Jiangbo Pharmaceuticals third-quarter revenue decreases 0.6% to $25.6 million

Jiangbo Pharmaceuticals, Inc. (OTC Bulletin Board: JGBO) ("Jiangbo" or the "Company"), a pharmaceutical company with its principal operations in the People's Republic of China, today announced financial results for the third quarter fiscal year 2010 ended March 31, 2010.

Third Quarter Highlights -- Revenue was $25.6 million, a slight decrease of 0.6% year-over-year -- Gross profit was $18.6 million, as compared to $18.9 million, and gross margin was 72.7%, as compared to 73.4% in the year ago quarter -- Operating income rose 3.1% to $13.7 million -- GAAP net income was $15.2 million, or $1.33 per basic share, compared $8.9 million or $0.86 per basic share a year ago -- Excluding loss from discontinued operation, non-cash gain or loss related to the change in fair value of derivative liabilities, unrealized gain or loss on trading securities, and amortization expenses for debt discount and financing cost, non-GAAP adjusted net income was $7.7 million, or $0.50 per diluted share, as compared to non-GAAP adjusted net income of $10.1 million, or $0.68 per diluted share.

"Our third quarter operating income returned to growth as a result of strengthened sales effort and improved operational efficiency stemming from our continued cost control efforts," said Jiangbo's Chairman and CEO, Mr. Wubo Cao. "Sales of several of our key products, including Clarithromycin sustained-release and Radix Isatidis, experienced strong year-over-year growth and reflected the recent reinforcement of our sales effort and distribution channels. We continue to evaluate strategic opportunities to cost-effectively market our key products to deliver organic revenue growth in future quarters."

Third Quarter Fiscal Year 2010 Results

Total revenue for the three months ended March 31, 2010 was $25.6 million, compared to $25.7 million for the three months ended March 31, 2009. Sales volume for Clarithromycin sustained-released tablets grew 23.0% year-over-year as a result of the Company's reinforced sales efforts and tighter management of its distribution channels. Similarly, sales volume for Radix Isatidis dispersible tablets rose 44.7% over the prior year quarter. Strong sales growth of these two products was offset by a decline in sales volume for Itopride Hydrochloride granules and Baobaole chewable tablets, which were down 10.8% and 35.9%, respectively. Itopride and Baobaole continued to experience competition from similar products, including some that are included in the National Basic Medical Insurance Catalog. As the sales growth of OTC drugs, such as Baobaole chewable tablets and Radix Isatidis dispersible tablets, require continued support through advertising and promotion, management is evaluating the appropriate investment in TV advertising to drive the sales.

Gross profit in the third quarter was $18.6 million, as compared to $18.6 million in the prior year period. Gross margin decreased to 72.7% from 73.4%, primarily due to changes in the sales of product mix.

Selling, general and administrative expenses were $3.8 million for the three months ended March 31, 2010, down 15.1% from $4.5 million in the prior year period and primarily reflected the Company's more effective cost control efforts. Year-over-year spending reduction stemmed primarily from lower advertising, marketing and promotion, as well as salaries, wages and related benefits.

Research and development expenses totaled $1.1 million, consistent with those in the prior year period. The Company is obligated to make monthly payment to the designated university/institute to support two cooperative research and development agreements which were signed in fiscal 2008.

Income from operations rose 3.1% to $13.7 million from $13.3 million, primarily reflecting lower year-over-year operating expenses.

Other income was $5.0 million, as compared to other expenses of $1.1 million for the three months ended March 31, 2009. The increase was mainly due to an $11.6 million non-cash gain related to the change in the fair value of derivative liabilities, partly offset by $6.6 million interest expenses and non-cash amortization expense related to debt discount and debt issuance costs related to the convertible debentures, as compared to $1.2 million in the third quarter of 2009.

GAAP net income for the three months ended March 31, 2010 was $15.2 million, as compared to $8.9 million in the year ago quarter. Basic earnings per share (EPS) were $1.33, compared with $0.86 a year ago. Diluted EPS assumes the conversion of the Company's convertible notes and is calculated by adding interest expenses to and deducting the unamortized loan issuance costs and debt discount from net income. As a result, the Company recorded earnings of $0.02 per diluted share, as compared to a loss of $1.49 per diluted share in the same quarter last year.

