China Biologic Products' fourth quarter revenue rises 185.6%

China Biologic Products, Inc. (Nasdaq: 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 fourth quarter and year ended December 31, 2009.

Fourth Quarter 2009 Highlights -- Revenues increased 185.6% year-over-year to $37.6 million -- Excluding Dalin, revenues rose 46.7% year-over-year to $19.3 million or 51.4% of total revenue -- Gross profit increased 208.6% year-over-year to $27.3 million, representing a gross margin of 72.7% as compared to 67.2% a year ago -- Operating income grew 342.3% year-over-year to $20.8 million, representing an operating margin of 55.2% -- GAAP net loss attributable to controlling interest was $3.8 million, or $0.17 per share, including a $14.7 million charge related to change in the fair value of derivative liabilities -- Non-GAAP adjusted net income was $11.1 million or $0.44 per diluted share, a 242.4% increase from $3.2 million or $0.15 per diluted share in the fourth quarter of 2008 -- The Company's common stock began trading on the NASDAQ Global Market on December 2, 2009

"With our successful integration of Dalin, China Biologic achieved record top and bottom line results and significant growth in fiscal 2009, said Mr. Chao Ming Zhao, Chief Executive Officer of China Biologic. "In addition, we believe that the successful implementation of the Company's strategic marketing efforts has attracted more donors to our plasma collection centers and has resulted in an increase in our overall collection volume. With a continued shortage of plasma supply, the Company has continued to work to enhance our production plans and increase our output and we have been able to maximize our yield per unit of plasma collected to realize a higher profit margin. Fiscal 2009 was also a special year for us and our shareholders as the Company's common stock began trading on the NASDAQ Global Market.

Full-Year 2009 Highlights -- Revenues increased 154.5% year-over-year to a record $119.0 million, exceeding our guidance of $90 to $100 million -- Excluding the acquisition of Dalin, revenues grew 43.1 % year-over-year to $66.9 million -- Gross profit rose 164.1% to $86.4 million, representing a gross margin of 72.6% as compared to 70.0% a year ago -- Operating income increased 201.8%, to $61.4 million, representing an operating margin of 51.6% -- GAAP net income attributable to controlling interest was $1.3 million, or $0.07 per diluted share, including a $29.6 million charge related to change in the fair value of derivative liabilities -- Non-GAAP adjusted net income was $31.3 million or $1.38 per diluted share, a 135.0% increase from $13.3 million or $0.62 per diluted share in 2008

During the full year 2009, the Company achieved the following key milestones:

-- Closed the acquisition of 90% interest in Dalin, and its 54% majority- owned operating subsidiary, Qianfeng Biological Products Co., Ltd. ("Qianfeng"), one of the largest plasma-based biopharmaceutical companies in China located in Guiyang, Guizhou Province. Starting from January 1, 2009, Qianfeng's operations were consolidated into the Company's financial results. -- Completed the purchase of 35% equity interest in Xi'an Huitian Blood Products Co, Ltd ("Huitian"), a plasma-based biopharmaceutical company in Xi'an, Shaanxi Province -- Qianfeng received renewal of SFDA certification, valid until September 2014, of compliance with Good Manufacturing Practices ("GMP") for its production facility with 400 tons of annual production capacity for plasma-based products. -- China Biologic was named to Forbes Magazine's Fifth Annual List of Asia's "200 Best Under a Billion" for the year 2009. To assemble its Best Under a Billion for the Asia-Pacific region, Forbes considered only listed entities with sales under $1 billion, that have posted solid top and bottom-line gains, and appear to be headed for more.

Fourth Quarter 2009 Results

For the three months ended December 31, 2009, total revenues reached a record $37.6 million, up 185.6% from the same period a year ago. Excluding revenues from Dalin, which was acquired in January 2009, revenues rose 46.7% to $19.3 million from $13.2 million a year ago. The strong organic growth was partly attributable to increased demand for the Human immunoglobulin for intravenous injection product ("IVIG") product ahead of potential price increase in 2010.

Gross profit for the fourth quarter 2009 was $27.3 million, up 208.6% from $8.9 million in the comparable period a year ago. Gross margin also increased to 72.7% from 67.2% year-over-year. The gross profit and margin increases were primarily attributable to the consolidation of Dalin and price increases implemented during the year.

Operating expenses increased 58.1% year-over-year to $6.6 million, primarily reflecting consolidation of Dalin in the 2009 quarter. Income from operations for the period was $20.8 million, a 342.3% increase from $4.7 million a year ago.

