TPI revenue increases 48.9% to $95.2 million for fiscal year 2011

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

Fiscal year 2011 ending June 30, 2011 financial highlights

• Revenue delivered $95.2 million, exceeding the guided $90.0 million revenue forecast for fiscal year 2011, a gain of 48.9% year over year from $63.9 million in fiscal year 2010;
• Income from operation increased 23.1% year over year to $18.1 million from $14.7 million in fiscal year 2010;
• Net Income (excluding non-cash equity compensation of $1.9 million) increased to $17.5 million, up 35.4% year over year from $13.0 million in fiscal year 2010; Net income exceeded previously guided $16.0 million net income forecast excluding non-cash equity compensation.
• Earnings per share increased to $0.55 per basic share, or $0.53 per diluted share, up from $0.47 per basic share, or $0.40 per diluted share in fiscal year 2010, a gain of 17.0% and 32.5%, respectively;
• Cash and cash equivalents totaled $31.7 million on June 30, 2011 or $1.12 per basic share in cash;
• Targeting Jiangchuan macrolide facility (JCM) GMP certification in October 2011; Reaffirming $30 million JCM macrolide API revenue for the first year of operation.

Sales for the fiscal year ended June 30, 2011 delivered $95.2 million for the fiscal year 2011 up 48.9% from $63.9 million for the fiscal year 2010, supported by our continuous sales channel expansion and market penetration for our current product portfolio especially the lead products. The results exceeded our targeted $90.0 million fiscal year 2010 guidance which validated our growth strategies. Among the revenue mix, the revenue contribution from TPI's organic portfolio delivered $78.1 million a gain of 22.2% over $63.9 million in fiscal year 2010. We are exploring various growth strategies to sustain the current momentum. In addition to introducing distribution revenue from TMT and macrolide API revenue from JCM, for our core product portfolio, we are focusing on AAA and AA hospitals in major cities of China as an in-depth approach to develop high end hospital pharmaceutical market. The lead product sales are: Ginkgo Mihuan Oral Liquid (GMOL): $20.5 million, Apu Shuangxin Oral Liquid (APU) $6.6 million, Xuelian Chongcao (XLCC): $4.1 million, Azithromycin Dispersible Tablets (AZI): $3.9 million, Qingre Jiedu Oral Liquid (QRE): $2.9 million, which totaled $38.0 million or 48.7% of the organic portfolio revenue.

Cost of Sales for the fiscal year ended June 30, 2011 was $52.7 million or 55.4% of the revenue, compared with $30.6 million or 47.9% of the revenue for the fiscal year ended June 30, 2010. Our cost of sales primarily consists of the costs of direct raw materials, labor, depreciation and amortization of manufacturing equipment and facilities, and other overhead. The increase of our cost of sales from the previous year was due to 1) the additional distribution business through TMT amounting to $17.1 million at 11% gross margin, 2) pricing pressure on generic pharmaceutical sales, and 3) increase of raw material costs.

Gross profit for fiscal year 2011 was approximately $42.5 million with 44.6% gross margins compared with $33.3 million with 52.1% gross margin for fiscal year 2010. The decrease in gross margins was attributable to the addition of TMT revenues, the distribution arm of TPI, whose gross margins average approximately 11%. The pricing pressure on our generic products also contributed to the reduction of the gross margins. During the fiscal year 2011, our organic product portfolio delivered approximately 52.0% gross margins, about 0.8% lower than 52.8% in fiscal year 2010. Given the blend of the TMT lower margin distribution revenue and recent gross margin reduction associated with our proprietary portfolio under the current pricing trend, we anticipate that our overall gross margin in the near term, on a quarter to quarter comparison basis, may trend lower, but on a sequential basis should stabilize and improve depending upon the revenue mix percentages of TMT revenue, upcoming JCM macrolide API revenue as compared to the proprietary portfolio's revenue performance. The factors that influence the gross margins of our major products include 1) raw material price (85% of the cost of goods sold) and 2) production cost (15% of the cost of goods sold).

Operating and R&D Expenses were $24.4 million in fiscal year 2011 compared with $18.6 million in fiscal year 2010. Continuing sales payroll and marketing expense increases are the main components of the operating expenses. We anticipate these costs may continue to increase but will be in line with our revenue growth. Operating expenses also included $1.9 million of share-based compensation payment for TPI employees.

Net income was $15.6 million in fiscal year 2011 compared with $11.9 million in fiscal year 2010. The increase in our net income was mainly driven by the revenue growth. The Pro forma net income excludes the non-cash share-based compensation payment: $17.5 million for fiscal year 2011 compared with $13.0 million for fiscal year 2010.

We have reached our target of 900 hospitals by the end of fiscal year 2011 ending June 30, 2011 from the 850 hospitals coverage at the beginning of fiscal year 2011.

Diluted earnings per share for the fiscal year ending June 30, 2011 were $0.53, up 32.5% from the earnings of $0.40 per diluted share for the fiscal year 2010, based on 29.7 million and 30.1 million shares, respectively.

Balance Sheet and Cash Flow

As of June 30, 2011, we had working capital totaling $38.5 million, including cash and cash equivalents of $31.7 million. Net cash generated from operating activities was $14.2 million for fiscal year 2011 as compared with $15.4 million for fiscal year 2010 which was mainly due to the change in fair value of warrant liability of $(1.6) million compared with $0.16 million in the previous year. In fiscal year 2011, the accounts receivable also improved: $9.0 million, or 9.5% of the total revenue as compared with $8.2 million, or 12.8% of the fiscal 2010 revenue. We believe that TPI is adequately funded to meet all of our working capital and capital expenditure needs for fiscal year 2012.

Net cash used in investing activities for the fiscal year ended June 30, 2011 totaled $(11.7) million compared with $(8.8) million in 2010 which were mainly related to JCM construction and pipeline development.

Net cash used in financing activities for fiscal year 2011 totaled $1.1 million which is related short term bank loan of $1.2 million, as compared with $8.0 million in fiscal year 2010 mainly due to the $(1.4) million paid dividends and $8.9 million additional paid in capital related to the 2009 financing.

Business Outlook

Jiangchuan Macrolide Project – JCM

JCM facility is currently under inspection for environmental and safety standards which will be immediately followed by the API production and GMP certification for the JCM project. We reaffirm our first year JCM macrolide API revenue forecast of $30 million.

Tianyin Medicine Trading Distribution Business – TMT

Since the signing of one-year distribution rights in last November with Jiangsu Lianshui Pharmaceutical to distribute 15 Lianshui-branded generic injection products including cough suppressant, antibiotics, and anti-inflammatory medicines, the TMT distribution business delivered $17.1 million in revenue.

Future Forecast

We have met and exceeded the $90.0 million revenue guidance and the $16.0 million net income forecast excluding any non-cash expenses due to stock compensation plans or stock option expenses. As a result of the price reduction on generic pharmaceutical products nationwide as a result of the ongoing healthcare reform, our generic sales, which makes up approximately 40% of our total revenue, has been under pressure. Our analysis of the market condition suggests that although the pricing pressure is likely to continue, the JCM revenue along with the TMT distribution revenue are expected to support the growth of TPI for the coming fiscal year. We reaffirmed our forecast of $30 million for JCM revenue for its first year of operation. Management will continue to evaluate the Company's business outlook and communicate any changes on a quarterly basis or as when appropriate.