China Pharma Holdings, Inc. (NYSE MKT: CPHI) ("China Pharma" or the "Company"), an NYSE MKT listed corporation with its fully-integrated specialty pharmaceuticals subsidiary based in China, today announced financial results for the year ended December 31, 2014.
Full Year Highlights
- Revenue decreased 24% to $24.9 million in fiscal year 2014 from $32.8 million in fiscal year 2013;
- Gross margin was 21.9% in fiscal year 2014, compared to gross loss margin of (1.5)% in fiscal 2013. Without the effect of inventory obsolescence, management estimates that our gross profit would have been approximately 30.9% in fiscal year 2014 and 28.7% in fiscal year 2013;
- Loss from operations was $25.3 million in fiscal year 2014 compared to $18.6 million in 2013, an increase of $6.7 million;
- Net loss was $26.0 million in fiscal year 2014 compared to $20.0 million in 2013. Loss per common share was $(0.60) per basic and diluted share in fiscal 2014 compared with $(0.46) per basic and diluted share in fiscal year 2013.
"We have experienced tough challenges and made remarkable achievements in 2014: we completed the construction of a 20,000 square meters new factory, installed with four (4) sterilization production lines (two liquid injectables and two dry powder injectables production lines) after nearly two years of construction. In November 2014, we obtained new GMP certificate issued by CFDA, and commenced the manufacturing at our dry powder injectables and liquid injectables production lines; We also sustained the loss brought by once-in-forty-year 16 grade super typhoon." said Ms. Zhilin Li, China Pharma's Chairman and CEO. Ms. Li continued, "During the period from January 1, 2014 to November 3, 2014, we suspended two production lines as they did not then meet the GMP upgrading deadline. In this production-suspended period, we limited our credit sales and executed a prudent marketing strategy by screening our existing and potential distributors and hospital customers based on the speed of their payment in order to gradually improve our trade turnover, especially the collection of our accounts receivable. This strategy has temporarily impacted our sales in the current period by limiting our credit sales."
Full Year Results
Revenues for the year ended December 31, 2014 were $24.9 million, a decrease of 24% from revenues of $32.8 million for the year ended December 31, 2013. This decrease primarily resulted from decreases in sales throughout all our product categories, especially our CNS Cerebral &Cardio Vascular products (decreased by approximately $2.8 million) and our Anti-Viro/Infectious & Respiratory products (decreased by approximately $1.8 million).
We had decreases in the sales estimates between the time when raw materials were purchased and the time when the sales performance is realized for certain products. We assessed the fair value of our raw material and determined that certain inventory was slow moving or obsolete. Based on the developed estimates as of December 31, 2014 and 2013, we recognized an additional inventory obsolescence expense of $2.3 million and $9.9 million for the years ended December 31, 2014 and 2013, respectively.
Gross profit for the year ended December 31, 2014 was $5.5 million, compared to gross loss of $0.5 million in 2013. Our gross profit margin in 2014 was 21.90% compared to gross loss margin of (1.5%) in 2013. Without the effect of inventory obsolescence, management estimates that our gross profit would have been approximately 30.9% in 2014 and 28.7% in 2013.
Selling, general and administrative expenses in 2014 were $5.1 million, or 20.3% of sales, compared to $5.7 million, or 17.3% of sales in 2013. For the year ended December 31, 2014, the Company's research and development expense was $2.8 million, compared to $1.7 million in 2013. The change in research and development expenses was mainly due to the costs related to testing of our new production lines. In addition, we commenced leading formulation screening, new technology exploration and technical criteria improvement activities since 2013. As a result, the expenses related to such activities increased in 2014.
For the year ended December 31, 2014, the Company's bad debt expense was $20.6 million, compared to a bad debt expense of $10.5 million in 2013. The increase in bad debt expense in 2014 was mainly due to the increase in our long-aging accounts receivable.
We suffered losses of $2.3 million relating to a tropical typhoon during the twelve months ended December 31, 2014. There was no comparable expense in the prior year period.
Operating loss was $25.3 million in 2014 compared to operating loss of $18.6 million in 2013. The main reasons for the increase in loss were lower revenue and higher bad debt expenses in 2014.
For the years ended December 31, 2014 and 2013, our income tax rate was 15%. Income tax expense was ($0.8) million and ($1.1) million for the years ended December 31, 2014 and 2013, respectively. We renewed our "National High-Tech Enterprise" status from the PRC government in the third quarter of 2013. With this designation, for the years ending December 31, 2014, 2015 and 2016, we will continue to enjoy a preferential tax rate of 15% which is notably lower than the statutory income tax rate of 25%.
Net loss for the year 2014 was $26.0 million, or $(0.60) per basic and diluted share, compared to net loss of $20.0 million, or $(0.46) per basic and diluted share for the year 2013. The decrease in net income was mainly due to the decrease in revenue, increase in bad debt expense, and losses from natural disaster.
As of December 31, 2014, the Company had cash and cash equivalents of $5.3 million compared to $6.0 million as of December 31, 2013. Year-over-year, working capital decreased to $40 million in 2014 from $72 million in 2013 and the current ratio was 3.8 times in 2014, decreased from 7.0 times in 2013.
Our accounts receivable balance decreased to $24.9 million as of December 31, 2014 from $45.1 million as of December 31, 2013. The decrease was due to our enhanced collection efforts, the increased allowance, the decrease in sales, and the trade receivables collection discount program implemented in the third quarter of 2014 to encourage the collection of accounts receivable aged over one year.
For the year ended December 31, 2014, cash flow from operating activities was $4.6 million, as compared to $8.6 million in 2013.
As of December 31, 2014, China Pharma had various pipeline drugs in different stages of active development. Some of these are highlighted below:
- Antibiotic Combination - We completed the Phase I clinical trials of our novel cephalosporin-based combination antibiotic. We are currently in Phase II of the clinical trial, due to the higher regulatory requests for clinical works.
- Rosuvastatin - Rosuvastatin is a generic form of Crestor, a drug for the treatment of high blood cholesterol levels. Clinical trials for this generic drug were completed in the fourth quarter of 2010 and we have submitted an application for production approval, and are performing supplemental trials of related materials pursuant to the new criteria.
- Heart Disease Drug - We have an oral solution for the treatment of coronary heart disease in our new product pipeline. This product comes with a patented Traditional Chinese Medicine (TCM) formula and is currently approaching the end point of Phase III clinical trials.
China Pharma Holdings, Inc.