China Biologic's total sales increase by 22.6% in RMB terms to $68.3 million in Q4 2015

Feb 26 2016

China Biologic Products, Inc. (NASDAQ: CBPO, "China Biologic" or the "Company"), a leading fully integrated plasma-based biopharmaceutical company in China, today announced its financial results for the fourth quarter and fiscal year of 2015.

Fourth Quarter 2015 Financial Highlights

• Total sales in the fourth quarter of 2015 increased by 22.6% in RMB terms, or 17.8% in USD terms, to $68.3 million from $58.0 million in the same quarter of 2014.
• Gross profit increased by 11.6% to $41.3 million from $37.0 million in the same quarter of 2014. Gross margin decreased to 60.5% in the fourth quarter of 2015 from 63.8% in the fourth quarter of 2014.
• Income from operations increased by 14.7% to $22.6 million from $19.7 million in the same quarter of 2014. Operating margin decreased to 33.1% in the fourth quarter of 2015 from 34.0% in the same quarter of 2014.
• Net income attributable to the Company increased by 26.4% to $16.3 million from $12.9 million in the same quarter of 2014. Fully diluted net income per share increased to $0.59 from $0.48 in the same quarter of 2014.
• Non-GAAP adjusted net income attributable to the Company increased by 44.5% in RMB terms, or 38.8% in USD terms, to $20.4 million from $14.7 million in the same quarter of 2014. Fully diluted non-GAAP adjusted net income per share increased to $0.74 from $0.56 in the same quarter of 2014.

Fiscal Year 2015 Financial Highlights

• Total sales in 2015 increased by 23.4% in RMB terms, or 21.9% in USD terms, to $296.5 million from $243.3 million in 2014.
• Gross profit increased by 16.4% to $190.0 million from $163.2 million in 2014. Gross margin decreased to 64.1% in 2015 from 67.1% in 2014.
• Income from operations increased by 19.2% to $132.6 million from $111.2 million in 2014. Operating margin decreased to 44.7% in 2015 from 45.7% in 2014.
• Net income attributable to the Company increased by 25.5% to $89.0 million from $70.9 million in 2014. Fully diluted net income per share increased to $3.27 from $2.71 in 2014.
• Non-GAAP adjusted net income attributable to the Company increased by 34.0% in RMB terms, or 32.4% in USD terms, to $100.1 million from $75.6 million in 2014. Fully diluted non-GAAP adjusted net income per share increased to $3.68 from $2.89 in 2014.

Mr. David (Xiaoying) Gao, Chairman and Chief Executive Officer of China Biologic, commented, "We are very pleased with our 2015 financial results which exceeded our revised guidance forecast from last quarter despite the negative impact from foreign currency conversion. Throughout 2015, we executed our major financial and strategic initiatives while positioning our business for sustainable growth through investments that enhance our commercial, operational and research and development capabilities."

"We delivered double-digit collection growth through our existing plasma collection network for a fourth consecutive year. We recently added a new plasma branch collection facility and have two new stations under construction that we expect to be operational in 2016. Our strategic collaboration with a third-party plasma fractionator enables our Guizhou facility to have access to an additional 500 tonnes of plasma, significantly enhancing its plant utilization over the next three years. In terms of our manufacturing capabilities, the new fractionation facility we are building in Shandong province remains on track, and a new Huitian facility in Shaanxi province, in which we have a minority equity interest, recently received its GMP certification and commenced production, which will incrementally contribute to our profit in 2016. Our efforts to further penetrate tier-one markets also contributed to our financial results in 2015 and provided a solid foundation for future IVIG growth. According to our estimates based on published government data, China Biologic had the largest market share among Chinese IVIG producers in 2015."

Mr. Gao continued, "In addition to our operational achievements, we were also pleased to be included in the NASDAQ Biotechnology Index in December 2015, a testament to our strong, stable track record of growth. As we move into 2016, our growth strategy will focus on continuing strong plasma growth momentum, advancing and expanding our product portfolio through continued investment in research and development, and strengthening our sales efforts to maximize market potential resulting from the price ceiling removal by the Chinese government in 2015."

Fourth Quarter 2015 Financial Performance

Total sales increased by 22.6% in RMB terms, or 17.8% in USD terms, to $68.3 million from $58.0 million in the fourth quarter of 2015, compared with the same quarter of 2014. The increase was primarily attributable to increases in sales volume of major plasma-based products and hyper-immune products.

