Tianyin Pharmaceutical Inc. (NYSE Amex: TPI), a pharmaceutical company that specializes in the patented biopharmaceutical, modernized traditional Chinese medicine (mTCM), branded generics and active pharmaceutical ingredients (API) announced financial results for the first quarter fiscal year 2014.
First Quarter Fiscal Year 2014 Ended September 30, 2013 Financial Highlights:
- Revenue was $14.8 million compared with $16.0 million in the first quarter fiscal year 2013, a decrease of 8.1% year over year;
- Operating income was $2.2 million, compared with $2.1 million in the first quarter fiscal year 2013, an increase of 1.4% year over year;
- Net Income was $1.5 million compared with $1.5 million in the first quarter fiscal year 2013;
- Earnings per share of $0.05 per basic share, $0.05 per diluted share, compared with $0.05 per basic share, or $0.05 per diluted share in the first quarter fiscal year 2013;
- Cash and cash equivalents totaled $25.6 million on September 30, 2013;
Comparison of results for the three months ended September 30, 2013 and 2012:
Sales for the quarter ended September 30, 2013 was $14.7 million, a decrease of 8.1% as compared to $16.0 million for the quarter ended September 30, 2012. The sales decrease reflected the continuous pricing pressure and restrictive sales policies in generic products compared with the same period last year.
In the quarter ended September 30, 2013, our top five core product sales were:
These core products totaled $8.8 million in sales, representing 59.7% of the quarterly revenue in the quarter ended September 30, 2013.
Gross Margin for the quarter ended September 30, 2013 was 40.6% as compared to 39.1% for the quarter ended September 30, 2012. As discussed above in the segment of costs of sales, our gross margin improved, predominately as a result of a greater mix of higher margin products being sold during the period, supported by a leveling off of negative pricing pressures in our lower margin generic portfolio. We expect a gradual improvement of our overall gross margin on a quarter to quarter comparison basis from last year due to the sale of our higher margin products.
Net Income was $1.5 million with a net margin of 10.0% for the quarter ended September 30, 2013, as compared to net income of $1.5 million with net margin of 9.4% for the quarter ended September 30, 2012. The improvement of net margin was predominately a result of improvements in our gross margins with optimized sales and marketing expenditure.
Diluted earnings per share for the first quarter fiscal year 2014 were $0.05 based on 29.4 million shares compared with the earnings of $0.05 per diluted share for the first quarter fiscal year 2013, based on 29.3 million shares.
Balance Sheet and Cash Flow
As of September 30, 2013, we had working capital totaling $38.3 million, including cash and cash equivalents of $25.6 million. Net cash provided by operating activities was $0.25 million for the three months ended September 30, 2013 as compared with net cash generated from operating activities as $0.48 million for the three months ended September 30, 2012. The net decrease in operating cash flow was predominately the result of the payment of the QLF construction/relocation related accounts payable at the amount of $(2.7) million which was offset by an increase of cash flow from accounts receivable, inventories and other receivables totaled $1.0 million. We believe that TPI is adequately funded to meet all of our working capital and capital expenditure needs for fiscal year 2014.
Business Development & Outlook
Research and Development (R&D)
The partnership-based R&D strategy supports TPI to commercialize, produce, and broaden our product pipeline and to market those products through our sales and marketing infrastructure. Currently, we have been monitoring the progress of several pipeline drugs with our partnership research institutes, of which we could be able to register intellectual property rights of these products upon milestone results.
R&D for additional indications of GMOL
Our flagship product GMOL (CFDA certification number: H20013079; patent number: 20061007800225) contributes significantly to our revenue. Clinical application and information gathered from physicians showed that in addition to our approved indication for GMOL: cardiovascular disorders, coronary heart disease and cerebral ischemic attack including strokes, off-label use of GMOL have been indicated in hepatic diseases and ophthalmological diseases. The validity of these observations is currently being investigated.
