ITEM 1. FINANCIAL
STATEMENTS
CHINA BIOLOGIC PRODUCTS,
INC. AND SUBSIDIARIES
INDEX TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
CHINA
BIOLOGIC PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
Note
|
|
March
31, 2016
|
|
|
December
31, 2015
|
|
|
|
|
|
USD
|
|
|
USD
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
|
180,116,752
|
|
|
|
144,937,893
|
|
Time deposits
|
|
|
|
|
-
|
|
|
|
38,032,593
|
|
Accounts
receivable, net of allowance for doubtful accounts
|
|
2
|
|
|
30,593,102
|
|
|
|
25,144,969
|
|
Inventories
|
|
3
|
|
|
130,877,257
|
|
|
|
126,395,312
|
|
Prepayments
and other current assets, net of allowance for doubtful accounts
|
|
|
|
|
21,663,389
|
|
|
|
24,545,597
|
|
Deposits
related to land use rights, current portion
|
|
5
|
|
|
10,307,682
|
|
|
|
10,056,200
|
|
Total Current
Assets
|
|
|
|
|
373,558,182
|
|
|
|
369,112,564
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant
and equipment, net
|
|
4
|
|
|
115,500,723
|
|
|
|
105,364,251
|
|
Land use rights,
net
|
|
|
|
|
24,932,269
|
|
|
|
23,576,300
|
|
Equity method
investment
|
|
|
|
|
8,543,149
|
|
|
|
8,718,133
|
|
Loan receivable
|
|
6
|
|
|
46,431,000
|
|
|
|
39,834,173
|
|
Other
non-current assets
|
|
|
|
|
3,199,391
|
|
|
|
4,861,075
|
|
Total
Assets
|
|
|
|
|
572,164,714
|
|
|
|
551,466,496
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
|
|
5,994,820
|
|
|
|
9,681,835
|
|
Other payables
and accrued expenses
|
|
|
|
|
42,626,588
|
|
|
|
57,462,563
|
|
Income
tax payable
|
|
|
|
|
8,226,534
|
|
|
|
4,510,986
|
|
Total Current
Liabilities
|
|
|
|
|
56,847,942
|
|
|
|
71,655,384
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income
|
|
|
|
|
4,420,053
|
|
|
|
4,525,867
|
|
Other
liabilities
|
|
|
|
|
6,703,382
|
|
|
|
8,323,446
|
|
Total
Liabilities
|
|
|
|
|
67,971,377
|
|
|
|
84,504,697
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
Common stock:
|
|
|
|
|
|
|
|
|
|
|
par value $0.0001;
|
|
|
|
|
|
|
|
|
|
|
100,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
|
|
28,845,678 and 28,835,053 shares issued at March 31, 2016
and December 31, 2015, respectively;
|
|
|
|
|
|
|
|
|
|
|
26,590,974 and 26,580,349 shares outstanding at March 31,
2016 and December 31, 2015, respectively
|
|
|
|
|
2,885
|
|
|
|
2,884
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
|
|
109,649,239
|
|
|
|
105,079,845
|
|
Treasury
stock: 2,254,704 shares at March 31, 2016 and December 31, 2015, at cost
|
|
|
|
|
(56,425,094
|
)
|
|
|
(56,425,094
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Retained
earnings
|
|
|
|
|
359,901,349
|
|
|
|
333,704,094
|
|
Accumulated
other comprehensive income
|
|
|
|
|
2,108,251
|
|
|
|
(18,605
|
)
|
Total equity
attributable to China Biologic Products, Inc.
|
|
|
|
|
415,236,630
|
|
|
|
382,343,124
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling
interest
|
|
|
|
|
88,956,707
|
|
|
|
84,618,675
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders’ Equity
|
|
|
|
|
504,193,337
|
|
|
|
466,961,799
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
6 and 11
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity
|
|
|
|
|
572,164,714
|
|
|
|
551,466,496
|
|
See accompanying notes to Unaudited
Condensed Consolidated Financial Statements.
CHINA
BIOLOGIC PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
|
|
For
the Three Months Ended
|
|
|
|
Note
|
|
March
31, 2016
|
|
|
March
31, 2015
|
|
|
|
|
|
USD
|
|
|
USD
|
|
Sales
|
|
10
|
|
|
85,587,711
|
|
|
|
70,354,331
|
|
Cost of
sales
|
|
|
|
|
34,043,435
|
|
|
|
24,461,575
|
|
Gross profit
|
|
|
|
|
51,544,276
|
|
|
|
45,892,756
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
|
|
1,227,670
|
|
|
|
1,950,688
|
|
General
and administrative expenses
|
|
|
|
|
11,328,013
|
|
|
|
7,853,195
|
|
Research
and development expenses
|
|
|
|
|
1,094,723
|
|
|
|
1,342,322
|
|
Income from
operations
|
|
|
|
|
37,893,870
|
|
|
|
34,746,551
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
(expenses)
|
|
|
|
|
|
|
|
|
|
|
Equity
in loss of an equity method investee
|
|
|
|
|
(216,315
|
)
|
|
|
(95,067
|
)
|
Interest
income
|
|
|
|
|
1,751,140
|
|
|
|
1,376,847
|
|
Interest
expense
|
|
|
|
|
(88,550
|
)
|
|
|
(756,821
|
)
|
Total
other income, net
|
|
|
|
|
1,446,275
|
|
|
|
524,959
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before
income tax expense
|
|
|
|
|
39,340,145
|
|
|
|
35,271,510
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
7
|
|
|
6,607,103
|
|
|
|
5,616,150
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
32,733,042
|
|
|
|
29,655,360
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Net income attributable to noncontrolling interest
|
|
|
|
|
6,535,787
|
|
|
|
6,492,888
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to China Biologic Products, Inc.
