Tianyin Pharmaceutical Inc. (NYSE Amex: TPI), a pharmaceutical company that specializes in the patented biopharmaceutical, modernized traditional Chinese medicine (mTCM), branded generics and active pharmaceutical ingredients (API) announced financial results for the fiscal year 2012.
Fiscal Year 2012 Ended June 30, 2012 Financial Highlights:
- FY2012 revenue delivered $69.6 million compared with $95.2 million in FY2011,
- Operating income delivered $8.5 million, compared with $18.1 million in FY2011,
- Net Income was $6.4 million compared with $15.7 million in FY2011,
- Earnings per share of $0.22 per basic share, and $0.22 per diluted share, compared with $0.55 per basic share, or $0.53 per diluted share in FY2011,
- Cash and cash equivalents totaled $35.2 million on June 30, 2012; Operating cash flow for the fiscal year ended June 30, 2012 was $8.0 million, compared with $14.2 million for the fiscal year ended June 30, 2011.
Comparison of results for the fiscal years ended June 30, 2012 and 2011:
Sales for the fiscal year ended June 30, 2012 was $69.6 million, decreased 26.9% from $95.2 million for the fiscal year ended June 30, 2011, due to generic pricing pressure under the ongoing healthcare reform. We witnessed a 17% reduction of TPI's organic portfolio revenue from $63.9 million for the fiscal year 2011 to $53.0 million for the fiscal year 2012. Our core five products by sales are: Ginkgo Mihuan Oral Liquid (GMOL): $17.1 million; Apu Shuangxin Granules (APU) $2.7 million; Xuelian Chongcao (XLCC): $2.2 million; Azithromycin Dispersible Tablets (AZI): $3.0 million; Qingre Jiedu Oral Liquid (QRE): $3.5 million. The core product portfolio totaled $28.5 million or 53.8% of the organic portfolio revenue.
Gross profit for fiscal year ended June 30, 2012 was approximately $24.3 million with 35.0% gross margins compared with $42.5 million with 44.6% gross margin for fiscal year ended June 30, 2011. The decrease in gross margins was attributable to 1) wide generic pricing pressure by competition and health reform restrictive pricing policies, 2) government initiative to prioritize the Essential Drug List (EDL) drug sales that simultaneously reduce and negatively impact the sales and margins of our generic pharmaceuticals. During the fiscal year 2012, our organic product portfolio delivered approximately 45.0% gross margins, about 7% lower than 52.0% in fiscal year 2011. Provided the blend of the TMT distribution revenue and gross margin reduction associated with our proprietary portfolio as the current pricing trend continues, we anticipate our overall gross margin in the near term to stabilize around 35% for the fiscal 2013, depending upon the revenue mix of TMT distribution, JCM macrolide API revenue and our proprietary portfolio's revenue performance.
Operating and R&D Expenses were $15.8 million in fiscal year ended June 30, 2012 compared with $24.4 million in fiscal year ended June 30, 2011. The decrease is in line with the decrease of the revenue as a result of sales and margin decrease under the current market environment. We expect the operating and R&D expense percentage to stabilize between 20 - 25% of the revenue for the coming year.
Net income was $6.4 million in fiscal year ended June 30, 2012 compared with $15.6 million in fiscal year ended June 30, 2011. The decrease was caused by revenue decrease and margin compression due to the ongoing healthcare reform that restricts both the sale and the pricing of pharmaceutical products particularly generics.
Diluted earnings per share for the year ended June 30, 2012 were $0.22 based on 29.3 million shares compared with the earnings of $0.53 per diluted share for the year ended June 30, 2011, based on 29.8 million shares.
Balance Sheet and Cash Flow
As of June 30, 2012, we had cash and cash equivalents of $35.2 million. Net cash generated from operating activities was $8.0 million for the year ended June 30, 2012, compared with $14.2 million operating cash flow for the year ended June 30, 2011. We believe that TPI is adequately funded to meet all of the working capital and capital expenditure needs for fiscal 2012.
