The information in this prospectus supplement
is not complete and may be changed. This prospectus supplement and the accompanying prospectus are not offers to sell these securities
and are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Filed pursuant to Rule 424(b)(7)
Registration No. 333-204761
PROSPECTUS
SUPPLEMENT (Subject to Completion)
Issued March 1, 2016
(To Prospectus dated June 5, 2015)
3,500,000 Shares
China Biologic Products, Inc.
Common Stock
The selling
stockholders identified in this prospectus supplement are offering 3,500,000 shares of common stock. We will not receive any
proceeds from the sale of shares by the selling stockholders.
Our common stock
is listed on the NASDAQ Global Select Market under the symbol “CBPO.” The last reported sale price of our common stock
on the NASDAQ Global Select Market on March 1, 2016 was $117.64 per share.
The underwriter has agreed to purchase
shares of our common stock from the selling stockholders at a price of $ per share (representing
$ of aggregate proceeds to the selling stockholders). The underwriter may offer the shares of common stock from time to time for sale in one
or more transactions on the NASDAQ Global Select Market, in the over the counter market, through negotiated transactions or otherwise
at market prices prevailing at the time of sale or at negotiated prices.
Delivery of the shares of common stock
by the underwriter against payment is expected to be made on or about , 2016.
________________
Investing in
our common stock involves certain risks. See the “Risk Factors” section beginning on page S-7
of this prospectus supplement.
________________
Neither the Securities
and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the adequacy
or accuracy of this prospectus supplement or the accompanying prospectus. Any representation to the contrary is a criminal offense.
________________
, 2016
TABLE OF
CONTENTS
PROSPECTUS
SUPPLEMENT
June
5, 2015 PROSPECTUS
ABOUT THIS PROSPECTUS SUPPLEMENT
This document is in
two parts. The first part is this prospectus supplement, which describes the terms of the offering and also adds to and updates
information contained in the accompanying prospectus and the documents incorporated by reference into this prospectus supplement
and the accompanying prospectus. The second part is the accompanying prospectus dated June 5, 2015, included in the registration
statement on Form S-3 (No. 333-204761), which provides more general information. To the extent there is a conflict between the
information contained in this prospectus supplement, on the one hand, and the information contained in the accompanying prospectus
or any document incorporated by reference in this prospectus supplement or the accompanying prospectus, on the other hand, you
should rely on the information in this prospectus supplement.
You should rely only
on the information contained or incorporated by reference in this prospectus supplement, the accompanying prospectus or any free
writing prospectus provided in connection with this offering. Neither we nor the underwriter has authorized anyone to provide you
with any information other than the information contained or incorporated by reference in this prospectus supplement, the accompanying
prospectus and any free writing prospectus provided in connection with this offering. Neither we nor the underwriter is making
an offer to sell securities in any jurisdiction where the offer or sale is not permitted. The information contained or incorporated
by reference in this prospectus supplement, the accompanying prospectus and any free writing prospectus is accurate only as of
the respective dates thereof, regardless of the time of delivery of this prospectus supplement, the accompanying prospectus or
any free writing prospectus, or of any sale of our securities. It is important for you to read and consider all the information
contained or incorporated by reference in this prospectus supplement and the accompanying prospectus in making your investment
decision.
In this prospectus
supplement, unless otherwise indicated or unless the context otherwise requires, all references to:
| · | “China Biologic,” “we,” “us,” “our company,” or
“our” are to the combined business of China Biologic Products, Inc., a Delaware corporation, and its direct and indirect
subsidiaries; |
| · | “China” or “PRC” are to the People’s Republic of China, excluding,
for the purposes of this prospectus only, Taiwan and the special administrative regions of Hong Kong and Macau; |
| · | “Exchange Act” are to the Securities Exchange Act of 1934, as amended; |
| · | “Guizhou Taibang” are to our majority owned subsidiary Guizhou Taibang Biological Products
Co., Ltd., a PRC company; |
| · | “Huitian” are to Xi’an Huitian Blood Products Co., Ltd., a PRC company in which
we hold a minority equity interest; |
| · | “RMB” are to the legal currency of China; |
| · | “SEC” are to the U.S. Securities and Exchange Commission; |
| · | “Securities Act” are to the Securities Act of 1933, as amended; |
| · | “Shandong Taibang” are to our majority owned subsidiary Shandong Taibang Biological
Products Co., Ltd., a PRC company; |
| · | “Taibang Biological” are to Taibang Biological Ltd, a British Virgin Islands company; |
| · | “Taibang Holdings” are to Taibang Holdings (Hong Kong) Limited, a Hong Kong company;
and |
| · | “U.S. dollars” or “$” are to the legal currency of the United States. |
PROSPECTUS SUPPLEMENT SUMMARY
This
summary highlights selected information contained or incorporated by reference in this prospectus supplement and the accompanying
prospectus. This summary does not contain all of the information that you should consider before deciding to invest in our common
stock. Before making an investment decision, you should read carefully this entire prospectus supplement, the accompanying prospectus
and the documents that we have filed with the SEC that are incorporated by reference into this prospectus supplement and the accompanying
prospectus, including the “Risk Factors” section beginning on page S-7 of this prospectus supplement and the financial
statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2015.
About China Biologic Products, Inc.
Overview
We are a biopharmaceutical
company principally engaged in the research, development, manufacturing and sales of human plasma-based biopharmaceutical products,
or plasma products, in China. We are among the top three producers of plasma products in China in terms of 2015 sales, based on
our industry knowledge. We operate our business through two majority owned subsidiaries, Shandong Taibang, a company based in Tai’an,
Shandong Province and Guizhou Taibang, a company based in Guiyang, Guizhou Province. We also hold a minority equity interest in
Huitian, a plasma products company based in Xi’an, Shaanxi Province.
We have a strong product
portfolio with over 20 different dosage forms of plasma products and other biopharmaceutical products across nine categories. Our
principal products are human albumin and immunoglobulin for intravenous injection, or IVIG. Albumin has been used for almost 50
years to treat critically ill patients by assisting the maintenance of adequate blood volume and pressure. IVIG is used for certain
disease prevention and treatment by enhancing specific immunity. These products use human plasma as their principal raw material.
Sales of human albumin products represented approximately 37.6%, 39.3% and 44.1% of our total sales for 2015, 2014 and 2013, respectively.
Sales of IVIG products represented approximately 42.2%, 40.4% and 38.0% of our total sales for 2015, 2014 and 2013, respectively.
All of our products are prescription medicines administered in the form of injections.
Our sales model focuses
on direct sales to hospitals and inoculation centers and is complemented by distributor sales. In 2015, we generated sales of $296.5
million, an increase of 21.9% from 2014, and recorded net income attributable to our company of $89.0 million, an increase of 25.5%
from 2014. In 2014, we generated sales of $243.3 million, an increase of 19.6% from 2013, and recorded net income attributable
to our company of $70.9 million, an increase of 29.9% from 2013.
We operate and manage
our business as one single segment. We do not account for the results of our operations on a geographic or other basis.
Our Competitive Strengths
We believe that the
following competitive strengths enable us to compete effectively in and capitalize on growth of the plasma products market:
| · | We are a leading producer of plasma products in China with strong growth potential. |
| · | We maintain a stable and growing supply of plasma with strategically located collection stations. |
| · | We have a robust near-term product pipeline to capture full plasma value chain backed by strong
research and development capabilities. |
| · | We hold a leading position in China’s fast-growing IVIG products market. |
| · | We have a flexible and effective sales and distribution model aimed to maximize penetration. |
| · | We have an experienced and committed management team. |
Our Business Strategy
Our mission is to become
a first-class biopharmaceutical enterprise in China. To achieve this objective, we have implemented a business strategy with the
following key components:
| · | securing the supply of plasma; |
| · | further strengthening research and development capability; |
| · | developing the market and expanding our sales network; and |
| · | growing organically complemented by acquisition of competitors and/or other biologic related companies. |
Corporate History and Structure
China Biologic Products,
Inc. was originally incorporated on December 20, 1989 under the laws of the State of Texas as Shepherd Food Equipment, Inc. On
November 20, 2000, Shepherd Food Equipment, Inc. changed its corporate name to Shepherd Food Equipment, Inc. Acquisition Corp.,
or Shepherd. Shepherd is the survivor of a May 28, 2003 merger between Shepherd and GRC Holdings, Inc., or GRC, a Texas corporation.
In the merger, the surviving corporation adopted the articles of incorporation and bylaws of GRC and changed its corporate name
to GRC Holdings, Inc. On January 10, 2007, a plan of conversion became effective pursuant to which GRC was converted into a Delaware
corporation and changed its name to China Biologic Products, Inc. On July 19, 2006, we completed a reverse acquisition with Logic
Express Ltd., or Logic Express, a British Virgin Islands company, as a result of which Logic Express became our wholly owned subsidiary,
the former shareholders of Logic Express became our then controlling stockholders, and Logic Express’s majority owned PRC
subsidiary, Shandong Taibang, became our majority owned indirect subsidiary.
Our common stock was
initially quoted on the over-the-counter market maintained by Pink Sheets, LLC. On February 29, 2008, our common stock was approved
for quotation on the Over-The-Counter Bulletin Board under the trading symbol “CBPO.OB.” On November 25, 2009, our
common stock was approved for listing on the NASDAQ Global Market under the symbol “CBPO” and subsequently approved
for listing on the NASDAQ Global Select Market on December 7, 2010.
The following chart
reflects our current corporate organizational structure as of the date of this prospectus supplement:
| (1) | Pursuant to an investment entrustment agreement dated September 12, 2008, Shandong Taibang holds
the 35.0% equity interest in Huitian as a nominee for the benefit of Taibang Biological. For further details on the investment
entrustment agreement, see our Current Report on Form 8-K filed with the SEC on October 16, 2008. |
| (2) | In February 2015, Taibang Holdings transferred its 82.76% equity interest in Shandong Taibang to
Taibang Biotech (Shandong) Co., Ltd. |
| (3) | In October 2015, Guiyang Dalin Biologic Technologies Co., Ltd. increased its equity interest in
Guizhou Taibang to 81.81% following a series of capital injections. |
Corporate Information
Our principal executive
offices are located at 18th Floor, Jialong International Building, 19 Chaoyang Park Road, Chaoyang District, Beijing 100125, People’s
Republic of China. Our corporate telephone number is (8610) 6598-3111 and our fax number is (8610) 6598-3222. We maintain a website
at http://www.chinabiologic.com that contains information about our company, but that information is not part of this prospectus
supplement or incorporated by reference herein.
The Offering
Common stock offered by the selling stockholders |
3,500,000 shares. |
|
|
Common stock outstanding immediately after this offering |
26,590,974 shares. |
|
|
Use of proceeds |
We will not receive the proceeds of the sale of shares by the selling stockholders. |
|
|
Risk factors |
See “Risk Factors” beginning on page S-7 of this
prospectus supplement for a discussion of factors you should consider carefully before deciding to invest in our common stock. |
|
|
NASDAQ Global Select Market symbol |
“CBPO.” |
|
|
Lock-up |
We, the selling stockholders, certain other existing
stockholder and one director affiliated with the selling stockholders have agreed with the underwriter not to sell, transfer
or dispose of any common stock or similar securities for a period of 90 days after the date of
this prospectus supplement, subject to certain limited exceptions. See
“Underwriting.” |
The number of shares
of our common stock to be outstanding immediately after this offering is based on 26,590,974 shares of our common stock outstanding
as of February 25, 2016, and excludes:
| · | 651,897 shares of common
stock issuable upon the exercise of options outstanding as of February 25, 2016 at a weighted average exercise price of $10.44
per share; |
| · | 669,100 shares of common
stock issuable upon the vesting of outstanding restricted stock as of February 25, 2016; and |
| · | 1,182,945 shares of common
stock reserved for future issuance under our 2008 Equity Incentive Plan, or the 2008 Plan, as of February 25, 2016. |
Summary Consolidated Financial Data
The summary consolidated
statement of comprehensive income data for 2015, 2014 and 2013 and the summary balance sheet data as of December 31, 2015 and 2014
are derived from our audited consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December
31, 2015, which is incorporated by reference into this prospectus supplement and the accompanying prospectus.
You should read the
summary consolidated financial data below in conjunction with “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and our consolidated financial statements and related notes thereto incorporated by reference
in this prospectus supplement and the accompanying prospectus. Our historical results are not necessarily indicative of results
to be expected in future periods.
| |
Year Ended December 31, | |
| |
2015 | | |
2014 | | |
2013 | |
| |
Amount | | |
%
of
Total
Sales | | |
Amount | | |
%
of
Total
Sales | | |
Amount | | |
%
of
Total
Sales | |
| |
(U.S. dollars in thousands, except per share data) | |
Sales | |
| 296,458 | | |
| 100.0 | | |
| 243,252 | | |
| 100.0 | | |
| 203,357 | | |
| 100.0 | |
Cost of sales | |
| 106,483 | | |
| 35.9 | | |
| 80,026 | | |
| 32.9 | | |
| 65,484 | | |
| 32.2 | |
Gross margin | |
| 189,975 | | |
| 64.1 | | |
| 163,226 | | |
| 67.1 | | |
| 137,873 | | |
| 67.8 | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Selling expenses | |
| 9,973 | | |
| 3.4 | | |
| 10,707 | | |
| 4.4 | | |
| 10,643 | | |
| 5.2 | |
General and administrative expenses | |
| 41,392 | | |
| 14.0 | | |
| 32,130 | | |
| 13.2 | | |
| 36,074 | | |
| 17.7 | |
Research and development expenses | |
| 6,024 | | |
| 2.0 | | |
| 4,162 | | |
| 1.7 | | |
| 4,223 | | |
| 2.1 | |
Provision for other receivables in respect of an employee housing development project | |
| - | | |
| - | | |
| 5,068 | | |
| 2.1 | | |
| - | | |
| - | |
Total operating expenses | |
| 57,389 | | |
| 19.4 | | |
| 52,067 | | |
| 21.4 | | |
| 50,940 | | |
| 25.0 | |
Income from operations | |
| 132,586 | | |
| 44.7 | | |
| 111,159 | | |
| 45.7 | | |
| 86,933 | | |
| 42.7 | |
Other income (expenses): | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Equity in (loss) income of equity method investee | |
| (1,311 | ) | |
| (0.4 | ) | |
| 8,646 | | |
| 3.6 | | |
| 2,170 | | |
| 1.1 | |
Interest expense | |
| (1,727 | ) | |
| (0.6 | ) | |
| (3,698 | ) | |
| (1.5 | ) | |
| (1,135 | ) | |
| (0.6 | ) |
Interest income | |
| 5,551 | | |
| 1.9 | | |
| 6,645 | | |
| 2.7 | | |
| 4,433 | | |
| 2.2 | |
Total other income, net | |
| 2,513 | | |
| 0.9 | | |
| 11,593 | | |
| 4.8 | | |
| 5,468 | | |
| 2.7 | |
Earnings before income tax expense | |
| 135,099 | | |
| 45.6 | | |
| 122,752 | | |
| 50.5 | | |
| 92,401 | | |
| 45.4 | |
Income tax expense | |
| 20,993 | | |
| 7.1 | | |
| 26,639 | | |
| 11.0 | | |
| 15,540 | | |
| 7.6 | |
Net income | |
| 114,106 | | |
| 38.5 | | |
| 96,113 | | |
| 39.5 | | |
| 76,861 | | |
| 37.8 | |
Less: Net income attributable to non-controlling interest | |
| 25,063 | | |
| 8.5 | | |
| 25,196 | | |
| 10.3 | | |
| 22,259 | | |
| 10.9 | |
Net income attributable to company | |
| 89,043 | | |
| 30.0 | | |
| 70,917 | | |
| 29.2 | | |
| 54,602 | | |
| 26.9 | |
Net income per share of common stock | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Basic | |
| 3.40 | | |
| | | |
| 2.85 | | |
| | | |
| 2.05 | | |
| | |
Diluted | |
| 3.27 | | |
| | | |
| 2.71 | | |
| | | |
| 1.96 | | |
| | |
| |
Year Ended December 31, | |
| |
2015 | | |
2014 | |
| |
(U.S. dollars in thousands) | |
Summary Consolidated Balance Sheets Data: | |
| | |
| |
Cash and cash equivalents | |
| 144,938 | | |
| 80,820 | |
Restricted deposit | |
| - | | |
| 63,678 | |
Accounts receivable, net of allowance for doubtful accounts | |
| 25,145 | | |
| 19,403 | |
Total current assets | |
| 369,113 | | |
| 279,987 | |
Total assets | |
| 551,466 | | |
| 446,847 | |
Short-term bank loans, including current portion of long-term bank loans | |
| - | | |
| 57,903 | |
Total current liabilities | |
| 71,655 | | |
| 120,682 | |
Long-term bank loans, excluding current portion | |
| - | | |
| 40,000 | |
Total liabilities | |
| 84,505 | | |
| 171,585 | |
Total stockholders’ equity | |
| 466,962 | | |
| 275,262 | |
RISK FACTORS
You should carefully
consider the risks described below, and all of the other information contained or incorporated by reference in this prospectus
supplement, the accompanying prospectus and any free writing prospectus we may provide you in connection with this offering before
deciding to invest in our common stock. If any of these risks actually occurs, it could have a material adverse effect on our business,
financial condition and results of operations. In addition, such risks are not the only risks facing us. Additional risks and uncertainties
not presently known to us or that we currently deem immaterial could, in the future, also materially and adversely affect our business,
financial condition or results of operations. As a result, the trading price of our common stock could decline and you may lose
all or part of your investment.
Risks Relating to Our Business
The biopharmaceutical
industry in China is strictly regulated and changes in such regulations, including banning or limiting plasma products, may have
a material adverse effect on our operations, revenues and profitability.
The principal raw material
of our existing and planned biopharmaceutical products is human source plasma, which, due to its unique nature, is subject to various
quality and safety control risks which include, but are not limited to, contaminations and blood-borne diseases. In addition, current
technology cannot eliminate entirely the risk of biological hazards inherent in plasma that are not currently known or for which
screens are currently commercially available, which could result in a widespread epidemic due to blood infusion. As a result, the
biopharmaceutical industry in China is strictly regulated by the government. The regulatory regime regulates the process of administrative
approval of medicine and its production, and includes laws and regulations such as the PRC Pharmaceutical Law, the Implementation
Rules on the PRC Pharmaceutical Law and the Regulations on the Administration of Blood Products. These laws and regulations require
entities producing blood products to comply strictly with certain hygienic standards and specifications promulgated by the government.
In the event that human plasma is discovered to be not compliant with the government’s hygienic standards and specifications,
the health department may revoke its approval of the blood product, or otherwise limit the use of such blood product. Changes in
these laws and regulations, including banning or limiting plasma products, could have a material adverse effect on our operations,
revenues and profitability.
If the biopharmaceutical
products we sell are found to be contaminated, our operation, revenues and profitability would be severely and adversely affected
and we may be subject to civil and criminal liabilities.
We currently collect
plasma from human donations to our plasma stations in Shandong, Guangxi and Guizhou Provinces. If any of our human donors is infected
with diseases, then the plasma from such donor may be infected. Although we pre-screen all donors in order to ensure that they
are not infected with HIV and hepatitis C and have not contracted liver disease, screening tests may fail to identify and exclude
from our supply the plasma from infected donors due to technical limitation and human errors. If such contaminated plasma is not
appropriately screened out, our entire plasma supply for the relevant plasma station may become contaminated. In 2015, we purchased
source plasma and plasma pastes totaling 143 tonnes from Xinjiang Deyuan Bioengineering Co., Ltd., or Xinjiang Deyuan. We performed
screening tests on the purchased plasma before putting it into production. However, we may fail to identify the contaminated plasma
from Xinjiang Deyuan due to the technical limitation and/or human errors. If the plasma from our collection or purchased from
Xinjiang Deyuan is found to be contaminated and we sell biopharmaceutical products made from that plasma, we could be subject
to civil liability from suits brought by consumers. Further, we may lose our registration and have criminal liability if we are
found by the government to have been criminally negligent. If this occurs, our business, prospects, results of operations and
financial condition will be materially and adversely affected.
If
our supply of quality plasma is interrupted, our results of operations and profitability will be adversely affected. In addition,
if we experience any shortage of raw materials in the future, we may be unable to proceed with our long-term business plan and
we may be forced to curtail or cease our operations or further business expansion.
The
production of plasma products relies on the supply of plasma of suitable quality. For 2015, 2014, and 2013, the cost of plasma
we used for production accounted for approximately 82.3%, 80.1%, and 74.1%, respectively, of total production cost. The supply
and market prices of plasma may be adversely affected by factors such as heightened or new regulatory restrictions, higher living
standards or outbreaks of diseases, any of which would affect our costs of production. We may not be able to pass on any resulting
increase in costs to our customers and therefore any substantial fluctuation in supply or market prices of plasma may adversely
affect our results of operations and profitability.
Our
production volume, capacity utilization and future expansion are affected by a contraction in the supply of raw materials, especially
plasma. In addition to the plasma collected from our own plasma stations, we also outsource plasma from Xinjiang Deyuan pursuant
to a cooperation agreement entered into in August 2015. Under this cooperation agreement, Xinjiang Deyuan agreed to sell to us
no less than 500 tonnes of source plasma in batches over the next three years. We cannot assure you, however, that Xinjiang Deyuan
will always deliver the source plasma on schedule or such plasma will always pass our quality inspection. If we experience any
shortage of plasma supply or fail to secure sufficient plasma supply for our production, we may not be able to fully utilize our
production capacity or proceed with our expansion plans.
We
may not be able to carry on our business if we lose any of the required permits and licenses.
We
and Huitian are required to obtain from various PRC governmental authorities certain permits and licenses, including permits for
pharmaceutical manufacturing and GMP, or the good manufacturing practice, certificates for each of our plants, as well as pharmaceutical
distribution permits.
Each
of the production facilities operated by us and Huitian is required to obtain a GMP certificate for its pharmaceutical production
activities. In February 2011, China Food and Drug Administration, or the CFDA, enacted the new GMP standard, which has significantly
increased standards for quality control, documentation, and overall manufacturing processes that applied to each of the production
facilities operated by us and Huitian as of December 31, 2013. In order for us to meet the new GMP standard, we have upgraded
the related production facilities of Shandong Taibang and Guizhou Taibang, which obtained the renewed GMP certificates and resumed
commercial production of plasma products in June 2013 and March 2014, respectively. Huitian suspended its production in late 2013
and obtained the GMP certification for its new plasma production facility in Xi’an in February 2016 and commenced commercial
production thereafter.
We
have also obtained permits and licenses and GMP certificates required for the manufacturing and sales of our products. Our permits
and licenses are subject to periodic renewal and/or reassessment by the relevant PRC governmental authorities, and the compliance
standards may be subject to change from time to time. We intend to apply for the renewal of such permits and licenses when required
by applicable laws and regulations. However, we cannot guarantee that we may renew such permits and licenses in a timely manner,
or at all. If we are unable to renew our permits and licenses or fail an inspection which would impair our permits and licenses,
our business, prospects, financial condition and results of operations may be materially and adversely affected.
In
addition, any changes in compliance standards, or any new laws or regulations that may prohibit or render it more restrictive
for us to conduct our business or increase our compliance costs may adversely affect our operations and profitability. For example,
we expect our on-going compliance cost to increase under the new GMP standard as compared to the previous standard. As a result,
our business and financial condition may be materially and adversely affected.
We
may fail to obtain, maintain or renew required licenses and permits for our plasma stations. In addition, if we fail to adequately
monitor our plasma stations, follow proper procedures or comply with safety requirements, we may be subject to sanctions by the
government, civil and criminal liability. Any of these events could have a material adverse effect on our business, reputation
and prospects.
We
currently operate 11 plasma stations (including one branch collection facility) through Shandong Taibang and two plasma stations
through Guizhou Taibang. Huitian, a company in which we hold a minority interest, operates three plasma stations in Shaanxi Province.
To enable growth in our sales, we are seeking opportunities to build more plasma stations. In October 2014, we received the regulatory
approval to build two new plasma collection stations in Hebei Province. These new plasma collection stations were under construction
as of the date of this prospectus supplement. In September 2015, we received the regulatory approval to build a new branch collection
facility to operate under our Ningyang plasma collection station in Shandong Province. We obtained the operating permit for this
new plasma collection facility in October 2015 and commenced plasma collection thereafter. The operation of plasma stations, however,
is highly regulated and we cannot assure you that we will be able to obtain, maintain and renew the required licenses and permits
for existing and new plasma stations in desirable locations or in a timely manner, if at all. For example, we have experienced
difficulties and delays in obtaining and/or renewing the business licenses and collection permits for a new plasma station in
Pu Bei, Guangxi Province and five existing plasma stations we acquired in Guizhou Province. While we monitor our plasma intake
procedures through frequent unscheduled inspections of our stations, there remain risks that our plasma stations may fail to comply
with hygiene and procedural requirements for plasma screening, collection, storage and tracking. If we fail to comply with any
of these requirements, we may lose our plasma collection permits or incur criminal liability if we are found by the government
to have been criminally negligent. In the case of plasma contamination, we may also be subject to civil liability from suits brought
by consumers of our biopharmaceutical products. In addition, failure to comply with hygiene and procedural requirements may cause
harm to donors, who may contract diseases from other donors, among other things. Any such incident may subject us to government
sanctions, civil or criminal liabilities. If any of these events were to occur, our business, reputation and prospects would be
materially and adversely affected.
Our operations,
sales, profit and cash flow will be adversely affected if our plasma products fail to pass inspection in a timely manner.
The PRC government
inspects each batch of our plasma products before we can ship it to our customers. The CFDA has quality standards which require
the regulators to assess, among other things, the appearance, packing capacity, thermal stability, pH value, protein content and
percentage of purity of the product. We must strictly comply with relevant rules and regulations throughout the lifecycle of each
product including plasma collection, delivery, production and packaging. Government regulators typically take more than a month
to inspect one batch of plasma products. The process begins when the regulator randomly selects samples of our products and delivers
them to the PRC National Institute for the Control of Pharmaceutical and Biological Products, or NICBPB, for testing, and the process
ends when the products are given final approval by NICBPB. In the event that the regulators delay the approval of or reject our
products or change the requirements such that we are unable to comply, our operations, sales, profit and cash flow will be adversely
affected.
Current
or worsening economic conditions may adversely affect our business and financial condition.