Cost of sales increased by 28.6% to $27.0 million in the fourth quarter of 2015 from $21.0 million in the same quarter of 2014, mainly in line with the total sales growth. As a percentage of total sales, cost of sales was 39.5%, compared to 36.2% in the same quarter of 2014. The increase in cost of sales as a percentage of total sales was mainly due to the higher cost of products made from the purchased raw plasma.

Gross profit increased by 11.6% to $41.3 million in the fourth quarter of 2015 from $37.0 million in the same quarter of 2014. Gross margin was 60.5% and 63.8% in the fourth quarter of 2015 and 2014, respectively.

Total operating expenses in the fourth quarter of 2015 increased by 8.1% to $18.7 million from $17.3 million in the same quarter of 2014, due to increased compensation and R&D expenses, partially offset by the decrease of a one-time provision in the fourth quarter of 2014. As a percentage of total sales, total operating expenses decreased to 27.4% in the fourth quarter of 2015 from 29.8% in the same quarter of 2014.

Income from operations for the fourth quarter of 2015 increased by 14.7% to $22.6 million from $19.7 million in the same period of 2014. Operating margin was 33.1% in the fourth quarter of 2015, compared to 34.0% in the same quarter of 2014.

Net income attributable to the Company increased by 26.4% to $16.3 million in the fourth quarter of 2015 from $12.9 million in the same quarter of 2014. Fully diluted net income per share was $0.59 in the fourth quarter of 2015, compared to $0.48 in the fourth quarter of 2014.

Non-GAAP adjusted net income attributable to the Company was $20.4 million in the fourth quarter of 2015, or $0.74 per diluted share, representing an increase of 44.5% in RMB terms, or 38.8% in USD terms, from $14.7 million, or $0.56 per diluted share, in the same quarter of 2014.

Fiscal Year 2015 Financial Performance

Total sales, increased by 23.4% in RMB terms, or 21.9% in USD terms, to $296.5 million from $243.3 million, in 2015 compared with 2014. The increase in sales was primarily driven by increases in sales volume of major plasma-based products.

During 2015, human albumin and IVIG products remained the Company's largest two sales contributors. The sales volume of human albumin and IVIG products increased by 16.6% and 27.0%, respectively, in 2015. As a percentage of total sales, sales from human albumin products were 37.6% in 2015, compared to 39.3% in 2014. Revenues from IVIG increased to 42.2% of total sales in 2015 from 40.4% in 2014.

The average price for human albumin products, excluding foreign exchange impact, increased by approximately 1.3% in RMB terms, or remained stable in USD terms, in 2015 compared to the prior year. The average price for IVIG products, excluding foreign exchange impact, increased by approximately 1.2% in RMB terms, or remained stable in USD terms, in 2015 compared to the prior year.

Cost of sales was $106.5 million in 2015, compared to $80.0 million in 2014. Cost of sales as a percentage of total sales was 35.9%, compared to 32.9% in 2014. The increase in cost of sales was mainly due to increased sales volume and increased plasma collection costs, and from the higher cost of products made from the purchased raw plasma.

Gross profit increased by 16.4% to $190.0 million in 2015 from $163.2 million in 2014. Gross margin was 64.1% in 2015, compared to 67.1% in 2014.

Total operating expenses in 2015 increased by 10.2% to $57.4 million from $52.1 million in 2014, primarily due to the increase in share-based compensation expense, partially offset by the decrease of a one-time provision incurred in 2014. As a percentage of total sales, total operating expenses decreased to 19.4% in 2015 from 21.4% in 2014.

Selling expenses in 2015 decreased by 6.5% to $10.0 million from $10.7 million in 2014. As a percentage of total sales, selling expenses were 3.4%, down from 4.4% in 2014, which was primarily due to the decreased selling expense of placenta polypeptide.

General and administrative expenses in 2015 increased by 29.0% to $41.4 million from $32.1 million in 2014. As a percentage of total sales, general and administrative expenses were 14.0% and 13.2% in 2015 and 2014, respectively. The increase in general and administrative expenses was mainly due to the increase in share-based compensation expense and the increase in asset disposal losses.

Research and development expenses in 2015 were $6.0 million, or 2.0% of total sales, compared to $4.2 million, or 1.7% of total sales, in 2014 primarily due to expenditures related to certain clinical trial programs conducted in 2015. During 2015 and 2014, the Company received government grants totaling $1.2 million and $2.1 million, respectively, and recognized them as a reduction of research and development expenses. Excluding this impact, research and development expenses increased by $0.9 million in 2015 from 2014, and these expenses as a percentage of total sales decreased from 2.6% to 2.4%.

