China Pharma third quarter revenue increases 12% to $21.0 million

China Pharma Holdings, Inc. (NYSE AMEX: CPHI) ("China Pharma" or the "Company"), a specialty pharmaceuticals company in China, today announced financial results for the quarter ended September 30, 2011.

Third Quarter 2011 Highlights

• Revenue increased 12% to $21.0 million from $18.7 million in the Third quarter of 2010; nine month revenue increased 16% to $58.7 million from $50.4 million in the same period of 2010

"In the third quarter of 2011 we achieved solid sales growth primarily due to strong performances by our Anti-Viro Infection & Respiratory and our Digestive product categories. We continue to face pricing pressures across many of our products during the quarter, but we expect gross margin and revenue to benefit from new product launches in the months and quarters ahead," said Ms. Zhilin Li, China Pharma's Chairman and CEO. "In addition to the expected launch of new products such as Candesartan and Rosuvastatin, we continue to advance our novel cephalosporin-based combination antibiotic through Phase II clinical trials. Commercializing exciting new drugs like this, along with first-to-market generic medicines, is an important part of our strategy to enhance China Pharma's growth and profitability."  

Third Quarter 2011 Results

Revenues for the quarter ended September 30, 2011 were $21.0 million, up 12% from revenues of $18.7 million for the quarter ended September 30, 2010. Sales growth in the third quarter were led by the Anti-Viro Infection & Respiratory and also the Digestive categories.

Rising 38% to $8.2 million from $6 million in the same period a year ago, sales in the Anti-Viro Infection & Respiratory category led sales growth among our major categories. Performance in this category was impacted by outstanding sales growth of Cefaclor Dispersible Tablets and also Roxithromicyn. Both of these products are front-line antibiotics in hospitals, and have been chosen by many provinces to add into their provincial Essential Drug List (EDL). Our Cefaclor Dispersible Tablets are typical example of our differentiation strategy, which is especially popular in children and patients with swallowing issues.

Sales of our "Digestive" category grew by of 37% to $3.2 million from $2.4 million in the quarter a year ago. The main contributor to this growth is Tiopronin, a drug prescribed for treatments of acute Hepatitis B and drug-induced liver damage. For the first time, quarterly sales of our Digestive category overtook sales of the "Others" category, powered by the combined performance of Tiopronin and Omeprazole.

Sales of CNS Cerebral & Cardio Vascular products also experienced continued growth, with revenues in this category increasing to $7.2 million from $5.9 million, or an increase of 22% on a year over year basis.

Sales of our "Other" category were $2.3 compared to $4.5 million in the three months period ended September 2010; this was a decrease of 48%. A couple of products from our "Other" category saw sales declines compared to the same quarter one year ago when these products had a surge in sales partly due to the implementation of the EDL.

Gross profit for the three months ended September 30, 2011 was $7.51 million, which was approximately 1% lower compared to $7.63 million in the third quarter of 2010. Our gross margin for the third quarter of 2011 was 35.8%, compared to 40.8% in the corresponding quarter of 2010. We are seeing pricing pressure on many of our products, particularly antibiotics, although the pressure is not uniform across product lines. Pricing pressure has become more evident over the past few quarters as the effect of the Chinese government healthcare reform is being felt across all pharmaceutical products, especially in EDL related products. We expect current challenging pricing environment to persist for some time.

In terms of our gross margins by major categories, CNS Cerebral & Cardio Vascular category margin was 43.4%, which was higher compared to the previous quarter of 42.9%, but lower compared to the third quarter 2010 gross margin of 44.5%. Gross margin for our Anti-Viro/Infection & Respiratory category decreased to 23.7% from 26.4% one quarter ago and 28.3% in the period one year ago. Gross margin for our Digestive Diseases category edged down to 44.7% from last quarter's 45.7% and prior year third quarter's 52.5%. Gross margin for our Other category was flat compared to 42.5% of last quarter but lower than the 46.5% a year ago.