Income taxes increased to $3.0 million from $0.2 million, primarily reflecting a higher effective tax rate of 61.7% as compared to 3.7% in the year ago quarter. The higher effective tax rate was due to non-cash expenses incurred in 2009 that are not deductible under PRC tax law.

GAAP net loss attributable to controlling interest for was $3.8 million, or $0.17 per diluted share, and included a $14.7 million charge related to change in fair value of derivative liabilities, as compared to net income of $3.2 million, or $0.15 per diluted share, in the year ago quarter.

Excluding non-cash employee compensation expenses, change in the fair value of derivative liabilities and adding back interest related to the convertible notes under the if-converted method, non-GAAP adjusted net income for the three months ended December 31, 2009 was $11.1 million, or $0.44 per diluted share, up 242.4% from $3.2 million or $0.15 per diluted share in the year ago quarter.

Full Year 2009 Results

Revenues for the full year 2009 increased 154.5% to a record $119.0 million from $46.8 million in 2008. The increase in revenues is primarily attributable to the consolidation of Dalin, which was acquired in April 2009, beginning January 2009. During 2009, Dalin accounted for $52.1 million in revenues, or 43.8% of total revenues. Excluding Dalin, 2009 base revenues grew 43.1% year-over-year to $66.9 million from $46.8 million. Growth in base revenue was primarily due to increase in the prices of plasma-based products, higher sales volume and a modest increase related to foreign exchange translation.

Human albumin product revenues rose 118.9% year-over-year to $59.2 million, accounting for 49.7% of sales in 2009, as compared to 57.8% in 2008. Revenue growth reflected volume increase of 117.8% and an average selling price (ASP) increase of 0.5%. IVIG revenues grew 324.4% to $43.7 million in 2009 and represented 36.8% of total revenues, as compared to 22.0% of revenues in 2008. Increase in human immunoglobulin for intravenous injection revenues included sales volume and ASP increases of 293.4% and 7.9%, respectively. Sales of the human tetanus immunoglobulin product rose 76.9% to $2.6 million, contributing 2.2% of total revenues as compared to 3.1% in 2008. Sales volume and ASP for human tetanus immunoglobulin increased 40.2% and 26.2%, respectively. Sales volume for human hepatitis B immunoglobulin and human rabies immunoglobulin products decreased, due to a temporary shortage of vaccines needed to generate each type of raw material, by 0.5% and 5.1%, respectively.

Gross profit for 2009 was $86.4 million, up 164.1% from $32.7 million in 2008. Gross margin was 72.6% in 2009, as compared to 70.0% in the prior year. The increase in gross profit and margin were primarily due to the consolidation of Dalin operations, an increase in the ASP across the products and management's ability to maintain efficiencies in the production process.

Total operating expenses in the full year 2009 increased 102.0% to $25.0 million, versus $12.4 million in the prior year period. As a percentage of sales revenue, total expenses decreased to 21.0% for the full year 2009 from 26.5% in 2008.

Selling expenses increased 59.5% to $3.5 million from $2.2 million in 2008. The dollar increase in selling expenses was primarily due to the consolidation of Dalin's selling activities, increased marketing efforts to increase direct sales to new hospitals, and expansion of the sales force in Qianfeng to expand into new sales territories.

General and administrative ("G&A") expenses rose 120.2% to $19.8 million. As a percentage of sales, G&A expenses decreased to 16.6% in 2009 from 19.2% for full year 2008. The dollar increase in G&A expenses was mainly due to an increase in the administrative salary and employee benefit costs, higher depreciation and amortization expenses and professional service charge in connection with the Dalin acquisition. The Company incurred $62,281 in non- cash stock-based compensation expense, as compared to $1.3 million for the full year 2008.

Research and development expenses in 2009 increased 42.5% to $1.7 million, or 1.4% of total revenues, as compared to $1.2 million, or 2.5% of total revenue, in 2008. The dollar increase was primarily due to the consolidation of Dalin and increased costs from continuing clinical trials on new products during the 2009 period.

Total net other expenses in the full year 2009 were $33.3 million, as compared to $0.4 million in the prior year, primarily reflecting a charge related to change in the fair value of warrant liabilities and higher interest expenses in 2009. The Company recognized a loss of $29.6 million related to change in the fair value of warrant liabilities. No such charge was required in 2008. Net interest expense increased to $3.9 million for the full year 2009 from $0.4 million in 2008, primarily due to higher interest expense related to financing in the acquisition of Dalin, as well as the interest accrued to Qianfeng's strategic investors.