|
|
|
|
|
26,197,255
|
|
|
|
23,162,472
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share of common
stock:
|
|
12
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
0.96
|
|
|
|
0.91
|
|
Diluted
|
|
|
|
|
0.94
|
|
|
|
0.87
|
|
Weighted average shares used
in computation:
|
|
12
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
26,585,926
|
|
|
|
24,816,877
|
|
Diluted
|
|
|
|
|
27,126,838
|
|
|
|
26,066,786
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
32,733,042
|
|
|
|
29,655,360
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment, net of nil income taxes
|
|
|
|
|
2,569,752
|
|
|
|
(854,362
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
|
|
|
35,302,794
|
|
|
|
28,800,998
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Comprehensive income attributable to noncontrolling interest
|
|
|
|
|
6,978,683
|
|
|
|
6,455,112
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income attributable to China Biologic Products, Inc.
|
|
|
|
|
28,324,111
|
|
|
|
22,345,886
|
|
See accompanying notes to Unaudited
Condensed Consolidated Financial Statements.
CHINA
BIOLOGIC PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
For
the Three Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
USD
|
|
|
USD
|
|
CASH FLOWS
FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
32,733,042
|
|
|
|
29,655,360
|
|
Adjustments
to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
2,267,623
|
|
|
|
2,201,020
|
|
Amortization
|
|
|
216,971
|
|
|
|
208,237
|
|
Loss on
sale of property, plant and equipment
|
|
|
90,261
|
|
|
|
60,540
|
|
Allowance
for doubtful accounts - accounts receivable, net
|
|
|
-
|
|
|
|
23,656
|
|
Allowance
for doubtful accounts - other receivables and prepayments
|
|
|
-
|
|
|
|
796
|
|
Write-down
of obsolete inventories
|
|
|
59,560
|
|
|
|
4,576
|
|
Deferred
tax (benefit) expense
|
|
|
(887,184
|
)
|
|
|
502,563
|
|
Share-based
compensation
|
|
|
4,569,395
|
|
|
|
1,969,973
|
|
Equity in
loss of an equity method investee
|
|
|
216,315
|
|
|
|
95,067
|
|
Change in
operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(5,267,385
|
)
|
|
|
(9,178,096
|
)
|
Prepayment
and other current assets
|
|
|
2,554,632
|
|
|
|
(1,638,307
|
)
|
Inventories
|
|
|
(3,869,727
|
)
|
|
|
(1,889,100
|
)
|
Accounts
payable
|
|
|
(3,696,808
|
)
|
|
|
482,077
|
|
Other payables
and accrued expenses
|
|
|
(8,282,055
|
)
|
|
|
(5,672,053
|
)
|
Deferred
income
|
|
|
(127,705
|
)
|
|
|
(74,749
|
)
|
Income
tax payable
|
|
|
3,654,815
|
|
|
|
(209,688
|
)
|
Net
cash provided by operating activities
|
|
|
24,231,750
|
|
|
|
16,541,872
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS
FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Payment for
property, plant and equipment
|
|
|
(13,672,613
|
)
|
|
|
(8,478,369
|
)
|
Payment for
intangible assets and land use rights
|
|
|
(967,636
|
)
|
|
|
-
|
|
Refund of
deposits related to land use right
|
|
|
994,815
|
|
|
|
-
|
|
Proceeds
from sale of property, plant and equipment and land use rights
|
|
|
63,397
|
|
|
|
6,219
|
|
Long-term
loan lent to a third party
|
|
|
(6,331,518
|
)
|
|
|
-
|
|
Net
cash used in investing activities
|
|
|
(19,913,555
|
)
|
|
|
(8,472,150
|
)
|
See accompanying notes to Unaudited
Condensed Consolidated
Financial Statements.
CHINA BIOLOGIC PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
|
|
For the
Three Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
USD
|
|
|
USD
|
|
CASH FLOWS
FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds
from stock option exercised
|
|
|
-
|
|
|
|
449,741
|
|
Repayment
of short-term bank loans
|
|
|
-
|
|
|
|
(31,610,360
|
)
|
Maturity
of deposit as security for bank loans
|
|
|
37,756,405
|
|
|
|
31,985,122
|
|
Dividend
paid by subsidiaries to noncontrolling interest shareholders
|
|
|
(7,921,952
|
)
|
|
|
-
|
|
Dividend
to the trial court to be held in escrow as to dispute with Jie’an
|
|
|
-
|
|
|
|
(2,988,194
|
)
|
Net
cash provided by (used in) financing activities
|
|
|
29,834,453
|
|
|
|
(2,163,691
|
)
|
|
|
|
|
|
|
|
|
|
EFFECT
OF FOREIGN EXCHANGE RATE CHANGES ON CASH
|
|
|
1,026,211
|
|
|
|
(738,659
|
)
|
|
|
|
|
|
|
|
|
|
NET
INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
35,178,859
|
|
|
|
5,167,372
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
144,937,893
|
|
|
|
80,820,224
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
|
180,116,752
|
|
|
|
85,987,596
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information
|
|
|
|
|
|
|
|
|
Cash paid
for income taxes
|
|
|
3,867,715
|
|
|
|
5,373,179
|
|
Cash paid
for interest expense
|
|
|
-
|
|
|
|
660,018
|
|
Noncash investing
and financing activities:
|
|
|
|
|
|
|
|
|
Acquisition
of property, plant and equipment included in payables
|
|
|
3,087,289
|
|
|
|
189,074
|
|
See accompanying notes to Unaudited
Condensed Consolidated
Financial Statements.