Business Development & Outlook
R&D for additional indications of flagship product Gingko Mihuan (GMOL)
Our flagship product Gingko Mihuan Oral Liquid (GMOL, SFDA certification number: H20013079; patent number: 20061007800225) contributes close to 25% of our total revenue. Clinical application and information gathered from our physicians showed that in addition to our approved indication for the usage of GMOL: cardiovascular disorders, coronary heart disease and cerebral ischemic attack including strokes. Off-label use of GMOL has been indicated in hepatic diseases and ophthalmological diseases. The validity and mechanisms of these observations are being investigated in a number of hospitals.
Under the ongoing healthcare reform policy that favors the sale of EDL drugs in China, the national or provincial EDL listing could substantially support the market development of these products. Recently, GMOL has been selected as an EDL drug in Henan province, Shandong province and City of Chongqing (with a combined population of approximately 230 million) EDL provincial supplementary lists. The EDL status grants a full insurance coverage or 100% government reimbursement for patients.
Jiangchuan Macrolide Project (JCM)
After the completion of 240-ton JCM facility for the R&D and manufacturing of API and chemical intermediates of macrolide antibiotics, JCM was approved for its GMP certification designated as "CHUAN M0799," which is valid for the period of December 31, 2011 until December 31, 2015. The JCM underwent efficiency improvement and calibration for large scale production for the initial six months of testing operation. Under the current volatile macrolide API pricing environment, we are cautious in ramping up the production of JCM. We target the revenue contribution from JCM approximately $20 million for next 12 months. TPI will utilize about 40% of the Azithromycin raw material manufactured from JCM.
Pre-extraction and formulation plant development at Qionglai Facility (QLF)
TPI has initiated the process of optimizing the manufacturing facilities and production lines in compliance with the new GMP standards by calendar year 2013. Concurrently, the city of Chengdu has re-designated various industrial parks for particular industries such as automobile, biotechnologies, pharmaceuticals and chemical engineering. As a consequence, TPI's current manufacturing facility at the Longquan district, east of Chengdu, which is designated for use by the automotive industry, is scheduled to be relocated to Qionglai city, south of Chengdu, designated for the pharmaceutical industry. The Qionglai facility (QLF) is approximately 18 miles from the Company's JCM facility. The proposed relocation project also includes our TCM pre-extraction plant, which is located near the center of city of Chengdu, a rapidly expanding residential area.
The QLF is estimated to be 80 mu or approximately 13 acres. Both pre-extraction plant and the formulation plant are to be relocated. The combined QLF plant, designed and constructed according to the latest GMP standards, is expected to relieve the current capacity saturation at TPI's facilities. The re-location and construction cost is estimated at $25 million for Phase I which, when completed in early 2013 expectedly, will expand the current capacity by 30%. For Phase II of the QLF project, an additional $10 million may be invested to further expand the capacity according to the demand of production.
Since the beginning of the QLF relocation project in early February, the relocation project has been on schedule as of September, 2012. Our pre-extraction plant will be relocated during Phase I of the QLF project.
Fiscal Year 2012 Financial Guidance
We have met and exceeded the $66.0 million fiscal year 2012 revenue forecast. The net income for fiscal year 2012 is $6.4 million which is slightly below our forecast net income of $6.5 million. The forecasted net income excludes any non-cash expenses associated with stock compensation plans or stock option expenses.
We believe the following factors will influence the future growth perspectives of our Company:
- Market expansion and revenue growth of TPI's core product portfolio led by flagship product GMOL and other major products.
- Ramp up of JCM revenue in the fiscal year 2013.
- The gradual stabilization of generic sales following the progressive pricing restrictions caused by the ongoing healthcare reform.
- Steady TMT distribution revenue contribution.
- QLF relocation and smooth transition of production capacity
Our market analysis leads us to believe that the generic pricing pressure is likely to continue, but the JCM along with the TMT distribution revenue are expected to offset the generic sales decrease and support the revenue growth of the Company at the percentage about 10 - 15% for the coming year. We forecast the fiscal 2013 revenue between $75 to $80 million and a net margin around 10%.
Management will continue to evaluate the Company's business outlook and communicate any changes on a quarterly basis or as when appropriate.
SOURCE Tianyin Pharmaceutical Co., Inc.