We currently generate
sufficient operating cash flows which provide us with significant working capital. However, any uncertainty arising out of economic
conditions may affect our ability to manage normal relationships with our customers, suppliers and creditors and adversely affect
our results of operations, cash flows and financial condition, or those of our customers, suppliers and creditors. Current or worsening
economic conditions may adversely affect the ability of our customers to pay for our products, and curtail their spending on healthcare
generally. This could result in a decrease in the demand for our products, declining cash flows, longer sales cycles, slower adoption
of new technologies and increased price competition. These conditions may also adversely affect certain of our suppliers, which
could cause a disruption in our production capacities. Such reductions and disruptions could have a material adverse effect on
our business operations.
Our inability
to successfully research and develop new biopharmaceutical products could have an adverse effect on our future growth.
We believe that the
successful development of biopharmaceutical products can be affected by many factors. Products that appear to be promising in the
early phases of research and development may fail to be commercialized for various reasons, including the failure to obtain the
necessary regulatory approvals. In addition, the research and development cycle for any new medicine is a relatively lengthy process.
In our experience, the process of conducting research and various tests on new products before obtaining a new medicine certificate
from the CFDA and subsequent procedures may take approximately three to five years. We cannot assure you that our future research
and development projects will be successful or that they will be completed within the anticipated time frame or budget. Also, we
cannot guarantee that we will receive the necessary approvals from relevant authorities for the production of our newly developed
products. Even if such products could be successfully commercialized, we cannot assure you that they will be accepted by the market
as anticipated.
As mandated by a CFDA
notice promulgated on July 22, 2015, all pharmaceutical enterprises that are in the process of registration application are required
to inspect the data from the clinical trials and report the inspection results to the CFDA and to withdraw the registration application
should any deficiency surface from such inspection. Since July 22, 2015, a total of 1,184 (including 1,150 withdrawn and 34 rejected)
or 81.3% of 1,457 drugs on the self-inspection list for clinical trials have ceased the application process.
The three typical reasons
for applications withdrawals include:
| Ÿ | insufficiency of application documents; |
| Ÿ | quality issue uncovered from trial data; |
| Ÿ | voluntary withdrawal to improve the quality of clinical trial data. |
We withdrew the registration
application for human hepatitis B immunoglobulin (pH4) for intravenous injection as a result of our self-inspection in December
2015 with the aim to improve the quality of clinical trial data.
Given the uncovered
quality issues and rising costs for clinical trials, certain small drug manufacturers may face increased difficulty in submitting
new registration applications, which could accelerate the CFDA’s overall review process. We cannot assure you, however, that
our registration applications will benefit from this new CFDA practice. Our new product launches might be delayed or aborted due
to our withdrawal in December 2015 and any forced or voluntary withdrawal of our other products in the process of registration
application in the future should quality issues be uncovered from the inspection of the relevant clinical trial data. Such delay
or abortion could have a material adverse effect on our results of operations, financial condition and prospects.
Significant
uncertainties remain with respect to the implementation of the recently announced deregulation on price controls over drug products,
and we may not have discretion to increase the prices of our products until implementation rules are in place. Our ability to
increase the prices of our products is also subject to ongoing government supervision and limited by general market conditions
and intense competition.
Prior to the deregulation
of price controls, retail prices of certain pharmaceutical products were subject to various price-related regulations. In accordance
with these price-related regulations, seven of our principal products (i.e., human albumin, IVIG, human rabies immunoglobulin,
human tetanus immunoglobulin, factor VIII, PCC and human immunoglobulin) were included in the NIC and were subject to tender price
ceilings. Two other principal products (i.e., placenta polypeptide and human hepatitis B immunoglobulin), although not included
in the NIC, were also subject to tender price ceilings in certain PRC provinces. See “Business — Regulation”
for further details.
Effective on June 1,
2015, the PRC National Development and Reform Commission, or the NDRC, removed the retail price ceilings for all drug products
(except for anesthetics and category I antipsychotics) in China. As of the date of this prospectus supplement, it remains unclear,
however, how and to what extent such deregulation will have a positive impact on our pricing strategies and ultimately our revenue
and profitability. Until implementation rules are in place to enforce the deregulation, we still may not have discretion to increase
the prices we charge hospitals, inoculation centers and distributors for price-controlled products above the relevant controlled
tender price ceiling under the former regulatory regime, which may adversely affect our revenue and profitability. In addition,
despite the announced deregulation on price controls, the PRC government continues to closely supervise and monitor drug products
pricing. For example, on May 4, 2015, the NDRC issued a notice to local regulators in order to strengthen the supervision of pricing
activities in the drug products market. Among other objectives, this NDRC notice aims to monitor price inflations and fraudulent
pricing practices, promote a transparent market pricing system, and establish a multi-tiered supervisory system to maintain an
orderly drug products market. Although we believe that the deregulation on price controls should be a favorable policy development
for our industry and business in the long term, we cannot assure you that the retail prices of our products will increase in the
absence of price ceilings due to such ongoing government supervision and monitoring.
In addition, our pricing
practices may also be affected by the general market conditions and intense competition. To the extent the demand for our products
declines or competition intensifies, we may decide to respond by reducing our prices in order to capture the declining market demand
and maintain the competitiveness of our products. See also “—We are subject to intense competition and may encounter
increased competition from both local and overseas pharmaceutical enterprises if PRC regulators relax the approval process for
plasma products or international trade restrictions. A change in our competitive environment could adversely affect our profitability
and prospects” below. If the margin of any of our products becomes prohibitively low, we may stop manufacturing such product,
which may further adversely affect our revenue and profitability.
If reimbursement
or other payment for our current or future products is reduced or modified in the PRC, including through the implementation of
government-sponsored healthcare reform or other similar actions, cost containment measures, or changes to policies with respect
to pricing, then our business could suffer.
Sales of our products
depend, in part, on the extent to which the costs of our products are paid by the public payors. These public payors mainly consist
of local governments which reimburse the medicines covered by the NIC. The local governments update the NIC on a regularly basis
and may remove certain medicines from the NIC. These public payors may also reduce the reimbursement amounts for certain medicines
under the NIC. These measures by local governments may limit, reduce or eliminate payments for our products and adversely affect
both pricing flexibility and demand for our products.
Legislation and regulations
affecting reimbursement for our products may change at any time and in ways that may be adverse to us. We cannot predict the impact
of these pressures and initiatives, or any negative effects of any additional regulations that may affect our business.
Some of
our owned or leased properties have title defects or non-compliance, which could adversely affect our business operations.
Some of our owned or
leased properties have title defects or non-compliance. For example, we use properties built on collectively owned rural land for
one of our plasma collection stations. We are also in the process of obtaining the property ownership certificate for another one
of our plasma collection stations. Although such title defects and non-compliance have not adversely affected our business operations,
we cannot assure you that we will be able to rectify such defects and non-compliance in a timely manner or at reasonable costs,
if at all. For example, under PRC laws, collectively owned rural land may not be used for commercial purposes and we may be required
to vacate and seek other space to house our collection facilities. For the collection station built on collectively owned rural
land, under the lease agreement for the collectively owned rural land among us, the local government and the economic collective
which owns the land, the economic collective is required to assist us in securing legal rights to use such land. If the economic
collective fails to perform its obligations under the lease agreement, or the lease agreement is deemed to be void, voidable or
otherwise unenforceable, or if ownership disputes or claims regarding the land otherwise arise, we may be required to relocate
our collection station. Any disputes or claims relating to our owned or leased properties or land or any efforts in securing alternative
sites and properties could divert our resources and management’s attention from our regular business operations. In addition,
we may not be able to secure alternative sites and properties, if required, in a timely manner or at reasonable costs, which could
adversely affect our business operations.
Our financial
position and operations may be materially and adversely affected if our product liability insurance does not sufficiently cover
our liabilities.
Under current PRC laws,
manufacturers and vendors of defective products in China may incur liability for loss and injury caused by such products. Pursuant
to the General Principles of the Civil Law of the PRC, or the PRC Civil Law, which became effective in 1987, a defective product
that causes property damage or physical injury to any person may subject the manufacturer or vendor of such product to civil liability.
The Product Quality
Law of the PRC, or the Product Quality Law, was enacted in 1993 and revised in 2000. The Product Quality Law was enacted to protect
the rights and interests of end-users and consumers and to strengthen the supervision and control of the quality of products. Under
the Product Quality Law, manufacturers who produce defective products may be subject to fines and production suspension, and in
severe cases, be subject to criminal liability and may have their business licenses revoked.
The PRC Law on the
Protection of the Rights and Interests of Consumers, or the Consumers’ Rights Law, was enacted in 1993 to further protect
the legal rights and interests of consumers in connection with the purchase or use of goods and services. All businesses, including
our business, must observe and comply with the Consumers’ Rights Law.
The Tort Liability
Law of the PRC was enacted in December 2009, which imposes liability on manufacturers for damages caused by defects in their products.
If the defects are caused by third parties such as transporters or storekeepers, manufactures may be entitled to claim for indemnification
or contribution from such third parties for making compensation to the consumers.
We maintain two product
liability insurance policies for sales in China for Shandong Taibang and Guizhou Taibang’s products in the amount of $3.1
million (RMB20 million) each. If our products are found to be defective and our insurance coverage is insufficient to cover a successful
claim against us, our financial position and operations may be materially and adversely affected.
Product
liability claims or product recalls involving our products could have a material adverse effect on our business.
Our business exposes
us to the risk of product liability claims that are inherent in the manufacturing, distribution and sale of plasma products. Plasma
is a biological substance that is capable of transmitting viruses and pathogens, whether known or unknown. Therefore, our plasma
and plasma products, if not properly collected, tested, pathogen-inactivated, processed, stored or transported, could cause serious
disease and possibly death to patients. Further, there are viral and other infections of plasma which may escape detection using
current testing methods and which are not susceptible to inactivation methods. Any infection of disease by persons using our products
could result in claims against us. Since our establishment in 2002, we have been subject to four lawsuits filed by patients who
were treated with our products and received blood and/or plasma transfusions. In three of these cases, we were ordered to contribute
a portion of the compensation for the patients even though the courts did not find that our products were defective or caused the
patients’ illness. The required contribution by us was immaterial in these three cases. The fourth case is pending in an
ongoing litigation, which we vigorously defend. We cannot assure you that there will be no future claims against us or that we
will always succeed in defending against such claims. Furthermore, the presence of a defect in a product could require us to carry
out a recall of such product.
A product liability
claim, regardless of merit or eventual outcome, or a product recall could result in substantial financial losses, civil and criminal
liabilities, administrative sanctions, revocation of business and product permits and licenses, negative reputational repercussions
and an inability to retain customers. If our products are found to be defective and our insurance coverage is insufficient to cover
a successful claim against us, our financial position and operations may be materially and adversely affected.
We are subject
to intense competition and may encounter increased competition from both local and overseas pharmaceutical enterprises if PRC regulators
relax the approval process for plasma products or international trade restrictions. A change in our competitive environment could
adversely affect our profitability and prospects.
We face intense competition
from local and foreign entities that manufacture and sell products that compete with ours in China. These competitors may have
more capital, better research and development resources, expanded manufacturing and marketing capabilities and more experience
than we do. The plasma-based biopharmaceutical manufacturing industry in China is highly regulated, and although we believe that
compliance with the regulatory requirements pose a competitive barrier to enter into the Chinese market, over time, however, there
may be new entrants. If the government relaxes these restrictions and allows more competitors to enter into the market, these competitors
may have more capital, better research and development resources, more manufacturing and marketing capability and experience than
us. Our operating results and financial condition may be adversely affected if competition intensifies, competitors reduce prices
to gain market share, or competitors develop new products having comparable medicinal applications or therapeutic effects which
are more effective or less costly than ours.
In addition, we also
face competition from imported products. Since 2009, there has been a substantial increase in volume of imported human albumin
in China, which competes in domestic human albumin market. In addition, we compete with foreign biopharmaceutical manufacturers
that set up production facilities in China and compete directly with us. The increased supply of both domestic and foreign biopharmaceutical
products in China may result in lower sales or lower prices for our products. We cannot assure you that we will remain competitive
or that our profitability and prospects will not be adversely affected.
We depend
heavily on key personnel, and turnover of key employees and senior management could harm our business.
Our
success, to a certain extent, is attributable to the expertise and experience of our senior management and key research and technical
personnel who carry out key functions in our operation. If we lose the service of any of our senior management or key research
or technical personnel or fail to attract additional personnel with suitable experience and qualification, our business operations
and research capability may be adversely affected.
We have
a secondment agreement with the Shandong Institute, which is expected to terminate upon its future privatization, for certain of
our employees. If the secondment agreement is breached or terminated, it could have an adverse effect on our operations and on
our financial results.
Shandong Institute
of Biological Products, or the Shandong Institute, provided us with 59 of our employees, including certain key management personnel,
out of our total of approximately 1,726 employees as of December 31, 2015, pursuant to a secondment agreement dated October 28,
2002, between Shandong Taibang and the Shandong Institute. Pursuant to the secondment agreement, we are responsible for the salaries
of these employees, as well as for their social benefits such as insurance. Our secondment agreement with the Shandong Institute
will expire on the earlier of October 2032 or the privatization of the Shandong Institute, which was originally scheduled to occur
before the end of 2008. However, the privatization of the Shandong Institute has been delayed indefinitely due to delay by the
Shandong Department of Health in implementing the privatization plan. Upon expiration or termination of the secondment agreement,
we plan to hire the seconded employees directly. However, we cannot assure you that all of the employees will accept our employment
offers at that time. Guangli Pang, Shandong Taibang’s chief executive officer is employed through the secondment agreement.
Although none of our seconded employees have indicated that they do not plan to continue working for us after the privatization,
if the secondment agreement is terminated or expires and we are unable to hire those employees or their replacements on time, our
operations, as well as our financial results, may be materially and adversely affected.
Future acquisitions
may have an adverse effect on our ability to manage our business.
Selective acquisitions
form part of our strategy to further expand our business. If we are presented with appropriate opportunities, we may acquire additional
companies, products or technologies. Future acquisitions and the subsequent integration of new companies into ours would require
significant attention from our management. The diversion of our management’s attention and any difficulties encountered in
any integration process could have an adverse effect on our ability to manage our business. Future acquisitions would expose us
to potential risks, including risks associated with the integration of new operations, technologies and personnel, unforeseen or
hidden liabilities, the diversion of resources from our existing businesses and technologies, the inability to generate sufficient
revenue to offset the costs and expenses of acquisitions, and potential loss of, or harm to, relationships with employees, customers
and suppliers as a result.
We may lose
our competitive advantage and our operations may suffer if we fail to prevent the loss or misappropriation of, or disputes over,
our intellectual property or proprietary information.
We regard our intellectual
property, particularly our patents and trade secrets, to be of considerable value and importance to our business and our success.
We rely on a combination of patent, trademark and trade secret laws, as well as confidentiality agreements to protect our intellectual
property rights. Failure to protect our intellectual property rights could harm our brands and our reputation, and adversely affect
our ability to compete effectively. Further, enforcing or defending our intellectual property rights, including our patents and
trade secrets, could result in the expenditure of significant financial and managerial resources.
As of December 31,
2015, we held 53 issued patents and had 13 pending patent applications in China for certain manufacturing processes and packaging
designs. We may not be able to successfully obtain the approval of the PRC authorities for our patent applications. As of December
31, 2015, we also had 8 trademarks registered in China.
While we are not aware
of any infringement on our intellectual property and we have not been notified by any third party that we are infringing on their
intellectual property, our ability to compete successfully and to achieve future revenue growth will depend, in significant part,
on our ability to protect our proprietary technologies and operate without infringing upon the intellectual property rights of
others. Policing unauthorized use of proprietary technologies is difficult and expensive. The steps we have taken may not be adequate
to prevent unauthorized use of our intellectual property rights.
The legal regime in
China for the protection of intellectual property rights is still at its early stage of development. Despite many laws and regulations
promulgated and other efforts made by China over the years to tighten up its regulation and protection of intellectual property
rights, private parties may not enjoy intellectual property rights in China to the same extent as they would in many more developed
countries, including the United States, and the enforcement of such laws and regulations in China has not achieved the levels reached
in those countries. The administrative agencies and the court system in China are not well-equipped to deal with violations or
handle the nuances and complexities between compliant technological innovation and noncompliant infringement.
We also rely on confidentiality
agreements with our management and employees to protect our confidential proprietary information. However, the protection of our
intellectual property may be compromised as a result of:
| Ÿ | departure of any of our management members or employees in possession of our confidential proprietary
information; |
| Ÿ | breach by such departing management member or employee of his or her confidentiality and non-disclosure
undertaking to us; |
| Ÿ | infringement by others of our proprietary information and intellectual property rights; or |
| Ÿ | refusal by relevant regulatory authorities to approve our patent or trademark applications. |
Any of these events
or occurrences may have a material adverse effect on our operations.
We cannot assure you
that the steps taken by us to protect our intellectual property rights will be adequate or that third parties will not infringe
or misappropriate our patents, trademarks, confidential proprietary information or similar proprietary rights. Litigation may be
necessary to enforce our intellectual property rights and the outcome of any such litigation may not be in our favor. Given the
relative unpredictability of China’s legal system and potential difficulties enforcing a court judgment in China, we cannot
guarantee that we would be able to halt any unauthorized use of our intellectual property through litigation in a timely manner.
Furthermore, we cannot
assure you that other parties will not assert infringement claims against us, and we may have to pursue litigation against other
parties to assert our rights. Any such claim or litigation could be costly and we may lack the resources required to defend against
such claims. If we are unsuccessful in defending against such infringement claims, we may be required to pay damages, modify our
products or suspend the production and sale of such products. We cannot guarantee that we will be able to modify our products on
commercially reasonable terms.
Finally, any event
that would jeopardize our proprietary rights or any claims of infringement by third parties could have a material adverse effect
on our ability to market or sell our brands, and profitably exploit our products.
A disruption
in the supply of utilities, fire or other calamity at our manufacturing plant would disrupt production of our products and adversely
affect our sales.
Our products are manufactured
at our production facilities located in Tai’an, Shandong Province and Guiyang, Guizhou Province in China. While we have not
in the past experienced any calamities which disrupted production, any disruption in the supply of utilities, in particular, electricity
or power supply, or any outbreak of fire, flood or other calamity resulting in significant damage at our facilities would severely
affect our production and have a material adverse effect on our business, financial condition and results of operations.
We maintain insurance
policies covering losses with respect to damages to our properties and products. We do not have insurance coverage for inventories
of raw materials or business interruption. We cannot assure you that our insurance would be sufficient to cover all of our potential
losses.
If we do
not maintain strong financial controls, investor confidence in us may decline and our stock price may decline as a result.
As required by Section
404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring every public company to include a management report on such
company’s internal control over financial reporting in its annual report, which must also contain management’s assessment
of the effectiveness of our company’s internal control over financial reporting. In addition, the independent registered
public accounting firm auditing the financial statements must also attest to the operating effectiveness of our company’s
internal controls.
A report of our management
and attestation by our independent registered public accounting firm is included in our Annual Report on Form 10-K for the year
ended December 31, 2015. Our management has concluded that our internal controls over financial reporting as of December 31, 2015
were effective. We have in the past discovered, and may in the future discover, material weakness in our internal controls. For
example, we identified material weaknesses related to review controls on the accounting for income taxes and derivative instrument
valuation as described under Item 9A of our Annual Report on Form 10-K for year ended December 31, 2010, which were subsequently
remediated in 2011 as described under Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2011. However,
we cannot guarantee that these remedies will continue to be effective. Failure to achieve and maintain an effective internal control
environment could result in us not being able to accurately report our financial results, prevent or detect fraud or provide timely
and reliable financial and other information pursuant to the reporting obligations we have as a public company, which could have
a material adverse effect on our business, financial condition and results of operations. This could reduce investors’ confidence
in our reported financial information, which in turn could result in lawsuits being filed against us by our stockholders, otherwise
harm our reputation or negatively affect the trading price of our common stock.
Pending
disputes regarding Guizhou Taibang’s equity ownership against us, if not resolved in our favor, could result in dilution
to our shareholding percentage in Guizhou Taibang.
Guizhou Jie’an
Company, or Jie’an, a minority shareholder of Guizhou Taibang, filed several lawsuits against Guizhou Taibang over the years,
seeking to, among other requests, register 1.8 million shares in Guizhou Taibang, approximately 2% of Guizhou Taibang’s registered
capital, under Jie’an’s name with the local Administration of Industry and Commerce, or AIC. Some of these cases were
ruled in our favor and others were still pending as of the date of this prospectus supplement. See “Item 3—Legal Proceedings—Dispute
with Jie’an over Certain Capital Injection into Guizhou Taibang” in our Annual Report on Form 10-K for the year ended
December 31, 2015, which is incorporated by reference in this prospectus supplement and the accompanying prospectus, for details.
In addition, as a result of the appellate court’s unfavorable ruling in one of the lawsuit with Jie’an in December
2014, Guizhou Taibang paid RMB22.6 million (approximately $3.5 million) in 2015 into an escrow held by the trial court pending
further appeal for such case. In June 2015, Guizhou Taibang appealed to the High Court of Guizhou, which overruled the decision
of the appellate court and remanded the case to the trial court for retrial in September 2015. Although we, based on our PRC litigation
counsel’s assessment, do not expect Jie’an to prevail in these pending litigations, we cannot assure you that the final
judgment will be in our favor. If Guizhou Taibang is ordered to register the 1.8 million shares for Jie'an, our ownership interest
in Guizhou Taibang will be diluted to 80%, and we may be required to pay Jie’an accumulated dividends of RMB18.3 million
(approximately $2.8 million) and related interest expenses (being its claimed share of Guizhou Taibang’s accumulated dividend
distributions associated with the 1.8 million shares and the accrued interest from the date when Jie’an’s capital contribution
was deemed effective till December 31, 2014) from Guizhou Taibang. As of December 31, 2015, Guizhou Taibang had maintained, on
its balance sheet, payables to Jie’an of RMB5.0 million (approximately $0.8 million) as received funds in respect of the
1.8 million shares in dispute, RMB1.4 million (approximately $0.2 million) for the over-paid subscription price paid by Jie’an
and RMB3.7 million (approximately $0.6 million) for the accrued interest.
Risks Relating to Doing Business in
China
Changes
in China’s political or economic situation could harm us and our operating results.
Economic reforms adopted
by the PRC government have had a positive effect on the economic development of the country. The reformed economic infrastructure
and legal systems, however, may be subject to abrupt adjustments by the government. These adjustments, especially that in the following
areas, could either benefit or damage our operations and profitability:
| · | level of government involvement in the economy; |
| · | control of foreign exchange; |
| · | methods of allocating resources; |
| · | international trade restrictions; and |
The PRC economy differs
from the economies of most member countries of the Organization for Economic Cooperation and Development, or the OECD, in many
ways. For example, state-owned enterprises still constitute a large portion of the Chinese economy, and weak corporate governance
and the lack of a flexible currency exchange policy still prevail in China. As a result of these differences, we may not develop
in the same way or at the same rate as might be expected if the PRC economy was similar to those of the OECD member countries.
Uncertainties
with respect to the PRC legal system could limit the legal protections available to you and us.
We conduct substantially
all of our business through our operating subsidiaries in China. Our operating subsidiaries are generally subject to laws and regulations
applicable to foreign investments in China and, in particular, laws applicable to foreign-invested enterprises. The PRC legal system
is based on written statutes, and prior court decisions may be cited for reference but have limited precedential value. Since 1979,
a series of new PRC laws and regulations have significantly enhanced the protections afforded to various forms of foreign investments
in China. However, since the PRC legal system continues to evolve rapidly, the interpretations of many laws, regulations, and rules
are not always uniform, and enforcement of these laws, regulations, and rules involve uncertainties, which may limit legal protections
available to you and us. In addition, any litigation in China may be protracted and result in substantial costs and diversion of
resources and management attention. In addition, most of our executive officers and directors are residents of China and not of
the United States, and substantially all the assets of these persons are located outside the United States. As a result, it could
be difficult for investors to affect service of process in the United States or to enforce a judgment obtained in the United States
against our PRC operations and subsidiary.
You may
have difficulty enforcing judgments against us.
Most of our assets
are located outside of the United States and most of our current operations are conducted in China. In addition, most of our directors
and officers are nationals and residents of countries other than the United States and substantially all the assets of these persons
are located outside the United States. As a result, it may be difficult for you to effect service of process within the United
States upon these persons. It may also be difficult for you to enforce in U.S. courts judgments on the civil liability provisions
of the U.S. federal securities laws against us and our officers and directors.
There is also uncertainty
as to whether the PRC courts would recognize or enforce judgments of U.S. courts. Our counsel as to PRC law has advised us that
although recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law, recognition and
enforcement of a foreign judgment by PRC courts depend on treaties or reciprocity between China and the country where the judgment
is made. China does not have any treaties or other arrangements with the United States that provide for the reciprocal recognition
and enforcement of U.S. judgments. In addition, according to the PRC Civil Procedures Law, PRC courts will not enforce a foreign
judgment against us or our directors and officers if they decide that the judgment violates basic principles of PRC law or national
sovereignty, security, or the public interest. So it is uncertain whether a PRC court would enforce a judgment rendered by a court
in the United States.
The PRC
government exerts substantial influence over the manner in which we must conduct our business activities.
The PRC government
has exercised and continues to exercise substantial control over virtually every sector of the PRC economy through regulation and
state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating
to taxation, import and export tariffs, environmental regulations, land use rights, property, and other matters. We believe that
our operations in China are in material compliance with all applicable legal and regulatory requirements. However, the central
or local governments of the jurisdictions in which we operate may impose new, stricter regulations or interpretations of existing
regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or
interpretations.
Accordingly, government
actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally
planned economy and any regional or local variations in the implementation of economic policies, could have a significant effect
on economic conditions in China or particular regions thereof and could require us to divest ourselves of any interest we then
hold in PRC-based properties or joint ventures.
Restrictions
on currency exchange may limit our ability to receive and use our sales effectively.
Substantially all of
our sales are settled in RMB, and any future restrictions on currency exchanges may limit our ability to use revenue generated
in RMB to fund any future business activities outside China or other payments in U.S. dollars. Although the PRC government introduced
regulations in 1996 to allow greater convertibility of RMB for current account transactions, significant restrictions still remain,
including primarily the restriction that foreign-invested enterprises may only buy, sell or remit foreign currencies after providing
valid commercial documents at those banks in China authorized to conduct foreign exchange business. In addition, conversion of
RMB for capital account items, including direct investments and loans, is subject to governmental approval and companies are required
to open and maintain separate foreign exchange accounts for capital account items. We cannot be certain that the PRC regulatory
authorities will not impose more stringent restrictions on the convertibility of RMB.
Fluctuations
in exchange rates could adversely affect our business and the value of our securities.
