China Pharma second-quarter revenue increases 22% to $16.6 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 second quarter ended June 30, 2010.

Second Quarter Highlights -- Revenue increased 22% to $16.6 million from $13.6 million in the second quarter of fiscal year 2009 -- Gross profit grew 19% to $7.0 million from $5.9 million in the second quarter of fiscal year 2009 -- Net income climbed 23% to $5.3 million, or $0.12 per basic and diluted share in the second quarter, from $4.3 million, or $0.10 per basic and diluted share a year ago

"We are pleased to report another solid quarter with strong organic growth in both revenue and net income," said China Pharma's President and CEO, Ms. Zhilin Li. "We performed well across our key product categories, led by Digestive Diseases, which benefitted from very encouraging sales of our new generic GERD drug, Omeprazole. Furthermore, we have started to see tangible evidence of rising demand in EDL related products, such as higher Vitamin B6 sales this quarter, which played a key factor in our Other Products category growth. Going forward, we expect to opportunistically pursue attractive new markets, such as EDL drugs, while carefully managing our product mix. Finally, in addition to managing our current portfolio of products for growth and profitability, this quarter we continued to advance our pipeline, which includes several late-stage drug candidates which we believe could have significant market potential."

Second Quarter Results

Second quarter 2010 total revenues grew 22% to $16.6 million from $13.6 million in second quarter 2009. Digestive Diseases product sales for the second quarter 2010 grew by 129% year-over-year to $2.3 million, primarily due to increased sales of Omeprazole, our generic gastroesophageal reflux disease (GERD) drug launched in fourth quarter 2009. In second quarter 2010, our Other Products category rose 40% year-over-year to $3.2 million, reflecting higher sales of Vitamin B6, one of two China Pharma products included on the National EDL (Essential Drug List). The Company's Anti-viro/Infection and Respiratory product sales increased 21% to $6.3 million from $5.2 million in the same quarter last year, driven by growth of antibiotics products. Sales of the Company's Central Nervous System (CNS) and Cardio Vascular products decreased 5% to $4.9 million from $5.1 million in the comparable 2009 period.

Gross profit for the three months ended June 30, 2010 increased to $7.0 million from $5.9 million in the comparable period last year. Gross margin for the second quarter was 42.4% as compared to 43.5% in the previous year quarter. The decrease in gross margin was largely due to higher volume of lower margin products sold compared to the same period a year ago.

Total operating expenses rose to $1.6 million (9.3% of revenue) for the three months ended June 30, 2010 from $1.1 million (8.2% of revenue) in the same period last year, primarily due to a share-based compensation cost and higher intangible amortization expenses for the Company's drug formulas during the quarter ending June 30, 2010 compared to the same quarter a year ago.

Net income for the three months ended June 30, 2010 increased 23% to $5.3 million, or $0.12 per basic and diluted share, compared to $4.3 million, or $0.10 per basic and diluted share, for the same period a year ago. Net Income margin in second quarter 2010 improved to 31.7% from 31.5% in the prior year period.

Six-month Results

Revenues for the six months ended June 30, 2010 were $31.7 million, up 19% from revenues of $26.6 million for the six months ended June 30, 2009. Gross profit for the six months ended June 30, 2010 was $13.2 million, up 11% from gross profit of $11.8 million for the corresponding period of 2009. Gross margin was 41.5%, compared to 44.6% for the first six months of 2009. Operating income was $10.3 million, up 16.4% from $8.9 million for the first six months of 2009. Net income was $9.6 million, or $0.22 per basic and diluted share, compared to $8.0 million, or $0.19 per basic and diluted share, for the same period a year ago.

Financial Condition

As of June 30, 2010, the Company had cash and cash equivalents of $4.5 million compared to $3.6 million as of December 31, 2009. Year-over-year, working capital increased to $69 million from $61 million while the current ratio fell slightly to 6.5 times.

Accounts receivable balance rose to $57.7 million from $54.0 million at the end of 2009. The Company's management team continues to be sharply focused on improving accounts receivable collection and expects to make further progress in the quarters to come.

For the six months ended June 30, 2010, cash flow from operating activities rose to $3.3 million, from $3.1 million during the same period in 2009. The Company's cash flow from operating activities benefited from a reduction in cash used by trade receivables to $3.4 million during the first six months of 2010 from $6.8 million during the first six months of 2009 even as revenue grew by 19%.

Financial Guidance

China Pharma reiterates 2010 revenue growth guidance of 20% to 25% from the prior year, with the upside coming from new drug launches during this year. While the Company is very encouraged to see strong demand from EDL related products, managing the product mix to achieve profitability goals is still a focus for the management. With the first half of 2010 behind us, the Company anticipates stronger consumer demand for products included on the National EDL, which will benefit the Company with pricing flexibility and top-line growth due to seasonality of the product portfolio.

"We are beginning to see early benefits of China's unprecedented $124 billion healthcare reform program and believe this initiative will be a significant volume driver in the country's pharmaceutical industry," said Ms. Li. "In the second half of 2010 and beyond, our goal is to enhance shareholder value by not only continuing to successfully grow our current portfolio of products but also by brining to market important new drugs to help meet large unmet patient demand."

Pipeline Update

As of June 30, 2010, China Pharma had 9 pipeline drugs in different stages of active SFDA registration progress.

-- The Company completed the clinical trials earlier this year for candesartan (generic form of Atacand), a front-line antihypertensive therapy. The Company has completed all review testing procedures and is currently waiting for the final SFDA production approval. -- We continue to receive positive feedback from patients during our clinical trial of Rosuvastatin, a generic form of Crestor. The majority of the patients in the clinical trial have completed the treatment cycle. -- The Phase I clinical trial for the novel anti-resistant antibiotic combination drug is also progressing on schedule and nearing its completion.