Provision for income taxes increased 128.7% to $10.5 million in 2009, from $4.6 million in 2008. The effective tax rate for 2009 was 37.4%, as compared to 23.1% in 2008. The increase in effective tax rate was due to the $29.6 million non-cash expense incurred in 2009 that is not deductible under PRC tax law, resulting in an overstated effective tax rate.

GAAP net income attributable to controlling interest in 2009 was $1.3 million, as compared to net income attributable to controlling interest of $12.0 million in 2008. Diluted earnings per share were $0.07 as compared to earnings per share of $0.56 a year ago. Non-GAAP adjusted net income for 2009 was $31.3 million or $1.38 per diluted share, an increase of 135% from $13.3 million, or $0.62 per diluted share for the full year 2008. Non-GAAP adjusted net income and diluted earnings per share in 2009 exclude $29.6 million charge related to change in the fair value of derivative liabilities, non-cash employee compensation expenses, and adding back interest related to the convertible notes under the if-converted method.

Financial Condition

As of December 31, 2009, the Company had $53.8 million in cash and cash equivalents, approximately $44.4 million in working capital, and a current ratio of 1.9x. Total shareholder's equity for the fiscal year ended on December 31, 2009 was $50.5 million, as compared to $37.8 million at the end of 2008. The Company generated $50.3 million in net cash from operating activities in 2009 as compared to $20.0 million in 2008.

The Company believes that it has sufficient funds to support its strategic growth outlook, including capital expenditure plans of approximately $15 million in 2010 to expand the plasma collection network, both for new constructions and for the scale up existing collection stations, and upgrading the fractionation facility in Qianfeng.

Recent Developments

On February 2, 2010, China Biologic appointed Dr. Xiangmin Cui to serve as an independent member of its board of directors, as the Chairman of the Compensation Committee, and as a member on the Audit and Nominating Committees. Dr. Cui filled the vacancy left by Dr. Gan's January 8, 2010 resignation to dedicate more time to her other professional activities.

On March 1, 2010, China Biologic's special committee of independent directors appointed by the Company's board of directors in the wake of the recent allegations against certain directors and an employee of the Company has retained O'Melveny & Myers LLP, an international law firm, to advise the special committee and to assist in the investigation of the allegations.

2010 Guidance and Business Outlook

China Biologic expects 2010 revenue to be in the range between $142 million and $149 million. This guidance assumes only organic growth and does not include and excludes acquisitions or approval for the construction of new plasma collection stations. The guidance does not assume any material price or volume increases during 2010.

The Company expects 2010 adjusted net income to be in the range of $34 million to $36 million, excluding any non-cash charge related to change in the fair value of derivative liabilities and stock-based compensation expense, and any adjustments in the U.S. federal income tax provision in 2010 related to the expiration of the look-through exception for Subpart F income on December 31, 2009.

As a matter of policy, the Company does not intend to update this guidance during the year.

Mr. Zhao added, "Through the dedication and commitment of our hard working employees, we have been able to successfully increase our presence in the plasma-based biopharmaceutical product market in China. We estimate our current market share is at approximately 18%. We plan to continue our marketing efforts to increase public awareness of plasma donation, as well as provide appropriate nutritional supplement compensation to plasma donor, and apply for the construction of additional plasma collection stations."

"With our aggressive research and development efforts in the past few years, Human Prothrombin Complex Concentrate and Human Coagulation Factor VIII have successful completed clinical trials and have submitted applications to the SFDA for official production permit and product certification. The Company looks forward to SFDA approval of these products in the second half of 2010 and expects to launch the commercial production of the products in late 2010 or early 2011. We believe that the addition of these two new products will broaden our product portfolio and improve our mix, enhance the Company's competitive position and maximize the yield from our current plasma supply."

Conference Call

China Biologic will host a conference call at 9:00 a.m. EDT on Wednesday, March 24, 2010, to discuss the fourth quarter 2009 and year-end financial results. To participate in the conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: 877- 409-5468. International callers should dial +1-702-894-2400. The pass code for the call is 64404888. If you are unable to participate in the call at this time, a replay will be available for 14 days starting on Wednesday, March 24, 2010 at 11:00 a.m. EDT. To access the replay, dial 800-642-1687, international callers should dial +1-706-645-9291. The conference pass code is 64404888.