018. This decrease mainly consisted of a decrease of $5.9 million in general and administrative expenses, partially offset by an increase of $1.2 million in selling expenses and $0.5 million in research and development expenses. As a percentage of total sales, total operating expenses decreased to 31.5% in the second quarter of 2019 from 39.0% in the same quarter of 2018.
Selling expenses in the second quarter of 2019 increased by $1.2 million, or 4.9%, to $25.6 million from $24.4 million for the second quarter of 2018. The increase is primarily due to increased selling expenses for plasma products and biomaterial products, which is partly offset by a decrease in marketing and promotion expenses related to placenta polypeptide products. As a percentage of total sales, selling expenses decreased to 18.9% for the second quarter of 2019 from 20.3% in the same quarter of 2018.
General and administrative expenses in the second quarter of 2019 decreased by $5.9 million, or 28.6%, to $14.7 million from $20.6 million in the same quarter of 2018. As a percentage of total sales, general and administrative expenses decreased to 10.8% for the second quarter of 2019 from 17.1% for the same quarter of 2018. The decrease in general and administrative expenses was mainly because of a decrease in share-based compensation expenses and a reversal of allowance for doubtful accounts receivable.
Research and development expenses in the second quarter of 2019 increased by $0.5 million, or 26.3%, to $2.4 million from $1.9 million in the same quarter of 2018. As a percentage of total sales, research and development expenses increased to 1.8% from 1.6% in the same quarter of 2018.
Income from operations in the second quarter of 2019 increased by 43.4% in RMB terms, or 34.3% in USD terms, to $48.2 million from $35.9 million in the same quarter of 2018. Operating margin increased to 35.5% in the second quarter of 2019 from 29.8% in the second quarter of 2018.
Income tax expense in the second quarter of 2019 increased by 22.4%, to $8.2 million from $6.7 million in the same period of 2018. The effective income tax rate was 14.4% and 16.5% for the second quarter of 2019 and 2018, respectively.
Net income attributable to the Company increased by 55.2% in RMB terms, or 45.5% in USD terms, to $41.6 million in the second quarter of 2019 from $28.6 million in the same period of 2018. Net margin increased to 30.7% in the second quarter of 2019 from 23.8% in the same period of 2018. Diluted net earnings per share increased to $1.06 in the second quarter of 2019 compared to $0.83 in the same period of 2018.
Non-GAAP adjusted income from operations increased by 23.1% in RMB terms, or 15.2% in USD terms, to $56.7 million in the second quarter of 2019 from $49.2 million in the same period of 2018.
Non-GAAP adjusted net income attributable to the Company increased by 29.1% in RMB terms and 21.1% in USD terms, to $48.7 million in the second quarter of 2019 from $40.2 million in the same period of 2018. Non-GAAP net margin increased to 35.9% in the second quarter of 2019 from 33.4% in the same period of 2018. Non-GAAP adjusted net income per diluted share increased to $1.24 in the second quarter of 2019 from $1.17 in the same period of 2018.
Non-GAAP adjusted income from operations for the second quarter of 2019 excludes $6.5 million in non-cash employee share-based compensation expenses, and $2.0 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 second quarter of 2019 exclude $5.6 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.
First Half 2019 Financial Performance
Total sales in the first half of 2019 increased by 21.3% in RMB terms, or 14.0% in USD terms, to $265.5 million from $232.8 million in the same period of 2018.
Total sales for biopharmaceutical products increased by 21.9% in RMB terms, or 14.5% in USD terms, to $238.7 million from $208.4 million in the same period of 2018, as a result of increases in the sales of human albumin products, immunoglobulin products and coagulation factor products, which was partly offset by decreases in the sales of placenta polypeptide products. For plasma products, total sales in the first half of 2019 increased by 33.4% in RMB terms, or 25.4% in USD terms, to $219.8 million from $175.3 million in the same period of 2018. As a percentage of total sales, sales from human albumin and IVIG products accounted for 39.8% and 21.3%, respectively, in the first half of 2019.
Total sales for biomaterial products in the first half of 2019 increased by 16.4% in RMB terms, or 9.4% in USD terms, to $26.7 million from $24.4 million in the same period of 2018, as a result of higher sales concentration in higher-unit-price artificial dura mater products.
Cost of sales increased by 24.8% to $89.0 million in the first half of 2019 from $71.3 million in the same period of 2018. As a percentage of total sales, cost of sales increased to 33.5% from 30.6% in the same period of 2018, mainly because of decreased sales prices for most of the Company’s plasma products, and increased plasma collection costs.
