China Biologic first-quarter revenues up 28.1% to $27.1 million

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"), operating through its indirect majority-owned subsidiaries, Shandong Taibang Biological Products Co. Ltd. ("Taibang") and Guiyang Dalin Biologic Technologies Co., Ltd. ("Dalin") and its equity investment in Xi'an Huitian Blood Products Co., Ltd. ("Huitian"), today reported financial results for its first quarter ended March 31, 2010.

First Quarter 2010 Highlights -- Revenues increased 28.1% year-over-year to $27.1 million -- Gross profit rose 35.9% year-over-year to $20.3 million, representing a gross margin of 74.9%, as compared to 70.6% a year ago -- Operating income grew 31.4% to $13.2 million -- GAAP net income attributable to controlling interest was $10.6 million, or $0.41 per diluted share, including a $3.8 million non-cash gain from change in the fair value of derivative liabilities -- Excluding the non-cash gain, interest on convertible notes and non-cash employee compensation, non-GAAP adjusted net income was $7.5 million or $0.28 per diluted share, a 60.6% increase from $4.7 million or $0.22 per diluted share a year ago

"We are pleased to report a strong start in 2010 with a robust 28% top-line and 61% adjusted bottom-line growth in the first quarter," said Mr. Chao Ming Zhao, Chief Executive Officer of China Biologic. "In addition to the strong financial performance, we have begun the expansion of our network of plasma collection centers with one acquisition and the approvals to build two new plasma stations. We expect that these opportunities for increased collection capacity, coupled with our advancing new product pipeline, will position us to gain market share and further strengthen the Company's leadership in the PRC plasma market."

First Quarter 2010 Results

Revenue for the first quarter of 2010 increased 28.1% to $27.1 million, from $21.1 million in the same 2009 period. The revenue growth is primarily attributable to a general price increase ranging from 3.1% to 118.3% across the Company's plasma-based product portfolio. The price increase is mainly due to the continued supply shortage in China's plasma industry. The Company anticipates the potential for some modest price increases in the future on select products but has not factored in any price increases in its 2010 guidance and outlook.

Human albumin product continues to be the largest product, accounting for 46.9% of total sales, and has experienced the smallest average price increase of 3.1%. The average price for the Company's most in-demand product, the human immunoglobulin for intravenous injection products, rose 34.2%, and contributed to 19.9% of total revenues, while, the average price for the Company's human immunoglobulin products contributed only 2.4% of total revenues, a 118.3% increase.

Gross profit for the first quarter of 2010 was $20.3 million, up 35.9%, from $14.9 million in the first quarter of 2009. Gross profit margin expanded to 74.9% from 70.6% in the same period a year ago and 72.6% in the fourth quarter of 2009. The gross profit margin expansion was primarily attributable to the increase in the average selling price of the Company's plasma products year-over-year and quarter-over-quarter.

Operating expenses in the first quarter increased 45.2% to $7.1 million, from $4.9 million in the same period last year. Higher expenses primarily reflected the 149.9% increase in research and development spending, mostly related to the development of two late stage pipeline projects, currently awaiting governmental approval. General and administrative expenses rose 29.8% in the 2010 period due to costs associated with the integration of multiple sites after the acquisition of Dalin, which was partially offset by lower legal and accounting expenses associated with the Dalin acquisition. Selling expenses increased 62.7% year-over-year due to higher salaries and promotional expenses associated with the Company's efforts to increase direct sales to hospitals and inoculation centers to drive volume growth. As a percentage of revenue, total operating expenses increased by 3.1% from 23.0% to 26.1% for the same period in 2009.

Income from operations in the 2010 first quarter was $13.2 million, a 31.4% increase from $10.1 million during the same period a year ago. Operating margin rose to 48.8% from 47.6% year-over-year.

Total net other income was $4.7 million in the 2010 first quarter, as compared to net other expense of $0.8 million in the same 2009 period. The increase primarily reflected a $3.8 million gain related to change in the fair value of warrant liabilities.