The value of our common
stock will be indirectly affected by the foreign exchange rate between U.S. dollars and RMB and between those currencies and other
currencies in which our sales may be denominated. Appreciation or depreciation in the value of the RMB relative to U.S. dollars
would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business
or results of operations. Fluctuations in the exchange rate will also affect the relative value of any dividends we issue that
will be exchanged into U.S. dollars, as well as earnings from, and the value of, any U.S. dollar-denominated investments we make
in the future.
Since July 2005, RMB
has no longer been pegged to U.S. dollars. Although the People’s Bank of China regularly intervenes in the foreign exchange
market to prevent significant short-term fluctuations in the exchange rate, RMB may appreciate or depreciate significantly in value
against U.S. dollars in the medium to long term. Moreover, it is possible that in the future PRC authorities may lift restrictions
on fluctuations in the RMB exchange rate and lessen intervention in the foreign exchange market.
Very limited hedging
transactions are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any
hedging transactions. While we may enter into hedging transactions in the future, the availability and effectiveness of these transactions
may be limited, and we may not be able to successfully hedge our exposure at all. In addition, our foreign currency exchange losses
may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currencies.
Currently, some of
our raw materials and major equipment are imported. In the event that the U.S. dollars appreciate against RMB, our costs will increase.
If we cannot pass the resulting cost increases on to our customers, our profitability and operating results will suffer. In addition,
if our sales to international customers grow, we will be increasingly subject to the risk of foreign currency depreciation.
Restrictions
under PRC law on our PRC subsidiaries’ ability to make dividends and other distributions could materially and adversely affect
our ability to grow, make investments or acquisitions, pay dividends to you and otherwise fund and conduct our business.
Substantially all of
our profits are earned by our PRC subsidiaries. However, PRC regulations restrict the ability of our PRC subsidiaries to make dividends
and other payments to their offshore parent companies. PRC legal restrictions permit payments of dividends by our PRC subsidiaries
only out of their accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations.
Our PRC subsidiaries are also required under PRC laws and regulations to allocate at least 10.0% of their annual after-tax profits
determined in accordance with PRC generally accepted accounting principles to a statutory general reserve fund until the amounts
in such fund reaches 50.0% of their registered capital. Allocations to these statutory reserve funds can only be used for specific
purposes and are not transferable to us in the form of loans, advances or cash dividends. Any limitations on the ability of our
PRC subsidiaries to transfer funds to us could materially limit our ability to grow, make investments or acquisitions that could
be beneficial to our business, pay dividends and otherwise fund and conduct our business.
Failure
to comply with PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject
our PRC resident stockholders to personal liability, limit our ability to acquire PRC companies or to inject capital into our PRC
subsidiaries, limit the ability of our PRC subsidiaries to distribute profits to us or otherwise materially adversely affect us.
Pursuant to the Circular
on Relevant Issues concerning Foreign Exchange Administration of Overseas Investment and Financing and Return Investments Conducted
by Domestic Residents through Overseas Special Purpose Vehicle, or Circular 37, which was promulgated by the PRC State Administration
of Foreign Exchange , or SAFE, and became effective on July 4, 2014, (1) a PRC resident must register with the local SAFE branch
before he or she contributes assets or equity interests in an overseas special purpose vehicle, or an Overseas SPV, that is directly
established or controlled by the PRC resident for the purpose of conducting investment or financing; and (2) following the initial
registration, the PRC resident is also required to register with the local SAFE branch for any major change, in respect of the
Overseas SPV, including, among other things, a change in the Overseas SPV’s PRC resident shareholder, name of the Overseas
SPV, term of operation, or any increase or reduction of the Overseas SPV’s registered capital, share transfer or swap, and
merger or division.
We have requested the
beneficial holders of our stock who are PRC residents to register with the relevant branch of SAFE in connection with their equity
interests in us and our acquisitions of equity interests in our PRC subsidiaries pursuant to Circular 37 or the predecessor regulation
of Circular 37, namely the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents Engaging in Financing
and Roundtrip Investments via Overseas Special Purpose Vehicles, as the case may be. As Circular 37 was recently promulgated, it
remains unclear how it will be interpreted and implemented, and how or whether SAFE will apply it to us. Therefore, we cannot predict
how it will affect our business operations or future strategies. For example, the ability of our present and prospective PRC subsidiaries
to conduct foreign exchange activities, such as the remittance of dividends and foreign currency-denominated borrowings, may be
subject to compliance with Circular 37 by our PRC resident beneficial holders.
In addition, such PRC
residents may not always be able to complete the necessary registration procedures required by Circular 37. We also have little
control over either our present or prospective direct or indirect stockholders or the outcome of such registration procedures.
Failure of our present or future PRC resident beneficial holders to comply with Circular 37 could subject these PRC resident beneficial
holders to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit the ability of our PRC
subsidiaries to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business
and prospects.
We may be
unable to complete a business combination transaction efficiently or on favorable terms due to complicated merger and acquisition
regulations.
In August 2006, six
PRC regulatory agencies, including the China Securities Regulatory Commission, or CSRC, promulgated the Regulation on Mergers and
Acquisitions of Domestic Companies by Foreign Investors, or Circular 10, which became effective in September 2006 and was amended
in June 2009. This regulation, among other things, governs the approval process by which a PRC company may participate in an acquisition
of assets or equity interests. Depending on the structure of the transaction, Circular 10 requires the PRC parties to make a series
of applications and supplemental applications to the government agencies. In some instances, the application process may require
the presentation of economic data concerning a transaction, including appraisals of the target business and evaluations of the
acquirer, which are designed to allow the government to assess the transaction. Government approvals will have expiration dates
by which a transaction must be completed and reported to the government agencies. Compliance with Circular 10 is likely to be more
time-consuming and expensive than in the past and the government can now exert more control over the combination of two businesses.
Accordingly, due to Circular 10, our ability to engage in business combination transactions has become significantly more complicated,
time consuming and expensive, and we may not be able to negotiate a transaction that is acceptable to our stockholders or sufficiently
protect their interests in a transaction.
Circular 10 allows
PRC government agencies to assess the economic terms of a business combination transaction. Parties to a business combination transaction
may have to submit to the PRC Ministry of Commerce, or MOFCOM, and other relevant government agencies an appraisal report, an evaluation
report and the acquisition agreement, all of which form part of the application for approval, depending on the structure of the
transaction. The regulations also prohibit a transaction at an acquisition price obviously lower than the appraised value of the
PRC business or assets and in certain transaction structures, require that consideration must be paid within defined periods, generally
not in excess of a year. The regulation also limits our ability to negotiate various terms of the acquisition, including aspects
of the initial consideration, contingent consideration, holdback provisions, indemnification provisions and provisions relating
to the assumption and allocation of assets and liabilities. Transaction structures involving trusts, nominees and similar entities
are prohibited. Therefore, such regulation may impede our ability to negotiate and complete a business combination transaction
on financial terms that satisfy our investors and protect our stockholders’ economic interests.
Under the
Enterprise Income Tax Law, we may be classified as a “resident enterprise” of China. Such classification will likely
result in unfavorable tax consequences to us and our non-PRC stockholders.
The Enterprise Income
Tax Law, or the EIT Law, and its implementing rules became effective on January 1, 2008. Under the EIT Law, an enterprise established
outside of China with “de facto management bodies” within China is considered a “resident enterprise,”
meaning that it can be treated in a manner similar to a PRC enterprise for enterprise income tax purposes. The implementing rules
of the EIT Law define de facto management as “substantial and overall management and control over the production and operations,
personnel, accounting, and properties” of the enterprise.
On April 22, 2009,
The PRC State Administration of Tax, or SAT, issued the Notice Concerning Relevant Issues Regarding Cognizance of Chinese Investment
Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria of de facto Management Bodies, or the
Notice, further interpreting the application of the EIT Law and its implementation on non-PRC enterprise or group controlled offshore
entities. Pursuant to the Notice, an enterprise incorporated in an offshore jurisdiction and controlled by a PRC enterprise or
group will be classified as a “non-domestically incorporated resident enterprise” if (1) its senior management in
charge of daily operations reside or perform their duties mainly in China; (2) its financial or personnel decisions are made or
approved by bodies or persons in China; (3) its substantial assets and properties, accounting books, corporate chops, board and
shareholder minutes are kept in China; and (4) at least half of its directors with voting rights or senior management often resident
in China. A resident enterprise would be subject to an enterprise income tax rate of 25.0% on its worldwide income and must pay
a withholding tax at a rate of 10.0% when paying dividends to its non-PRC shareholders. However, it remains unclear as to whether
the Notice is applicable to an offshore enterprise incorporated by a Chinese natural person. Nor are detailed measures on imposition
of tax from non-domestically incorporated resident enterprises are available. Therefore, it is unclear how tax authorities will
determine tax residency based on the facts of each case. If a withholding tax were imposed on dividend payments to our non-PRC
shareholders under the EIT Law, U.S. holders may be able to credit such withholding tax against their U.S. tax. U.S. holders should
consult their tax advisors regarding the applicability of this credit.
We may be deemed to
be a resident enterprise by PRC tax authorities. If the PRC tax authorities determine that we are a “resident enterprise”
for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, we may be subject to
the enterprise income tax at a rate of 25.0% on our worldwide taxable income as well as PRC enterprise income tax reporting obligations.
In our case, this would mean that income such as interest on financing proceeds and non-PRC source income would be subject to PRC
enterprise income tax at a rate of 25.0%. Second, although under the EIT Law and its implementing rules dividends paid to us from
our PRC subsidiaries would qualify as “tax-exempt income,” we cannot guarantee that such dividends will not be subject
to a 10.0% withholding tax, as the PRC foreign exchange control authorities, which enforce the withholding tax, have not yet issued
guidance with respect to the processing of outbound remittances to entities that are treated as resident enterprises for PRC enterprise
income tax purposes. Finally, it is possible that future guidance issued with respect to the “resident enterprise”
classification could result in a situation in which a 10.0% withholding tax is imposed on dividends we pay to our non-PRC stockholders
and with respect to gains derived by our non-PRC stockholders from transferring our shares. Finally, if we were treated as a “resident
enterprise” by PRC tax authorities, we would be subject to taxation in both the U.S. and China, and our PRC tax may not be
creditable against our U.S. tax. We are actively monitoring the possibility of “resident enterprise” treatment and
are evaluating appropriate organizational changes to avoid this treatment, to the extent possible.
We face
uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.
SAT released a circular
on December 15, 2009 that addresses the transfer of shares by nonresident companies, generally referred to as Circular 698. Circular
698, which is effective retroactively to January 1, 2008, may have a significant impact on many companies that use offshore holding
companies to invest in China. Circular 698 has the effect of taxing foreign companies on gains derived from the indirect sale of
a PRC company. Where a foreign investor indirectly transfers equity interests in a PRC resident enterprise by selling the shares
in an offshore holding company, and the latter is located in a country or jurisdiction that has an effective tax rate less than
12.5% or does not tax foreign income of its residents, the foreign investor must report this indirect transfer to the tax authority
in charge of that PRC resident enterprise. Using a “substance over form” principle, the PRC tax authority may disregard
the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of
avoiding PRC tax. As a result, gains derived from such indirect transfer may be subject to PRC withholding tax at a rate of up
to 10.0%.
SAT subsequently released
public notices to clarify issues relating to Circular 698, including the Announcement on Several Issues concerning the Enterprise
Income Tax on the Indirect Transfers of Properties by Non-resident Enterprises, or SAT Notice 7, which became effective on February
3, 2015. SAT Notice 7 abolished the compulsive reporting obligations originally set out in Circular 698. Under SAT Notice 7, if
a non-resident enterprise transfers its shares in an overseas holding company, which directly or indirectly owns PRC taxable properties,
including shares in a PRC company, via an arrangement without reasonable commercial purpose, such transfer shall be deemed as indirect
transfer of the underlying PRC taxable properties. Accordingly, the transferee shall be deemed as a withholding agent with the
obligation to withhold and remit the enterprise income tax to the competent PRC tax authorities. Factors that may be taken into
consideration when determining whether there is a “reasonable commercial purpose” include, among other factors, the
economic essence of the transferred shares, the economic essence of the assets held by the overseas holding company, the taxability
of the transaction in offshore jurisdictions, and economic essence and duration of the offshore structure. SAT Notice 7 also sets
out safe harbors for the “reasonable commercial purpose” test.
There is little guidance
and practical experience regarding the application of Circular 698 and the related SAT notices. For example, while the term “indirectly
transfer” is not defined, it is understood that the relevant PRC tax authorities have jurisdiction regarding requests for
information over a wide range of foreign entities having no direct contact with China. Moreover, the relevant authority has not
yet promulgated any formal provisions or formally declared or stated how to calculate the effective tax rates in foreign tax jurisdictions.
As a result, we may become at risk of being taxed under Circular 698 and the related SAT notices and we may be required to expend
valuable resources to comply with Circular 698 and the related SAT notices or to establish that we should not be taxed under Circular
698 and the related SAT notices, which could have a material adverse effect on our financial condition and results of operations.
We may be
exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption laws, and any determination that we
violated these laws could have a material adverse effect on our business.
We are subject to the
Foreign Corrupt Practice Act, or FCPA, and other U.S. laws that prohibit improper payments or offers of payments to foreign governments
and their officials and political parties by U.S. persons and issuers as defined by the relevant statute, for the purpose of obtaining
or retaining business. We have operations, agreements with third parties, and make most of our sales in China. PRC anti-corruption
laws also strictly prohibit bribery of government officials. Our activities in China create the risk of unauthorized payments or
offers of payments by the employees, consultants, sales agents, or distributors, even though they may not always be subject to
our control. It is our policy to implement safeguards to discourage these practices by our employees. However, our existing safeguards
and any future improvements may prove to be less than effective, and the employees, consultants, sales agents, or distributors
may engage in conduct for which we might be held responsible. Particularly, most of the hospitals and inoculation centers in China
are state-owned entities, whose employees may be recognized as foreign government officials for the purpose of FCPA. Therefore,
any payments, expensive gifts or other benefits provided to an employee of the state-owned hospital or inoculation center may be
deemed violation of FCPA. Violations of FCPA or PRC anti-corruption laws may result in severe criminal or civil sanctions, and
we may be subject to other liabilities, which could negatively affect our business, prospects, operating results and financial
condition. In addition, the U.S. government may seek to hold us liable for successor liability under FCPA violations committed
by companies in which we invest or that we acquire.
If we become
directly subject to the scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend
significant resources to investigate and resolve the matter which could harm our business operations, stock price and reputation
and could result in a loss of your investment in our stock, especially if such matter cannot be addressed and resolved favorably.
In recent years, U.S.
public companies that have substantially all of their operations in China, particularly companies like us which have completed
the “reverse merger” transactions, have been the subject of intense scrutiny, criticism and negative publicity by investors,
financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered
around financial and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate
corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny,
criticism and negative publicity, the publicly traded stock of many U.S.-listed PRC-based companies has sharply decreased in value
and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits, SEC enforcement
actions and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide
scrutiny, criticism and negative publicity will have on us, our business and our stock price. If we become the subject of any unfavorable
allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate
such allegations and/or defend our company. This situation will be costly and time consuming and distract our management from growing
our company. If such allegations are not proven to be groundless, our company and our business operations will be severely impacted
and your investment in our stock could be rendered worthless.
The disclosures
in our reports and other filings with the SEC and our other public pronouncements are not subject to the scrutiny of any regulatory
bodies in China. Accordingly, our public disclosure should be reviewed in light of the fact that no governmental agency that is
located in China where substantially all of our operations and business are located have conducted any due diligence on our operations
or reviewed or cleared any of our disclosure.
We are regulated by
the SEC and our reports and other filings with the SEC are subject to SEC review in accordance with the rules and regulations promulgated
by the SEC under the Securities Act and the Exchange Act. Unlike public reporting companies whose operations are located primarily
in the United States, however, substantially all of our operations are located in China. Since substantially all of our operations
and business takes place in China, it may be more difficult for the Staff of the SEC to overcome the geographic and cultural obstacles
that are present when reviewing our disclosure. These same obstacles are not present for similar companies whose operations or
business take place entirely or primarily in the United States. Furthermore, our SEC reports and other disclosure and public pronouncements
are not subject to the review or scrutiny of any PRC regulatory authority. For example, the disclosure in our SEC reports and other
filings are not subject to the review of the CSRC, a PRC regulator that is tasked with oversight of the capital markets in China.
Accordingly, you should review our SEC reports, filings and our other public pronouncements with the understanding that no local
regulator has done any due diligence on our company and with the understanding that none of our SEC reports, other filings or any
of our other public pronouncements has been reviewed or otherwise been scrutinized by any local regulator.
Our independent
registered public accounting firm may be temporarily suspended from practicing before the SEC if unable to continue to satisfy
SEC investigation requests in the future. If a delay in completion of our audit process occurs as a result, we could be unable
to timely file certain reports with the SEC, which may lead to the delisting of our stock.
The vast majority of
our sales are to customers in China, and we have all of our operations in China. Certain of our independent registered public accounting
firm’s audit documentation related to their audit reports included in our annual reports may be located in China, and certain
audit procedures may take place within China’s borders. The Public Company Accounting Oversight Board, or the PCAOB, is currently
unable to conduct inspections in China or review audit documentation located within China without the approval of Chinese authorities.
Like many U.S. companies with significant operations in China, our independent registered public accounting firm may rely on a
Chinese member firm for assistance in completing the audit work associated with our operations in China.
On January 22, 2014,
Judge Cameron Elliot, an SEC administrative law judge, issued an initial decision suspending the Chinese member firms of the “Big
Four” accounting firms, including our independent registered public accounting firm, from practicing before the SEC for six
months. In February 2014, the initial decision was appealed. While under appeal and in February 2015, the Chinese member firms
of “Big Four” accounting firms reached a settlement with the SEC. As part of the settlement, each of the Chinese member
firms of “Big Four” accounting firms agreed to settlement terms that include a censure, undertakings to make a payment
to the SEC, procedures and undertakings as to future requests for documents by the SEC, and possible additional proceedings and
remedies should those undertakings not be adhered to.
If the settlement terms
are not adhered to, Chinese member firms of “Big four” accounting firms may be suspended from practicing before the
SEC which could in turn delay the timely filing of our financial statements with the SEC. In addition, it could be difficult for
us to timely identify and engage another qualified independent auditor to replace our independent registered public accounting
firm, KPMG Huazhen LLP. A delinquency in our filings with the SEC may result in NASDAQ initiating procedures, which could adversely
harm our reputation and have other material adverse effects on our overall growth and prospects.
Our independent registered public
accounting firm’s audit documentation related to their audit reports included in our Annual Report may include audit documentation
located in China. PCAOB currently cannot inspect audit documentation located in China and, as such, you may be deprived of the
benefits of such inspection.
Our independent registered
public accounting firm issued an audit opinion on the financial statements included in our Annual Report filed with the SEC. As
auditors of companies that are traded publicly in the United States and a firm registered with the PCAOB, our auditor is required
by the laws of the United States to undergo regular inspections by the PCAOB. However, work papers located in China are not currently
inspected by the PCAOB because the PCAOB is currently unable to conduct inspections without the approval of the PRC authorities.
Inspections of certain
other firms that the PCAOB has conducted outside of China have identified deficiencies in those firms’ audit procedures and
quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. However,
the PCAOB is currently unable to inspect an auditor’s audit work related to a company’s operations in China and where
such documentation of the audit work is located in China. As a result, our investors may be deprived of the benefits of the PCAOB’s
oversight of auditors that are located in China through such inspections.
The inability of the
PCAOB to conduct inspections of an auditor’s work papers in China makes it more difficult to evaluate the effectiveness of
any of our auditor’s audit procedures or quality control procedures that may be located in China as compared to auditors
outside of China that are subject to PCAOB inspections. Investors may consequently lose confidence in our reported financial information
and procedures and the quality of our financial statements.
Risks Relating to Our Stock and This
Offering
The market
price of our common stock is volatile, leading to the possibility of its value being depressed at a time when you want to sell
your holdings.
The market price of
our common stock is volatile, and this volatility may continue. Numerous factors, many of which are beyond our control, may cause
the market price of our common stock to fluctuate significantly. These factors include, among others:
| Ÿ | our earnings releases, actual or anticipated changes in our earnings, fluctuations in our operating
results or our failure to meet the expectations of financial market analysts and investors; |
| Ÿ | changes in financial estimates by us or by any securities analysts who might cover our stock; |
| Ÿ | speculation about our business in the press or the investment community, including negative publicity
and short seller reports that make allegations against us, even if unfounded; |
| Ÿ | significant developments relating to our relationships with our customers or suppliers; |
| Ÿ | stock market price and volume fluctuations of other publicly traded companies and, in particular,
those that are in our industry; |
| Ÿ | customer demand for our products; |
| Ÿ | investor perceptions of our industry in general and our company in particular; |
| Ÿ | the operating and stock performance of comparable companies; |
| Ÿ | general economic conditions and trends; |
| Ÿ | major catastrophic events; |
| Ÿ | announcements by us or our competitors of new products, significant acquisitions, strategic partnerships
or divestitures; |
| Ÿ | changes in accounting standards, policies, guidance, interpretation or principles; |
| Ÿ | loss of external funding sources; |
| Ÿ | sales of our common stock, including sales by our directors, officers or significant stockholders; |
| Ÿ | additions or departures of key personnel; and; |
| Ÿ | investor perception of litigation, investigation or other legal proceedings involving us or certain
of our individual stockholders or their family members. |
Securities class action
litigation is often instituted against companies following periods of volatility in their stock price. This type of litigation
could result in substantial costs to us and divert our management’s attention and resources. Moreover, securities markets
may from time to time experience significant price and volume fluctuations for reasons unrelated to operating performance of particular
companies. For example, in July 2008, the securities markets in the United States, China and other jurisdictions experienced the
largest decline in share prices since September 2001. These market fluctuations may adversely affect the price of our common stock
and other interests in our company at a time when you want to sell your interest in us.
The provisions
in our currently effective certificate of incorporation and bylaws and our preferred shares rights agreement might discourage,
delay or prevent a change of control of our company or changes in our management and, therefore depress the trading price of the
common stock.
Upon stockholders’
approval on July 20, 2012, we have adopted amended and restated certificate of incorporation and bylaws, which contained provisions
that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably
expensive to the raider and to encourage prospective acquirers to negotiate with our board of directors, rather than to attempt
a hostile takeover.
These provisions include,
among others:
| Ÿ | the right of our board of directors to issue preferred stock without stockholder approval; |
| Ÿ | division of our board of directors into three classes with staggered terms; |
| Ÿ | elimination of the right of our stockholders to act by written consent; |
| Ÿ | prohibiting stockholders from calling a special meeting of the stockholders; |
| Ÿ | rules regarding how stockholders may present proposals or nominate directors for election at stockholder
meetings; and |
| Ÿ | requiring super majority stockholder vote to amend certain provisions of the amended and restated
certificate of incorporation and bylaws. |
Approved on June 20,
2014, our currently-in-effect bylaws authorize our stockholders who hold 25.0% of our entire capital stock issued and outstanding
and are entitled to vote to call a special meeting of the stockholders.
On January 8, 2015,
our board of directors adopted a preferred shares rights agreement between us and the Securities Transfer Corporation, as the rights
agent. This agreement provides, among other things, that when specified events occur, our stockholders will be entitled to purchase
from us a fraction of a share of series A participating preferred stock for each share of common stock they own. Such preferred
stock purchase rights are triggered by the earlier to occur of (1) 10 business days (or a later date determined by our board of
directors before the rights are separated from our common stock) after the public announcement that a person or group has become
an “acquiring person” by acquiring beneficial ownership of 15.0% or more of our outstanding common stock or (2) 10
business days (or a later date determined by our board of directors before the rights are separated from our common stock) after
a person or group begins a tender or exchange offer that, if completed, would result in that person or group becoming an acquiring
person. The issuance of preferred stock pursuant to this preferred shares rights agreement would cause substantial dilution to
a person or group that attempts to acquire us on terms not approved by our board of directors. Our board of directors had previously
adopted a similar preferred shares rights agreement on November 19, 2012, which expired on November 20, 2014.
We do not
intend to pay dividends for the foreseeable future.
For the foreseeable
future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying
any cash dividends on our common stock. Accordingly, investors must be prepared to rely on sales of their common stock after price
appreciation to earn an investment return, which may never occur. Investors seeking cash dividends should not purchase our common
stock. Any determination to pay dividends in the future will be made at the discretion of our board of directors and will depend
on our results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors
our board of directors deems relevant.
The sale
or availability for sale of substantial amounts of our common stock could adversely affect their market price.
Sales of
substantial amounts of our common stock in the public market, or the perception that these sales could occur, could adversely
affect the market price of our common stock and could materially impair our future ability to raise capital through offerings
of our common stock. As of February 25, 2016, there were 26,590,974 shares of common stock outstanding, and the selling
stockholders will offer 3,500,000 shares of common stock in this offering.
Subject
to certain exceptions described under the caption “Underwriting,” we, the selling stockholders, certain
other existing stockholder and one director affiliated with the selling stockholders have agreed with the underwriter not to
offer, sell or agree to sell, directly or indirectly, any shares of our common stock without the permission of the
underwriter for 90 days after the date of this prospectus supplement. When the lock-up period expires, our locked-up security
holders will be able to sell shares in the public market. Moreover, the underwriter may, in its discretion, release all or
some portion of the shares subject to lock-up agreements prior to the expiration of the applicable lock-up period.
Subject to the applicable
restrictions and limitations under Rule 144 of the Securities Act and other than restricted shares that certain stockholders hold,
all of our common stock outstanding is eligible for sale in the public market. In addition, holders of a substantial number of
shares of our common stock have rights, subject to some conditions, to require us to file registration statements covering their
shares or to include their shares in registration statements that we may file for public offering of our securities. If such holders,
by exercising their registration rights, cause a large number of securities to be registered and sold into the public market,
these sales could have an adverse effect on the market price for our common stock.
We cannot predict the
effect, if any, that future sales of shares of our common stock into the market, or the availability of shares of common stock
for future sale, will have on the market price of our common stock. Sales of substantial amounts of common stock (including shares
issued upon the exercise, conversion or exchange of other securities), or the perception that such sales could occur, may materially
and adversely affect prevailing market prices for our common stock.
Stock prices
of companies with business operations primarily in China have fluctuated widely in recent years, and the trading prices of our
common stock are likely to be volatile, which could result in substantial losses to investors.