CHINA
BIOLOGIC PRODUCTS INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016 AND 2015
NOTE 1 – BASIS OF PRESENTATION, SIGNIFICANT CONCENTRATION
AND RISKS
|
(a)
|
Basis of Presentation
|
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
(“U.S. GAAP”). Certain information and footnote disclosures normally included in financial statements prepared in
accordance with U.S. GAAP have been condensed or omitted as permitted by rules and regulations of the U.S. Securities and Exchange
Commission (“SEC”). The December 31, 2015 consolidated balance sheet was derived from the audited consolidated financial
statements of China Biologic Products, Inc. (the “Company”). The accompanying unaudited consolidated financial statements
should be read in conjunction with the December 31, 2015 audited consolidated financial statements of the Company included in
the Company’s annual report on Form 10-K for the year ended December 31, 2015.
In the opinion of management, all adjustments
(which include normal recurring adjustments) necessary to present a fair statement of the financial position as of March 31, 2016,
the results of operations for the three months ended March 31, 2016 and 2015, changes in equity for the three months ended March
31, 2016 and 2015, and cash flows for the three months ended March 31, 2016 and 2015, have been made. All significant intercompany
transactions and balances are eliminated on consolidation.
The preparation of the unaudited condensed
consolidated financial statements in conformity with U.S. 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 unaudited
condensed 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 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.
|
(b)
|
Significant Concentration and Risks
|
The Company’s operations are carried
out in the People’s Republic of China (the “PRC”) and are subject to specific considerations and significant
risks not typically associated with companies in North America and Western Europe. Accordingly, the Company’s business,
financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and
by the general state of the PRC economy. The Company’s results may be adversely affected by changes in governmental policies
with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods
of taxation, among other matters.
The Company maintains cash and deposit
balances at financial institutions which, from time to time, may exceed Federal Deposit Insurance Corporation insured limits for
its bank accounts located in the United States or may exceed Hong Kong Deposit Protection Board insured limits for its bank accounts
located in Hong Kong or may exceed the insured limits for its bank accounts in China established by China Deposit Insurance Fund
Management Institution.
Total cash at banks and deposits as of
March 31, 2016 and December 31, 2015 amounted to $179,625,214 and $182,291,723, respectively, of which $2,650,724 and $3,020,569
are insured, respectively. The Company has not experienced any losses in uninsured bank deposits and does not believe that it
is exposed to any significant risks on cash held in bank accounts.
The Company’s two major products
are human albumin and human immunoglobulin for intravenous injection (“IVIG”). Human albumin accounted for 38.1% and
38.2% of the total sales for the three months ended March 31, 2016 and 2015, respectively. IVIG accounted for 39.9% and 46.7%
of the total sales for the three months ended March 31, 2016 and 2015, respectively. If the market demands for human albumin and
IVIG cannot be sustained in the future or the price of human albumin and IVIG decreases, the Company’s operating results
could be adversely affected.
Substantially all of the Company’s
customers are located in the PRC. There were no customers that individually comprised 10% or more of the total sales during the
three months ended March 31, 2016 and March 31, 2015. There was no customer represented more than 10% of accounts receivables
as at March 31, 2016 and December 31, 2015, respectively. The Company performs ongoing credit evaluations of its customers’
financial condition and, generally, requires no collateral from its customers.
There was one supplier, namely, Xinjiang
Deyuan Bioengineering Co., Ltd. (“Xinjiang Deyuan”), that comprised 10% or more of the total purchases for the three
months ended March 31, 2016. No supplier that comprised 10% or more of the total purchases for the three months ended March 31,
2015. There was one supplier that represented more than 10% of accounts payables as at March 31, 2016 and December 31, 2015, respectively.
NOTE 2 – ACCOUNTS RECEIVABLE
Accounts receivable at March 31, 2016
and December 31, 2015 consisted of the following:
|
|
March
31, 2016
|
|
|
December
31, 2015
|
|
|
|
USD
|
|
|
USD
|
|
Accounts receivable
|
|
|
31,038,944
|
|
|
|
25,588,593
|
|
Less: Allowance for doubtful accounts
|
|
|
(445,842
|
)
|
|
|
(443,624
|
)
|
Total
|
|
|
30,593,102
|
|
|
|
25,144,969
|
|
The activity in the allowance for doubtful
accounts-accounts receivable for the three months ended March 31, 2016 and 2015 are as follows:
|
|
For
the Three Months Ended
|
|
|
|
March
31,
2016
|
|
|
March
31,
2015
|
|
|
|
USD
|
|
|
USD
|
|
Beginning balance
|
|
|
443,624
|
|
|
|
433,948
|
|
Provisions
|
|
|
-
|
|
|
|
23,656
|
|
Recoveries
|
|
|
-
|
|
|
|
-
|
|
Write-offs
|
|
|
-
|
|
|
|
-
|
|
Foreign
currency translation adjustment
|
|
|
2,218
|
|
|
|
(258
|
)
|
Ending balance
|
|
|
445,842
|
|
|
|
457,346
|
|
NOTE 3 – INVENTORIES
Inventories at March 31, 2016 and December
31, 2015 consisted of the following:
|
|
March
31, 2016
|
|
|
December
31, 2015
|
|
|
|
USD
|
|
|
USD
|
|
Raw materials
|
|
|
68,081,106
|
|
|
|
57,418,230
|
|
Work-in-process
|
|
|
30,268,107
|
|
|
|
27,401,062
|
|
Finished goods
|
|
|
32,528,044
|
|
|
|
41,576,020
|
|
Total
|
|
|
130,877,257
|
|
|
|
126,395,312
|
|
An inventory write-down of $59,560 and
$4,576 was recorded during the three months ended March 31, 2016 and 2015, respectively.
