Renhuang Pharmaceuticals, Inc. (Pink Sheets: RHGP) ("Renhuang" or the "Company"), a developer, manufacturer and distributor of botanical products, bio-pharmaceuticals and traditional Chinese medicines ("TCM"), today announced its financial results for the first quarter ended January 31, 2010.
First Quarter 2010 Highlights and Recent Events -- Sales grew 24.4% year-over-year to $17.1 million. Gross profit margin increased to 55.3% in 2010 from 52.9% in 2009 -- Net income rose 17.8% to $7.4 million or $0.20 per diluted share, as compared to $6.3 million, or $0.18 per diluted share -- Introduced two new antibiotics, Banlangen Granules and Compound Honeysuckle Granules, for the flu season -- Appointed new Chief Financial Officer with US GAAP and SEC reporting experience
"Renhuang achieved record results in the first quarter, delivering robust revenue and net income growth while significantly increasing selling expenses and R&D investment," said Mr. Shaoming Li, the Chairman and CEO of Renhuang. "The strong financial performance was primarily driven by the timely launch of two new natural antibiotics at the end of last year. The two products, Banlangen Granules and Compound Honeysuckle Granules, were introduced in time for the peak flu season and were in great demand as a result of the global H1N1 pandemic. We successfully raised prices across our product portfolio, including a 30% price increase for our Siberian Ginseng (Acanthopanax) product series. We also expanded our sales and distribution platform and increased our promotional activities to drive market penetration and raise consumer brand awareness of our products."
First Quarter 2010 Results
For the first quarter ended January 31, 2010, net sales were $17.1 million, up 24.4% from $13.8 million in the same quarter last year. The sales increase was primarily due to a 14.0% growth in the sales volume, helped by the timely introduction of two new antibiotics, Banlangen Granules for the treatment of vial cold and sore throat and Compound Honeysuckle Granules for the treatment of the common cold, pharyngitis and tonsillitis, at the end of fiscal 2009 and an increase in the net average selling price (ASP) of existing products. The two new products together accounted for 20.2% of gross sales in the quarter, as compared to none in the first quarter of fiscal 2009. The Company realized a 9.1% increase in the net ASP in the first quarter, which reflected a 1.2% average price increase and a lower average sales rebate.
Renhuang increased the price of its Siberian Ginseng (Acanthopanax) products by an average of 30% over the past year. Based on detailed market research conducted prior to the price increase, the Company believes that the high quality of these products and strong consumer demand for them will support the higher price. As such, while volume for the Siberian Ginseng products were modestly lower year-over-year, the Company is confident that demand will rebound and volume will grow throughout fiscal year 2010. This is consistent with Renhuang's previous experience with price increases that led to a slight decline in the short-term and return to volume growth in the subsequent quarters.
Gross profit in the quarter increased 30% to $9.5 million, as compared to $7.3 million for the same period of 2009. Gross margin was 55.3% in the quarter, up from 52.9% in the same period last year. Gross profit and margin were positively influenced average selling price increases, lower rebate, new product introductions and a favorable product mix.
Operating expenses for the first quarter of 2010 were $2.1 million, as compared to $1.0 million in the same period last year. Selling and marketing expenses rose to $1.1 million from $0.3 million, primarily reflecting the Company's distribution network expansion efforts and increased direct-to-consumer promotion to gain market share and create greater consumer awareness of its premium quality products. General and administrative expenses increased 31.4% to $0.8 million from $0.6 million.
Operating income was $7.4 million, or 43.1% of net sales in the first quarter of 2010, up 17.8% from $6.3 million, or 45.5% of net sales in the prior year quarter. The Company did not incur income tax expenses as its subsidiary registered in the PRC has been granted a tax holiday for 2010. Net income rose 17.8% to $7.4 million, or $0.20 per diluted share, as compared to $6.3 million, or $0.18 per diluted share, in the first quarter of 2009.
Financial Condition
As of January 31, 2010, Renhuang had $17.7 million in cash and cash equivalents. Working capital was $40.9 million with a current ratio of 15.1. The Company had no debt on its balance sheet. At the end of the first quarter in 2010, shareholders' equity was $57.9 million, as compared to $50.5 million at the end of 2009.