Gross profit increased by 9.3% to $176.5 million in the first half of 2019 from $161.5 million in the same period of 2018. Gross margin was 66.5% and 69.4% in the first half of 2019 and 2018, respectively.
Total operating expenses in the first half of 2019 decreased by $2.3 million, or 2.7%, to $84.4 million from $86.7 million in the same period of 2018. This decrease mainly consisted of a decrease of $2.7 million in general and administrative expenses and $0.6 million in selling expense, partially offset by an increase of $1.1 million in research and development expenses. As a percentage of total sales, total operating expenses decreased to 31.8% in the first half of 2019 from 37.2% in the same period of 2018.
Income from operations in the first half of 2019 increased by 30.9% in RMB terms, or 23.1% in USD terms, to $92.1 million from $74.8 million in the same period of 2018. Operating margin increased to 34.7% in the first half of 2019 from 32.1% in the first half of 2018.
Income tax expense in the first half of 2019 increased by $2.6 million, or 19.3%, to $16.1 million from $13.5 million in the same period of 2018. The effective income tax rate was 14.7% and 15.9% for the first half of 2019 and 2018, respectively.
Net income attributable to the Company increased by 40.2% in RMB terms, or 31.7% in USD terms, to $79.3 million in the first half of 2019 from $60.2 million in the same period of 2018. Net margin increased to 29.9% in the first half of 2019 from 25.9% in the same period of 2018. Diluted net earnings per share increased to $2.01 in the first half of 2019 compared to $1.75 in the same period of 2018.
Non-GAAP adjusted income from operations increased by 16.7% in RMB terms and 9.7% in USD terms to $108.9 million in the first half of 2019 from $99.3 million in the same period of 2018.
Non-GAAP adjusted net income attributable to the Company increased by 21.6% in RMB terms, and 14.3% in USD terms, to $93.2 million in the first half of 2019 from $81.6 million in the same period of 2018. Non-GAAP net margin remained comparatively stable at 35.1% in the first half of 2019 compared with 35.0% in the same period of 2018. Non-GAAP adjusted net income per diluted share was $2.36 and $2.37, respectively, in the first half of 2019 and 2018.
Non-GAAP adjusted income from operations for the first half of 2019 excludes $12.8 million in non-cash employee share-based compensation expenses, and $4.1 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 half of 2019 exclude $11.1 million in non-cash employee share-based compensation expenses, and $2.8 million in amortization of intangible assets and land use rights related to the acquisition of TianXinFu.
As of June 30, 2019, the Company had $202.5 million in cash on hand and demand deposits, $523.9 million in time deposits, and $191.1 million in short term investments.
Net cash provided by operating activities for the first half of 2019 was $94.2 million as compared to $45.5 million for the same period of 2018. The $48.7 million increase in net cash provided by operating activities was a combined result of the increase in net income and a slowdown of increase in accounts receivable and inventories compared to the first half of 2018.
Accounts receivable increased by $15.2 million during the first half of 2019 as compared to $30.3 million during the same period of 2018. The accounts receivable turnover days for plasma products increased to 102 days during the first half of 2019 from 88 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 $4.3 million in the first half of 2019, which was milder than the increase of $21.4 million in the same period of 2018. This reflected a lower level of albumin inventory attributable to higher-than-expected albumin sales, which was partially offset by higher IVIG inventory due to sluggish IVIG sales.
Net cash used in investing activities for the first half of 2019 was $117.5 million as compared to $168.9 million for the same period of 2018. During the first half of 2019, the Company paid $15.1 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 $1,265.0 million. This was partly offset by $1,162.7 million from the maturity of time deposits and short term investments. Net cash used in investing activities in the first half of 2018 mainly consisted of $529.6 million payment for purchase of time deposits and short term investments, and $19.1 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 $282.1 million time deposits and short term investments.
Net cash used in financing activities for the first half of 2019 was $114.9 million as compared to net cash provided by financing activities of $0.8 million for the same period of 2018. In the first half of 2019, $110.0 million was remitted to an investment bank by the Company to execute the previously approved share repurchase program on behalf of the Company. During this period, 1,196,228 shares were repurchased at a total amount of $111.0 million. Net cash provided by financing activities in the first half of 2018 represented proceeds of $0.8 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 Tuesday, August 6, 2019, which is 7:30 pm Beijing Time on August 6, 2019, to discuss its second 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 August 13, 2019. The dial-in details are:
US:
1 877 344 7529
International:
1 412 317 0088
Passcode:
10133955
A live and archived webcast of the conference call will be available through the Company’s investor relations website at View Source