Jiangchuan Macrolide Project (JCM)
TPI has completed the 240-ton JCM facility for the R&D, manufacturing and sale of API and chemical intermediates of macrolide antibiotics. In January 2012, JCM was approved for its GMP certification designated as "CHUAN M0799," which is valid for the period of December 31, 2011 until December 31, 2015. Following the efficiency improvement and calibration, JCM started the production of the macrolide API for TPI's Azithromycin Dispersible Tablets (SFDA No: H20074145) since July 2012. Currently the monthly production capacity of JCM is 5 - 10 tons of Azithromycin macrolide API. The API produced by JCM is mainly to supply for TPI's own Azithromycin Tablets.
Tianyin Medicine Trading Distribution Business (TMT)
TMT is established to distribute products manufactured by both TPI and other pharmaceutical companies to fuel our expanding sales network as well as to provide synergy to our existing organic product portfolio. TMT has been distributing mainly TPI's own products since its inception in 2009. Since 2010, TPI has signed and later extended distribution contracts with Jiangsu Lianshui Pharmaceutical ("Lianshui") to distribute Lianshui-branded generic injection products including cough suppressant, antibiotics, anti-inflammatory medicines and other healthcare indications. On average, TMT distribution revenue contributed approximately $2-3 million sales per quarter to our total revenue.
Pre-extraction and formulation plant development at Qionglai Facility (QLF)
In preparation for the new Good Manufacturing Practice (GMP) standards stipulated by the PRC government in early 2011, TPI initiated a process to optimize the manufacturing facilities and production lines of the Company in compliance with the new GMP standards. We received our current GMP certificate for both of our pre-extraction plant and formulate facilities on August 27, 2013 for the next three years until the end of 2015. In addition, under the guidance by provincial government, our facility is scheduled to be relocated to Qionglai County, south of Chengdu, which is designated for the pharmaceutical industry. The Qionglai facility (QLF) post-relocation is approximately 18 miles from the Company's recently completed JCM facility. The proposed relocation project also includes our TCM pre-extraction plant which is currently located near the center of the city of Chengdu surrounded by a rapidly expanding residential area. Both the pre-extraction plant and the formulation plant will subsequently be relocated to Qionglai County to become a combined QLF plant, which is estimated to be 80 mu or approximately 13 acres. The combined QLF plant, designed and constructed according to the latest GMP standards, is expected to relieve the current capacity saturation at the current facilities. The re-location cost for Phase I (which includes relocation of both the formulation plant and pre-extraction plant) is estimated at $25 million, which, when completed, is expected to expand the current capacity by approximately 30%. If the Company decides to further expand the capacity, Phase II QLF, an additional $10 million may be invested to double the current capacity. Since the official start of the relocation project in February 2012, the construction of the QLF project has been progressing on schedule. The relocation of pre-extraction plant of Phase I is expected to be initiated by the end of 2013 calendar year which will be immediately followed by the initiation of the relocation of formulation plant.
Fiscal 2014 Guidance
The Company continues experiencing restrictive pricing pressures in the healthcare market in China as a result of the enactment of additional healthcare reform policies. The prevailing tightened pricing control of generic medicines in China amid the healthcare reform and from the government's efforts to promote lower margined essential drugs (EDL) also simultaneously compressed our margins as well as our sale volumes of those generic products. These factors, together with the negative market environment of Azithromycin API pricing led to intensified market and pricing competition combined with an excess of capacity that may continue to last for the next few years.
Based on the continuous pricing pressure going forward, we reiterate the revenue forecast to range from 0% to 5% growth year over year from fiscal year 2013, along with a 10% net margin. The forecasted net income guidance excluded any non-cash expenses associated with stock compensation plans or stock option expenses.
We believe the following factors will influence the future growth perspectives of our Company:
Management will continue to evaluate the Company's business outlook and communicate any changes on a quarterly basis or as when appropriate.
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