The trading prices
of our common stock are likely to be volatile and could fluctuate widely in response to factors beyond our control. For example,
if one or more of the industry analysts or ratings agencies who cover us downgrades us or our common stock, or publishes unfavorable
research about us, the price of our common stock may decline. If one or more of these analysts or agencies cease to cover our company
or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause the price of our
common stock or trading volume to decline. In addition, the performance and fluctuation of the market prices of other China-based,
U.S.-listed healthcare companies may affect the volatility in the price of and trading volume for our common stock. In recent years,
a number of PRC-based companies have listed their securities, or are in the process of preparing for listing their securities,
on U.S. stock markets. Some of these companies have experienced significant volatility, including significant price declines following
their initial public offerings. The trading performances of the securities of these PRC-based companies at the time of or after
their offerings may affect the overall investor sentiment towards PRC-based companies listed in the United States and consequently
may impact the trading performance of our common stock. These broad market and industry factors may significantly affect the market
price and volatility of our common stock, regardless of our actual operating performance.
In addition to market
and industry factors, the price and trading volume for our common stock may be highly volatile for specific business reasons. Any
of these factors may result in large and sudden changes in the volume and price at which our common stock will trade. We cannot
give any assurance that these factors will not occur in the future again. In the past, following periods of volatility in the market
price of a company’s securities, stockholders have often instituted securities class action litigation against that company.
If we were involved in a class action lawsuit, it could divert the attention of senior management, and, if adversely determined,
could have a material and adverse effect on our business, financial condition and results of operations.
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This prospectus supplement,
the accompanying prospectus and the documents incorporated by reference into these documents contain certain statements that constitute
“forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. The words “anticipate,” “expect,” “believe,” “goal,” “plan,”
“intend,” “estimate,” “project,” “may,” “will,” and similar expressions
and variations thereof are intended to identify forward-looking statements, but are not the exclusive means of identifying such
statements. Those statements appear in this prospectus supplement, the accompanying prospectus and the documents incorporated
herein and therein by reference, and include statements regarding the intent, belief or current expectations of our company and
management that are subject to known and unknown risks, uncertainties and assumptions and other factors that could cause actual
results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking
statements. Factors that could cause or contribute to such differences include, but are not limited to those set forth under “Risk
Factors” beginning on page S-7 of this prospectus supplement, under Item 1A, “Risk Factors” in our Annual Report
on Form 10-K for the year ended December 31, 2015 to the extent not restated herein, and in our future filings made with the SEC.
This prospectus supplement,
the accompanying prospectus and the information incorporated by reference in this prospectus supplement and the accompanying prospectus
also contain statements that are based on management’s current expectations and beliefs, including estimates and projections
about our company, industry, financial condition, results of operations and other matters. These statements are not guarantees
of future performance and are subject to numerous risks, uncertainties, and assumptions that are difficult to predict.
This prospectus supplement,
the accompanying prospectus and the information incorporated by reference in this prospectus supplement and the accompanying prospectus
also contain certain data and information that we obtained from various government, private and commercial sources and publications.
Statistical data in these sources and publications also include projections based on a number of assumptions. The plasma products
market may not grow at the rate projected by market data, or at all. The failure of this market to grow at the projected rate may
have a material adverse effect on our business and the market price of our common stock. In addition, the rapid development of
China’s plasma products market results in significant uncertainties for any projections or estimates relating to the growth
prospects or future condition of our market. Furthermore, if any one or more of the assumptions underlying the market data are
later found to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue
reliance on these forward-looking statements obtained from such government, private and commercial sources and publications.
Because
forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified,
you should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in
the forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in
the forward-looking statements. Except as required by applicable law, including the securities laws of the United States and the
rules and regulations of the SEC, we do not plan to publicly update or revise any forward-looking
statements contained herein after we distribute this prospectus supplement, whether as a result of any new information, future
events or otherwise.
USE OF PROCEEDS
We will not receive any proceeds from the
sale of shares by the selling stockholders.
MARKET PRICE OF COMMON STOCK
The following table sets forth the high
and low trading prices of our common stock on the NASDAQ Global Select Market, for the periods indicated. The last reported sale
price of our common stock on the NASDAQ Global Select Market on March 1, 2016 was $117.64 per share.
| |
| |
Price Per Share |
|
| |
| |
High | | |
Low |
|
| |
| |
($) | | |
($) |
|
2014 | |
| |
|
|
| |
|
| |
First Quarter | |
| 38.60 | | |
26.66 |
|
| |
Second Quarter | |
| 50.00 | | |
33.49 |
|
| |
Third Quarter | |
| 58.00 | | |
43.21 |
|
| |
Fourth Quarter | |
| 71.13 | | |
47.23 |
|
2015 | |
| |
| |
|
| |
|
| |
First Quarter | |
| 96.80 | | |
64.36 |
|
| |
Second Quarter | |
| 121.22 | | |
92.10 |
|
| |
Third Quarter | |
| 128.00 | | |
80.60 |
|
| |
Fourth Quarter | |
| 143.21 | | |
86.55 |
|
2016 | |
| |
| |
|
| |
|
| |
First Quarter (through March 1, 2016) | |
| 144.29 | | |
103.56 |
|
EXCHANGE RATE INFORMATION
We use
U.S. dollars as our reporting currency in our financial statements and in this prospectus supplement. In other parts of
this prospectus supplement, any RMB denominated amounts are accompanied by translations. Prior to January 1, 2015, when
reporting the operating results and financial position of our PRC subsidiaries, we used the quarterly average exchange rate
for the year and the exchange rate at the balance sheet date, respectively, published by OANDA Corporation, an
Internet-based currency information provider. Beginning on January 1, 2015, when reporting the operating results and
financial position of our PRC subsidiaries, we use the quarterly average exchange rate for the year and the exchange rate at
the balance sheet date, respectively, published by the People’s Bank of China. With respect to amounts not recorded in
our consolidated financial statements included elsewhere in this prospectus supplement, all translations from RMB to U.S.
dollars were made at the noon buying rate in the City of New York for cable transfers in RMB per U.S. dollar as certified for
customs purposes by the Federal Reserve Bank of New York. Unless otherwise noted, all translations from RMB to U.S. dollars
have been made at RMB6.4778 to $1.00, the noon buying rate in effect as of December 31, 2015. We make no representation that
the RMB or U.S. dollar amounts referred to in this prospectus supplement could have been or could be converted into U.S.
dollars or RMB, as the case may be, at any particular rate or at all. The PRC government restricts or prohibits the
conversion of RMB into foreign currency and foreign currency into RMB for certain types of transactions. On February 26, 2016, the noon buying rate was RMB6.5390 to $1.00.
The following table
sets forth information concerning exchange rates between the RMB and the U.S. dollar for the periods indicated. These rates are
provided solely for your convenience and are not necessarily the exchange rates that we used in this prospectus supplement or will
use in the preparation of any other information to be provided to you.
| |
Noon buying rate | |
Period | |
Period end | | |
Average(1) | | |
High | | |
Low | |
| |
(RMB per $1.00) | |
2011 | |
| 6.2939 | | |
| 6.4475 | | |
| 6.2939 | | |
| 6.6364 | |
2012 | |
| 6.2301 | | |
| 6.2990 | | |
| 6.2221 | | |
| 6.3879 | |
2013 | |
| 6.0537 | | |
| 6.1478 | | |
| 6.0537 | | |
| 6.2438 | |
2014 | |
| 6.2046 | | |
| 6.1620 | | |
| 6.2591 | | |
| 6.0402 | |
2015 | |
| 6.4778 | | |
| 6.2869 | | |
| 6.5932 | | |
| 6.1870 | |
September | |
| 6.3556 | | |
| 6.3676 | | |
| 6.3836 | | |
| 6.3544 | |
October | |
| 6.3180 | | |
| 6.3505 | | |
| 6.3591 | | |
| 6.3180 | |
November | |
| 6.3883 | | |
| 6.3640 | | |
| 6.3945 | | |
| 6.3180 | |
December | |
| 6.4778 | | |
| 6.4491 | | |
| 6.4896 | | |
| 6.3883 | |
2016 | |
| | | |
| | | |
| | | |
| | |
January | |
| 6.5752 | | |
| 6.5726 | | |
| 6.5932 | | |
| 6.5219 | |
February (through February 26, 2016) | |
| 6.5390 | | |
| 6.5499 | | |
| 6.5795 | | |
| 6.5154 | |
_______________
| (1) | Determined by averaging the rates on the last business
day of each month during the relevant year, except for monthly average rates, which are determined by averaging the daily rates
during the respective months. |
DIVIDEND POLICY
We have never declared
dividends or paid cash dividends. Any future decisions regarding dividends will be made by our board of directors. We currently
intend to retain and use any future earnings for the development and expansion of our business and do not anticipate paying any
cash dividends in the foreseeable future. Our board of directors has complete discretion on whether to pay dividends. Even if our
board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings,
capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors
may deem relevant.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following management’s
discussion and analysis should be read in conjunction with our financial statements and the notes thereto included in our Annual
Report on Form 10-K for the year ended December 31, 2015, which is incorporated by reference in this prospectus supplement and
the accompanying prospectus. In addition to historical information, the following discussion contains certain forward-looking information.
See “Special Note Regarding Forward-Looking Statements” included elsewhere in this prospectus supplement for certain
information concerning those forward looking statements. Our financial statements are prepared in U.S. dollars and in accordance
with United States generally accepted accounting principles.
Overview
We are a biopharmaceutical company principally
engaged in the research, development, manufacturing and sales of plasma products in China. We have a strong product portfolio with
over 20 different dosage forms of plasma products and other biopharmaceutical products across nine categories. Our principal products
are human albumin and IVIG. These products use human plasma as their principal raw material. Sales of human albumin products represented
approximately 37.6%, 39.3% and 44.1% of our total sales for 2015, 2014 and 2013, respectively. Sales of IVIG products represented
approximately 42.2%, 40.4% and 38.0% of our total sales for 2015, 2014 and 2013, respectively. All of our products are prescription
medicines administered in the form of injections.
Our sales model focuses on direct sales
to hospitals and inoculation centers and is complemented by distributor sales. In 2015, we generated sales of $296.5 million, an
increase of 21.9% from 2014, and recorded net income attributable to our company of $89.0 million, an increase of 25.5% from 2014.
Recent Development
In February 2016, Huitian obtained the GMP
certificate from the CFDA for its new plasma production facility in Xi’an, Shaanxi Province, and commenced commercial production
thereafter.
Financial Performance Highlights
The following are some financial highlights
for 2015:
| Ÿ | Sales: Sales increased by $53.2 million, or 21.9%, to $296.5 million for 2015 from $243.3 million for 2014. |
| Ÿ | Gross Profit: Gross profit increased by $26.8 million, or 16.4%, to $190.0 million for 2015 from $163.2 million
for 2014. As a percentage of sales, gross profit decrease from 67.1% in 2014 to 64.1% in 2015, respectively. |
| Ÿ | Income from operations: Income from operations increased by $21.4 million, or 19.2%, to $132.6 million for 2015
from $111.2 million for 2014. |
| Ÿ | Net income attributable to our company: Net income attributable to our company increased by $18.1 million, or
25.5%, to $89.0 million for 2015 from $70.9 million for 2014. |
| Ÿ | Fully diluted net income per share: Fully diluted net income per share was $3.27 for 2015, as compared to $2.71
for 2014. |
Principal Factors Affecting our Financial Performance
The following are
key factors that affect our financial condition and results of operations and we believe them to be important to the understanding
of our business:
Raw material supply and prices
The primary raw
material used in the production of our albumin and immunoglobulin products is human plasma. The collection of human plasma in China
is generally influenced by a number of factors such as government regulations, geographical locations of plasma collection stations,
sanitary conditions of plasma stations, living standards of the donors, and cultural and religious beliefs. If we experience any
shortage of plasma supply, we may not be able to fully utilize our production capacity. We currently operate 11 plasma collection
stations (including one branch collection facility) through Shandong Taibang and two plasma stations through Guizhou Taibang. These
plasma stations provide us with a stable source of plasma supply.
Prices of and demand for our products
The demand for
our products is largely affected by the general economic conditions in China because the prices of our products are still not affordable
to many patients. A significant improvement in the economic environment in China will likely improve consumer income which in turn
would make our products more affordable and consequently increase the demand for our products. We have been able to expand our
product range and consumer base by introducing new products required by customers. We believe that our technical expertise is important
in introducing products that are in demand.
Production Capacity
Our sales volume
is limited by our annual production capacity. As we grow our business in the future, our ability to fulfill additional and larger
orders will depend on our ability to increase our production capacity. Our plan to expand our production capacity will depend on
the availability of capital to meet our needs of expansion or upgrading of production lines, and the availability of stable plasma
supply. To comply with applicable PRC laws and regulations, we have maintained permits and licenses necessary for the current operations
of our plasma collection stations and production plants, and are required to apply for such permits and licenses to operate new
plasma collection stations and production plants. As a result, our expansion plan also depends on our ability to renew existing
permits and licenses and obtain new permits and licenses.
Competition
We face intense
competition from local and foreign entities that manufacture and sell products that compete with ours in the PRC. These competitors
may have more capital, better research and development resources, expanded manufacturing and marketing capabilities and more experience
than we do. In our industry, we compete based upon product quality, production cost, ability to produce a diverse range of products
and logistical capabilities.
Our profitability may be adversely affected
if competition intensifies, competitors reduce prices, PRC government requires us to reduce the prices of our products, or competitors
develop new products or product substitutes with comparable medicinal applications or therapeutic effects which are more effective
or less costly than ours.
Taxation
China Biologic
is subject to United States tax at gradual rates of up to 35.0%. No provision for income taxes in the United States has been made
as China Biologic has no U.S. taxable income.
Taibang Biological was incorporated in the
BVI, but is not subject to taxation in that jurisdiction.
Taibang Holdings
was incorporated in Hong Kong, and under the current laws of Hong Kong, is subject to a Profits Tax of 16.5% on profits arising
in Hong Kong. However, no provision for Hong Kong Profits Tax has been made as Taibang Holdings has no taxable income.
According to the PRC government policy,
new or high technology companies may enjoy a preferential income tax rate of 15.0%, instead of 25.0% under the EIT Law. In 2011,
Shandong Taibang renewed its high and new technology enterprise qualification, which entitled it to the preferential income tax
rate of 15.0% for a period of three years from 2011 to 2013. In October 2014, Shandong Taibang renewed its high and new technology
enterprise qualification, which entitled it to enjoy a preferential income tax rate of 15.0% for a period of three years from 2014
to 2016. Shandong Taibang may apply for a renewal for an additional three years from 2017 to 2019 upon the expiration of its high
and new technology enterprise certificate. According to Notice on Issues Concerning Relevant Tax Policies in Deepening the Implementation
of the Western Development Strategy jointly promulgated by the PRC Ministry of Finance, the PRC General Administration of Customs
and SAT dated July 27, 2011, Guizhou Taibang, being a qualified enterprise located in the western region of China, enjoys a preferential
income tax rate of 15.0% effective from January 1, 2011 to December 31, 2020. All of our other PRC subsidiaries are subject to
the statutory income tax rate of 25.0%.
Results of Operations
The following table
sets forth a summary of our consolidated statements of comprehensive income for the periods indicated. Our historical results presented
below are not necessarily indicative of the results that may be expected for any other future period.
| |
For the Year Ended December 31, | |
| |
2015 | | |
2014 | | |
2013 | |
| |
$ | | |
% of Total Sales | | |
$ | | |
% of Total Sales | | |
$ | | |
% of Total Sales | |
| |
(U.S. dollars in thousands, except percentage) | |
SALES | |
| 296,458 | | |
| 100.0 | | |
| 243,252 | | |
| 100.0 | | |
| 203,357 | | |
| 100.0 | |
COST OF SALES | |
| 106,483 | | |
| 35.9 | | |
| 80,026 | | |
| 32.9 | | |
| 65,484 | | |
| 32.2 | |
GROSS MARGIN | |
| 189,975 | | |
| 64.1 | | |
| 163,226 | | |
| 67.1 | | |
| 137,873 | | |
| 67.8 | |
OPERATING EXPENSES: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Selling expenses | |
| 9,973 | | |
| 3.4 | | |
| 10,707 | | |
| 4.4 | | |
| 10,643 | | |
| 5.2 | |
General and administrative expenses | |
| 41,392 | | |
| 14.0 | | |
| 32,130 | | |
| 13.2 | | |
| 36,074 | | |
| 17.7 | |
Research and development expenses | |
| 6,024 | | |
| 2.0 | | |
| 4,162 | | |
| 1.7 | | |
| 4,223 | | |
| 2.1 | |
Provision for other receivables in respect of an employee housing development project | |
| - | | |
| 0.0 | | |
| 5,068 | | |
| 2.1 | | |
| - | | |
| - | |
Total operating expenses | |
| 57,389 | | |
| 19.4 | | |
| 52,067 | | |
| 21.4 | | |
| 50,940 | | |
| 25.0 | |
INCOME FROM OPERATIONS | |
| 132,586 | | |
| 44.7 | | |
| 111,159 | | |
| 45.7 | | |
| 86,933 | | |
| 42.7 | |
OTHER INCOME (EXPENSES): | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Equity in (loss) income of equity method investee | |
| (1,311 | ) | |
| (0.4 | ) | |
| 8,646 | | |
| 3.6 | | |
| 2,170 | | |
| 1.1 | |
Interest expense | |
| (1,727 | ) | |
| (0.6 | ) | |
| (3,698 | ) | |
| (1.5 | ) | |
| (1,135 | ) | |
| (0.6 | ) |
Interest income | |
| 5,551 | | |
| 1.9 | | |
| 6,645 | | |
| 2.7 | | |
| 4,433 | | |
| 2.2 | |
Total other income, net | |
| 2,513 | | |
| 0.9 | | |
| 11,593 | | |
| 4.8 | | |
| 5,468 | | |
| 2.7 | |
EARNINGS BEFORE INCOME TAX EXPENSE | |
| 135,099 | | |
| 45.6 | | |
| 122,752 | | |
| 50.5 | | |
| 92,401 | | |
| 45.4 | |
INCOME TAX EXPENSE | |
| 20,993 | | |
| 7.1 | | |
| 26,639 | | |
| 11.0 | | |
| 15,540 | | |
| 7.6 | |
NET INCOME | |
| 114,106 | | |
| 38.5 | | |
| 96,113 | | |
| 39.5 | | |
| 76,861 | | |
| 37.8 | |
Less: Net income attributable to non-controlling interest | |
| 25,063 | | |
| 8.5 | | |
| 25,196 | | |
| 10.3 | | |
| 22,259 | | |
| 10.9 | |
NET INCOME ATTRIBUTABLE TO COMPANY | |
| 89,043 | | |
| 30.0 | | |
| 70,917 | | |
| 29.2 | | |
| 54,602 | | |
| 26.9 | |
NET INCOME PER SHARE OF COMMON STOCK | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
BASIC | |
| 3.40 | | |
| | | |
| 2.85 | | |
| | | |
| 2.05 | | |
| | |
DILUTED | |
| 3.27 | | |
| | | |
| 2.71 | | |
| | | |
| 1.96 | | |
| | |
Comparison of 2015 and 2014
Sales
Our total sales increased by 21.9%, or $53.2
million, to $296.5 million for 2015, compared to $243.3 million for 2014, primarily due to increases in the sales volumes of human
albumin and IVIG. Excluding the foreign exchange impact resulting from the depreciation of the RMB against the U.S. dollar, our
sales would have increased by 23.4% for 2015 as compared to 2014. Such increase of sales was mainly due to the increase in sales
volume in major plasma products.
The following table summarizes the breakdown
of sales by major types of products:
| |
For the Year Ended December 31, | | |
Change | |
| |
2015 | | |
2014 | | |
| | |
| |
| |
$ | | |
% | | |
$ | | |
% | | |
Amount | | |
% | |
| |
(U.S. dollars in millions, except percentage) | |
Human albumin | |
| 111.4 | | |
| 37.6 | | |
| 95.6 | | |
| 39.3 | | |
| 15.8 | | |
| 16.5 | |
Immunoglobulin products: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
IVIG | |
| 125.1 | | |
| 42.2 | | |
| 98.4 | | |
| 40.4 | | |
| 26.7 | | |
| 27.1 | |
Other immunoglobulin products | |
| 22.5 | | |
| 7.6 | | |
| 19.7 | | |
| 8.1 | | |
| 2.8 | | |
| 14.2 | |
Placenta polypeptide | |
| 27.2 | | |
| 9.2 | | |
| 24.0 | | |
| 9.9 | | |
| 3.2 | | |
| 13.3 | |
Others | |
| 10.3 | | |
| 3.4 | | |
| 5.6 | | |
| 2.3 | | |
| 4.7 | | |
| 83.9 | |
Totals | |
| 296.5 | | |
| 100.0 | | |
| 243.3 | | |
| 100.0 | | |
| 53.2 | | |
| 21.9 | |
For 2015 as compared to 2014:
| Ÿ | the average price for our approved human albumin products, which represented 37.6% of our total sales, remained stable and,
excluding the foreign exchange effect, their average price in RMB increased by approximately 1.3%; and |
| Ÿ | the average price for our approved IVIG products, which represented 42.2% of our total sales, remained stable, and excluding
the foreign exchange effect, their average price in RMB increased by approximately 1.2%. |
The average sales price of our human albumin
and IVIG products increased in RMB term for 2015 as compared to 2014, as a result of the combined effects of the reduced value
added tax, or VAT, rate, strong market demand and our sales effort to increase market shares in tier-one cities and new markets.
The VAT rate on sales of plasma products was reduced from 6.0% to 3.0%, effective on July 1, 2014. The reduction in the VAT rate
had a positive impact on our sales prices as our sales are recognized as the invoiced price of the products sold minus VAT. All
other factors being equal, the reduction in the VAT rate had the effect of increasing our sales price of plasma products by 2.9%.
Excluding this impact, the average sales price of our human albumin and IVIG products in RMB term would have remained stable in
2015 as compared to 2014. The average sales price of our human albumin and IVIG products increased slightly in RMB term in response
to the strong market demand following the removal of the retail price ceilings for drug products, effective on June 1, 2015. This
increase is partially offset by our effort to increase the market share of our human albumin products and IVIG products in tier-one
cities and new markets in 2015, whereby we increased sales to distributors with lower invoiced prices compared to direct sales
to hospitals and inoculation centers.
The sales volume of our products depends
on market demand and our production volume. The production volume of our human albumin products and IVIG products depends primarily
on the general plasma supply. The production volume of our hyper-immune products, which include human rabies immunoglobulin, human
hepatitis B immunoglobulin and human tetanus immunoglobulin products, is subject to the availability of specific vaccinated plasma
and our production capacity. The supply of specific vaccinated plasma requires several months of lead time. Our production facility
currently can only accommodate the production of one type of hyper-immune products at any given time and we rotate the production
of different types of hyper-immune products from time to time in response to market demand. As such, the sales volume of any given
type of hyper-immune products may vary significantly from period to period.
The sales volume of our human albumin products
increased by 16.6% for 2015 as compared to 2014, as a result of the increased production volume at Shandong Taibang and Guizhou
Taibang. The sales volume of our IVIG products increased by 27.0% for 2015 as compared to 2014, mainly due to the increased sales
through distributors in tier-one cities and new markets supported by the increased output following the production resumption at
Guizhou Taibang in March 2014. Further, in anticipation of a favorable market environment and our increased sales capabilities
this year, we reserved a large volume of IVIG pastes from previous years to be processed and sold in early 2015, which also contributed
to our increased sales volume in 2015.
The sales increase of other immunoglobulin
products for 2015 as compared to 2014 was mainly attributable to the increase in average sales price of human tetanus immunoglobulin
products. The increase in average sales price of human tetanus immunoglobulin products was primarily due to the strong market demand
coupled by the removal of the retail price ceiling for drug products effective on June 1, 2015.
The sales increase of placenta polypeptide
products was generally in line with the volume increase for 2015 as compared to 2014. The sales volume of placenta polypeptide
products increased by 12.8% for 2015 as compared to 2014, primarily due to the ramp-up of the production capacities for placenta
polypeptide at Guizhou Taibang after receiving the GMP certification for the upgraded production facilities in January 2014.
The sales increase
of other products for 2015 as compared to 2014 was mainly due to the increase in sales volume of both factor VIII and PCC.
Cost of sales and gross profit
| |
For the Year Ended December 31, | | |
Change | |
| |
2015 | | |
2014 | | |
Amount | | |
% | |
| |
(U.S. dollars in millions, except percentage) | |
Cost of sales | |
$ | 106.5 | | |
$ | 80.0 | | |
$ | 26.5 | | |
| 33.1 | |
as a percentage of total sales | |
| 35.9 | % | |
| 32.9 | % | |
| | | |
| 3.0 | |
Gross Profit | |
$ | 190.0 | | |
$ | 163.2 | | |
$ | 26.8 | | |
| 16.4 | |
Gross Margin | |
| 64.1 | % | |
| 67.1 | % | |
| | | |
| (3.0 | ) |
Our cost of sales was $106.5 million, or
35.9% of our sales, for 2015, as compared to $80.0 million, or 32.9% of our sales for 2014. Our gross profit was $190.0 million
and $163.2 million for 2015 and 2014, respectively, representing gross margins of 64.1% and 67.1%, respectively. Excluding the
sales of the products derived from raw plasma outsourced from Xinjiang Deyuan, whose cost is moderately higher than plasma from
our own collection stations, our gross margin would have been 65.4% for 2015. Our cost of sales and gross margin are affected by
the volume and pricing of our finished products, raw material costs, production mix and yields, inventory impairments, production
cycles and routine maintenance costs.
The increase in cost of sales for 2015 as
compared to 2014 was generally in line with the increases in sales volume and cost of plasma. In an effort to increase plasma collection
volume and expand our donor base, we increased the nutrition fees paid to donors consistent with the industry practice. We expect
the nutrition fees to be paid to donors continue to increase as a result of improving living standards in China. Consequently,
future improvements on margins will need to be derived from increases in product pricing, product mix, yields and manufacturing
efficiency. The increase in cost of sales as a percentage of sales for 2015 as compared to 2014 was mainly due to the increase
in cost of plasma partially offset by the increase in the average sales price of major plasma products.
Operating expenses
| |
For the Year Ended December 31, | | |
Change | |
| |
2015 | | |
2014 | | |
Amount | | |
% | |
| |
(U.S. dollars in millions, except percentage) | |
Operating expenses | |
$ | 57.4 | | |
$ | 52.1 | | |
$ | 5.3 | | |
| 10.2 | |
as a percentage of total sales | |
| 19.4 | % | |
| 21.4 | % | |
| | | |
| (2.0 | ) |
Our total operating expenses increased by
$5.3 million, or 10.2%, to $57.4 million for 2015 from $52.1 million for 2014. As a percentage of total sales, total expenses decreased
by 2.0% to 19.4% for 2015 from 21.4% for 2014. The operating expenses for 2014 included a provision of $5.1 million for all the
receivables in respect of an employee housing development project at Shandong Taibang as discussed below. Excluding the effect
of this provision, our operating expenses increased by $10.4 million, or 22.1%, for 2015 as compared to 2014, primarily due to
the combined effect of the increase of the general and administrative expenses and research and development expenses and the decrease
of selling expenses as discussed below.