Selling, general and administrative expenses in the third quarter of 2011 were $3.7 million, compared to $1.3 million, in the same period of 2010. The higher figure for the current period is mainly due to higher general and administrative expenses which included the effect of higher intangible asset amortization expenses. During the quarter we reassessed our method of amortizing intangible assets and started to amortize them from the dates acquired rather than the date when they start to generate revenue.

For the quarter ended September 30, 2011, the Company's bad debt benefit was $76,187, compared to bad debt expense of $107,786 in the same period of 2010.  

Operating income was $3.9 million in the third quarter of 2011, down 37% from $6.2 million in the third quarter of 2010. Operating income was lower mainly due to higher intangible assets amortization cost and also lower gross margins, as well as higher operating expenses.

For the quarter ended September 30, 2011, the Company paid income tax at a rate of approximately 15%.  Income tax expense for the third quarter of 2011 was $0.54 million, compared to $0.67 million for the same period last year. The Company obtained "National High-Tech Enterprise" status from the PRC government in the fourth quarter of 2010.  With this designation, the Company is entitled to a preferential tax rate of 15% for the next three years (2011 to 2013), which is notably lower than the statutory income tax rate of 25%.

Net income for the third quarter of 2011 was $3.3 million, or $0.08 per basic and diluted share, compared to $5.9 million, or $0.14 per basic and diluted share, in the third quarter of 2010. The decrease of net income from the period a year ago is mainly due to higher intangible asset amortization expenses and also lower overall gross margins. In addition, the net income figure for the third quarter 2010 contained a derivative gain of $0.43 million while there is no derivative profit or loss in the three months ended September 30, 2011.

Nine Months Results

Revenues for the nine months ended September 30, 2011 were $58.7 million, up 16% from revenues of $50.4 million for the nine months ended September 30, 2010. Gross profit for the nine months ended September 30, 2011 was $21.7 million, up 4% from gross profit of $20.8 million for the corresponding period of 2010. Gross margin was 37.0%, compared to 41.3% for the first nine months of 2010.

Selling and general administration expenses was $7.0 million, or 12% of revenue, up from $4.1 million, or 8% of revenue in the year ago period. During the third quarter 2011 we reassessed our method of amortizing intangible assets and started to amortize them from the dates acquired rather than the date they start to generate revenue. Operating income was $15.0 million, down 12% from $17.0million for the first nine months of 2010.

Net income was $13.5 million, or $0.31 per basic and diluted share, compared to $16.9 million, or $0.39 per basic and diluted share, for the same period a year ago. The net income figure in the 2011 period contains higher intangible amortization expenses. In addition, 2011 net income contains $0.93 million of derivative gains compared to $1.80 million of derivative gains included for 2010 net income figures.

Financial Condition

As of September 30, 2011, the Company had cash and cash equivalents of $4.9 million compared to $3.7 million as of December 31, 2010.

Working capital increased to $93.0 million at September 30, 2011 from $79 million at December 31, 2010. The current ratio rose to 8.0 times at September 30, 2011 from 7.2 times at December 31, 2010.

Accounts receivable balance rose to $69 million at the end of the third quarter of 2011 from $62 million at the end 2010. The Company's management team continues to be sharply focused on improving accounts receivable collection and expects to make further progress in the quarters to come.

For the nine months ended September 20, 2011, cash flow from operating activities was $5.4 million, as compared to $6.1 million in the period a year ago.  

Pipeline Update

As of September 30, 2011, China Pharma had nine pipeline drugs in different stages of active development.  The development of three of such products is highlighted below:

• The Company completed clinical trials of Candesartan, a front-line drug therapy for the treatment of hypertension. The Company has completed all testing procedures and currently awaits final SFDA production approval.
• The Company completed clinical trials of Rosuvastatin, a generic form of Crestor, in December 2010 and has submitted an application for SFDA production approval.
• The Company completed Phase I clinical trials of its novel cephalosporin-based combination antibiotic in September 2010. Phase I of the clinical trials focused on the study of clinical pharmacology as well as the evaluation of safety on the human body, while observing tolerance and pharmacokinetics to provide support for dosage and drug delivery design. The Company has entered Phase II clinical trials for this drug.