NOTE 4 – PROPERTY, PLANT AND
EQUIPMENT
Property, plant and equipment at March
31, 2016 and December 31, 2015 consisted of the following:
|
|
March
31, 2016
|
|
|
December
31, 2015
|
|
|
|
USD
|
|
|
USD
|
|
Buildings
|
|
|
31,908,501
|
|
|
|
31,505,133
|
|
Machinery and equipment
|
|
|
57,403,634
|
|
|
|
54,640,502
|
|
Furniture, fixtures, office equipment
and vehicles
|
|
|
8,166,697
|
|
|
|
7,859,951
|
|
Total property, plant and equipment, gross
|
|
|
97,478,832
|
|
|
|
94,005,586
|
|
Accumulated depreciation
|
|
|
(33,373,030
|
)
|
|
|
(31,521,859
|
)
|
Total property, plant and equipment, net
|
|
|
64,105,802
|
|
|
|
62,483,727
|
|
Construction in progress
|
|
|
33,626,558
|
|
|
|
26,115,927
|
|
Prepayment for property, plant
and equipment
|
|
|
17,768,363
|
|
|
|
16,764,597
|
|
Property, plant and equipment,
net
|
|
|
115,500,723
|
|
|
|
105,364,251
|
|
Depreciation expense for the three months
ended March 31, 2016 and 2015 was $2,267,623 and $2,201,020, respectively.
NOTE 5 – DEPOSITS RELATED TO
LAND USE RIGHTS
In 2012, Guizhou Taibang made a refundable
payment of RMB83,400,000 (approximately $12,907,818) to the local government in connection with the public bidding for a land use
right in Guizhou Province. Given the decrease of the land area to be provided by the local government, RMB13,000,000 (approximately
$2,012,010) and RMB10,000,000 (approximately $1,547,700) was refunded by the local government in December 2013 and January 2014,
respectively. Guizhou Taibang completed the bidding and purchased the land use right in December 2015. In April 2016, RMB 16,082,462
(approximately $2,489,083) was refunded by the local government. The remaining deposit is expected to be refunded by the end of
2016.
NOTE 6 – LOAN RECEIVABLE
In August 2015, the Company entered into
a cooperation agreement with Xinjiang Deyuan and the controlling shareholder of Xinjiang Deyuan. Pursuant to the agreement, Guizhou
Taibang agreed to provide Xinjiang Deyuan with interest-bearing loans at an interest rate of 6% per annum with an aggregate principal
amount of RMB300,000,000 (approximately $46,431,000). The loans are due July 31, 2018 and secured by a pledge of Deyuan Shareholder’s
58.02% equity interest in Xinjiang Deyuan. Interest will be paid on the 20th day of the last month of each quarter. For the year
ended December 31, 2015, RMB258,663,461 (approximately $40,033,344) was lent to Xinjiang Deyuan. The remaining RMB41,336,539 (approximately
$6,331,518) was lent during the three months period ended March 31, 2016.
Interest income of $652,306 was accrued
and received by Guizhou Taibang for the three months period ended March 31, 2016.
NOTE 7 – INCOME TAX
In October 2014, Shandong provincial government
granted Shandong Taibang the High and New Technology Enterprise certificate. This certificate entitled Shandong Taibang to enjoy
a preferential income tax rate of 15% for a period of three years from 2014 to 2016.
According to Cai Shui [2011] No. 58 dated
July 27, 2011, Guizhou Taibang, being a qualified enterprise located in the western region of PRC, enjoys a preferential income
tax rate of 15% effective retroactively from January 1, 2011 to December 31, 2020.
The Company’s effective income tax
rates were 17% and 16% for the three months ended March 31, 2016 and 2015.
As of and for the three months ended March,
31, 2016, the Company did not have any unrecognized tax benefits and thus no interest and penalties related to unrecognized tax
benefits were recorded. In addition, the Company does not expect that the amount of unrecognized tax benefits to change significantly
within the next 12 months.
NOTE 8 – OPTIONS AND NONVESTED
SHARES
Options
A summary of stock options activity for
the three months ended March 31, 2016 is as follow:
|
|
Number
of Options
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining Contractual
Term in Years
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
USD
|
|
|
|
|
|
USD
|
|
Outstanding at December 31, 2015
|
|
|
651,897
|
|
|
|
10.44
|
|
|
|
5.24
|
|
|
|
86,064,461
|
|
Granted
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
and expired
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31,
2016
|
|
|
651,897
|
|
|
|
10.44
|
|
|
|
4.99
|
|
|
|
67,824,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest
|
|
|
651,897
|
|
|
|
10.44
|
|
|
|
4.99
|
|
|
|
67,824,383
|
|
Exercisable at March 31, 2016
|
|
|
530,647
|
|
|
|
10.57
|
|
|
|
4.67
|
|
|
|
55,137,996
|
|
For the three months ended March 31, 2016
and 2015, the Company recorded stock compensation expense of $243,577 and $293,050, respectively, in general and administrative
expenses.
At March 31, 2016, approximately $405,625
of stock compensation expense with respect to the non-vested stock options is expected to be recognized over approximately 0.42
years.
Nonvested shares
A summary of nonvested shares activity for the three months
ended March 31, 2016 is as follows:
|
|
Number of
nonvested shares
|
|
|
Grant date weighted
average fair value
|
|
|
|
|
|
|
USD
|
|
Outstanding at December 31, 2015
|
|
|
669,100
|
|
|
|
77.49
|
|
Granted
|
|
|
31,800
|
|
|
|
114.42
|
|
Vested
|
|
|
(10,625
|
)
|
|
|
41.81
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Outstanding at March 31, 2016
|
|
|
690,275
|
|
|
|
79.74
|
|
For the three months ended March 31, 2016
and 2015, the Company recorded stock compensation expense of $4,325,818 and $1,676,923 respectively in general and administrative
expenses.