Selling expenses
|
|
For the Year Ended December 31, |
|
|
Change |
|
|
|
2015 |
|
|
2014 |
|
|
Amount |
|
|
% |
|
|
|
(U.S. dollars in millions, except percentage) |
|
Selling expenses |
|
$ |
10.0 |
|
|
$ |
10.7 |
|
|
$ |
(0.7 |
) |
|
|
(6.5 |
) |
as a percentage of total sales |
|
|
3.4 |
% |
|
|
4.4 |
% |
|
|
|
|
|
|
(1.0 |
) |
For 2015, our selling expenses decreased
by $0.7 million, or 6.5%, to $10.0 million from $10.7 million for 2014. As a percentage of total sales, our selling expenses for
2015 decreased by 1.0% to 3.4% from 4.4% for 2014. The decrease was mainly due to the decreased selling expense of placenta polypeptide
for 2015 as compared to 2014. We began to utilize internal resources instead of third-party service providers to promote sales
of placenta polypeptide products, and did not renew a third-party engagement upon its expiration in May 2014.
General and administrative expenses
| |
For the Year Ended December 31, | | |
Change | |
| |
2015 | | |
2014 | | |
Amount | | |
% | |
| |
(U.S. dollars in millions, except percentage) | |
General and administrative expenses | |
$ | 41.4 | | |
$ | 32.1 | | |
$ | 9.3 | | |
| 29.0 | |
as a percentage of total sales | |
| 14.0 | % | |
| 13.2 | % | |
| | | |
| 0.8 | |
For 2015, our general and administrative
expenses increased by $9.3 million, or 29.0%, to $41.4 million from $32.1 million for 2014. As a percentage of total sales, general
and administrative expenses increased by 0.8% to 14.0% for 2015 from 13.2% for 2014. The increase in general and administrative
expenses was mainly due to the increase of share-based compensation expenses totaling $6.7 million. In addition, the disposal losses
on assets increased by $2.7 million for 2015 as compared to 2014.
Research and development expenses
| |
For the Year Ended December 31, | | |
Change | |
| |
2015 | | |
2014 | | |
Amount | | |
% | |
| |
(U.S. dollars in millions, except percentage) | |
Research and development expenses | |
$ | 6.0 | | |
$ | 4.2 | | |
$ | 1.8 | | |
| 42.9 | |
as a percentage of total sales | |
| 2.0 | % | |
| 1.7 | % | |
| | | |
| 0.3 | |
For 2015, our research and development expenses
increased by $1.8, or 42.9%, to $6.0 million from $4.2 million for 2014. In 2015 and 2014, we received government grants totaling
$1.2 million and $2.1 million respectively and recognized them as a reduction of research and development expenses. Excluding this
impact, our research and development expenses increased by $0.9 million for 2015 from 2014. As a percentage of total sales, our
research and development expenses, excluding the impact of the government grants, decreased by 0.2% to 2.4% for 2015 from 2.6%
for 2014. The increase of our research and development expenses was mainly due to the expenditures paid for certain clinical trial
programs in 2015.
Provision for other receivables in respect of an employee
housing development project
In 2014, we made a full provision of $5.1
million for all the receivables in respect of an employee housing development project at Shandong Taibang because it became probable
that these receivables may not be recoverable after all legal means of collection were exhausted.
Equity in (loss) income of equity method investee
Our equity method investment represented
our 35.0% equity interest in Huitian, our equity method investee. For 2015, our equity in (loss) income of equity method investee
decreased by $9.9 million to a loss of $1.3 million from income of $8.6 million for 2014. Huitian suspended its production and
began to construct a new production facility to meet the new GMP standard in late 2013. Huitian incurred operation losses during
the suspension period in 2015 as it did not commence production at its new facility until February 2016. In 2014, Huitian disposed
a subsidiary, recognizing a gain of RMB116.7 million (approximately $19.0 million).
Income tax expense
| |
For the Year Ended December 31, | | |
Change | |
| |
2015 | | |
2014 | | |
Amount | | |
% | |
| |
(U.S. dollars in millions, except percentage) | |
Income tax expense | |
$ | 21.0 | | |
$ | 26.6 | | |
$ | (5.6 | ) | |
| (21.1 | ) |
Effective income tax rate | |
| 15.5 | % | |
| 21.7 | % | |
| | | |
| (6.2 | ) |
Our provision for income taxes decreased
by $5.6 million, or 21.1%, to $21.0 million for 2015 from $26.6 million for 2014. For 2014, we incurred the dividend withholding
income tax of $8.9 million in respect of the dividends declared or to be declared by Shandong Taibang. With our plan to reinvest
Shandong Taibang's earnings in its business operations, we no longer incurred dividend withholding income tax in respect of Shandong
Taibang since 2015 following an internal corporate restructuring.
Excluding the impact
of dividend withholding income tax, our effective income tax rates were 15.5% and 14.4% for 2015 and 2014, respectively. The statutory
tax rate applicable to our major operating subsidiaries in the PRC for 2015 and 2014 was 15.0%.
Comparison of 2014 and 2013
Sales
Our total sales increased by 19.6%, or $39.9
million, to $243.3 million for 2014, compared to $203.4 million for 2013, primarily due to increases in the sales volumes of human
albumin, IVIG and placenta polypeptide products. In addition, the effect resulted from the foreign exchange appreciation of RMB
against U.S. dollars contributed 0.9% of the sales increase in U.S. dollars.
The following table summarizes the breakdown
of sales by major types of products:
| |
For the Year Ended December 31, | | |
Change | |
| |
2014 | | |
2013 | | |
| | |
| |
| |
$ | | |
% | | |
$ | | |
% | | |
Amount | | |
% | |
| |
(U.S. dollars in millions, except percentage) | |
Human albumin | |
| 95.6 | | |
| 39.3 | | |
| 89.7 | | |
| 44.1 | | |
| 5.9 | | |
| 6.6 | |
Immunoglobulin products: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
IVIG | |
| 98.4 | | |
| 40.4 | | |
| 77.3 | | |
| 38.0 | | |
| 21.1 | | |
| 27.3 | |
Other immunoglobulin products | |
| 19.7 | | |
| 8.1 | | |
| 19.7 | | |
| 9.7 | | |
| - | | |
| - | |
Placenta polypeptide | |
| 24.0 | | |
| 9.9 | | |
| 12.2 | | |
| 6.0 | | |
| 11.8 | | |
| 96.7 | |
Others | |
| 5.6 | | |
| 2.3 | | |
| 4.5 | | |
| 2.2 | | |
| 1.1 | | |
| 24.4 | |
Totals | |
| 243.3 | | |
| 100.0 | | |
| 203.4 | | |
| 100.0 | | |
| 39.9 | | |
| 19.6 | |
For 2014 as compared to 2013:
| Ÿ | the average price for our approved human albumin products, which represented 39.3% of our total sales, increased by approximately
1.4% and, excluding the foreign exchange effect, their average price in RMB increased by approximately 0.6%; and |
| Ÿ | the average price for our approved IVIG products, which represented 40.4% of our total sales, decreased by approximately 0.2%,
and excluding the foreign exchange effect, their average price in RMB decreased by approximately 0.9%. |
The average sales price of human albumin
products increased slightly for 2014 as compared to 2013, as a result of the combined effects of the higher government-imposed
retail price ceiling, the reduced VAT rate and our sales effort to increase market shares in tier-one cities and new markets. The
higher retail price ceiling announced by NDRC that became effective on February 1, 2013 provided us with more flexibility in pricing
our human albumin products and allowed us to increase our ex-factory prices in certain regional markets. The reduction of VAT rate
from 6.0% to 3.0% effective on July 1, 2014 also had a positive effect on our sales price of plasma products as our sales are recognized
as the invoiced price of the products sold minus VAT. We lowered sales price of human albumin products, however, in order to expand
our market shares in tier-one cities and certain new markets in 2014. The price decrease of IVIG products was mainly attributable
to the increased sales through distributors in tier-one cities and new markets, partially offset by the reduced VAT rate. To improve
our brand recognition and the market share of IVIG products in tier-one cities and new markets, we reduced our sales prices to
distributors in 2014.
The sales volume of our human albumin products
increased by 5.1% for 2014 as compared to 2013, mainly due to the sales volume increase in Shandong Taibang, partially offset by
the sales volume decrease in Guizhou Taibang as a result of the planned production suspension at Guizhou Taibang from June 2013
to March 2014. The sales volume of our IVIG products increased by 27.4% for 2014 as compared to 2013, mainly due to the increased
market demand resulted from the outbursts of Hand, Foot and Mouth Disease and the increased sales through distributors in tier-one
cities and new markets during 2014. In anticipation of a favorable market environment and our increased sales capabilities in 2014,
we had reserved a large volume of our 2013 IVIG inventories to be sold throughout 2014.
The sales increase of placenta polypeptide
products was generally in line with the volume increase for 2014 as compared to 2013. The sales volume of placenta polypeptide
products increased significantly for 2014 as compared to 2013, primarily due to the expanded production of placenta polypeptide
at Guizhou Taibang after receiving the GMP certification for the upgraded production facilities in January 2014.
Cost of sales and gross profit
|
|
For the Year Ended December 31, |
|
|
Change |
|
|
|
2014 |
|
|
2013 |
|
|
Amount |
|
|
% |
|
|
|
(U.S. dollars in millions, except percentage) |
|
Cost of sales |
|
$ |
80.0 |
|
|
$ |
65.5 |
|
|
$ |
14.5 |
|
|
|
22.1 |
|
as a percentage of total sales |
|
|
32.9 |
% |
|
|
32.2 |
% |
|
|
|
|
|
|
0.7 |
|
Gross Profit |
|
$ |
163.2 |
|
|
$ |
137.9 |
|
|
$ |
25.3 |
|
|
|
18.3 |
|
Gross Margin |
|
|
67.1 |
% |
|
|
67.8 |
% |
|
|
|
|
|
|
(0.7 |
) |
Our cost of sales was $80.0 million, or
32.9% of our sales, for 2014, as compared to $65.5 million, or 32.2% of our sales for 2013. Our gross profit was $163.2 million
and $137.9 million for 2014 and 2013, respectively, representing gross margins of 67.1% and 67.8%, respectively. Our cost of sales
and gross margin are affected by the volume and pricing of our finished products, raw material costs, production mix and respective
yields, inventory impairments, production cycles and routine maintenance costs.
The increase in cost of sales for 2014 as
compared to 2013 was primarily due to the increases in sales volume, cost of plasma and overhead. In an effort to increase plasma
collection volume and expand our donor base, we increased the nutrition fees paid to donors consistent with the industry practice.
We expect that the nutrition fees to be paid to donors will continue to increase as a result of the rising living standards in
China. Consequently, future improvements on margins will need to be derived from increases in product pricing and volume, product
mix, yields and manufacturing efficiency. The increase in cost of sales as a percentage of sales for 2014 as compared to 2013 was
mainly due to the increase in cost of plasma and the increase in overhead, especially depreciation expenses, at Guizhou Taibang
after its production resumption, partially offset by the change of our product mix to include more products with higher margins.
Operating expenses
| |
For the Year Ended December 31, | | |
Change | |
| |
2014 | | |
2013 | | |
Amount | | |
% | |
| |
(U.S. dollars in millions, except percentage) | |
Operating expenses | |
$ | 52.1 | | |
$ | 50.9 | | |
$ | 1.2 | | |
| 2.4 | |
as a percentage of total sales | |
| 21.4 | % | |
| 25.0 | % | |
| | | |
| (3.6 | ) |
Our total operating expenses increased by
$1.2 million, or 2.4%, to $52.1 million for 2014 from $50.9 million for 2013. As a percentage of total sales, total expenses decreased
by 3.6% to 21.4% for 2014 from 25.0% for 2013. The operating expenses for 2014 included a provision of $5.1 million for all the
receivables in respect of the employee housing development project at Shandong Taibang as discussed above. Excluding the effect
of this provision, our operating expenses decreased by $3.9 million, or 7.7%, for 2014 as compared to 2013, primarily due to the
decrease in general and administrative expenses.
Selling expenses
| |
For the Year Ended December 31, | | |
Change | |
| |
2014 | | |
2013 | | |
Amount | | |
% | |
| |
(U.S. dollars in millions, except percentage) | |
Selling expenses | |
$ | 10.7 | | |
$ | 10.6 | | |
$ | 0.1 | | |
| 0.9 | |
as a percentage of total sales | |
| 4.4 | % | |
| 5.2 | % | |
| | | |
| (0.8 | ) |
For 2014, our selling expenses increased
by $0.1 million, or 0.9%, to $10.7 million from $10.6 million for 2013. As a percentage of total sales, our selling expenses for
2014 decreased by 0.8% to 4.4% from 5.2% for 2013. This decrease was mainly due to a decrease in the per-unit selling expenses
of placenta polypeptide during 2014. We began to utilize internal resources instead of third party service providers to promote
sales of placenta polypeptide products, and did not renew a third-party engagement upon its expiration in May 2014.
General and administrative expenses
| |
For the Year Ended December 31, | | |
Change | |
| |
2014 | | |
2013 | | |
Amount | | |
% | |
| |
(U.S. dollars in millions, except percentage) | |
General and administrative expenses | |
$ | 32.1 | | |
$ | 36.1 | | |
$ | (4.0 | ) | |
| (11.1 | ) |
as a percentage of total sales | |
| 13.2 | % | |
| 17.7 | % | |
| | | |
| (4.5 | ) |
For 2014, our general and administrative
expenses decreased by $4.0 million, or 11.1%, to $32.1 million from $36.1 million for 2013. As a percentage of total sales, general
and administrative expenses decreased by 4.5% to 13.2% for 2014 from 17.7% for 2013, mainly due to a decrease in legal expenses
and the amortization expenses of intangible assets. In 2013, we incurred legal expenses in relation to the take-over defense against
a competitor in China and the legal disputes regarding the shares of Guizhou Taibang. We did not incur similar legal expenses for
2014. In addition, we incurred amortization expenses in 2013 in relation to the acquisition of GMP certificates and other intangible
assets when we acquired a majority stake in Guizhou Taibang in 2008. Because these intangible assets had been fully amortized by
the end of 2013, we did not incur corresponding expenses in 2014.
Research and development expenses
| |
For the Year Ended December 31, | | |
Change | |
| |
2014 | | |
2013 | | |
Amount | | |
% | |
| |
(U.S. dollars in millions, except percentage) | |
Research and development expenses | |
$ | 4.2 | | |
$ | 4.2 | | |
$ | - | | |
| - | |
as a percentage of total sales | |
| 1.7 | % | |
| 2.1 | % | |
| | | |
| (0.4 | ) |
For 2014, our research and development expenses
remained stable, as compared to 2013. In 2014, we received government grants totaling $2.1 million and recognized them as a reduction
of research and development expenses. Excluding this impact, our research and development expenses increased by $2.1 million for
2014 from 2013. As a percentage of total sales, our research and development expenses, excluding the impact of the government grants,
increased by 0.5% to 2.6% for 2014 from 2.1% for 2013. The increase was mainly due to the expenditures paid for certain clinical
trial programs and the engagement of external experts for certain pipeline products in 2014.
Equity in income of equity method investee
For 2014, our equity in income of
equity method investee increased by $6.4 million to $8.6 million from $2.2 million for 2013. As a percentage of total sales, equity
in income of equity method investee increased by 2.5% to 3.6% for 2014 from 1.1% for 2013. Huitian contributed its land use right
to its subsidiary as capital in 2013 and disposed the subsidiary in 2014, recognizing a gain of RMB116.7 million (approximately
$19.0 million) for 2014. As a result, our equity income in Huitian increased by $6.7 million.
Income tax expense
| |
For the Year Ended December 31, | | |
Change | |
| |
2014 | | |
2013 | | |
Amount | | |
% | |
| |
(U.S. dollars in millions, except percentage) | |
Income tax expense | |
$ | 26.6 | | |
$ | 15.5 | | |
$ | 11.1 | | |
| 71.6 | |
Effective income tax rate | |
| 21.7 | % | |
| 16.8 | % | |
| | | |
| 4.9 | |
Our provision for income taxes increased
by $11.1 million, or 71.6%, to $26.6 million for 2014 from $15.5 million for 2013. For 2014, the dividend withholding income tax
attributable to Shandong Taibang increased by $6.2 million, as compared to 2013, due to an increase in dividend distribution in
Shandong Taibang. The dividends from Shandong Taibang are subject to withholding tax at a rate of 10.0%.
Excluding the impact
of dividend withholding income tax, our effective income tax rates were 14.4% and 13.9% for 2014 and 2013, respectively. The statutory
tax rate applicable to our major operating subsidiaries in China for 2014 and 2013 was 15.0%.
Liquidity and Capital Resources
To date, we have financed our operations
primarily through cash flows from operations, augmented by bank borrowings and equity contributions by our stockholders. As of
December 31, 2015, we had $144.9 million in cash and cash equivalents, primarily consisting of cash on hand and demand deposits,
and $38.0 million in time deposits.
The following table sets forth a summary
of our cash flows for the periods indicated:
| |
For the Year Ended December 31, | |
| |
2015 | | |
2014 | | |
2013 | |
| |
(U.S. dollars in millions) | |
Net cash provided by operating activities | |
$ | 109.4 | | |
$ | 93.5 | | |
$ | 74.3 | |
Net cash used in investing activities | |
| (89.8 | ) | |
| (13.4 | ) | |
| (25.6 | ) |
Net cash provided by (used in) financing activities | |
| 51.6 | | |
| (142.8 | ) | |
| (38.5 | ) |
Effects of exchange rate change in cash | |
| (7.1 | ) | |
| (0.6 | ) | |
| 4.3 | |
Net increase (decrease) in cash and cash equivalents | |
| 64.1 | | |
| (63.3 | ) | |
| 14.5 | |
Cash and cash equivalents at beginning of the year | |
| 80.8 | | |
| 144.1 | | |
| 129.6 | |
Cash and cash equivalents at end of the year | |
$ | 144.9 | | |
$ | 80.8 | | |
$ | 144.1 | |
Operating Activities
Cash inflows from operating activities totaled
$109.4 million in 2015, $93.5 million in 2014, and $74.3 million in 2013. Cash inflows increased by $15.9 million in 2015 as compared
to 2014 and increased by $19.2 million in 2014 as compared to 2013. Such increases in cash inflows from operations were mainly
in line with the improvements in our results of operations in 2015 and 2014, partially offset by an increase in accounts receivable
and inventories during the relevant years.
Accounts receivable
Our average collection speed of accounts
receivable slowed down slightly in 2015 as compared to 2014. The accounts receivable turnover days for plasma products were 34
days, 31 days, and 30 days for 2015, 2014, and 2013, respectively. The increase in turnover days for 2015 was primarily due to
the extended credit terms granted to certain distributors for human rabies immunoglobulin products. In 2015, we adjusted our sales
strategy by granting extended credit terms to certain qualified distributors of human rabies immunoglobulin products to assist
in their bidding efforts with provincial centers for disease control and prevention. In prior years, these distributors were required
to make the payments in advance of our product deliveries. Excluding this impact, the turnover days would have been 32 days for
both 2015 and 2014.
Inventories
Cash outflows for inventories increased
in both 2015 and 2014. The increases in inventory for 2015, 2014 and 2013 were $32.1 million, $13.4 million and $10.4 million,
respectively. As compared to 2014, the increase of inventories in 2015 was mainly attributable to the source plasma and plasma
pastes purchased from Xinjiang Deyuan. As compared to 2013, the increase of inventories in 2014 was mainly attributable to an increase
in work-in-process and finished goods at Guizhou Taibang following its resumption of production in March 2014 and, to a lesser
extent, an increase in raw materials consistent with our expanded plasma collection volume.
Investing Activities
Cash outflows from investing activities
for 2015 was $89.8 million, as compared to $13.4 million and $25.6 million for 2014 and 2013, respectively. In 2015, we paid $52.3
million for the acquisition of property, plant and equipment, intangible assets and land use rights and provided a long-term loan
of $40.7 million to Xinjiang Deyuan, partially offset by government grants of $2.5 million in connection with our purchase of property,
plant and equipment.
In 2014, we paid $21.9 million for the acquisition
of property, plant and equipment, intangible assets and land use rights, partially offset by a $1.6 million refund of deposits
from the local government due to a decrease in the size of a land parcel purchased by Guizhou Taibang and proceeds of $6.6 million
from the maturity of a time deposit made in 2013.
In 2013, we paid $21.8 million for the acquisition
of property, plant and equipment, intangible assets and land use right, partially offset by a $2.1 million refund of deposits from
the local government due to a decrease in the size of a land parcel purchased by Guizhou Taibang.
Financing Activities
Cash inflows from financing activities for
2015 totaled $51.6 million, as compared to cash outflows from financing activities totaled $142.8 million and $38.5 million for
2014 and 2013, respectively. Cash inflows from financing activities in 2015 mainly consisted of net proceeds of $80.6 million from
a follow-on offering of our company’s common stock in June 2015, proceeds of $63.2 million from the maturity of deposits
used as security for bank loans, proceeds of $15.8 million from a short-term bank loan and proceeds of $7.7 million from stock
options exercised, partially offset by repayments of bank loans totaling $113.5 million and a dividend of $3.7 million held in
escrow by a trial court in connection with disputes with a minority shareholder of Guizhou Taibang.
Cash outflows from financing activities
in 2014 mainly consisted of a payment of $86.8 million for acquisition of noncontrolling interest in Guizhou Taibang, a dividend
payment of $8.8 million by our subsidiaries to noncontrolling interest shareholders and a payment of $70.0 million for repurchase
of shares from an individual stockholder, partially offset by proceeds of $33.2 million from a follow-on offering of our company’s
common stock.
Cash outflows from financing activities
in 2013 mainly consisted of a payment of $29.6 million for share repurchase and a dividend payment of $16.9 million by our subsidiaries
to the noncontrolling interest shareholders.
Management believes
that our company has sufficient cash on hand and will continue to have positive cash inflow for its operations from the sale of
its products in the PRC market.
Obligations under Material Contracts
The following table sets forth our material
contractual obligations as of December 31, 2015:
| |
Payments due by period | |
Contractual Obligations | |
Total | | |
Less
than
one year | | |
One to three years | | |
Three to five years | | |
More
than
five years | |
| |
(U.S. dollars in millions) | |
Operating lease commitment | |
| 0.3 | | |
| 0.1 | | |
| - | | |
| - | | |
| 0.2 | |
Purchase commitment | |
| 85.2 | | |
| 31.2 | | |
| 54.0 | | |
| - | | |
| - | |
Capital commitment | |
| 30.3 | | |
| 27.3 | | |
| 3.0 | | |
| - | | |
| - | |
Total | |
| 115.8 | | |
| 58.6 | | |
| 57.0 | | |
| - | | |
| 0.2 | |
Seasonality of our Sales
Our operating results and operating cash
flows historically have not been subject to seasonal variations. This pattern may change, however, as a result of new market opportunities
or new product introductions.
Inflation
Inflation does not materially affect our
business or the results of our operations.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our investors.
Critical Accounting Policies
The preparation of financial statements
in conformity with United States generally accepted accounting principles, or U.S. GAAP, requires our management to make assumptions,
estimates and judgments that affect the amounts reported in the financial statements, including the notes thereto, and related
disclosures of commitments and contingencies, if any. We consider our critical accounting policies to be those that require the
more significant judgments and estimates in the preparation of financial statements, including the following:
Use of Estimates
The preparation of consolidated financial
statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the
reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant
items subject to such estimates and assumptions include the useful lives of property, plant and equipment and intangibles with
definite lives, the allowances for doubtful accounts, the fair value determinations of equity instruments and stock compensation
awards, the realizability of deferred tax assets and inventories, the recoverability of intangible assets, land use rights, property,
plant and equipment, equity method investment and loan receivable, and accruals for income tax uncertainties and other contingencies.
The current economic environment has increased the degree of uncertainty inherent in those estimates and assumptions.
Allowance for doubtful accounts
We maintain an allowance for doubtful accounts
for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers
historical losses, the customers’ financial condition, the amount of accounts receivable in dispute, the accounts receivable
aging and customers’ payment patterns. We review our allowance for doubtful accounts monthly. Past due balances are reviewed
individually for collectability. Account balances are charged off against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote. We do not have any off-balance-sheet credit exposure related to
our customers.
We generally ask our distributors to pay
in advance before we deliver products, with few exceptions for a credit period of no longer than 60 days. For hospitals and clinics,
depending on the relationship and the creditability, we generally grant a credit period of no longer than 90 days with exceptions
to customers, which we believe are credit worthy, of up to six months. We have provided a bad debt allowance of $34,902, $6,211
and $31,567 respectively for 2015, 2014 and 2013. Due to recovery of bad debt that we previously provided an allowance, the recoveries
of bad debt provision was nil, $30,673 and nil for 2015, 2014 and 2013, respectively.
Inventories
Inventories are stated at the lower of cost
or market. Adjustments are recorded to write down the carrying amount of any obsolete and excess inventory to its estimated net
realizable value based on historical and forecasted demand.
We review the inventory periodically for
possible obsolete goods and cost in excess of net realizable value to determine if any reserves are necessary. Provisions to write-down
the carrying amount of obsolete inventory to its estimated net realizable value amounted to $76,587, $324,584 and nil for 2015,
2014 and 2013, respectively, and were recorded as cost of sales in the consolidated statements of comprehensive income.
Long-Lived Assets
Long-lived assets,
such as property, plant and equipment, and purchased intangible asset subject to amortization, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require
a long-lived asset or asset group be tested for possible impairment, we first compares undiscounted cash flows expected to be generated
by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable
on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair
value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party
independent appraisals, as considered necessary.
PRINCIPAL AND SELLING STOCKHOLDERS
Except as specifically
noted in the table, the following table sets forth information with respect to the beneficial ownership of our common stock as
of February 25, 2016:
| Ÿ | each of our directors and executive officers, including director appointees; |
| Ÿ | each person known to us to own beneficially more than 5% of our shares of common stock; and |
| Ÿ | each selling stockholder. |
Beneficial ownership
is determined in accordance with the rules of the SEC, and the percentage information is based on 26,590,974 shares of our common
stock outstanding as of February 25, 2016.