Income from operations in 2015 increased by 19.2% to $132.6 million from $111.2 million in 2014. Operating margin was 44.7% in 2015, compared to 45.7% in 2014.

Income tax expense in 2015 was $21.0 million, compared to $26.6 million in 2014. The effective income tax rate was 15.5% and 21.7% in 2015 and 2014, respectively. The Company recognized dividend withholding income tax of $8.9 million in 2014, while no such tax was recognized in 2015. Excluding the impact of dividend withholding income tax, the effective income tax rates were 15.5% and 14.4% for 2015 and 2014, respectively.

Net income attributable to the Company increased by 25.5% to $89.0 million in 2015, from $70.9 million in 2014. Net margin was 30.0% and 29.1% in 2015 and 2014, respectively. Fully diluted net income per share was $3.27, compared to $2.71 in 2014.

Non-GAAP adjusted net income attributable to the Company increased by 34.0% in RMB terms, or 32.4% in USD terms, to $100.1 million, or $3.68 per diluted share in 2015, compared with $75.6 million, or $2.89 per diluted share in 2014.

Non-GAAP adjusted net income and diluted earnings per share in 2015 exclude $11.1 million of non-cash employee share-based compensation expenses.

As of December 31, 2015, the Company had $144.9 million in cash and cash equivalents, primarily consisting of cash on hand and demand deposits, and $38.0 million in time deposits.

Net cash provided by operating activities in 2015 was $109.4 million, as compared to $93.5 million in 2014. The increase in net cash provided by operating activities was mainly in line with the increases in net income, partially offset by the increases in accounts receivable and inventories.

Accounts receivable increased by $7.1 million during 2015, as compared to $2.2 million during 2014, primarily due to the extended credit terms granted to certain distributors for human rabies immunoglobulin products. Excluding the impact of these rabies immunoglobulin distributors, the accounts receivable turnover days for plasma products remained stable in 2015 compared with 2014.

Inventories increased by $32.1 million in 2015, as compared to $13.4 million during 2014, primarily due to the increase of plasma products derived from the source plasma and plasma pastes purchased from Xinjiang Deyuan.

Net cash used in investing activities for 2015 was $89.8 million, as compared to $13.4 million for 2014. During 2015, the Company paid $52.3 million for the acquisition of property, plant and equipment, intangible assets and land use rights and provided a long-term loan of $40.7 million to Xinjiang Deyuan, partially offset by $2.5 million government grants in connection with the purchase of property, plant and equipment. During 2014, the Company paid $21.9 million for the acquisition of property, plant and equipment, intangible assets and land use right, partially offset by a refund of deposit of $1.6 million from the local government due to a decrease in the size of a land parcel purchased by the Company in Guizhou and proceeds of $6.6 million from the maturity of a time deposit made in 2013.

Net cash provided by financing activities in 2015 was $51.6 million, as compared to net cash used in financing activities of $142.8 million in 2014. The net cash provided by financing activities in 2015 mainly consisted of proceeds of $80.6 million from the follow-on offering of the Company's common stock in June 2015, proceeds of $63.2 million from the maturity of deposits used as security for bank loans, proceeds of $15.8 million from a short-term bank loan, and proceeds of $7.7 million from stock options exercised, partially offset by the repayment of bank loans totaling $113.5 million and a dividend payment of $3.7 million held in escrow by a trial court in connection with disputes with a minority shareholder of Guizhou Taibang. Net cash used in financing activities during 2014 mainly consisted of a payment of $86.8 million for acquisition of non-controlling interest in Guizhou Taibang, a dividend payment of $8.8 million by the Company's subsidiaries to noncontrolling interest shareholders and a payment of $70.0 million for share repurchase, partially offset by proceeds of $33.2 million from a follow-on offering of the Company's common stock in July 2014.

Financial Outlook

For the full year of 2016, the Company expects total sales to grow 21% to 23% in RMB terms and non-GAAP adjusted net income to grow 24% to 26% in RMB terms over 2015 financial results. This guidance does not factor in any potential foreign currency translation impact. The Company adopted an exchange rate of approximately RMB6.21 = $1.00 based on weighted average quarterly exchange rates in 2015 in translating 2015 financial results, and expects that the total sales and non-GAAP adjusted net income in USD terms in 2016 will be adversely affected by the foreign currency translation impact.

This guidance assumes only organic growth, excluding acquisitions, and necessarily assumes no significant product price changes during 2016. This forecast reflects the Company's current and preliminary views, which are subject to change.