At March 31, 2016, approximately $44,353,568
of stock compensation expense with respect to nonvested shares is expected to be recognized over approximately 2.57 years.
NOTE 9 – FAIR VALUE MEASUREMENTS
Management used the following methods
and assumptions to estimate the fair value of financial instruments at the relevant balance sheet dates:
• Short-term financial instruments
(including cash and cash equivalents, time deposits, accounts receivable, other receivables, accounts payable, and other payables
and accrued expenses) – The carrying amounts of the short-term financial instruments approximate their fair values because
of the short maturity of these instruments.
• Loan receivable – The carrying
amounts of loan receivable approximate their fair value. The fair value is estimated using discounted cash flow analysis based
on the Company’s incremental borrowing rates for similar borrowing.
NOTE 10 – SALES
The Company’s sales are primarily
derived from the manufacture and sale of Human Albumin and Immunoglobulin products. The Company’s sales by significant types
of product for the three months ended March 31, 2016 and 2015 are as follows:
|
|
For
the three months ended
|
|
|
|
March
31,
2016
|
|
|
March
31,
2015
|
|
|
|
USD
|
|
|
USD
|
|
Human Albumin
|
|
|
32,628,855
|
|
|
|
26,893,030
|
|
Immunoglobulin products:
|
|
|
|
|
|
|
|
|
Human Immunoglobulin
for Intravenous Injection
|
|
|
34,157,762
|
|
|
|
32,865,791
|
|
Other Immunoglobulin
products
|
|
|
8,900,316
|
|
|
|
4,334,122
|
|
Placenta Polypeptide
|
|
|
5,708,405
|
|
|
|
4,552,204
|
|
Others
|
|
|
4,192,373
|
|
|
|
1,709,184
|
|
Total
|
|
|
85,587,711
|
|
|
|
70,354,331
|
|
NOTE 11 – COMMITMENTS AND CONTINGENCIES
Commitments
As of March 31, 2016, commitments outstanding
for the purchase of property, plant and equipment approximated $34.1 million.
As of March 31, 2016, commitments outstanding
for the purchase of plasma from 2016 to 2018 approximated $76.1 million.
Legal proceedings
Dispute with Jie’an over Certain Capital Injection
into Guizhou Taibang
In May 2007, a 91% majority of Guizhou
Taibang’s shareholders approved a plan to raise additional capital from qualified strategic investors through the issuance
of an additional 20,000,000 shares of Guizhou Taibang. The plan required all existing Guizhou Taibang shareholders to waive their
rights of first refusal to subscribe for the additional shares. The remaining 9% minority shareholder of Guizhou Taibang’s
shares, Guizhou Jie’an Company, or Jie’an, did not support the plan and did not waive its right of first refusal.
In May 2007, Guizhou Taibang signed an Equity Purchase Agreement with certain alleged strategic investors (who concealed their
background), pursuant to which such investors agreed to invest an aggregate of RMB50,960,000 (approximately $7,887,079) in exchange
for 21.4% of Guizhou Taibang’s equity interests. Such Equity Purchase Agreement was not approved or ratified by over two-thirds
supermajority of Guizhou Taibang’s shareholders, which approval or ratification is required under the PRC Company Law. At
the same time, as an existing shareholder, Jie’an also subscribed for 1,800,000 shares, representing its pro rata share
of the 20,000,000 shares being offered. In total, Guizhou Taibang received RMB50,960,000 (approximately $7,887,079) from the investors
and RMB6,480,000 (approximately $1,002,910) from Jie’an.
In June 2007, Jie’an brought a lawsuit
against Guizhou Taibang, alleging that it had a right to acquire the 18,200,000 shares offered to the investors under the Equity
Purchase Agreement. The trial court denied Jie’an’s request, and the PRC Supreme Court ultimately sustained the original
ruling in May 2009 and denied the rights of first refusal of Jie’an over the 18,200,000 shares.
During the second quarter of 2010, Jie’an
requested that Guizhou Taibang register its 1.8 million shares of additional capital injection with the local administration of
industry and commerce, or AIC. Guizhou Taibang’s board of directors withheld its required ratification of Jie’an’s
request, pending the outcome of the ongoing litigation. In March 2012, Jie’an brought another lawsuit against Guizhou Taibang
for refusing to register the shares. In July 2013, the trial court dismissed the lawsuit for lack of jurisdiction. Jie’an
did not appeal the dismissal.
In December 2013, Jie’an brought
a third lawsuit against Guizhou Taibang, requesting Guizhou Taibang to register 1.8 million shares under its name with the local
AIC. In July 2014, the trial court denied Jie’an’s request to register such shares. Despite the denial of Jie’an’s
share registration request, the trial court, however, in its ruling, ordered Guizhou Taibang to pay accumulated dividends of RMB13,809,197
(approximately $2,137,249) associated with these shares and the related interest expenses to Jie’an. Guizhou Taibang and
Jie’an subsequently filed a cross-appeal. In December 2014, the appellate court ruled in favor of Jie’an supporting
its request to register 1.8 million shares and ordered Guizhou Taibang to pay Jie’an its share of accumulated dividends
of RMB18,339,227 (approximately $2,838,362) associated with these shares plus the related interest expenses to Jie’an. In
the first half of 2015, Guizhou Taibang paid an aggregate of RMB22,639,227 (approximately $3,503,873) to the trial court held
in escrow pending further appeal of this case. Guizhou Taibang appealed to the High Court of Guizhou in June 2015 which overruled
the decision of the appellate court and remanded the case to the trial court for retrial in September 2015.
