China Biologic Products second-quarter revenues increase 23.3% to $40.9 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 second quarter ended June 30, 2010.

Second Quarter 2010 Highlights -- Revenues increased 23.3% year-over-year to $40.9 million -- Gross profit rose 32.6% year-over-year to $31.8 million, representing a gross margin of 77.9%, as compared to 72.4% a year ago -- Operating income grew 37.7% to $22.8 million -- GAAP net income attributable to controlling interest was $12.9 million, or $0.49 per diluted share, including a $2.3 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 $10.9 million or $0.41 per diluted share, a 31.2% increase from $8.3 million or $0.38 per diluted share a year ago

"Our second quarter results were very strong, with 23.3% growth in revenues and 31.2% growth in adjusted net income, primarily driven by robust demand and a favorable pricing environment for our plasma-based products," said Mr. Chao Ming Zhao, Chief Executive Officer of China Biologic. "We are moving forward with establishing our two new plasma collection stations in Yishui and Ninyang counties in Shandong Province, and expect to begin trial collections at the new locations by the end of the year. We also increased our focus on marketing and educational medical conferences in the second quarter, as part of our strategy to strengthen our ties with hospitals and clinics, since we believe that direct sales to these customers can secure our market share and support our long-term growth."

Second Quarter 2010 Results

Revenue for the second quarter of 2010 increased 23.3% to $40.9 million, from $33.2 million in the same 2009 period. Revenue growth is primarily attributable to price increases ranging from 0.1% to 433.5% across the Company's plasma-based product portfolio. Rising pricing reflects continued supply shortage in China's plasma industry. The Company generally expects pricing to remain stable during the balance of the year, while management continues to monitor the impact of China's health care reform efforts on procurement and pricing for products listed within China's National Medical Insurance Catalog. Among the Company's product groups, while Human Albumin pricing remained flat relative to the second quarter of 2009, it remained the largest revenue contributor at 46.4% of total sales. Human Immunoglobulin for Intravenous Injection, the Company's most in-demand product group and second largest revenue contributor at 39.3% of total sales, experienced average year-over-year price increases of 26.9% in second quarter 2010. Human Hepatitis B Immunoglobulin experienced the sharpest average price increase among the Company's product categories, up 433.5% compared to the prior year period, and contributed 6.9% of total revenues in second quarter 2010.

Gross profit for the second quarter of 2010 was $31.8 million, up 32.6%, from $24.0 million in the second quarter of 2009. Gross profit margin expanded to 77.9% from 72.4% in the same period a year ago and 74.9% in the first quarter of 2010. The gross profit margin expansion was primarily attributable to the increase in the average selling price, as well as some volume increase, of the Company's plasma products quarter-over-quarter.

Operating expenses in the second quarter increased 21.3% to $9.1 million, from $7.5 million in the same period last year. Higher expenses primarily reflected a 258.2% increase in research and development spending, mostly related to development of two late stage pipeline projects for which the Company expects to receive SFDA approval in early 2011. Selling expenses increased 66.6% year-over-year to $1.9 million due to intensified promotion and conferences activities as the Company continues its efforts in expanding its penetration into hospital and inoculation centers. General and administrative expenses decreased 1.6% year-over-year in the second quarter of 2010 to $5.9 million, or 14.4% of total sales, versus $6.0 million, or 18.1% of total sales for the same period in 2009.

The decrease in general and administrative expenses is due mainly to reduced general payroll and employee benefits and outside services, as well as decreases in legal expenses and office supplies.

Income from operations in the 2010 second quarter was $22.8 million, a 37.7% increase from $16.5 million during the same period a year ago. Operating margin rose to 55.7% from 49.8% year-over-year.

Total other income was $1.9 million in the 2010 second quarter, as compared to net other expense of $2.3 million in the same 2009 period. The increase primarily reflected a $2.3 million gain related to change in the fair value of warrant liabilities.

Income taxes increased to $5.1 million in the 2010 second quarter, from $3.0 million in the prior year. The effective tax rate was 20.6% in the second quarter, as compared to 20.9% same quarter last year.

Net income attributable to controlling interest for the 2010 second quarter was $12.9 million, or $0.49 per diluted share, and included a $2.3 million non-cash gain related to change in the fair value of derivative liabilities. Net income during the 2009 second quarter was $7.0 million, or $0.32 per diluted share, which included a non-cash $1.3 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 June 30, 2010 was $10.9 million, or $0.41 per diluted share, up 31.2% from $8.3 million, or $0.38 per diluted share, in the same 2009 period.

Six Months Results

For the first six months of 2010, total revenue was $68.0 million, up 25.2% from the first six months of 2009. Gross profit for the first six months of 2010 was $52.1 million, up 33.9% from $39.0 million in the comparable period a year ago. Gross margin for the first six months of 2010 was 76.7%, as compared to 71.7% for the same period in 2009. The increase in gross margin was due mainly to the increases in selling prices of the Company's products, which ranged from 1.3% to 375.0%. Income from operations for the period was $36.0 million, up 35.3% from $26.6 million in the first six months of 2009. Net income for the first six months of 2010 was $23.5 million, up 109.1% from $11.2 million in the first six months of 2009. Fully diluted earnings per share were $0.90 for the first six months of 2010 compared to $0.52 in the first six months of 2009. 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 six months ended June 30, 2010 was $18.5 million, or $0.70 per diluted share, an increase of 41.8% from non-GAAP net income of $13.0 million or $0.60 per fully diluted share for the six months ended June 30, 2009.

Financial Condition

As of June 30, 2010, the Company had $56.3 million in cash and cash equivalents, approximately $63.9 million in working capital, and a current ratio of 2.4. Total stockholders' equity at the end of the quarter was $78.8 million, up 59.3% from $49.5 million at the end of 2009.

The Company generated $19.4 million in net cash from operating activities during the first half of 2010, as compared to $28.4 million in the same period of 2009. The decline in operating cash flow was primarily due to an increase in inventory, 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 July 7, 2010 and July 20, 2010, Shandong Taibang established Ning Yang Taibang Plasma Company and Yi Shui Taibang Plasma Company, both 100% owned by Shandong Taibang for the purpose of constructing and operating two recently government-approved plasma stations in Shandong Province, PRC. 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 maintained its guidance for 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. As part of its scheduled annual maintenance and inspection process, the Company shut down its facility in Qianfeng for approximately 45 days in June and July and its Taibang facility for 30 days beginning in late July. Due to careful planning of production and inventories, this is expected to have minimal impact to the company's revenue generation.

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 excludes 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.

China Biologic's applications for Human Prothrombin Complex Concentrate and Human Coagulation Factor VIII remain under SFDA review. As a result of internal changes at the SFDA that have delayed processing of new drug applications, management expects to commercially launch these two products in early 2011. Management expects that these new products will enrich the Company's product portfolio and enhance its competitive position in the plasma-based product market.

Mr. Zhao added, "Results for the first half of 2010 confirm that China Biologic's strategy is on track and our strong balance sheet and our operating cash flow provides us with the resources to take advantage of opportunities created by rising consumer demand and tight supply conditions based on strict government regulation. We plan to expand our plasma supply through building new collection stations and increasing the capacity of our existing stations. Our investment in R&D is expected to bring additional advanced, higher margin products into our portfolio. We are also working to increase our relationships with our end customers through carefully targeted marketing activities and we continue to evaluate opportunities to acquire additional collection and production assets that can further strengthen our leading position in the industry."