Mr. Min Fang, affiliate
of the selling stockholders, is a member of our board of directors. Other than such directorship and beneficial ownership of the
shares described in the table below, neither the selling stockholders nor any of their respective affiliates, officers, directors
or principal equity holders has held any position or office or had any other material transaction or relationship with us or any
of our predecessors or affiliates within the past three years.
We will not receive
any proceeds from the sale of shares of our common stock by the selling stockholders.
| |
Shares Beneficially Owned Prior to This Offering | | |
Shares Beneficially Owned After This Offering | |
Name of Beneficial Owner | |
Shares (1) | | |
Percentage (2) | | |
Shares (1) | | |
Percentage (2) | |
Named executive officers and directors: | |
| | |
| | |
| | |
| |
David (Xiaoying) Gao (3) | |
| 377,000 | | |
| 1.42 | % | |
| 377,000 | | |
| 1.42 | % |
Sean Shao (4) | |
| 30,000 | | |
| * | | |
| 30,000 | | |
| * | |
Wenfang Liu (5) | |
| 22,783 | | |
| * | | |
| 22,783 | | |
| * | |
Yungang Lu (6) | |
| 53,500 | | |
| * | | |
| 53,500 | | |
| * | |
Zhijun Tong (7) | |
| 24,000 | | |
| * | | |
| 24,000 | | |
| * | |
Albert (Wai Keung) Yeung (8) | |
| 39,000 | | |
| * | | |
| 39,000 | | |
| * | |
Joseph Chow (9) | |
| 2,500 | | |
| * | | |
| 2,500 | | |
| * | |
Ming Yang (10) | |
| 52,282 | | |
| * | | |
| 52,282 | | |
| * | |
Ming Yin (11) | |
| 51,419 | | |
| * | | |
| 51,419 | | |
| * | |
Zhijing Liu (12) | |
| 4,750 | | |
| * | | |
| 4,750 | | |
| * | |
Gang Yang (13) | |
| 62,205 | | |
| * | | |
| 62,205 | | |
| * | |
All officers and directors as a group | |
| 719,439 | | |
| 2.68 | % | |
| 719,439 | | |
| 2.68 | % |
5% and selling stockholders: | |
| | | |
| | | |
| | | |
| | |
Warburg Pincus Private Equity X, L.P. (14) | |
| 5,069,110 | | |
| 19.06 | % | |
| 1,677,610 | | |
| 6.31 | % |
Warburg Pincus X Partners, L.P. (14) | |
| 162,170 | | |
| * | | |
| 53,670 | | |
| * | |
WP X Biologics LLC (14) | |
| 3,112,920 | | |
| 11.71 | % | |
| 3,112,920 | | |
| 11.71 | % |
Charles R. Kaye (14) | |
| 8,344,200 | | |
| 31.38 | % | |
| 4,844,200 | | |
| 18.22 | % |
Joseph P. Landy (14) | |
| 8,344,200 | | |
| 31.38 | % | |
| 4,844,200 | | |
| 18.22 | % |
GL Trade Investment Limited (15) | |
| 1,605,315 | | |
| 6.04 | % | |
| 1,605,315 | | |
| 6.04 | % |
Zhenfu Li (16) | |
| 1,619,777 | | |
| 6.09 | % | |
| 1,619,777 | | |
| 6.09 | % |
Capital World Investors (17) | |
| 1,833,294 | | |
| 6.89 | % | |
| 1,833,294 | | |
| 6.89 | % |
Parfield International Ltd. (18) | |
| 1,360,000 | | |
| 5.11 | % | |
| 1,360,000 | | |
| 5.11 | % |
Marc Chan (19) | |
| 2,313,449 | | |
| 8.70 | % | |
| 2,313,449 | | |
| 8.70 | % |
| |
| | | |
| | | |
| | | |
| | |
__________
| (1) | Beneficial ownership is determined in accordance with
the rules of the SEC and generally includes voting or investment power with respect to securities. Except as indicated in the
footnotes below, each of the beneficial owners listed above has direct ownership of and sole voting power and investment power
with respect to our common stock. |
| (2) | As of February 25, 2016, a total of 26,590,974 shares
of our common stock were considered to be outstanding pursuant to SEC Rule 13d-3(d)(1). For each beneficial owner above, any securities
that are exercisable or convertible within 60 days have been included for the purpose of computing the number of shares beneficially
owned and the percentage ownership of such beneficial owner. We did not deem such shares to be outstanding, however, for purposes
of calculating the percentage ownership of any other person. |
| (3) | Represents 377,000 shares of our common stock. |
| (4) | Represents 30,000 shares of our common stock. |
| (5) | Represents 3,283 shares of our common stock, and 19,500
shares of our common stock underlying a ten-year nonstatutory stock option granted under the 2008 Plan, fully vested and exercisable
at $17.00 per share. |
| (6) | Represents 23,500 shares of our common stock, 20,000
shares of our common stock underlying a ten-year nonstatutory stock option granted under the 2008 Plan, fully vested and exercisable
at $9.16 per share, and 10,000 shares of our common stock underlying a ten-year nonstatutory stock option granted under the 2008
Plan, fully vested and exercisable at $9.85 per share. |
| (7) | Represents 14,000 shares of our common stock, 10,000
shares of our common stock underlying a ten-year nonstatutory stock option granted under the 2008 Plan, fully vested and exercisable
at $9.61 per share. |
| (8) | Represents 14,000 shares of our common stock, 20,000
shares of our common stock underlying a ten-year nonstatutory stock option granted under the 2008 Plan, fully vested and exercisable
at $10.57 per share, and 5,000 shares of our common stock underlying a ten-year nonstatutory stock option granted under the 2008
Plan, fully vested and exercisable at $9.85 per share. |
| (9) | Represents 2,500 shares of our common stock. |
| (10) | Represents 24,782 shares of our common stock, and 27,500
shares out of the 50,000 shares of our common stock underlying a ten-year nonstatutory stock option granted under the 2008 Plan,
exercisable at $9.85 per share, which vests in equal portions on an annually basis over a four-year period, with an initial vesting
date of September 1, 2013. |
| (11) | Represents 13,467 shares of our common stock, 30,000
shares of our common stock underlying a ten-year nonstatutory stock option granted under the 2008 plan, fully vested and exercisable
at $12.26 per share, and 7,952 shares out of the 30,000 shares of our common stock underlying a ten-year nonstatutory stock option
granted under the 2008 Plan, exercisable at $9.85 per share, which vests in equal portions on an annually basis over a four-year
period, with an initial vesting date of September 1, 2013. |
| (12) | Represents 1,000 shares of our common stock, and 3,750
shares out of the 15,000 shares of our common stock underlying a ten-year nonstatutory stock option granted under the 2008 Plan,
exercisable at $9.85 per share, which vests in equal portions on an annually basis over a four-year period, with an initial vesting
date of September 1, 2013. |
| (13) | Represents 10,955 shares of our common stock, 40,000
shares of our common stock underlying a ten-year nonstatutory stock option granted under the 2008 plan, fully vested and exercisable
at $12.26 per share, and 11,250 shares out of the 15,000 shares of our common stock underlying a ten-year nonstatutory stock option
granted under the 2008 Plan, exercisable at $9.85 per share, which vests in equal portions on an annually basis over a four-year
period, with an initial vesting date of September 1, 2013. |
| (14) | Represents 5,069,110 shares of our common stock held
by Warburg Pincus Private Equity X, L.P., or WP X, 162,170 shares of our common stock held by Warburg Pincus X Partners, L.P.,
or WPP X, and 3,112,920 shares of our common stock held by WP X Biologics LLC, or WP X B, as reported in a Schedule 13D filed
with the SEC by WP X, WPP X, WP X B and their affiliates on March 4, 2014. WP X B is owned 96.9% by WPX and 3.1% by WPP X. Warburg
Pincus X, L.P., or WP X LP, the sole general partner of WP X and WPP X, Warburg Pincus X LLC, or WP X LLC, the sole general partner
of WP X LP, Warburg Pincus Partners, LLC, or WPP LLC, the sole member of WP X LLC, Warburg Pincus & Co., or WP, the managing
member of WPP LLC, Warburg Pincus LLC, or WP LLC, which manages each of WP X and WPP X, and Messrs. Charles R. Kaye and Joseph
P. Landy, each a Managing General Partner of WP and a Co-President and Managing Member of WP LLC, may be deemed to be the beneficial
owners of the shares of our common stock held by WP X and WPP X. Messrs. Kaye and Landy may be deemed to control WP X, WPP X,
WP X LP, WP X LLC, WPP LLC, WP and WP LLC. Each of WP X LP, WP X LLC, WPP LLC, WP, WP LLC, and Messrs. Kaye and Landy disclaims
beneficial ownership of the common stock, except to the extent of its or his pecuniary interest in such shares. The address of
each of WP X, WPP X, WP X B and Messrs. Kaye and Landy is in care of Warburg Pincus LLC, 450 Lexington Avenue, New York, NY 10017. |
| (15) | Represents 1,605,315 shares of our common stock held
by GL Trade Investment Limited as reported in a Schedule 13G filed with the SEC by GL Trade Investment Limited and its affiliates
on February 13, 2014. GL Trade Investment Limited is wholly owned by GL China Opportunities Fund L.P. GL Capital Management GP
L.P. is the sole general partner of GL China Opportunities Fund L.P. GL Capital Management GP Limited is the sole general partner
of GL Capital Management GP L.P. GL Partners Capital Management Limited is the record owner of 51% of the total issued and outstanding
ordinary shares of GL Capital Management GP Limited and has the right to appoint three out of the six directors of GL Capital
Management GP Limited. Mr. Zhenfu Li is the record owner of 70% of the total issued and outstanding ordinary shares of GL Partners
Capital Management Limited. The address of GL Trade Investment Limited is Unit 3001, China World Tower 2, No. 1 Jian Guo Men Wai
Avenue, Beijing 100004, People’s Republic of China. |
| (16) | Represents 14,462 shares of our common stock held by
Mr. Zhenfu Li and 1,605,315 shares of our common stock held by GL Trade Investment Limited as reported in a Schedule 13G filed
with the SEC by GL Trade Investment Limited and its affiliates on February 13, 2014. The address of Mr. Zhenfu Li is Unit 3001,
China World Tower 2, No. 1 Jian Guo Men Wai Avenue, Beijing 100004, People’s Republic of China. |
| (17) | Represents 1,833,294 shares of our common stock held
by Capital World Investors as reported in a Schedule 13G filed by it on February 12, 2016. The address of the business office
of Capital World Investors is 333 South Hope Street, Los Angeles, CA 90071. |
| (18) | Represents 1,360,000 shares of our common stock held by Parfield International Ltd. as
reported in a Schedule 13G filed by Parfield International Ltd. and Marc Chan on January 28, 2016. Marc Chan is the director
and sole
shareholder of Parfield
International Ltd. The address of
the business office of Parfield International Ltd. is Unit No. 21E, 21st Floor,
United Centre, 95 Queensway Admiralty, Hong Kong. |
| (19) | Represents 1,360,000 shares of our common stock held by Parfield International Ltd. and
953,449 shares of our common stock held by Amplewood Resources Ltd. as reported in a Schedule 13G filed by Parfield
International Ltd. and Marc Chan on January
28, 2016.
Marc Chan is the director and
sole shareholder of Parfield
International Ltd. and Amplewood Resources
Ltd. The address of the business office of Marc Chan is Unit No. 21E, 21st Floor, United Centre, 95 Queensway
Admiralty, Hong Kong. |
TAXATION
Material U.S. Federal Income and Estate
Tax Consequences to Non-U.S. Holders of Our Common Stock
The following is a
summary of the material U.S. federal income and estate tax consequences to non-U.S. holders (as defined below) of the ownership
and disposition of our common stock but does not purport to be a complete analysis of all the potential tax considerations relating
thereto. This summary is based upon the provisions of the Internal Revenue Code of 1986, as amended, or the Code, Treasury regulations
promulgated thereunder, administrative rulings and judicial decisions, all as of the date hereof. These authorities may be changed,
possibly retroactively, so as to result in U.S. federal income tax consequences different from those set forth below.
This summary also does
not address the tax considerations arising under the laws of any non-U.S., state or local jurisdiction, or under U.S. federal gift
and estate tax laws, except to the limited extent set forth below. In addition, this discussion does not address tax considerations
applicable to an investor’s particular circumstances or to investors that may be subject to special tax rules, including,
without limitation:
| · | banks, insurance companies or other financial institutions; |
| · | persons subject to the alternative minimum tax or tax
on net investment income; |
| · | tax-exempt organizations or governmental organizations; |
| · | controlled foreign corporations, passive foreign investment
companies and corporations that accumulate earnings to avoid U.S. federal income tax; |
| · | brokers or dealers in securities or currencies; |
| · | traders in securities that elect to use a mark-to-market
method of accounting for their securities holdings; |
| · | companies subject to the anti-inversion rules of the
Code; |
| · | persons that own, or are deemed to own, more than five
percent of our capital stock (except to the extent specifically set forth below); |
| · | U.S. expatriates and certain former citizens or long-term
residents of the United States; |
| · | partnerships or entities classified as partnerships
for U.S. federal income tax purposes (and investors therein); |
| · | persons who hold our common stock as a position in
a hedging transaction, “straddle,” “conversion transaction” or other risk reduction transaction or integrated
investment; |
| · | persons who hold or receive our common stock pursuant
to the exercise of any employee stock option or otherwise as compensation; |
| · | persons who do not hold our common stock as a capital
asset within the meaning of Section 1221 of the Code; or |
| · | persons deemed to sell our common stock under the constructive
sale provisions of the Code. |
In addition, if a partnership
or entity classified as a partnership for U.S. federal income tax purposes holds our common stock, the tax treatment of a partner
generally will depend on the status of the partner and upon the activities of the partnership. Accordingly, partnerships that hold
our common stock, and partners in such partnerships, should consult their tax advisors.
You are urged to
consult your tax advisor with respect to the application of the U.S. federal income tax laws to your particular situation, as well
as any tax consequences of the purchase, ownership and disposition of our common stock arising under the U.S. federal estate or
gift tax rules or under the laws of any state, local, non-U.S. or other taxing jurisdiction or under any applicable tax treaty.
Non-U.S. Holder Defined
For purposes of this
discussion, you are a non-U.S. holder (other than a partnership) if you are any holder other than:
| · | an individual citizen or resident of the United States
(for tax purposes); |
| · | a corporation (or other entity taxable as a corporation)
created or organized in the United States or under the laws of the United States or any political subdivision thereof; |
| · | an estate whose income is subject to U.S. federal income
tax regardless of its source; or |
| · | a trust (x) whose administration is subject to the
primary supervision of a U.S. court and which has one or more “U.S. persons” (within the meaning of Section 7701(a)(3)
of the Code) who have the authority to control all substantial decisions of the trust or (y) which has made a valid election to
be treated as a U.S. person. |
Distributions
As described in the
section titled “Dividend Policy,” we have never declared or paid cash dividends on our common stock and do not anticipate
paying any dividends on our common stock in the foreseeable future. However, if we do make distributions on our common stock, those
payments will constitute dividends for U.S. tax purposes to the extent paid from our current or accumulated earnings and profits,
as determined under U.S. federal income tax principles. To the extent those distributions exceed both our current and our accumulated
earnings and profits, they will constitute a return of capital and will first reduce your basis in our common stock, but not below
zero, and then will be treated as gain from the sale of stock as described below under “— Gain on Disposition of Common
Stock.”
Subject to the discussion
below on effectively connected income and regarding legislation related to foreign accounts, any dividend paid to you generally
will be subject to U.S. withholding tax either at a rate of 30% of the gross amount of the dividend or such lower rate as may be
specified by an applicable income tax treaty. In order to receive a reduced treaty rate, you must provide us with an IRS Form W-8BEN,
IRS Form W-8BEN-E or other appropriate version of IRS Form W-8 certifying qualification for the reduced rate. A non-U.S. holder
of shares of our common stock eligible for a reduced rate of U.S. withholding tax pursuant to an income tax treaty may obtain a
refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. If the non-U.S. holder holds
the stock through a financial institution or other agent acting on the non-U.S. holder’s behalf, the non-U.S. holder will
be required to provide appropriate documentation to the agent, which then will be required to provide certification to us or our
paying agent, either directly or through other intermediaries.
Dividends
received by you that are effectively connected with your conduct of a U.S. trade or business (and, if required by
an applicable income tax treaty, attributable to a permanent establishment maintained by you in the United States) are
generally exempt from such withholding tax. In order to obtain this exemption, you must provide the applicable withholding
agent with an IRS Form W-8ECI or other applicable IRS Form W-8 properly certifying such exemption. Such effectively
connected dividends, although not subject to withholding tax, are taxed at the same graduated rates applicable to U.S.
persons, net of certain deductions and credits. In addition, if you are a corporate non-U.S. holder, dividends you receive
that are effectively connected with your conduct of a U.S. trade or business may also be subject to a branch profits tax at a
rate of 30% or such lower rate as may be specified by an applicable income tax treaty. You should consult your tax advisor
regarding any applicable tax treaties that may provide for different rules.
Gain on Disposition of Common Stock
Subject to the discussion
below regarding legislation related to foreign accounts, you generally will not be required to pay U.S. federal income tax on any
gain realized upon the sale or other disposition of our common stock unless:
| Ÿ | the gain is effectively connected with your conduct of a U.S. trade or business (and, if required
by an applicable income tax treaty, the gain is attributable to a permanent establishment maintained by you in the United States); |
| Ÿ | you are a non-resident alien individual who is present in the United States for a period or periods
aggregating 183 days or more during the calendar year in which the sale or disposition occurs and certain other conditions are
met; or |
| Ÿ | our common stock constitutes a U.S. real property interest by reason of our status as a “United
States real property holding corporation,” or USRPHC, for U.S. federal income tax purposes at any time within the shorter
of the five-year period preceding your disposition of, or your holding period for, our common stock. |
We believe that we
are not currently and will not become a USRPHC. However, because the determination of whether we are a USRPHC depends on the fair
market value of our U.S. real property relative to the fair market value of our other business assets, there can be no assurance
that we will not become a USRPHC in the future. Even if we become a USRPHC, however, as long as our common stock is regularly traded
on an established securities market, such common stock will be treated as U.S. real property interests only if you actually or
constructively hold more than five percent of such regularly traded common stock at any time during the shorter of the five-year
period preceding your disposition of, or your holding period for, our common stock. Although our common stock is currently listed
on the NASDAQ Global Select Market, there can be no assurance that such common stock is, or will be, regularly traded.
If you are a non-U.S.
holder described in the first bullet above, you will be required to pay tax on the net gain derived from the sale under regular
graduated U.S. federal income tax rates, and a corporate non-U.S. holder described in the first bullet above also may be subject
to the branch profits tax at a 30% rate, or such lower rate as may be specified by an applicable income tax treaty. If you are
an individual non-U.S. holder described in the second bullet above, you will be required to pay a flat 30% tax (or such lower rate
specified by an applicable income tax treaty) on the gain derived from the sale, which tax may be offset by U.S. source capital
losses for the year (provided you have timely filed U.S. federal income tax returns with respect to such losses). You should consult
any applicable income tax or other treaties that may provide for different rules.
Federal Estate Tax
Our common stock beneficially
owned (or deemed to be owned) by an individual who is not a citizen or resident of the United States (as defined for U.S. federal
estate tax purposes) at the time of their death will generally be includable in the decedent’s gross estate for U.S. federal
estate tax purposes, unless an applicable estate tax treaty provides otherwise, and therefore may be subject to U.S. federal estate
tax.
Backup Withholding and Information
Reporting
Generally, we must
report annually to the IRS the amount of dividends paid to you, your name and address and the amount of tax withheld, if any. A
similar report will be sent to you. Pursuant to applicable income tax treaties or other agreements, the IRS may make these reports
available to tax authorities in your country of residence.
Payments of dividends
or of proceeds on the disposition of stock made to you may be subject to information reporting and backup withholding at a current
rate of 28% unless you establish an exemption, for example, by properly certifying your non-U.S. status on an IRS Form W-8BEN,
IRS Form W-8BEN-E or another appropriate version of IRS Form W-8.
Backup withholding
is not an additional tax; rather, the U.S. federal income tax liability of persons subject to backup withholding will be reduced
by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund or credit may generally be obtained
from the IRS, provided that the required information is furnished to the IRS in a timely manner.
Foreign Account Tax Compliance
The Foreign Account
Tax Compliance Act, or FATCA, imposes withholding tax at a rate of 30% on dividends on and gross proceeds from the sale or other
disposition of our common stock paid to “foreign financial institutions” (as specially defined under these rules),
unless such institution enters into an agreement with the U.S. government to withhold on certain payments and to collect and provide
to the U.S. tax authorities substantial information regarding the U.S. account holders of such institution (which includes certain
equity and debt holders of such institution, as well as certain account holders that are foreign entities with U.S. owners) or
otherwise establishes an exemption. The legislation also generally will impose a U.S. federal withholding tax of 30% on dividends
on gross proceeds from the sale or other disposition of our common stock paid to a “non-financial foreign entities”
(as specially defined for purposes of these rules) unless such entity provides the withholding agent with a certification identifying
certain substantial direct and indirect U.S. owners of the entity, certifies that there are none or otherwise establishes an exemption.
The withholding provisions under FATCA generally apply to dividends on our common stock, and under current transitional rules are
expected to apply with respect to the gross proceeds from the sale or other disposition of our common stock on or after January
1, 2019. An intergovernmental agreement between the United States and an applicable foreign country may modify the requirements
described in this paragraph. Non-U.S. holders should consult their own tax advisors regarding the possible implications of this
legislation on their investment in our common stock.
Each prospective
investor should consult its own tax advisor regarding the particular U.S. federal, state and local and non-U.S. tax consequences
of purchasing, holding and disposing of our common stock, including the consequences of any proposed change in applicable laws.
People’s Republic of China Taxation
The EIT Law created
a new “resident enterprise” classification, which, if applied to us, would impose a 10.0% withholding tax on dividends
payable to our non-PRC enterprise stockholders and gains derived by our non-PRC enterprise stockholders from disposition of our
common stock are also subject to an income tax rate of 10.0%, or 5.0% if Taibang Holdings is considered a “beneficial owner”
that is generally engaged in substantial business activities in Hong Kong and entitled to treaty benefits under the Double Taxation
Treaty. The EIT Law and its implementing rules are unclear as to how to determine a PRC “resident enterprise” status
for non-Chinese enterprise or enterprise group controlled entities. See “Risk Factors — Risks Relating To Doing Business
in China — Under the Enterprise Income Tax Law, we may be classified as a “resident enterprise” of China. Such
classification will likely result in unfavorable tax consequences to us and our non-PRC stockholders.”
If we are not deemed
as a resident enterprise, then dividends payable to our non-PRC stockholders and gains from disposition of our common stock by
our non-PRC stockholders will not be subject to PRC income tax withholding.
UNDERWRITING
Under the terms
and subject to the conditions in an underwriting agreement dated the date of this prospectus supplement, Morgan Stanley &
Co. International plc, as the sole underwriter, has agreed to purchase, and the selling stockholders have agreed to sell to
it 3,500,000 shares of our common stock:
The underwriting agreement provides that the obligations of the underwriter to pay for and accept delivery of the shares
of common stock offered by this prospectus supplement are subject to the approval of certain legal matters by its counsel and to
certain other conditions. The underwriter reserves the right to withdraw, cancel or modify offers to the public and to reject orders
in whole or in part. Subject to the terms and conditions set forth in the underwriting agreement, the underwriter is obligated
to take and pay for all of the shares of common stock offered by this prospectus supplement if any such shares are taken.
The underwriter is purchasing the shares
of common stock from the selling stockholders at $ per share (representing $ of aggregate proceeds to the selling
stockholders). The underwriter
may offer the shares of common stock from time to time for sale in one or more transactions on NASDAQ Global Select Market, in
the over-the-counter market, through negotiated transactions or otherwise at market prices prevailing at the time of sale, at prices
related to prevailing market prices or at negotiated prices. In connection with the sale of the shares of common stock offered
hereby, the underwriter may be deemed to have received compensation in the form of underwriting discounts. The underwriter may
effect such transactions by selling shares of common stock to or through dealers, and such dealers may receive compensation in
the form of discounts, concessions or commissions from the underwriter and/or purchasers of shares of common stock for whom it
may act as an agent or to whom it may sell as a principal. The underwriter is expected to make offers and sales both inside and
outside the United States through its selling agents. Morgan Stanley & Co. International plc will offer the shares of common
stock in the United States through its registered broker-dealer affiliate in the United States, Morgan Stanley & Co. LLC. The
offering of the shares of common stock by the underwriter is subject to receipt and acceptance and subject to the underwriter’
right to reject any order in whole or in part.
The selling
stockholders agreed to pay for all reasonable fees and expenses incurred by us in connection with the sale of the shares
offered under this prospectus supplement.
Our common stock has
been approved for quotation on the NASDAQ Global Select Market under the trading symbol “CBPO.”
We, the
selling stockholders, certain other existing stockholder and one director affiliated with the selling stockholders have
agreed that, without the prior written consent of the underwriter, we and they will not, during the period ending 90 days
after the date of this prospectus supplement, or the restricted period:
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offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for shares of common stock; |
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file any registration statement with the Securities and Exchange Commission relating to the offering of any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock; and |
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enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock. |
In addition, we and
each such person agrees that, without the prior written consent of the underwriter, we or such other person will not, during the
restricted period, make any demand for, or exercise any right with respect to, the registration of any shares of common stock or
any security convertible into or exercisable or exchangeable for common stock.
The restrictions described
in the immediately preceding paragraph are subject to certain exceptions, which include, among other things:
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the sale of shares in this offering; |
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the issuance by our company of shares of common stock upon the exercise of an option or a warrant or the conversion of a security outstanding on the date of this prospectus supplement of which the underwriter has been advised in writing; |
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transactions by any person other than us relating to shares of common stock or other securities acquired in open market transactions after the completion of the offering of the shares; provided that no filing under Section 16(a) of the Securities Exchange Act, is required or voluntarily made in connection with subsequent sales of the common stock or other securities acquired in such open market transactions; |
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the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of shares of common stock, provided that (i) such plan does not provide for the transfer of common stock during the restricted period and (ii) to the extent a public announcement or filing under the Exchange Act, if any, is required or voluntarily made regarding the establishment of such plan, such announcement or filing shall include a statement to the effect that no transfer of common stock may be made under such plan during the restricted period; and |
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with respect to the director, the sale of shares in connection with the vesting of shares of restricted stock to satisfy their tax obligations or with the exercise of options to cover tax withholding obligations in connection with such exercise. |
The underwriter, in
its sole discretion, may release the common stock and other securities subject to the lock-up agreements described above in whole
or in part at any time with or without notice.