In November 2013, Guizhou Taibang held
a shareholders meeting and the shareholders passed resolutions, or the November 2013 Resolutions, that, inter alia, (i) determined
that it was no longer necessary for Guizhou Taibang to obtain additional capital from investors; (ii) rejected Jie’an’s
request that Jie’an subscribe for additional shares of Guizhou Taibang alone and one or more other shareholders reduce their
shareholding in Guizhou Taibang; and (iii) approved the issuance of a total of 20,000,000 new shares to all existing shareholders
on a pro rata basis. Jie’an subsequently filed a fourth lawsuit against Guizhou Taibang in December 2013, requesting that
the court declare the November 2013 Resolutions void. Both the trial court and the appellate court denied Jie’an’s
request.
In March 2014, Guizhou Taibang held another
shareholders meeting and the shareholders passed resolutions, or the March 2014 Resolutions, that, inter alia, re-calculated the
ownership percentage in Guizhou Taibang based on the November 2013 Resolutions and the additional capital injections from existing
shareholders. Guizhou Taibang subsequently updated the registration with the local AIC regarding the additional capital injections
in August 2014. In September 2014, Jie’an and another minority shareholder of Guizhou Taibang filed a lawsuit against Guizhou
Taibang, requesting that the court declare both the November 2013 Resolutions and the March 2014 Resolutions void and instruct
Guizhou Taibang to withdraw the AIC registration. In November 2014, the trial court suspended this case pending the final outcome
of the third lawsuit filed by Jie’an. In October 2015, the trial court denied their request.
If the pending cases with Jie’an
are ultimately ruled in Jie’an’s favor, the ownership interest in Guizhou Taibang may be diluted to 83% and Jie’an
may be entitled to receive accumulated dividends of RMB18,339,227 (approximately $2,838,362), being its claimed share of Guizhou
Taibang’s accumulated dividend distributions associated with the 1.8 million shares, and the related interest expenses from
Guizhou Taibang. As of March 31, 2016, Guizhou Taibang had maintained, on its balance sheet, payables to Jie’an in the amounts
of RMB5,040,000 (approximately $780,041) as received funds in respect of the 1.8 million shares in dispute, RMB1,440,000 (approximately
$222,869) for the over-paid subscription price paid by Jie’an and RMB3,759,412 (approximately $581,844) for the accrued
interest. As these cases are closely interlinked to the outcome of the disputes with certain individual investor described below,
based on its PRC litigation counsel’s assessment, the Company does not expect Jie’an to prevail.
Dispute with Certain Individual
Investors over Certain Capital Injection into Guizhou Taibang
In part due to the invalidity of the Equity
Purchase Agreement with certain alleged strategic investors in May 2007, which was never approved or ratified by Guizhou Taibang’s
shareholders, such investors’ equity ownership in Guizhou Taibang and the related increase in registered capital of Guizhou
Taibang have never been registered with the local AIC. In January 2010, one individual among such investors brought a lawsuit
against Guizhou Taibang requesting to register his 14.35% ownership interest in Guizhou Taibang with the local AIC and seeking
the distribution of his share of Guizhou Taibang’s dividends declared since 2007.
In October 2010, the trial court denied
such individual investor’s right as shareholders of Guizhou Taibang and his entitlement to share the dividends, which ruling
was reaffirmed after a re-trial by the same trial court in December 2012. After such ruling, Guizhou Taibang attempted to return
the originally received fund of RMB34,160,000 (approximately $5,286,943) to such investor by wiring the fund back to his bank
account but was unable to do so due to the closure of his bank account. Another investor, however, accepted the returned fund
of RMB11,200,000 (approximately $1,733,424) from Guizhou Taibang in November 2010. In 2013, the same individual investor appealed
the case to the PRC Supreme Court, which also denied his claims for shareholder status in Guizhou Taibang and the related dividend
distribution and accrued interest in September 2013. Such investor subsequently attempted to seek a re-trial by the PRC Supreme
Court, which request was denied by the PRC Supreme Court in January 2014. He then applied to the PRC Supreme Procuratorate to
request for a review of the PRC Supreme Court’s decision and seek an appeal by the PRC Supreme Procuratorate to the PRC
Supreme Court for an ultimate re-trial on his behalf. In July 2015, the PRC Supreme Procuratorate rejected his request for review.
As of March 31, 2016, Guizhou Taibang
had maintained, on its balance sheet, payables to the investors of RMB34,160,000 (approximately $5,286,943) as originally received
funds from such individual investor in respect of the shares in dispute, RMB18,082,330 (approximately $2,798,602) for the interest
expenses, and RMB341,600 (approximately $52,869) for the 1% penalty imposed by the Equity Purchase Agreement for any breach in
the event that Guizhou Taibang is required to return the original investment amount to such investor.
NOTE 12 - NET INCOME PER SHARE
The following table sets forth the computation
of basic and diluted net income per share for the periods indicated:
|
|
For
the three months ended
|
|
|
|
March
31, 2016
|
|
|
March
31, 2015
|
|
|
|
USD
|
|
|
USD
|
|
|
|
|
|
|
|
|
Net
income attributable to China Biologic Products, Inc.
|
|
|
26,197,255
|
|
|
|
23,162,472
|
|
Earnings
allocated to participating nonvested shares
|
|
|
(648,471
|
)
|
|
|
(502,298
|
)
|
Net
income used in basic/diluted net income per common stock
|
|
|
25,548,784
|
|
|
|
22,660,174
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares used in computing basic net income per common stock
|
|
|
26,585,926
|
|
|
|
24,816,877
|
|
Diluted effect of stock options
|
|
|
540,912
|
|
|
|
1,249,909
|
|
Weighted
average shares used in computing diluted net income per common stock
|
|
|
27,126,838
|
|
|
|
26,066,786
|
|
|
|
|
|
|
|
|
|
|
Net income
per common stock – basic
|
|
|
0.96
|
|
|
|
0.91
|
|
Net income
per common stock – diluted
|
|
|
0.94
|
|
|
|
0.87
|
|
During the three months ended March 2016
and 2015, no option was antidilutive or excluded from the calculation of diluted net income per common stock.