Income taxes increased to $3.2 million in the 2010 first quarter, from $2.0 million in the prior year. The effective tax rate was 17.9% in the first quarter, as compared to 21.9% same quarter last year.

Net income attributable to controlling interest for the 2010 first quarter was $10.6 million, or $0.41 per diluted share, and included a $3.8 million non-cash gain related to change in the fair value of derivative liabilities. Net income during the 2009 first quarter was $4.3 million, or $0.20 per diluted share, which included a non-cash $0.4 million charge related to change in the fair value of warrants.

Excluding non-cash employee 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 three months ended March 31, 2010 was $7.5 million, or $0.28 per diluted share, up 60.6% from $4.7 million, or $0.22 per diluted share, in the same 2009 period.

Financial Condition

As of March 31, 2010, the Company had $51.2 million in cash and cash equivalents, approximately $49.2 million in working capital, and a current ratio of 2.0x. Total stockholder's equity at the end of the quarter was $66.6 million, up from $50.5 million at the end of 2009.

The Company generated $2.1 million in net cash from operating activities in the first quarter of 2010, as compared to $7.1 million in the same period of 2009. The decline in operating cash flow was primarily due to an increase in inventory and accounts receivable and income taxes paid. Higher inventory reflected increased plasma collection and timing of SFDA approval of finished plasma goods, while higher accounts receivable reflects increased end-user sales to hospitals.

Recent Events and Updates

On April 5, 2010, Shandong Taibang, the Company's subsidiary was recognized by the Shandong Province Department of Science and Technology as a National Center of Excellence for New Drug and Technology Development. The award indicates provincial expectation that Shandong Taibang will serve as an industry model and help drive the development of the pharmaceutical industry in Shandong province. As a result of the award, Shandong Taibang along with other National Centers of Excellence companies, will have increased opportunities to collaborate on research and development opportunities and will be eligible for government funding and other support programs for use in new drug development efforts.

On May 12, 2010, China Biologic announced the achievement of a significant milestone with the receipt of Shandong provincial government approval to build two new plasma stations in Shandong. Once the new plasma stations are operational, the Company will have 18 total plasma stations and expects the two new plasma stations will increase aggregate plasma collection capacity by up to an additional to 80 metric tons over the next few years.

2010 Guidance and Business Outlook

China Biologic is guiding to 2010 revenues in the range of $142 million and $149 million and 2010 adjusted net income in the range of $34 million and $36 million. The first quarter of each year is typically the slowest period for the Company, mainly due to the Chinese New Year holiday that temporarily reduces customer purchase volume and slows the SFDA approval for the release of finished goods. In the first quarter of 2010, the Company saw the same pattern with a limited supply of certain plasma products due to the timing of government approval of new batches of products for commercialization. Management is confident in continuing strong growth for the remainder of 2010.

Guidance for 2010 adjusted net income excludes any non-cash gain or loss related to change in the fair value of derivative liabilities, stock-based compensation expense and any adjustments in the U.S. federal income tax provision in 2010 related to the expiration of the look-through exception for Subpart F income on December 31, 2009, and excluded any acquisitions, new product approvals or operational impact from new plasma stations. The guidance also does not assume any material price or volume increases during the year. As a matter of policy, the Company does not intend to update this guidance during the year.

China Biologic's applications for Human Prothrombin Complex Concentrate and Human Coagulation Factor VIII remain under SFDA review. Management expects to commercially launch these two products in late 2010 or early 2011. The new products will enrich the Company's product portfolio and enhance its competitive position in the plasma-based product market.

Mr. Zhao added, "Supply in China's plasma industry remains tight due to high government standards. At China Biologic, we are actively evaluating opportunities to expand our plasma market share by increasing the capacity of our existing plasma stations, expanding the target population of potential plasma donors and acquiring or building new plasma stations. Our acquisition of Yuncheng Ziguang Biotech earlier this year and the recent approval to build two new plasma stations in Shandong demonstrate the Company's commitment to growing the business for the long-term. We are off to a strong start in 2010 and we look forward to sharing our exciting development in the coming quarters."