Financial results for the third-quarter reported by China Biologic Products

China Biologic Products, Inc. (OTC Bulletin Board: CBPO) ("China Biologic," or the "Company"), one of the leading plasma-based biopharmaceutical companies in the People's Republic of China ("PRC"), operating through its indirect majority- owned subsidiaries, Shandong Taibang Biological Products Co. Ltd. ("Taibang") and Guiyang Dalin Biologic Technologies Co., Ltd. ("Dalin") and its equity investment in Xi'an Huitian Blood Products Co., Ltd. ("Huitian"), today reported financial results for the third quarter ended September 30, 2009.

Third Quarter 2009 Highlights -- Revenues increased 95.9% year-over-year to $27.0 million -- Revenues excluding the acquisition of Dalin increased 23.2% year-over-year to $17.0 million -- Gross profit increased 107.8% year-over-year to $20.1 million, representing a gross margin of 74.3% -- Operating income increased 99.1% year-over-year to $14.0 million, representing an operating margin of 51.9% -- Net loss attributable to controlling interest was $6.2 million, or ($0.29) per diluted share, including the impact of a $13.2 million non-cash expense -- Non-GAAP net income(*) was $7.1 million or $0.33 per diluted share, a 56.8% increase over $4.5 million or $0.21 per diluted share in the third quarter of 2008 (*) Excluding non-cash employee compensation expenses and changes in the fair value of derivative liabilities. See "About Non-GAAP Financial Measures" as well as the reconciliation table of non-GAAP net income to GAAP net income at the end of the press release.

"In the third quarter of 2009, we maintained our leadership position in the industry by continuing to provide high margin, plasma-based products to the market. Our operating income nearly doubled year-over-year, due to the contribution of our recently acquired Dalin subsidiary and healthy organic growth," said Mr. Chao Ming Zhao, Chief Executive Officer. "Furthermore, we made major steps forward in expanding our research and development capabilities by engaging an expert in plasma-based research to serve as our director of R&D, and we entered into a collaboration agreement with a well- known blood institute in Sichuan Province. We believe that these measures will allow us to make tangible progress toward our goal of becoming the leading plasma-based pharmaceutical company in China."

During the third quarter of 2009, the Company achieved the following milestones:

-- China Biologic hosted a forum of industry experts at its headquarters in Tai'an City. The Company received counsel on how to create synergies among its subsidiaries, including the initiation of research and development of new drugs, efficient use of resources, quality control procedures during collection, production and distribution processes, and other areas to create long-term, sustainable growth. -- In order to reduce the cost of administrative operations, the Company relocated its Dalin subsidiary from Chongqing, Sichuan Province, to China Biologic's campus in Guiyang, Guizhou Province. Dalin was renamed "Guiyang Dalin Biologic Technologies Co., Ltd." to reflect the relocation. -- China Biologic appointed Dr. Vincent Yi-Wu Xie to serve as the Company's Director of Research and Development. Dr. Xie will oversee the development of new biologic products including processes, analytical methods and indications. Dr. Xie is a veteran in the biopharmaceutical industry and has published several papers and articles related to the field of plasma-based research. -- China Biologic's indirectly owned subsidiary, Qianfeng Biological Products Co., Ltd. ("Qianfeng"), was granted renewal of its PRC State Food and Drug Administration ("SFDA") certification of compliance with Good Manufacturing Practices for the Qianfeng production facility. -- China Biologic entered into a strategic research and development agreement with the Institute of Blood Transfusion (the "IBT"), based in Chengdu, Sichuan Province, to strengthen the Company's research and development capabilities and manufacturing processes. IBT is a division of the Chinese Academy of Medical Sciences and Peking Union Medical College.

Third Quarter Results

Revenues for the third quarter of 2009 increased 95.9% to a record $27.0 million, compared to $13.8 million for the same period last year. The increase in revenues is primarily attributable to the consolidation of Dalin, a general increase in the price of plasma-based products, which was partially offset by a decline in sales volume by one of the Company's products, and a 0.3% increase due to foreign exchange translation. During the third quarter of 2009, Dalin accounted for $10.0 million in revenue, or 37.1% of total revenues, and Taibang accounted for $17.0 million in revenue, or 62.9% of total revenues. Revenues, excluding the acquisition of Dalin, increased 23.2% year-over-year, as prior to January 1, 2009, Taibang accounted for 100% of the Company's revenues.

Gross profit for the third quarter of 2009 was $20.1 million, up 107.8% from $9.7 million in the third quarter of 2008. Gross margin was 74.3%, up 430 basis points from 70.0% in the third quarter of 2008. The increase in gross profit margin was primarily due to general price increases and an increase in sales of higher margin products, which was partially offset by an increase in raw material costs.

Total operating expenses in the third quarter of 2009 increased 131.4% to $6.1 million versus $2.6 million in the prior year period. Selling expenses decreased 20.6% to $0.6 million, compared to $0.8 million in the third quarter of 2008. The decrease in selling expenses was primarily due to the reduction in marketing and promotion activities initiated in 2008, which was offset by the consolidation of Dalin's selling activities, as well as increased marketing efforts to increase direct sales to new hospitals. As a percentage of sales, selling expenses in the third quarter of 2009 were 2.3%, down from 5.7% in the third quarter last year. General and administrative ("G&A") expenses increased 216.3% to $5.2 million. As a percentage of sales, G&A expenses increased to 19.1% for the third quarter of 2009, from 11.8% for the same period in 2008. The increase in G&A expenses was mainly due to expenses related to the acquisition of Dalin, such as additional professional service charges and personnel-related costs and depreciation and amortization expenses. The Company also incurred $7,314 in non-cash employee compensation expenses as a result of grants to employees, consultants and directors made under the 2008 Equity Incentive Plan, compared to $20,613 for the same period in 2008.

