Tianyin Pharmaceutical's second quarter revenue increases 69.6% to $25.3 million

Feb 14 2011

Tianyin Pharmaceutical Co., Inc. (NYSE Amex: TPI), a pharmaceutical company that specializes in the patented biopharmaceutical, modernized traditional Chinese medicine, branded generics and other pharmaceuticals, announced the financial results for the second quarter of Fiscal Year 2011.

Second quarter fiscal year 2011 ending December 31, 2010 financial highlights

• Revenue increased 69.6% year over year to $25.3 million from $14.9 million in 2Q FY2010
• Operating income increased 69.0% year over year to $5.3 million from $3.2 million in 2Q FY2010 with operating margins at 21.0% and 21.1% respectively.
• Net Income was $4.4 million, up 69.2% year over year from $2.6 million in 2Q FY2010, with net margins improved to 17.4% from 17.2% in 2Q FY2010.
• Earnings per share of $0.16 per basic share, or $0.14 per diluted share, up from $0.10 per basic share, or $0.08 per diluted share a year earlier, a gain of 52.5% and 70.9%  respectively.
• Cash and cash equivalents totaled $31.2 million on December 31, 2010 or $1.11 per basic share in cash.
• Sichuan Jiangchuan Macrolide Facility ("JCM") construction completed.

Second quarter fiscal year 2011 ending December 31, 2010 Results

Sales for the quarter ended December 31, 2010 was $25.3 million, up 69.6% as compared to $14.9 million for the quarter ended December 31, 2009. The channel expansion and market penetration continue to be the major drivers for the revenue growth. Our current hospital coverage reached 880 hospitals up from 850 hospitals from the beginning of FY2011.

Revenues from the top selling products are listed as follows,

• Gingko Mihuan Oral Liquid (GMOL): $5.4 million, prescription patented proprietary medicine for stroke and other cardiovascular conditions, nationally reimbursed;  
• Apu Shuangxin Benorylate Granules (APU): $1.8 million, flagship OTC original granular formulation for inflammation and rheumatism;  
• Azithromycin Tablets (AZI): $1.0 million, branded Essential Drug Listed highly effective broad spectrum antiobiotic;
• Xuelian Chongcao Oral Liquid (XLCC): $1.1 million, proprietary TCM product for immunity and sexual function enhancement;
• Qingre Jiedu Oral Liquid (QR): $0.8 million, modernized TCM legacy product for viral infections such as H1N1 influenza.

These products totaled $10.1 million in sales, representing 40.0% of the quarterly revenue.

Cost of Sales for the quarter ended December 31, 2010 were $14.0 million or 55.3% of sales as compared to $7.2 million or 48.3% of the sales of the quarter ended December 31, 2009.

Gross Margin for the quarter ended December 31, 2010 was 44.7% as compared to 51.9% for the quarter ended December 31, 2009. The gross margins were attributable to the addition of revenues from Tianyin Medicine Trading (TMT), the distribution arm of TPI, in the current year. TMT related gross margins averages approximately 15.0%, while in this quarter, our organic portfolio delivered approximately 55.0% gross margins, an increase of 7.1%, over the 51.9% gross margins recognized for the quarter ended December 31, 2009.  

Operating Expenses for the quarter ended December 31, 2010 were $6.0 million, compared with $4.6 million for the quarter ended December 31, 2009. The increase was due to continuing sales expansion-related sales payroll and marketing expenses and the remaining approximately $0.5 million financial costs from the previous restricted stock compensation of 614,500 shares on July 15, 2010 to 55 key employees of TPI for their significant contribution during the fiscal year 2009 and the fiscal year 2010.

Net Income was $4.4 million for the quarter ended December 31, 2010, as compared to net income of $2.6 million for the quarter ended December 31, 2009, a net increase of $1.8 million or 69.2% year over year. Net profit margins for the quarter ended December 31, 2010 rose to 17.4% from 17.2% for the quarter ended December 31, 2009 as the leverage in the TPI's business operation further drives the revenue while keeping the operating expenses in-line with the sales expansion.

Diluted earnings per share for the three months ended December 31, 2010 were $0.14, up 70.9% from the earnings of $0.08 per diluted share for the three months ended December 31, 2009, based on 30.5 million and 30.4 million shares, respectively.

Balance Sheet and Cash Flow

As of December 31, 2010, we had working capital totaling $35.7 million, including cash and cash equivalents of $31.2 million or $1.11 per share in cash. Net cash generated from operating activities for the six months ended December 31, 2010 was $10.8 million, compared with $4.9 million for the six months ended December 31, 2009. The significant increase in cash generated from operating activities was mainly driven by the 69.7% increase of the operating income year over year and the net margin improvement to 17.4% from 17.2%. We believe that TPI is adequately funded to meet all of the working capital and capital expenditure needs for FY2011.

Business Development & Outlook

Jiangchuan Macrolide Project – JCM

By the end of the second quarter, we have completed the construction of the Phase I, 240-ton capacity JCM for the development, manufacturing and sales of macrolide antibiotic API. We anticipate meaningful macrolide API revenue contribution from JCM in the current fiscal year ending June 30, 2011.

Tianyin Medicine Trading Distribution Business – TMT

In November 2010, we obtained one-year distribution rights from Jiangsu Lianshui Pharmaceutical to distribute approximately 15 Lianshui-branded generic injection products including cough suppressant, antibiotics, anti-inflammatory medicines and products for other healthcare indications. The estimated annual distribution revenue from TMT is approximately $15 million.

Research and Development

Currently, we have 10 pipeline drugs pending SFDA's approval that include:

• Huangtengsu Tablets, indicated for women's inflammatory conditions and intestinal infectious diseases
• Lifei Tablets, for cough and other respiratory disorders  
• Fuyang Granules, for skin irritation and itchiness
• Shuxiong Tablets, for coronary heart diseases and angina pectoris
• Suxiao Zhixie Capsules, for acute diarrhea symptoms
• Shuanghuang Xiaoyan Tablets, for inflammatory conditions and viral infections
• Huoxiang Zhengqi Capsules, for various viral infections
• Jiegu Xujing Ointment, for sports related injuries and pain
• Runing Tablets, for women's mammary gland disorders
• Dengzhan Huasu Tablet, for post-stroke complications, coronary heart diseases and cardiovascular disorders

Fiscal Year 2011 Financial Guidance

We reiterate our fiscal year 2011 revenue guidance of $113.0 million, representing 76.8% year over year growth and net income guidance of $18.0 million, representing 50.0% year over year growth. Our forecast is based on the following growth drivers:

1) Steady growth of our organic product portfolio featured by GMOL, XLCC, AZI, APU, QR;

2) Capacity ramp-up of TPI's newly completed production facility;

3) Antibiotic API revenue from JCM

4) Business development of TMT, TPI's distribution arm for synergistic specialty products;

5) New product market entries from TPI's pipeline;

In our forecast, we assume steady pricings for our products. Net income forecast excludes any non-cash expenses associated with stock compensation plans or stock option expenses. 

The ongoing healthcare reform in China provides opportunities for our growth as well as challenges to our pipeline development, market expansion and margin improvements. The management will continue to evaluate TPI's business outlook and communicate any changes on a quarterly basis or as when appropriate.