China Pharma first-quarter revenue up 16% to $15.1 million

China Pharma Holdings, Inc. (NYSE AMEX: CPHI) ("China Pharma" or the "Company"), a leading fully-integrated specialty pharmaceuticals company in China, today announced financial results for the first quarter ended March 31, 2010.

First Quarter Highlights -- Revenue increased 16% to $15.1 million from $13.0 million in the first quarter of fiscal 2009 -- Gross profit grew 3% to $6.1 million from $5.9 million in the first quarter of fiscal 2009 -- Income from operations rose 19% to $4.8 million from $4.1 million in the 2009 period -- Net income climbed 17% to $4.3 million, or $0.10 per diluted share, from $3.7 million, or $0.09 per diluted share a year ago

"We are pleased to report a solid start to 2010 with healthy revenue and net income growth, in the first quarter," said China Pharma's President and CEO, Ms. Zhilin Li. "The strong revenue increase and healthy profit margins were partly driven by a continued increase in demand for our existing products and the successful launch of new products in the last twelve months. We look forward to accelerating this growth trajectory by increasing market penetration of key existing products and introducing new products to increase revenues and support a stable gross margin."

First Quarter Results

First quarter 2010 revenues grew 16% to $15.1 million from $13.0 million in the first quarter 2009. Key growth drivers included a 32% increase in the Company's anti-viral/infective and respiratory products to $5.4 million. Sales of digestive products rose by 291% to $1.7 million, mainly due to contribution from new products, Tiopronin and Omeprazole, launched in second quarter and fourth quarter of 2009, respectively. The two products generated sales of $1.1 million in the quarter and are expected to drive further sales growth in this category during 2010. Sales of the Company's central nervous system (CNS) and Cerebro & Vascular products were $5.3 million in the quarter, unchanged as compared to last year.

Gross profit for the three months ended March 31, 2010 increased to $6.1 million from $5.9 million in the comparable period last year. Gross profit margin for the first quarter was 40.6% as compared to 45.6% in the previous year quarter. The decrease in gross margin was largely a result of a product mix that included more antibiotic and mature products, which typically yield lower average margin. The Company expects stable gross margin in future quarters supported by an improving product mix and potential new product launches.

Total operating expenses decreased 30% to $1.3 million for the three months ended March 31, 2010 from $1.9 million in the same period last year, primarily due to a change in the Company's estimate for bad debt reserve in the third quarter of 2009. Bad debt expenses fell to $0.1 million in the first quarter of 2010 from $0.8 million in the same period last year. Excluding the bad debt expense, operating expenses rose 13% due higher year-over-year general and administrative expenses reflecting increased amortization expenses.

Operating income grew 19% to $4.8 million for the three months ended March 31, 2010 from $4.1 million in the comparable period a year ago. Operating margin improved by 69 basis points to 32.0% from a year ago, primarily due to the significant reduction in bad debt expenses.

Income tax expense was $0.5 million, up from $0.4 million in the previous year. The Company expects full year 2010 tax rate to be in the 11% range.

Net income for the three months ended March 31, 2010 increased 17% to $4.3 million from $3.7 million in the previous year. Net margin improved to 28.5% to 28.3% in the prior year period. Diluted earnings per share grew 15% year-over-year to $0.10.

Financial Condition

As of March 31, 2010, the Company had cash and cash equivalents of $4.8 million, which represented 4.4% of total assets, as compared to $3.6 million, or 3.6% of total assets, as of December 31, 2009. Year-over-year, working capital increased to $66 million from $61 million while the current ratio rose slightly to 7.1x, reflecting the Company's continued financial health.

Accounts receivable balance rose slightly to $52.5 million from $51.2 million at the end of 2009. China Pharma's management continues to be highly focused on improving accounts receivable collection to further strengthen operating cash flow.

For the three months ended March 31, 2010, cash flow from operating activities was $1.1 million, little changed as compared to the same period in 2009. The flattish operating cash flow trend reflected an improvement in cash collection from accounts receivables, offset by an increase in inventory level, in anticipation of sales demand growth, and advances to suppliers.

Financial Guidance

China Pharma is reiterating 2010 revenue growth guidance of 20% to 25%. Similar to prior years, the first quarter is typically one of the slowest sales periods and the Company anticipates stronger top-line growth during second half of the fiscal year due to seasonality of the product portfolio. The Company expects its central nervous system (CNS) and cardiovascular drugs, and the new Tiopronin and Omeprazole products to be among the key growth drivers in the next several quarters.

"We are confident in our 2010 outlook and plan to focus on increasing the market penetration of our new products while advancing our late-stage development pipeline to create new revenue opportunities," added Ms. Li. "We believe implementation of China's unprecedented $124 billion healthcare reform program will be a significant volume driver in the country's pharmaceutical industry. China Pharma is well positioned to be nimble and to proactively engage in market demand-based new product opportunities to drive sustainable long-term growth."

Pipeline Update

As of March 31, 2010, China Pharma had 9 products in active development in its pipeline.

-- During the first quarter, China Pharma completed the clinical trials for candesartan (generic form of Atacand), a front-line antihypertensive therapy. The Company's application for production of candesartan is currently under SFDA review. -- The clinical trial for lipid lowering drug rosuvastatn (a generic form of Crestor) is on track to completion. Crestor is one of the largest and fastest growing drugs in the world for lowering cholesterol. -- The Phase I clinical trial for the novel anti-resistant antibiotic combination drug is also progressing on schedule.