ITEM 2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Special Note Regarding Forward Looking
Statements
In addition to historical information,
this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. We use words such as “believe,” “expect,”
“anticipate,” “project,” “target,” “plan,” “optimistic,” “intend,”
“aim,” “will” or similar expressions which are intended to identify forward-looking statements. Such statements
include, among others, those concerning market and industry growth and demand and acceptance of new and existing products; expectations
regarding governmental approvals of our new products; any projections of sales, earnings, revenue, margins or other financial items;
any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic
conditions or performance; as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You
are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties,
including those identified in Item 1A “Risk Factors” described in our Annual Report on Form 10-K filed on February
25, 2016, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause the results of our company
to differ materially from those expressed or implied by such forward-looking statements.
Readers are urged to carefully review and
consider the various disclosures made by us in this report and our other filings with the SEC. These reports attempt to advise
interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects.
The forward-looking statements made in this report speak only as of the date hereof and we disclaim any obligation, except as required
by law, to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or
future events.
Use of Terms
Except as otherwise indicated by the context
and for the purposes of this report only, references in this report to:
|
·
|
“China Biologic,” “we,” “us,” “our company,” the
“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 report only, Taiwan and the special administrative regions of Hong Kong and Macau;
|
|
·
|
“Exchange Act” are to the Securities Exchange Act of 1934, as amended;
|
|
·
|
“GMP” are to good manufacturing practice;
|
|
·
|
“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 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; and
|
|
·
|
“U.S. dollars,” “USD” and “$” are to the legal currency of
the United States.
|
Overview of Our Business
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 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 38.1% and 38.2% of our total sales for the three months ended March 31, 2016 and 2015, respectively.
Sales of IVIG products represented approximately 39.9% and 46.7% of our total sales for the three months ended March 31, 2016 and
2015, 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.
For
the three months ended March 31, 2016 and 2015
, our top five customers accounted for approximately 17.5% and 13.8%, respectively,
of our total sales.
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 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 report or incorporated by reference herein.
Recent Developments
In April 2016, our wholly owned subsidiary, Guiyang Dalin Biologic
Technologies Co., Ltd., increased its equity interest in Guizhou Taibang from 81.81% as of December 31, 2015 to 85.27% following
a series of capital injections.
First Quarter Financial Performance Highlights
The following are some financial highlights
for the three months ended March 31, 2016:
|
·
|
Sales
: Sales increased by $15.2 million, or 21.6%, to $85.6 million for the three
months ended March 31, 2016, from $70.4 million for the same period in 2015.
|
|
·
|
Gross profit
: Gross profit increased by $5.6 million, or 12.2%, to $51.5 million
for the three months ended March 31, 2016, from $45.9 million for the same period in 2015.
|
|
·
|
Income from operations
: Income from operations increased by $3.2 million, or 9.2%,
to $37.9 million for the three months ended March 31, 2016, from $34.7 million for the same period in 2015.
|
|
·
|
Net income attributable to our company
: Net income increased by $3.0 million, or
12.9%, to $26.2 million for the three months ended March 31, 2016, from $23.2 million for the same period in 2015.
|
|
·
|
Diluted net income per share
: Diluted net income per share was $0.94 for the three
months ended March 31, 2016, as compared to $0.87 for the same period in 2015.
|
Results of Operations
Comparison of Three Months Ended March 31, 2016 and March
31, 2015
The following table sets forth key components
of our results of operations in thousands of U.S. dollars for the periods indicated.
|
|
For the three months ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Amount
|
|
|
% of Total Sales
|
|
|
Amount
|
|
|
% of Total Sales
|
|
|
|
(U.S. dollars in thousands, except percentage and per share data)
|
|
Sales
|
|
|
85,588
|
|
|
|
100.0
|
|
|
|
70,354
|
|
|
|
100.0
|
|
Cost of sales
|
|
|
34,043
|
|
|
|
39.8
|
|
|
|
24,462
|
|
|
|
34.8
|
|
Gross margin
|
|
|
51,545
|
|
|
|
60.2
|
|
|
|
45,892
|
|
|
|
65.2
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
1,228
|
|
|
|
1.4
|
|
|
|
1,951
|
|
|
|
2.8
|
|
General and administrative expenses
|
|
|
11,328
|
|
|
|
13.2
|
|
|
|
7,853
|
|
|
|
11.2
|
|
Research and development expenses
|
|
|
1,095
|
|
|
|
1.3
|
|
|
|
1,342
|
|
|
|
1.9
|
|
Total operating expenses
|
|
|
13,651
|
|
|
|
15.9
|
|
|
|
11,146
|
|
|
|
15.8
|
|
Income from operations
|
|
|
37,894
|
|
|
|
44.3
|
|
|
|
34,746
|
|
|
|
49.4
|
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in loss of an equity method investee
|
|
|
(216
|
)
|
|
|
(0.3
|
)
|
|
|
(95
|
)
|
|
|
(0.1
|
)
|
Interest expense
|
|
|
(89
|
)
|
|
|
(0.1
|
)
|
|
|
(757
|
)
|
|
|
(1.1
|
)
|
Interest income
|
|
|
1,751
|
|
|
|
2.0
|
|
|
|
1,377
|
|
|
|
2.0
|
|
Total other income, net
|
|
|
1,446
|
|
|
|
1.6
|
|
|
|
525
|
|
|
|
0.7
|
|
Earnings before income tax expense
|
|
|
39,340
|
|
|
|
45.9
|
|
|
|
35,271
|
|
|
|
50.1
|
|
Income tax expense
|
|
|
6,607
|
|
|
|
7.7
|
|
|
|
5,616
|
|
|
|
8.0
|
|
Net income
|
|
|
32,733
|
|
|
|
38.2
|
|
|
|
29,655
|
|
|
|
42.2
|
|
Less: Net income attributable to noncontrolling interest
|
|
|
6,536
|
|
|
|
7.6
|
|
|
|
6,493
|
|
|
|
9.2
|
|
Net income attributable to our company
|
|
|
26,197
|
|
|
|
30.6
|
|
|
|
23,162
|
|
|
|
32.9
|
|
Net income per share of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.96
|
|
|
|
|
|
|
|
0.91
|
|
|
|
|
|
Diluted
|
|
|
0.94
|
|
|
|
|
|
|
|
0.87
|
|
|
|
|
|
Sales
Our sales increased by $15.2 million, or
21.6%, to $85.6 million for the three months ended March 31, 2016, compared to $70.4 million for the same period in 2015. Excluding
the foreign exchange impact resulting from the depreciation of the RMB against the U.S. dollar, our sales would have increased
by 29.4% for the three months ended March 31, 2016 as compared to the same period in 2015. The increase in sales for the three
months ended March 31, 2016 was primarily attributable to the sales volume increases in major plasma products and human tetanus
immunoglobulin products.