Excluding loss from discontinued operation, non-cash gain or loss related to the change in fair value of derivative liabilities, unrealized gain or loss on trading securities, and amortization expenses for debt discount and financing cost, non-GAAP adjusted net income was $7.7 million, or $0.50 per diluted share, as compared to non-GAAP adjusted net income of $10.0 million, or $0.68 per diluted share a year ago.

Nine Month Results

Total revenue for the nine month period ended March 31, 2010 was $68.1 million, down 21.0% from $86.2 million for the nine month period ended March 31, 2009. The decrease was primarily due to a 26% average per unit sales price reduction year-over-year for Clarithromycin sustained-released tablets, Itopride Hydrochloride granules and Baobaole chewable tables during the first six months of fiscal year 2010, following restructuring of the Company's sales network in January 2009.

Gross profit totaled $50.2 million, down 24.4% from $66.5 million in the prior year period, representing a gross profit margin of 73.7%. Operating income was $33.5 million, a 4.6% increase year-over-year from $32.1 million last year.

GAAP net income was $22.7 million, or $2.07 basic EPS, as compared to $17.4 million, or $1.75 basic EPS in the corresponding period in 2009. Diluted EPS was $0.57 per share, as compared to a loss of $0.86 per share in the year ago period.

Excluding loss discontinued operation, non-cash gain or loss related to the change in fair value of derivative liabilities, unrealized gain or loss on trading securities, and amortization expenses for debt discount and financing costs, non-GAAP adjusted net income was $21.2 million, or $1.39 per fully diluted share for the nine months ended March 31, 2010, compared to non-GAAP adjusted net income of $23.5 million, or $1.64 per fully diluted share, for the nine months ended March 31, 2009.

Financial Condition

As of March 31, 2010, the Company had $96.5 million in cash and an additional $11.5 million in restricted cash, as compared to $104.4 million and $7.3 million, respectively, at the end of fiscal 2009. The decrease was mainly due to the late 2009 purchase of land use rights for a large parcel of land near Laiyang Jiangbo Pharmaceuticals for $17 million for future factory expansion. Working capital was $77.7 million at March 31, 2010 and $99.8 million at June 30, 2009.

Shareholder's equity was $124.2 million, as compared to $126.1 million at the end of fiscal 2009. The decrease in shareholder's equity was the result of the reclassification of the Company's derivative instruments from equity to liability. The Company generated $8.5 million in cash flows from operating activities in the first nine months of fiscal 2010.

The Company has continued a dialogue with holders of its November 2007 Notes and May 2008 Notes to find a mutually agreeable resolution regarding the delinquent interest payments. Jiangbo became delinquent on the payment of the interests due on the November 2007 Notes and May 2008 Notes due to continued delays in its ability to transfer cash out of the People's Republic of China (PRC). Pursuant to a certain Letter Agreement dated February 15, 2010 with holders of the November 2007 Notes and May 2008 Notes, the holders of such Notes had agreed to waive the outstanding default under the Notes as a result of the Company's failure to make timely interest payments on the Notes provided that the Company made the delinquent interest payments by February 25, 2010, and to date, remains unable to make these payments. Currently, $4.0 million aggregate principal amount of the November 2007 Notes and $22.9 million aggregate principal amount of the May 2008 Notes remains outstanding.

Guidance and Corporate Update

"We recognize the need to expand our commercial product portfolio and build a strong R&D pipeline to create sustainable long-term growth," added Mr. Cao. "As we continue to evaluate the best deployment of our cash for strategic product acquisition and licensing deals, we expect to continue improving our operational efficiency and to strengthen our operational management team to accelerate that effort."

The Company is maintaining its fiscal 2010 revenue guidance of $96 million to $98 million and operating income guidance of $42 million to $44 million. Management expects to continue to deploy its policy of engaging in cost-effective marketing of select key drugs and improving operational efficiency in the fourth quarter of fiscal 2010.

Renovation at the Hongrui's factory is continuing and is now expected to finish by early July 2010. The Company has increased the scope of this project to include additional repairs and upgrades to ensure the production facilities will, similar to the existing Jiangbo facility, conform to GMP standards.

With $96.5 million in cash, Jiangbo continues to actively evaluate opportunities to in-license or acquire new branded drugs with sustainable long-term growth potential.