Bohai second quarter net revenues increase 32% to $22.2 million

Feb 14 2011

Bohai Pharmaceuticals Group, Inc. (OTC Bulletin Board/OTCQB: BOPH), a China-based pharmaceutical company engaged in the production, manufacturing and distribution of Traditional Chinese Medicine (TCM) in China, today reported record financial results for its second quarter of fiscal 2011 ended December 31, 2010.

Summary of Fiscal Second Quarter Ended December 31, 2010 Financial Results:

• Net Revenues of $22.2 million, an increase of 32% from $16.8 million in 2009
• Gross profit of $17.5 million, an increase of 24% from $14.2 million in 2009
• Net income of $6.5 million, an increase of 100% from $3.3 million in 2009
• Fully diluted EPS of $0.31 and basic EPS of $0.39 for fiscal Q2 2011, compared to $0.25 Q2 2010

"During the second quarter, we continued our track record of growth through sales of our three lead TCM products, and our growth was augmented by continued market acceptance of our five new TCM products introduced last year," said Mr. Hongwei Qu, Chairman, President and CEO of Bohai Pharmaceuticals Group.  "During the quarter, we saw our net revenues increase by over 32% compared to the same quarter last year as we reaped the benefits of the strong marketing efforts on our lead products and the continuing the roll out of our newer products.  Our efforts to keep administrative costs down have also shown significant benefits to our net income."  

Also during the quarter, in December we were very excited to announce our agreement to acquire 14 approved TCM medicines, which we believe represents a tremendous opportunity for our future sales growth," continued Mr. Qu.  "We believe our continued progress with our sales initiatives, along with the Chinese government's growing support of the TCM industry and our growing product portfolio, put us in a great position to continue driving shareholder value."

Bohai is currently authorized by the Chinese government to produce 43 Traditional Chinese Medicine products, of which 15 are currently being produced by the company.  Sales in the second quarter were generated mainly from Bohai's lead products, Lung Nourishing Syrup, Tongbi Capsules and Tongbi Tablets, which together represented approximately 67% of Bohai's total net revenues.  However, progress has been made on the five products that Bohai introduced in April and May of 2010.  Although the new product sales only represented less than 6% of total net revenues in the second quarter, the net revenues for the five new products in the quarter ended December 31, 2010 increased by 77% compared to the quarter ended September 30, 2010.  

Mr. Qu added, "As we move into 2011, our balance sheet remains strong and we are well situated in the Chinese TCM market with a growing portfolio of government supported products.  Not only are Bohai's three lead products reimbursable through the National Drug Reimbursement List in China – and therefore not affected by the recent pricing caps – two of them are also partially sheltered from competition. Tongbi Capsules are a 'protected' medicine in China, meaning Bohai is one of the few manufacturers permitted to sell the product, and Lung Nourishing Syrup was recently awarded a patent in China that lasts 20 years, allowing Bohai to sell these medicines at a premium.  We believe these advantages, together with our strong marketing efforts, create the potential for continued growth for our company."

Highlights for the Fiscal 2011 Second Quarter:

• Net revenues for the second fiscal quarter increased 32% to $22.2 million compared to the same period in 2009.  Net revenues for the six months ended December 31, 2010 increased 27% to $39.2 million compared to the same period in 2009.
• Sales in the fiscal first quarter were generated mainly from Bohai's lead products, Lung Nourishing Syrup, Tongbi Capsules and Tongbi Tablets, which together represented over 67% of total net revenues.
• Net revenues for five new products that were introduced in April 2010 increased from $720,000 for the first fiscal quarter to $1,271,000 for the three months ended December 31, 2010, an increase of 77%.
• Acquired 14 new TCM medicines of which 4 are included in China's Essential Drug List (EDL) and an additional 5 included in the National Drug Reimbursement List (NDRL). Inclusion on the EDL or NDRL allows for up to 100% insurance coverage by the Chinese government.  
• New Chinese healthcare plan seeks to extend national medical insurance coverage to China's rural areas, with a target population in excess of 900 million, and to promote the use of TCM products.
• Further implementation of a proactive marketing strategy in the quarter significantly increased revenue on all of the TCM products Bohai currently sells.
• Net income for the second fiscal quarter increased 100% to $6.5 million compared to the same period in 2009.  Net income from operations increased 47% to $6.4 million.  Included in net income was a non-cash gain of $2.9 million for changes in fair value of warrants and non-cash charges for approximately $867,000 for unamortized beneficial conversion of our convertible notes and restricted stock and option based compensations.

Bohai's focused marketing strategy emphasizes quality products and aggressive sales and marketing efforts along with leveraging the "protected" manufacturing status and national insurance coverage for certain pharmaceutical products.  Currently, Bohai has nearly 600 employees, including approximately 300 that are engaged in sales and distribution in 20 locations throughout China.  

Bohai anticipates its overall net revenues will continue to increase due to a national medical and health plan initiated by the Chinese government in 2009, which plan is intended to eventually cover individual health insurance for over 90% of China's population by 2011 and includes traditional Chinese medicines for coverage and reimbursement from hospitals and medical centers all over China.