In order to facilitate
the offering of the common stock, the underwriter may engage in transactions that stabilize, maintain or otherwise affect the price
of the common stock. Specifically, the underwriter may sell more shares than it is obligated to purchase under the underwriting
agreement, creating a short position. A short sale is covered if the short position is no greater than the number of shares available
for purchase by the underwriter under the option. The underwriter can close out a covered short sale by exercising the option or
purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriter will
consider, among other things, the open market price of shares compared to the price available under the option. The underwriter
may also sell shares in excess of the option, creating a naked short position. The underwriter must close out any naked short position
by purchasing shares in the open market. A naked short position is more likely to be created if the underwriter is concerned that
there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors
who purchase in this offering. As an additional means of facilitating this offering, the underwriter may bid for, and purchase,
shares of common stock in the open market to stabilize the price of the common stock. These activities may raise or maintain the
market price of the common stock above independent market levels or prevent or retard a decline in the market price of the common
stock. The underwriter is not required to engage in these activities and may end any of these activities at any time without notice.
Neither we nor the underwriter make any representation or prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock.
We and the selling
stockholders have agreed to indemnify the underwriter against certain liabilities under the Securities Act. If we or the selling
shareholders are unable to provide this indemnification, we and the selling stockholders will contribute to payments that the underwriter
may be required to make for these liabilities.
The address of Morgan
Stanley & Co. International plc is 25 Cabot Square, Canary Wharf, London E14 4QA, United Kingdom.
A prospectus supplement
in electronic format may be made available on websites maintained by the underwriter, or selling group members, if any, participating
in this offering.
The underwriter and
its affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial
and investment banking, financial advisory, investment management, investment research, principal investment, hedging. financing
and brokerage activities. The underwriter and its affiliates have, from time to time, performed, and may in the future perform,
various financial advisory and investment banking services for us in the ordinary course of business, for which they received or
will receive customary fees and expenses.
In addition, in the
ordinary course of their various business activities, the underwriter and its affiliates may make or hold a broad array of investments
and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans)
for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities
and instruments. Such investment and securities activities may involve securities and instruments of ours or our affiliates. The
underwriter and its affiliates may also make investment recommendations or publish and/or express independent research views in
respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long or short positions
in such securities and instruments.
Selling Restrictions
No action has been
taken in any jurisdiction (except in the United States) that would permit a public offering of the common stock, or the possession,
circulation or distribution of this prospectus supplement or any other material relating to us or the common stock in any jurisdiction
where action for that purpose is required. Accordingly, the common stock may not be offered or sold, directly or indirectly, and
neither this prospectus supplement nor any other offering material or advertisements in connection with the common stock may be
distributed or published, in or from any country or jurisdiction except in compliance with any applicable rules and regulations
of any such country or jurisdiction.
European Economic Area
In relation to each
Member State of the European Economic Area which has implemented the Prospectus Directive, or each a Relevant Member State, an
offer to the public of any shares of our common stock may not be made in that Relevant Member State, except that an offer to the
public in that Relevant Member State of any shares of our common stock may be made at any time under the following exemptions under
the Prospectus Directive, if they have been implemented in that Relevant Member State:
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to any legal entity which is a qualified investor as defined in the Prospectus Directive; |
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to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the representative for any such offer; or |
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in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of shares of our common stock shall result in a requirement for the publication by us or any underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive. |
Each person in a Relevant
Member State who initially acquires any shares or to whom any offer is made will be deemed to have represented, acknowledged and
agreed that it is a “qualified investor” within the meaning of the law in that Relevant Member State implementing Article
2(1)(e) of the Prospectus Directive. In the case of any shares being offered to a financial intermediary as that term is used in
Article 3(2) of the Prospectus Directive, each such financial intermediary will be deemed to have represented, acknowledged and
agreed that the shares acquired by it in the offer have not been acquired on a non-discretionary basis on behalf of, nor have they
been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer of any shares to
the public other than their offer or resale in a Relevant Member State to qualified investors as so defined or in circumstances
in which the prior consent of the underwriter has been obtained to each such proposed offer or resale.
Our company, the
underwriter and their affiliates will rely upon the truth and accuracy of the foregoing representations, acknowledgements and
agreements.
This prospectus has
been prepared on the basis that any offer of shares in any Relevant Member State will be made pursuant to an exemption under the
Prospectus Directive from the requirement to publish a prospectus for offers of shares. Accordingly any person making or intending
to make an offer in that Relevant Member State of shares which are the subject of the offering contemplated in this prospectus
may only do so in circumstances in which no obligation arises for our company or the underwriter to publish a prospectus pursuant
to Article 3 of the Prospectus Directive in relation to such offer. Neither our company nor the underwriter has authorized, nor
do they authorize, the making of any offer of shares in circumstances in which an obligation arises for our company or the underwriter
to publish a prospectus for such offer.
For the purposes of
this provision, the expression an “offer to the public” in relation to any shares of our common stock in any Relevant
Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any shares
of our common stock to be offered so as to enable an investor to decide to purchase any shares of our common stock, as the same
may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, the expression “Prospectus
Directive” means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented
in the Relevant Member State), and includes any relevant implementing measure in the Relevant Member State, and the expression
“2010 PD Amending Directive” means Directive 2010/73/EU.
United Kingdom
In the United Kingdom,
this document is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons
who are “qualified investors” (as defined in the Prospectus Directive) (i) who have professional experience in matters
relating to investments falling within Article 19 (5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order
2005, as amended (the “Order”) and/or (ii) who are high net worth companies (or persons to whom it may otherwise be
lawfully communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant
persons”). This document must not be acted on or relied on in the United Kingdom by persons who are not relevant persons.
In the United Kingdom, any investment or investment activity to which this document relates is only available to, and will be engaged
in with, relevant persons.
Switzerland
The common stock may
not be offered or sold to any investors in Switzerland other than on a non-public basis and will not be listed on the SIX Swiss
Exchange, or SIX, or on any other stock exchange or regulated trading facility in Switzerland. This prospectus supplement does
not constitute a prospectus within the meaning of Article 652a and Art.1156 of the Swiss Code of Obligations (Schweizerisches Obligationenrecht)
or the disclosure standards for listing prospectuses under art.27 ff. of the SIX Listing Rules or the listing rules of any other
stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material
relating to the shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document
nor any other offering or marketing material relating to the offering, our company, the shares have been or will be filed with
or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares will
not be supervised by, the Swiss Financial Market Supervisory Authority FINMA (FINMA), and the offer of shares has not been and
will not be authorized under the Swiss Federal Act on Collective Investment Schemes (“CISA”). The investor protection
afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of shares.
Australia
This prospectus supplement
is not a formal disclosure document and has not been, nor will be, lodged with the Australian Securities and Investments Commission.
It does not purport to contain all information that an investor or their professional advisers would expect to find in a prospectus
or other disclosure document (as defined in the Corporations Act 2001 (Australia)) for the purposes of Part 6D.2 of the Corporations
Act 2001 (Australia) or in a product disclosure statement for the purposes of Part 7.9 of the Corporations Act 2001 (Australia),
in either case, in relation to the common stock.
The common stock is
not being offered in Australia to “retail clients” as defined in sections 761G and 761GA of the Corporations Act 2001
(Australia). This offering is being made in Australia solely to “wholesale clients” for the purposes of section 761G
of the Corporations Act 2001 (Australia) and, as such, no prospectus, product disclosure statement or other disclosure document
in relation to the common stock has been, or will be, prepared.
This prospectus supplement
does not constitute an offer in Australia other than to wholesale clients. By submitting an application for our common stock, you
represent and warrant to us that you are a wholesale client for the purposes of section 761G of the Corporations Act 2001 (Australia).
If any recipient of this prospectus supplement is not a wholesale client, no offer of, or invitation to apply for, our common stock
shall be deemed to be made to such recipient and no applications for our common stock will be accepted from such recipient. Any
offer to a recipient in Australia, and any agreement arising from acceptance of such offer, is personal and may only be accepted
by the recipient. In addition, by applying for our common stock you undertake to us that, for a period of 12 months from the date
of issue of the common stock, you will not transfer any interest in our common stock to any person in Australia other than to a
wholesale client.
Japan
This offering has not
been and will not be registered under the Financial Instruments and Exchange Law (Law No. 25 of 1948 of Japan, as amended, or the
FIEL). The underwriter has represented and agreed that the common stock being offered hereby which they purchase will be purchased
by them as principal and that they will not, directly or indirectly, offer or sell any common stock in Japan or to, or for the
benefit of, any Japanese Person or to others for reoffer or resale, directly or indirectly, in Japan or to, or for the benefit
of, any Japanese Person, except pursuant to an exemption from the registration requirements under the FIEL and otherwise in compliance
with such law and any other applicable laws, regulations and ministerial guidelines of Japan. For the purposes of this paragraph,
“Japanese Person” shall mean any “Person Resident in Japan” (kyojusha) as defined in Section 6, Paragraph
1, Item 5 of the Foreign Exchange and Foreign Trade Law of Japan (Law No. 228 of 1949, as amended), including any corporation or
other entity organized under the laws of Japan.
Hong Kong
This prospectus supplement
has not been approved by or registered with the Securities and Futures Commission of Hong Kong or the Registrar of Companies of
Hong Kong. No person may offer or sell in Hong Kong, by means of any document, any common stock being offered hereby other than
(i) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any
rules made under that Ordinance, or (ii) in other circumstances which do not result in the document being a “prospectus”
as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer or invitation to the public within
the meaning of the Companies Ordinance. No advertisement, invitation or document relating to the common stock being offered hereby
will be issued or will be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere)
which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong except if permitted
under the securities laws of Hong Kong, other than with respect to the common stock which is or is intended to be disposed of only
to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance
and any rules made thereunder.
Singapore
This prospectus supplement
has not been registered as a prospectus with the Monetary Authority of Singapore under the Securities and Futures Act, Chapter
289 of Singapore, or the SFA. Accordingly, no person may offer or sell the common stock being offered hereby or cause such common
stock to be made the subject of an invitation for subscription or purchase, or circulate or distribute, this prospectus supplement
or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of such common
stock, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of
the SFA, (ii) to a relevant person pursuant to Section 275(1), or (iii) to any person pursuant to Section 275(1A), and in accordance
with the conditions specified in Section 275 of the SFA, or otherwise pursuant to, and in accordance with the conditions of, any
other applicable provision of the SFA.
Where the common stocks
are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
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a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or |
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a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, |
securities (as defined in Section 239(1)
of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be
transferred within six months after that corporation or that trust has acquired the common stocks pursuant to an offer made under
Section 275 of the SFA except:
| · | to an institutional investor
or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A)
or Section 276(4)(i)(B) of the SFA; |
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is or will be given for the transfer; |
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by operation of law; |
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276(7) of the SFA; or |
| · | as specified in Regulation
32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore. |
People’s Republic of China
This prospectus supplement
may not be circulated or distributed in the PRC and the common stock may not be offered or sold, and may not be offered or sold
to any person for re-offering or resale, directly or indirectly, to any resident of the PRC except pursuant to applicable laws
and regulations of the PRC. For the purpose of this paragraph, PRC does not include Taiwan and the special administrative regions
of Hong Kong and Macau.
Canada
The shares of common
stock may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined
in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients,
as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of
the ADSs must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of
applicable securities laws.
Securities legislation
in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus
supplement (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages
are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province
or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province
or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section
3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National
Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriter is not required to comply with the disclosure requirements
of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
LEGAL MATTERS
Certain legal matters
as to United States federal and New York law and the validity of the shares of common stock offered hereby will be passed on for
us by Wilson Sonsini Goodrich & Rosati, Professional Corporation. Certain legal matters as to United States federal and New
York law will be passed upon for the underwriter by Cleary Gottlieb Steen & Hamilton LLP. Legal matters as to PRC law will
be passed upon for the underwriter by Jingtian & Gongcheng.
EXPERTS
The consolidated financial
statements of China Biologic Products, Inc. as of December 31, 2015 and 2014, and for each of the years in the three-year period
ended December 31, 2015, and management’s assessment of the effectiveness of internal control over financial reporting as
of December 31, 2015 have been incorporated by reference herein in reliance upon the reports of KPMG Huazhen LLP, independent registered
public accounting firm, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We file annual, quarterly
and other reports, proxy statements and other information with the SEC. Our SEC filings are available to the public over the Internet
at the SEC’s website at http://www.sec.gov. Those filings are also available to the public free of charge on our corporate
website at http://www.chinabiologic.com as soon as reasonably practicable after we electronically file such material with,
or furnish it to, the SEC. The information contained on our corporate website is not part of or incorporated into this prospectus.
You may also read and copy any document we file at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Room.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to
“incorporate by reference” the information we file with them. This means that we can disclose important information
to you by referring you to those documents. Each document incorporated by reference is current only as of the date of prospectus
supplement, and the incorporation by reference of such documents shall not create any implication that there has been no change
in our affairs since the date thereof or that the information contained therein is current as of any time subsequent to its date.
The information incorporated by reference is considered to be part of this prospectus supplement and the accompanying prospectus
and should be read with the same care. When we update the information contained in documents that have been incorporated by reference
by making future filings with the SEC, the information incorporated by reference in this prospectus supplement and the accompanying
prospectus is considered to be automatically updated and superseded. In other words, in the case of a conflict or inconsistency
between information contained in this prospectus supplement and information incorporated by reference into this prospectus supplement,
you should rely on the information contained in the document that is filed later.
We incorporate by reference
the documents listed below:
| · | our Current Report on Form 8-K, dated January 8, 2015,
filed on January 9, 2015; |
| · | our Current Report on Form 8-K, dated August 3, 2015,
filed on August 5, 2015 (except for information contained therein that was “furnished” to, rather than “filed”
with, the SEC); |
| · | our Annual Report on Form 10-K for the year ended December
31, 2015, filed on February 25, 2016; |
| · | the description of our common stock, $0.0001 par value
per share, contained in our Registration Statement on Form 8-A, filed on December 1, 2009 pursuant to Section 12(b) of the Exchange
Act; |
| · | the description of our preferred share purchase rights
contained in our Registration Statement on Form 8-A, filed on January 9, 2015 pursuant to Section 12(b) of the Exchange Act; and |
| · | all documents subsequently filed with the SEC by us
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act (except for information in those filings that is “furnished”
to, rather than “filed” with, the SEC) until all the shares of the common stock to which this prospectus supplement
relates are sold or the offering is otherwise terminated. |
Copies of all documents
incorporated by reference in this prospectus supplement, other than exhibits to those documents unless such exhibits are specially
incorporated by reference in those documents, will be provided without charge to each person, including any beneficial owner, who
receives a copy of this prospectus supplement on the written or oral request of that person made to:
China Biologic Products, Inc.
18th Floor, Jialong International Building
19 Chaoyang Park Road, Chaoyang District
Beijing 100125, People’s Republic of China
Attn: Investor Relations
We will furnish to
any holder of common stock that so requests our Annual Report on Form 10-K containing a description of our operations and annual
audited consolidated financial statements prepared in accordance with U.S. GAAP and an opinion on the financial statements by an
independent public accountant.
JUNE 5, 2015 PROSPECTUS
PROSPECTUS
China Biologic Products, Inc.
COMMON STOCK
PREFERRED STOCK
WARRANTS
UNITS
We may from time to time in one or more offerings offer and sell our common stock, preferred stock, warrants to purchase common stock or preferred stock, or any combination of the foregoing, either individually or as units comprised of one or more of the other securities.
In addition, from time to time, the selling stockholders to be named in a prospectus supplement may offer and sell our common stock held by them. The selling stockholders may sell shares of our common stock through public or private transactions at prevailing market prices or at privately negotiated prices. We will not receive any proceeds from the sale of shares of our common stock by the selling stockholders.
We will provide specific terms of any offering in a supplement to this prospectus. Any prospectus supplement may also add, update, or change information contained in this prospectus. You should carefully read this prospectus and the applicable prospectus supplement as well as the documents incorporated or deemed to be incorporated by reference in this prospectus before you purchase any of the securities offered hereby.
These securities may be offered and sold in the same offering or in separate offerings; to or through underwriters, dealers, and agents; or directly to purchasers. The names of any underwriters, dealers, or agents involved in the sale of our securities, their compensation and any over-allotment options held by them will be described in the applicable prospectus supplement. For a more complete description of the plan of distribution of these securities, see the section entitled Plan of Distribution beginning on page 0 of this prospectus.
Our common stock is listed on the NASDAQ Global Select Market under the symbol CBPO. On June 4, 2015, the last reported sale price on the NASDAQ Global Select Market was $119.54 per share. As of the date of this prospectus, none of the other securities that we may offer by this prospectus is listed on any national securities exchange or automated quotation system.
INVESTING IN OUR SECURITIES INVOLVES SIGNIFICANT RISKS. SEE RISK FACTORS BEGINNING ON PAGE 8 OF THIS PROSPECTUS AND IN THE APPLICABLE PROSPECTUS SUPPLEMENT BEFORE INVESTING IN ANY SECURITIES.
This prospectus may not be used to offer or sell any securities unless accompanied by a prospectus supplement.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is June 5, 2015
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TABLE OF CONTENTS
ABOUT THIS PROSPECTUS
This prospectus is part of an automatic shelf registration statement on Form S-3 that we filed with the Securities and Exchange Commission as a well-known seasoned issuer as defined in Rule 405 under the Securities Act. Under this shelf registration statement, we may, from time to time, offer or sell any combination of the securities described in this prospectus in one or more offerings. In addition, under this shelf registration statement, the selling stockholders to be named in a prospectus supplement may, from time to time, offer or sell shares of our common stock in one or more offerings.
This prospectus provides you with a general description of the securities we and the selling stockholders may offer. Each time we or the selling stockholders sell securities, we will provide a prospectus supplement that will contain specific information about the terms of that offering. The prospectus supplement may also add to, update or change information contained in this prospectus and, accordingly, to the extent inconsistent, information in this prospectus is superseded by the information in the prospectus supplement.
The prospectus supplement to be attached to the front of this prospectus may describe, as applicable: the terms of the securities offered; the initial price to the public; the price paid for the securities; net proceeds; the identity of and the amount of securities to be sold by any selling stockholder; and the other specific terms related to the offering of the securities.
You should only rely on the information contained or incorporated by reference in this prospectus and any prospectus supplement or issuer free writing prospectus relating to a particular offering. Neither we nor the selling stockholders have authorized any other person to provide you with different information. You should read this entire prospectus and any prospectus supplement and any related issuer free writing prospectus, as well as the documents incorporated by reference into this prospectus or any prospectus supplement, before making an investment decision. We do not imply or represent by delivering this prospectus that
China Biologic Products, Inc., or our business, is unchanged after the date on the front of this prospectus or that the information in this prospectus is correct as any time after such date. If you are in a jurisdiction where offers to sell, or solicitations of offers to purchase, the securities offered by this document are unlawful, or if you are a person to whom it is unlawful to direct these types of activities, then the offer presented in this document does not extend to you.
In this prospectus, unless otherwise indicated or unless the context otherwise requires, all references to:
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we, us, our company, or our are to the combined business of China Biologic Products, Inc., a Delaware corporation, and its direct and indirect subsidiaries; |
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China or PRC are to the Peoples Republic of China, excluding, for the purposes of this prospectus only, Taiwan and the special administrative regions of Hong Kong and Macau; |
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Exchange Act are to the Securities Exchange Act of 1934, as amended; |
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Guizhou Taibang are to our majority owned subsidiary, Guizhou Taibang Biological Products Co., Ltd., a PRC company; |
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Huitian are to Xian Huitian Blood Products Co., Ltd., a PRC company, in which we hold a minority interest; |
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SEC are to the U.S. Securities and Exchange Commission; |
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Securities Act are to the Securities Act of 1933, as amended; |
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Shandong Taibang are to our majority owned subsidiary, Shandong Taibang Biological Products Co. Ltd., a PRC company; and |
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$ are to the legal currency of the United States. |
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TABLE OF CONTENTS
PROSPECTUS SUMMARY
This summary description about us and our business highlights selected information contained elsewhere in this prospectus or incorporated in this prospectus by reference. This summary does not contain all of the information you should consider before buying securities in this offering. You should carefully read this entire prospectus and any applicable prospectus supplement, including each of the documents incorporated herein or therein by reference, before making an investment decision.
About China Biologic Products, Inc.
We are a biopharmaceutical company principally engaged in the research, development, manufacturing and sales of human plasma-based biopharmaceutical products, or plasma products, in China. We operate our business through two majority owned subsidiaries, Shandong Taibang, a company based in Taian, Shandong Province and Guizhou Taibang, a company based in Guiyang, Guizhou Province. We also hold a minority equity interest in Huitian, a company based in Xian, Shaanxi Province.
We have a strong product portfolio with over 20 different dosage forms of plasma products across nine categories. Our principal products are human albumin and immunoglobulin for intravenous injection, or IVIG. Albumin has been used for almost 50 years to treat critically ill patients by assisting the maintenance of adequate blood volume and pressure. IVIG is used for certain disease prevention and treatment by enhancing specific immunity. These products use human plasma as their principal raw material. Sales of human albumin products represented approximately 38.2% and 42.3% of our total sales for the three months ended March
31, 2015 and 2014, respectively, and 39.3%, 44.1% and 44.6% of our total sales for 2014, 2013 and 2012, respectively. Sales of IVIG products represented approximately 46.7% and 36.5% of our total sales for the three months ended March 31, 2015 and 2014, respectively, and 40.4%, 38.0% and 39.0% of our total sales for 2014, 2013 and 2012, respectively. All of our products are prescription medicines administered in the form of injections.
Our sales model focuses on direct sales to hospitals and inoculation centers and is complemented by distributor sales. In the three months ended March 31, 2015, we generated sales of $70.4 million, an increase of 25.0% from the same period in 2014, and recorded net income attributable to our company of $23.2 million, an increase of 26.8% from the same period in 2014. In 2014, we generated sales of $243.3 million, an increase of 19.6% from 2013, and recorded net income attributable to our company of $70.9 million, an increase of 29.9% from 2013.
We operate and manage our business as one single segment. We do not account for the results of our operations on a geographic or other basis.
Corporate Information
China Biologic Products, Inc. was originally incorporated on December 20, 1989 under the laws of the State of Texas as Shepherd Food Equipment, Inc. On November 20, 2000, Shepherd Food Equipment, Inc. changed its corporate name to Shepherd Food Equipment, Inc. Acquisition Corp., or Shepherd. Shepherd is the survivor of a May 28, 2003 merger between Shepherd and GRC Holdings, Inc., or GRC, a Texas corporation. In the merger, the surviving corporation adopted the articles of incorporation and bylaws of GRC and changed its corporate name to GRC Holdings, Inc. On January 10, 2007, a plan of conversion became effective pursuant to
which GRC was converted into a Delaware corporation and changed its name to China Biologic Products, Inc. On July 19, 2006, we completed a reverse acquisition with Logic Express Ltd., or Logic Express, a British Virgin Islands company, as a result of which Logic Express became our wholly owned subsidiary, the former shareholders of Logic Express became our then controlling stockholders, and Logic Expresss majority-owned PRC subsidiary, Shandong Taibang, became our majority-owned indirect subsidiary.
Our common stock was initially quoted on the over-the-counter market maintained by the Pink Sheets, LLC. On February 29, 2008, our common stock was approved for quotation on the Over-The-Counter Bulletin Board under the trading symbol CBPO.OB. On November 25, 2009, our common stock was approved for listing on the NASDAQ Global Market under the symbol CBPO and subsequently approved for listing on the NASDAQ Global Select Market on December 7, 2010.
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Our principal executive offices are located at 18th Floor, Jialong International Building, 19 Chaoyang Park Road, Chaoyang District, Beijing 100125, Peoples Republic of China. Our corporate telephone number is (8610) 6598-3111 and our fax number is (8610) 6598-3222. We maintain a website at http://www.chinabiologic.com that contains information about our company, but that information is not part of this prospectus or incorporated by reference herein.
The Securities We or the Selling Stockholders May Offer
We may offer or sell our common stock, preferred stock, and warrants in one or more offerings and in any combination either individually or as units comprised of one or more of the other securities. In addition, the selling stockholders to be named in a prospectus supplement may offer or sell, from time to time, shares of our common stock held by them. Each time securities are offered under this prospectus, we will provide a prospectus supplement that will describe the specific amounts, prices and terms of the securities being offered.
We or the selling stockholders may sell the securities to or through underwriters, dealers or agents or directly to purchasers or as otherwise set forth below under Plan of Distribution. We or the selling stockholders, as well as any agents acting on our or their behalf, reserve the sole right to accept and to reject in whole or in part any proposed purchase of securities. Each prospectus supplement will set forth the names of any underwriters, dealers, agents or other entities involved in the sale of securities described in that prospectus supplement and any applicable fee, commission or discount arrangements with
them.
Common Stock
We may offer shares of our common stock, par value $0.0001 per share, either alone or underlying other registered securities convertible or exercisable into our common stock. The selling stockholders may offer shares of our common stock, par value $0.0001 per share. Each holder of our common stock is entitled to one vote for each share on all matters to be voted upon by the stockholders. If there is a liquidation, dissolution or winding up of our company, holders of our common stock would be entitled to share in our assets remaining after the payment of liabilities and any preferential rights of any outstanding preferred
stock. The holders of common stock have no preemptive rights. Holders of our common stock are entitled to receive ratably the dividends, if any, as may be declared from time to time by our board of directors out of funds legally available therefor. Currently, we do not pay a dividend and do not anticipate paying cash dividends in the foreseeable future.
Preferred Stock
Under the terms of our second amended and restated certificate of incorporation, or Certificate of Incorporation, our board of directors is authorized to issue shares of preferred stock in one or more series without stockholder approval. Our board of directors has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock.
Each series of preferred stock, par value $0.0001 per share, if issued, will be more fully described in the particular prospectus supplement that will accompany this prospectus, including redemption provisions, rights in the event of our liquidation, dissolution or winding up, voting rights and rights to convert into common stock. On January 8, 2015, our board of directors adopted a preferred shares rights agreement that granted a right to each holder of common stock then outstanding to purchase from us certain of our preferred stock at a discount under certain circumstances. We do not have any shares of our preferred stock
presently outstanding and have no current plans to issue any shares of preferred stock.
Warrants
We may issue warrants for the purchase of common stock or preferred stock. We may issue warrants independently or together with other securities.