Research and development expenses increased 30.6% to $0.3 million, or 1.0% of total revenues, compared to $0.2 million, or 1.5% of total revenue, in the third quarter of 2008. The dollar increase was due primarily to the consolidation of Dalin and increased costs from continuing clinical trials on new products.

Total other expenses in the third quarter of 2009 were $14.3 million. Between June 30, 2009 and September 30, 2009, the Company's stock price increased from $4.03 per share to $7.52 per share. As a result, the Company recognized a loss of $13.2 million from changes in the fair value of derivative liabilities, including warrants and derivative instruments (including the conversion option) embedded in the Company's Senior Secured Convertible Notes. No such charge occurred in the third quarter of 2008. In addition, the Company recorded a loss of $31,051 in equity income in connection with its 35% equity interest in Huitian, the Company's unconsolidated affiliate, compared to a net gain of $90,390 in the second quarter of 2009, due to the additional depreciation and amortization expenses arising from the write-up of assets as a result of the equity investment. Net interest expense was $0.7 million for the third quarter of 2009 compared to interest income of $21,713 for the same period in 2008. The increase in interest expense is primarily due to financing related to the acquisition of Dalin.

Provision for income taxes increased 61.2% to $2.5 million for the third quarter of 2009, compared to $1.6 million for the same period last year. The increase in provision for income taxes is mainly due to the consolidation of Dalin, which was offset by the decrease of Taibang's provision for income taxes. Taibang accrued its 2008 taxes at 25% before it was granted a 15% preferential tax rate for the 2008 tax year in early 2009. Net loss attributable to controlling interest for the third quarter of 2009 was $6.2 million, compared to net income attributable to controlling interest of $4.5 million in the third quarter of 2008. Fully diluted loss per share was $0.29 for the third quarter of 2009, compared to earnings per share of $0.21 in the third quarter of 2008.

Non-GAAP net income in the third quarter of 2009 was $7.1 million or $0.31 per fully diluted share, an increase of 56.8% from non-GAAP net income of $4.5 million, or $0.21 per fully diluted share in the third quarter of 2008.(*)

(*) Excluding non-cash employee compensation expenses and changes in the fair value of derivative liabilities. See "About Non-GAAP Financial Measures" as well as the reconciliation table of non-GAAP net income to GAAP net income at the end of the press release.

Nine Month Results

For the first nine months of 2009, total revenue was $81.4 million, up 142.4% from the first nine months of 2008. Revenues excluding the acquisition of Dalin increased 41.8% year-over-year to $47.6 million, compared to $33.6 million a year ago. Gross profit for the first nine months of 2009 was $59.0 million, up 147.5% from $23.8 million in the comparable period a year ago. Gross margin increased 200 basis points to 73.0% from 71.0% in the same period last year. Income from operations for the period was $40.6 million, up 159.7% from $15.6 million in the first nine months of 2008. Net income for the first nine months of 2009 was $5.0 million, down 42.7% from $8.8 million in the first nine months of 2008. Fully diluted earnings per share was $0.23 for the first nine months of 2009 compared to $0.40 in the first nine months of 2008. Adjusting for non-cash employee compensation expenses and changes in the fair value of derivative liabilities, including warrants and derivative instruments (including the conversion option) embedded in the Company's Senior Secured Convertible Notes, non-GAAP net income for the first nine months of 2009 was $20.0 million, or $0.92 per fully diluted share, an increase of 99.7% from non-GAAP net income of $10.1 million or $0.46 per fully diluted share for the first nine months of 2008.

Financial Condition

As of September 30, 2009, the Company had $50.3 million in cash and cash equivalents, approximately $26.8 million in working capital, and a current ratio of 1.4:1. Total shareholder's equity at the end of the third quarter of 2009 was $78.3 million, compared to $42.0 million at the end of 2008. The Company generated $35.5 million in net cash from operating activities for the first nine months of 2009 compared to $14.7 million in the same period of 2008.

Recent Developments

China Biologic was named to Forbes Magazine's fifth annual list of Asia's "200 Best Under a Billion" for the year 2009.

Business Outlook

Mr. Zhao added, "We believe that as a result of our recent equity investments in Dalin and Huitian, and as the only approved manufacturer of plasma-based biopharmaceuticals in Shandong Province, we are well-positioned to capitalize on the opportunities in our market. The acquisition of equity interests in Dalin and Huitian has accelerated our geographic expansion, diversified our customer base, and enhanced our technological capabilities, and has provided us with ownership interests in three of the 32 approved plasma-based biopharmaceutical manufacturers in China.

"During the fourth quarter of 2009 and into 2010, we expect to continue to experience strong demand for our products and services, as the tight supply and demand situation for plasma-based products in China is expected to persist. In the interim, we continue to invest in our research and development efforts aimed at expanding our product line to include higher-margin, technologically more advanced plasma-based biopharmaceutical products."