Units
We may issue units comprised of one or more of the other classes of securities issued by us as described in this prospectus in any combination. Each unit will be issued so that the holder of the unit is also the holder of each security included in the unit.
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RISK FACTORS
An investment in our securities involves a high degree of risk. The prospectus supplement applicable to each offering of our securities will contain a discussion of the risks applicable to an investment in our securities. Prior to making a decision about investing in our securities, you should carefully consider the specific factors discussed under the heading Risk Factors in the applicable prospectus supplement, together with all of the other information contained or incorporated by reference in the prospectus supplement or appearing or incorporated by reference in this prospectus. You should also consider the
risks, uncertainties and assumptions discussed under Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2014 and any updates described in our subsequent Quarterly Reports on Form 10-Q, each of which is incorporated herein by reference, and may be amended, supplemented or superseded from time to time by other reports we file with the SEC in the future and any prospectus supplement related to a particular offering. The risks and uncertainties we have described are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our operations. The occurrence of any of these known or unknown risks might cause you to lose all or part of your investment in the offered securities.
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FORWARD-LOOKING STATEMENTS
This prospectus, each prospectus supplement and the information incorporated by reference in this prospectus and each prospectus supplement contain certain statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. The words anticipate, expect, believe, goal, plan, intend, estimate, may, will, and similar expressions and variations thereof are intended to identify forward-looking statements, but are not the exclusive means
of identifying such statements. Those statements appear in this prospectus, any accompanying prospectus supplement and the documents incorporated herein and therein by reference, particularly in the sections entitled Prospectus Summary, Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations and Business, and include statements regarding the intent, belief or current expectations of our company and management that are subject to known and unknown risks, uncertainties and assumptions and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the documents incorporated by reference under the caption Risk Factors.
This prospectus, each prospectus supplement and the information incorporated by reference in this prospectus and each prospectus supplement also contain statements that are based on managements current expectations and beliefs, including estimates and projections about our company, industry, financial condition, results of operations and other matters. These statements are not guarantees of future performance and are subject to numerous risks, uncertainties, and assumptions that are difficult to predict.
Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the SEC, we do not plan to publicly update or revise any forward-looking statements
contained herein after we distribute this prospectus, whether as a result of any new information, future events or otherwise.
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RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed charges on a historical basis for the periods indicated. The following should be read in conjunction with our consolidated financial statements, including the notes thereto, and the other financial information included or incorporated by reference herein. For purposes of determining the ratios, earnings consist of the total of the following: (i) pre-tax income from continuing operations, (ii) adjustment for income or loss from equity investees, (iii) fixed charges, and (iv) distributed income of equity investees. Fixed charges consist of the total of the following:
(i) interest expensed and capitalized, (ii) amortized premiums, discounts and capitalized expenses related to indebtedness, and (iii) estimation of interest within rental expense.
We do not have any shares of preferred stock outstanding. Our ratio of earnings to combined fixed charges and preference dividends for each specified period is equivalent to our ratio of earnings to fixed charges for that period.
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Year ended December 31, |
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Three months ended March 31, 2015 |
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2010 |
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2011 |
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2012 |
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2013 |
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2014 |
Ratio of earnings to fixed charges |
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25.3X |
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9.9X |
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63.2X |
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82.0X |
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32.3X |
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47.7X |
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USE OF PROCEEDS
Unless otherwise indicated in the prospectus supplement, we expect to use the net proceeds from the sale of securities offered by us pursuant to this prospectus for general corporate purposes, which may include working capital, capital expenditures, other corporate expenses and acquisitions of complementary products, technologies or businesses. We will not receive any proceeds from the sale of shares of our common stock by the selling stockholders. The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations and the anticipated growth of our business. As a result, unless
otherwise indicated in the prospectus supplement, our management will have broad discretion to allocate the net proceeds of the offerings. Pending their ultimate use, we intend to invest the net proceeds in short-term, investment-grade, interest-bearing instruments.
The specific allocations of the proceeds we receive from the sale of our securities will be described in the applicable prospectus supplement.
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DESCRIPTION OF CAPITAL STOCK
The following information describes our common stock and preferred stock, as well as certain provisions of our Certificate of Incorporation and our third amended and restated bylaws, or Bylaws. This description is only a summary. You should also refer to our Certificate of Incorporation and Bylaws, which have been filed with the SEC as exhibits to our registration statement, of which this prospectus forms a part, or documents we have incorporated by reference.
General
Our authorized capital stock consists of 110,000,000 shares, all with a par value of $0.0001 per share, of which:
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100,000,000 shares are designated as common stock; and |
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10,000,000 shares are designated as preferred stock. |
As of March 31, 2015, there were 24,857,801 shares of common stock outstanding and no shares of preferred stock outstanding.
Common Stock
Subject to the rights of holders of all classes of stock at the time outstanding having prior rights as to dividends, the holders of common stock are entitled to receive such dividends, if any, as may from time to time be declared by our board of directors out of funds legally available for that purpose. Holders of common stock are entitled to one vote per share, and are entitled to vote upon such matters and in such manner as may be provided by law. Holders of common stock have no preemptive, conversion, redemption or sinking fund rights. Subject to the rights of holders of all classes of stock at the time outstanding having
prior rights as to liquidation, holders of common stock, upon the liquidation, dissolution or winding up of our company, are entitled to share equally and ratably in the assets of our company. The outstanding shares of common stock are, and the shares of common stock to be offered or issuable upon conversion of other securities offered hereby when issued will be, validly issued, fully paid and nonassessable. The rights, preferences and privileges of holders of common stock are subject to the rights, preferences and privileges of any series of preferred stock that we may issue in the future.
Preferred Stock
No shares of preferred stock are outstanding. Although we currently have no plans to issue any shares of preferred stock, under our Certificate of Incorporation, our board of directors has the authority, without further action by our stockholders, to designate and issue up to 10,000,000 shares of preferred stock in one or more series. Our board of directors may also designate the rights, preferences and privileges of each such series of preferred stock, any or all of which may be greater than or senior to those of the common stock. In November 2012, our board of directors designated 1,000,000 shares of our preferred stock as
Series A Participating Preferred Stock in connection with our preferred share purchase rights. On January 8, 2015, our board of directors adopted a preferred shares rights agreement that granted a right to each holder of common stock then outstanding to purchase from us Series A Preferred Stock at a discount under certain circumstances. Though the actual effect of any such issuance on the rights of the holders of common stock will not be known until our board of directors determines the specific rights of the holders of preferred stock, the potential effects of such an issuance include:
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restricting dividends on the common stock; |
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diluting the voting power of the common stock; |
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impairing the liquidation rights of the common stock; and |
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delaying or preventing a change in control of our company without further action by the stockholders. |
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Anti-Takeover Effects of Certain Provisions of Delaware Law
Provisions of Delaware law and our Certificate of Incorporation and Bylaws could make the acquisition of our company through a tender offer, a proxy contest or other means more difficult and could make the removal of incumbent officers and directors more difficult. We expect these provisions to discourage coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of our company to first negotiate with our board of directors. We believe that the benefits provided by our ability to negotiate with the proponent of an unfriendly or unsolicited proposal outweigh the disadvantages of
discouraging these proposals. We believe the negotiation of an unfriendly or unsolicited proposal could result in an improvement of its terms.
We are subject to Section 203 of the Delaware General Corporation Law, an anti-takeover law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years following the date the person became an interested stockholder, unless:
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prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; |
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the stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding (i) shares owned by persons who are directors and also officers, and (ii) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or |
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on or subsequent to the date of the transaction, the business combination is approved by the board and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder. |
Generally, a business combination includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. An interested stockholder is a person who, together with affiliates and associates, owns or, within three years prior to the determination of interested stockholder status, did own 15% or more of a corporations outstanding voting securities. We expect the existence of this provision to have an anti-takeover effect with respect to transactions that our board of directors does not approve in advance. We also anticipate that Section 203 may
also discourage attempts that might result in a premium over the market price for the shares of common stock held by stockholders.
Anti-Takeover Effects of Provisions of Our Charter Documents
Our Certificate of Incorporation provides for our board of directors to be divided into three classes serving staggered terms. One-third of our directors are elected each year. The existence of a classified board could prevent a party who acquires control of a majority of the outstanding voting stock from obtaining control of the board of directors until the second annual stockholders meeting following the date the acquirer obtains the controlling stock interest. The classified board provision could discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company and could
increase the likelihood that incumbent directors will retain their positions. In accordance with our Certificate of Incorporation, directors may be removed either for or without cause at any special meeting of stockholders duly called and held for such purpose.
Our Bylaws establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to the board of directors. At an annual meeting, stockholders may only consider proposals or nominations specified in the notice of meeting or brought before the meeting by or at the direction of the board of directors. Stockholders may also consider a proposal or nomination by a person who was a stockholder of record on the record date for the meeting, who is entitled to vote at the meeting and who has given to our secretary timely written
notice, in proper form, of his or her intention to bring that business before the meeting. Our Bylaws do not give the board of directors the discretion to preclude stockholder nominations of candidates being brought
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before a special or annual meeting of the stockholders, or proposals regarding other business being brought before an annual meeting of the stockholders if in either case the proper advance notice procedures are followed. However, our Bylaws may have the effect of precluding a business being brought before a meeting if the proper procedures are not followed. These provisions may also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirers own slate of directors or otherwise attempting to obtain control of our company.
Our Certificate of Incorporation expressly authorizes our board of directors to adopt, amend or repeal our Bylaws, provided that any alteration, amendment or repeal of certain provisions of the Bylaws also requires affirmative vote of holders of two-thirds of the voting power of our then outstanding shares of capital stock, voting together as a single class.
Our Certificate of Incorporation provides that, except as otherwise expressly provided by the terms of any series of preferred stock permitting the holders of such series of preferred stock to act by written consent, any action required or permitted to be taken by stockholders must be effected at a duly called annual or special meeting of the stockholders and may not be effected by written consent in lieu of a meeting. Without the availability of stockholders actions by written consent, a holder of the requisite number of shares of our capital stock would not be able to amend our Bylaws or remove directors without
holding a stockholders meeting. The holder would have to obtain the consent of a majority of the board of directors, our chairman or our chief executive officer to call a stockholders meeting and satisfy the notice periods determined by the board of directors, unless such holder holds at least 25% of our companys entire capital stock issued and outstanding and entitled to vote, in which case our Bylaws allows such holder to call a special meeting of stockholders.
Anti-Takeover Effects of Our Preferred Shares Rights Agreement
On January 8, 2015, our board of directors authorized and declared a dividend of one right, or a Preferred Share Purchase Right, to each holder of common stock then outstanding that entitles any such registered holder to purchase from us certain of our preferred stock at a discount under certain circumstances. The complete terms of the Preferred Share Purchase Rights are set forth in a preferred shares rights agreement, or the Preferred Shares Rights Agreement, dated as of January 8, 2015, between us and the Securities Transfer Corporation, as the rights agent. Our board of directors adopted the Preferred Shares Rights
Agreement to protect stockholders against unsolicited attempts to acquire control of our company that do not offer what our board of directors believes to be an adequate price to all stockholders or that our board of directors otherwise opposes. The Preferred Shares Rights Agreement provides, among other things, that when specified events occur, our stockholders will be entitled to purchase from us a newly created series of preferred stock. The Preferred Share Purchase Rights are triggered by the earlier to occur of (i) ten business days (or a later date determined by our board of directors before the rights are separated from our common stock) after the public announcement that a person or group has become an acquiring person by acquiring beneficial ownership of 15% or more of our outstanding common stock or (ii) ten business days (or a later date determined by our board of directors before the rights are separated from our common stock) after a person or group begins a
tender or exchange offer that, if completed, would result in that person or group becoming an acquiring person. The issuance of preferred stock pursuant to the Preferred Shares Rights Agreement would cause substantial dilution to a person or group that attempts to acquire us on terms not approved by our board of directors. Consequently, such Preferred Shares Rights Agreement has the effect of deterring unsolicited attempts to acquire control of our company and encouraging an acquirer to negotiate with our board of directors on a potential sale. Our board of directors had previously adopted a similar Preferred Shares Rights Agreement on November 19, 2012, which expired on November 20, 2014.
Transfer Agent and Registrar
Our independent stock transfer agent and registrar for our common stock is Securities Transfer Corporation. Its mailing address is 2591 Dallas Parkway, Suite #102, Frisco, Texas, 75034, and its telephone number is (469) 633-0101.
Listing
Our common stock is listed on the NASDAQ Global Select Market under the symbol CBPO.
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DESCRIPTION OF THE WARRANTS
General
We may issue warrants for the purchase of our preferred stock or common stock, or any combination thereof. Warrants may be issued independently or together with our preferred stock or common stock and may be attached to or separate from any offered securities. Each series of warrants will be issued under a separate warrant agreement to be entered into between us and a bank or trust company, as warrant agent. The warrant agent will act solely as our agent in connection with the warrants. The warrant agent will not have any obligation or relationship of agency or trust for or with any holders or beneficial owners of warrants.
This summary of certain provisions of the warrants is not complete. For the terms of a particular series of warrants, you should refer to the prospectus supplement for that series of warrants and the warrant agreement for that particular series.
The prospectus supplement relating to a particular series of warrants to purchase our common stock or preferred stock will describe the terms of the warrants, including the following:
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the title of the warrants; |
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the offering price for the warrants, if any; |
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the aggregate number of warrants; |
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the designation and terms of the common stock or preferred stock that may be purchased upon exercise of the warrants; |
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if applicable, the designation and terms of the securities with which the warrants are issued and the number of warrants issued with each security; |
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if applicable, the date from and after which the warrants and any securities issued with the warrants will be separately transferable; |
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the number of shares of common stock or preferred stock that may be purchased upon exercise of a warrant and the exercise price for the warrants; |
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the dates on which the right to exercise the warrants shall commence and expire; |
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if applicable, the minimum or maximum amount of the warrants that may be exercised at any one time; |
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the currency or currency units in which the offering price, if any, and the exercise price are payable; |
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if applicable, a discussion of material U.S. federal income tax considerations; |
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the anti-dilution provisions of the warrants, if any; |
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the redemption or call provisions, if any, applicable to the warrants; |
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any provisions with respect to the holders right to require us to repurchase the warrants upon a change in control or similar event; and |
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any additional terms of the warrants, including procedures, and limitations relating to the exchange, exercise and settlement of the warrants. |
Holders of warrants will not be entitled to:
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vote, consent or receive dividends; |
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receive notice as stockholders with respect to any meeting of stockholders for the election of our directors or any other matter; or |
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exercise any rights as our stockholders. |
The descriptions of the warrants in this prospectus and in any prospectus supplement are summaries of the material provisions of the applicable warrant agreements. These descriptions do not restate those agreements in their entirety and may not contain all the information that you may find useful. We urge you to
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read the applicable warrant agreements because they, and not the summaries, define your rights as holders of the warrants. For more information, please review the forms of the relevant agreements, which will be filed with the SEC promptly in connection with the offering of warrants and will be available as described under the heading Where You Can Find More Information.
DESCRIPTION OF THE UNITS
We may issue units comprised of one or more of the other classes of securities described in this prospectus in any combination. Each unit will be issued so that the holder of the unit is also the holder of each security included in the unit. Thus, the holder of a unit will have the rights and obligations of a holder of each included security. The units may be issued under unit agreements to be entered into between us and a unit agent, as detailed in the prospectus supplement relating to the units being offered. The prospectus supplement will describe:
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the designation and terms of the units and of the securities comprising the units, including whether and under what circumstances the securities comprising the units may be held or transferred separately; |
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the terms of any unit agreement governing the units; |
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the provisions for the payment, settlement, transfer or exchange of the units; |
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material federal income tax considerations, if applicable; and |
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whether the units if issued as a separate security will be issued in fully registered or global form. |
The descriptions of the units in this prospectus and in any prospectus supplement are summaries of the material provisions of the applicable agreements. These descriptions do not restate those agreements in their entirety and may not contain all the information that you may find useful. We urge you to read the applicable agreements because they, and not the summaries, define your rights as holders of the units. For more information, please review the forms of the relevant agreements, which will be filed with the SEC promptly in connection with the offering of units and will be available as described under the heading
Where You Can Find More Information.
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SELLING STOCKHOLDERS
Selling stockholders to be named in a prospectus supplement may, from time to time, offer and sell some or all of the shares of our common stock held by them pursuant to this prospectus and the applicable prospectus supplement. Such selling stockholders may sell shares of our common stock held by them to or through underwriters, dealers or agents or directly to purchasers or as otherwise set forth in the applicable prospectus supplement. See Plan of Distribution. Such selling stockholders may also sell, transfer or otherwise dispose of some or all of our common stock held by them in transactions exempt from the
registration requirements of the Securities Act.
We will provide you with a prospectus supplement, which will set forth the name of each selling stockholder and the number of shares of our common stock beneficially owned by such selling stockholder. The prospectus supplement also will disclose whether any of the selling stockholders have held any position or office with, have been employed by or otherwise have had a material relationship with us during the three years prior to the date of the prospectus supplement.
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PLAN OF DISTRIBUTION
We and the selling stockholders may sell the securities offered through this prospectus (1) to or through underwriters or dealers, (2) directly to purchasers, including our affiliates, (3) through agents, or (4) through a combination of any these methods. The securities may be distributed at a fixed price or prices, which may be changed, market prices prevailing at the time of sale, prices related to the prevailing market prices, or negotiated prices. The prospectus supplement will include the following information, if applicable:
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the terms of the offering; |
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the names of any underwriters, dealers or agents; |
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the name or names of any managing underwriter or underwriters; |
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the purchase price of the securities; |
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the net proceeds from the sale of the securities; |
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any delayed delivery arrangements; |
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any underwriting discounts, commissions and other items constituting underwriters compensation; |
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any offering price to the public; |
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any discounts or concessions allowed or reallowed or paid to dealers; and |
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any commissions paid to agents. |
Sale through underwriters or dealers
If underwriters are used in the sale, the underwriters will acquire the securities for their own account, including through underwriting, purchase, security lending or repurchase agreements. The underwriters may resell the securities from time to time in one or more transactions, including negotiated transactions. Underwriters may sell the securities in order to facilitate transactions in any of our other securities (described in this prospectus or otherwise), including other public or private transactions and short sales. Underwriters may offer securities to the public either through underwriting syndicates represented by one
or more managing underwriters or directly by one or more firms acting as underwriters. Unless otherwise indicated in the prospectus supplement, the obligations of the underwriters to purchase the securities will be subject to certain conditions, and the underwriters will be obligated to purchase all the offered securities if they purchase any of them. The underwriters may change from time to time any public offering price and any discounts or concessions allowed or reallowed or paid to dealers. The prospectus supplement will include the names of the principal underwriters the respective amount of securities underwritten, the nature of the obligation of the underwriters to take the securities and the nature of any material relationship between an underwriter and us.
If dealers are used in the sale of securities offered through this prospectus, we will sell the securities to them as principals. They may then resell those securities to the public at varying prices determined by the dealers at the time of resale. The prospectus supplement will include the names of the dealers and the terms of the transaction.
Direct sales and sales through agents
We and the selling stockholders may sell the securities offered through this prospectus directly. In this case, no underwriters or agents would be involved. Such securities may also be sold through agents designated from time to time. The prospectus supplement will name any agent involved in the offer or sale of the offered securities and will describe any commissions payable to the agent by us and the selling stockholders. Unless otherwise indicated in the prospectus supplement, any agent will agree to use its reasonable best efforts to solicit purchases for the period of its appointment.
We and the selling stockholders may sell the securities directly to institutional investors or others who may be deemed to be underwriters within the meaning of the Securities Act with respect to any sale of those securities. The terms of any such sales will be described in the prospectus supplement.
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Delayed delivery contracts
If the prospectus supplement indicates, we or the selling stockholders may authorize agents, underwriters or dealers to solicit offers from certain types of institutions to purchase securities at the public offering price under delayed delivery contracts. These contracts would provide for payment and delivery on a specified date in the future. The contracts would be subject only to those conditions described in the prospectus supplement. The applicable prospectus supplement will describe the commission payable for solicitation of those contracts.
Market making, stabilization and other transactions
Unless the applicable prospectus supplement states otherwise or the shares are offered by the selling stockholders, each series of offered securities will be a new issue and will have no established trading market. We may elect to list any series of offered securities on an exchange. Any underwriters that we and the selling stockholders use in the sale of offered securities may make a market in such securities, but may discontinue such market making at any time without notice. Therefore, we cannot assure you that the securities will have a liquid trading market.
Any underwriter may also engage in stabilizing transactions, syndicate covering transactions and penalty bids in accordance with Rule 104 under the Exchange Act. Stabilizing transactions involve bids to purchase the underlying security in the open market for the purpose of pegging, fixing or maintaining the price of the securities. Syndicate covering transactions involve purchases of the securities in the open market after the distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when the securities originally sold by the syndicate member are purchased in a syndicate covering transaction to cover syndicate short positions. Stabilizing transactions, syndicate covering transactions and penalty bids may cause the price of the securities to be higher than it would be in the absence of the transactions. The underwriters may, if they commence these transactions, discontinue them at any time.
Derivative transactions and hedging
We, the selling stockholders, the underwriters or other agents may engage in derivative transactions involving the securities. These derivatives may consist of short sale transactions and other hedging activities. The underwriters or agents may acquire a long or short position in the securities, hold or resell securities acquired and purchase options or futures on the securities and other derivative instruments with returns linked to or related to changes in the price of the securities. In order to facilitate these derivative transactions, we may enter into security lending or repurchase agreements with the underwriters or
agents. The underwriters or agents may effect the derivative transactions through sales of the securities to the public, including short sales, or by lending the securities in order to facilitate short sale transactions by others. The underwriters or agents may also use the securities purchased or borrowed from us, the selling stockholders or others (or, in the case of derivatives, securities received from us or the selling stockholders in settlement of those derivatives) to directly or indirectly settle sales of the securities or close out any related open borrowings of the securities.
Electronic auctions
We and the selling stockholders may also make sales through the Internet or through other electronic means. Since we and the selling stockholders may from time to time elect to offer securities directly to the public, with or without the involvement of agents, underwriters or dealers, utilizing the Internet or other forms of electronic bidding or ordering systems for the pricing and allocation of such securities, you should pay particular attention to the description of that system we will provide in a prospectus supplement.
Such electronic system may allow bidders to directly participate, through electronic access to an auction site, by submitting conditional offers to buy that are subject to acceptance by us, and which may directly affect the price or other terms and conditions at which such securities are sold. These bidding or ordering systems may present to each bidder, on a so-called real-time basis, relevant information to assist in making a bid, such as the clearing spread at which the offering would be sold, based on the bids submitted, and whether a bidders individual bids would be accepted, prorated or rejected. Of
course, many pricing methods can and may also be used.
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Upon completion of such an electronic auction process, securities will be allocated based on prices bid, terms of bid or other factors. The final offering price at which securities would be sold and the allocation of securities among bidders would be based in whole or in part on the results of the Internet or other electronic bidding process or auction.
General information
Agents, underwriters, and dealers may be entitled, under agreements entered into with us, to indemnification by us against certain liabilities, including liabilities under the Securities Act.
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LEGAL MATTERS
The validity of the securities offered by this prospectus will be passed upon by Wilson Sonsini Goodrich & Rosati, Professional Corporation.
EXPERTS
The consolidated financial statements of China Biologic Products, Inc. as of December 31, 2014 and 2013, and for each of the years in the three-year period ended December 31, 2014, and managements assessment of the effectiveness of internal control over financial reporting as of December 31, 2014 have been incorporated by reference herein in reliance upon the reports of KPMG, independent registered public accounting firm, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and other reports, proxy statements and other information with the SEC. Our SEC filings are available to the public over the Internet at the SECs website at http://www.sec.gov. Those filings are also available to the public free of charge on our corporate website at www.chinabiologic.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information contained on our corporate website is not part of or incorporated into this prospectus. You may also read and copy any document we file at the SECs Public Reference
Room at 100 F Street, NE, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Room.
We have filed with the SEC a registration statement under the Securities Act relating to the offering of these securities. The registration statement, including the attached exhibits, contains additional relevant information about us and the securities. This prospectus does not contain all of the information set forth in the registration statement. You can obtain a copy of the registration statement, at prescribed rates, from the SEC at the address listed above.
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INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to incorporate by reference into this prospectus certain information we file with it, which means that we can disclose important information by referring you to those documents. The information incorporated by reference is considered to be a part of this prospectus, and information that we file later with the SEC will automatically update and supersede information contained in this prospectus and any accompanying prospectus supplement. We incorporate by reference the documents listed below that we have previously filed with the SEC (excluding any portions of any Form 8-K that are not deemed filed
pursuant to the General Instructions of Form 8-K):
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our Current Report on Form 8-K, dated January 8, 2015 and filed on January 9, 2015; |
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our Annual Report on Form 10-K for the year ended December 31, 2014, filed on March 4, 2015; |
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our Current Report on Form 8-K, dated March 2, 2015 and filed on March 4, 2015; |
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our Current Report on Form 8-K, dated April 16, 2015 and filed on April 16, 2015; |
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information specifically incorporated by reference into our Annual Report on Form 10-K for the year ended December 31, 2014 from our definitive proxy statement on Schedule 14A, filed on April 29, 2015; |
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our Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed on May 6, 2015; |
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the description of our common stock, $0.0001 par value per share, contained in our Registration Statement on Form 8-A, filed on December 1, 2009 pursuant to Section 12(b) of the Exchange Act; and |
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the description of our preferred share purchase rights contained in our Registration Statement on Form 8-A, filed on January 9, 2015 pursuant to Section 12(b) of the Exchange Act. |
We also incorporate by reference into this prospectus additional documents that we may file with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus and prior to the completion or termination of the offering, excluding any information deemed furnished and not filed with the SEC. Any statements contained in a previously filed document incorporated by reference into this prospectus is deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in this prospectus, or in a subsequently filed document also incorporated by reference
herein, modifies or supersedes that statement.
This prospectus may contain information that updates, modifies or is contrary to information in one or more of the documents incorporated by reference in this prospectus. You should rely only on the information incorporated by reference or provided in this prospectus. We have not authorized anyone else to provide you with different information. You should not assume that the information in this prospectus is accurate as of any date other than the date of this prospectus or the date of the documents incorporated by reference in this prospectus.
We will provide to each person, including any beneficial owner, to whom this prospectus is delivered, upon written or oral request, at no cost to the requester, a copy of any and all of the information that is incorporated by reference in this prospectus.
Requests for such documents should be directed to:
China Biologic Products, Inc.
18th Floor, Jialong International Building
19 Chaoyang Park Road, Chaoyang District
Beijing 100125, Peoples Republic of China
Attn: Investor Relations
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