The following table summarizes the breakdown
of sales by significant types of product:
|
|
For the three months ended March 31,
|
|
|
Change
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
|
(U.S. dollars in millions, except percentage)
|
|
Human albumin
|
|
|
32.6
|
|
|
|
38.1
|
|
|
|
26.9
|
|
|
|
38.2
|
|
|
|
5.7
|
|
|
|
21.2
|
|
Immunoglobulin products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IVIG
|
|
|
34.2
|
|
|
|
39.9
|
|
|
|
32.9
|
|
|
|
46.7
|
|
|
|
1.3
|
|
|
|
4.0
|
|
Other immunoglobulin products
|
|
|
8.9
|
|
|
|
10.4
|
|
|
|
4.3
|
|
|
|
6.2
|
|
|
|
4.6
|
|
|
|
107.0
|
|
Placenta polypeptide
|
|
|
5.7
|
|
|
|
6.7
|
|
|
|
4.6
|
|
|
|
6.5
|
|
|
|
1.1
|
|
|
|
23.9
|
|
Others
|
|
|
4.2
|
|
|
|
4.9
|
|
|
|
1.7
|
|
|
|
2.4
|
|
|
|
2.5
|
|
|
|
147.1
|
|
Totals
|
|
|
85.6
|
|
|
|
100.0
|
|
|
|
70.4
|
|
|
|
100.0
|
|
|
|
15.2
|
|
|
|
21.6
|
|
During the three months ended March 31,
2016 as compared to the three months ended March 31, 2015:
|
·
|
the average price for our approved human albumin products, which accounted for 38.1% of our total
sales for the three months ended March 31, 2016, increased by 2.8% in RMB term and decreased by 3.4% in USD term; and
|
|
·
|
the average price for our approved IVIG products, which accounted for 39.9% of our total sales
for the three months ended March 31, 2016, increased by 2.7% in RMB term and decreased by 3.4% in USD term; and
|
The average sales price of our human albumin
products and IVIG products increased in RMB term for the three months ended March 31, 2016 as compared to the same period in 2015
following the removal of the retail price ceiling for drug products effective
on June 1, 2015
.
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 availabilities 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 quarter to quarter.
The sales volume of our human albumin products and IVIG products
increased by 25.6% and 7.6% for the three months ended March 31, 2016 as compared to the same period in 2015 as a result of the
increased production volume at Shandong Taibang and Guizhou Taibang. The slower sales growth of IVIG products for the three months
ended March 31, 2016 was primarily due to the depletion of IVIG pastes we reserved from previous years to be processed and sold
in 2015 in anticipation of favorable market conditions and our improved sales capabilities at that time.
The sales increase of other immunoglobulin products for the
three months ended March 31, 2016 as compared to the same period in 2015 was mainly attributable to the increase in both sales
volume and sales price of human tetanus immunoglobulin products. The sales of human tetanus immunoglobulin products increased by
$5.0 million for the three months ended March 31, 2016 as compared to the same period in 2015. The average sales price of human
tetanus immunoglobulin products increased significantly for the three months ended March 31, 2016 as compared to the same period
in 2015 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 other products for
the three months ended March 31, 2016 as compared to the same period in 2015 was mainly due to the increase in sales volume of
human prothrombin complex concentrate, or PCC and factor VIII. We launched PCC to the market in early 2015 and experienced the
sales ramp-up for the three months ended March 31, 2016.
Cost of sales
and gross
profit
|
|
For the three months ended March 31,
|
|
|
Change
|
|
|
|
2016
|
|
|
2015
|
|
|
Amount
|
|
|
%
|
|
|
|
(U.S. dollars in millions, except percentage)
|
|
Cost of sales
|
|
|
34.1
|
|
|
|
24.5
|
|
|
|
9.6
|
|
|
|
39.2
|
|
as a percentage of total sales
|
|
|
39.8
|
%
|
|
|
34.8
|
%
|
|
|
|
|
|
|
5.0
|
|
Gross Profit
|
|
|
51.5
|
|
|
|
45.9
|
|
|
|
5.6
|
|
|
|
12.2
|
|
Gross Margin
|
|
|
60.2
|
%
|
|
|
65.2
|
%
|
|
|
|
|
|
|
(5.0
|
)
|
Our cost of sales was $34.1 million, or
39.8% of our sales for the three months ended March 31, 2016, as compared to $24.5 million, or 34.8% of our sales for the same
period in 2015. Our gross profit was $51.5 million and $45.9 million for the three months ended March 31, 2016 and 2015, respectively,
representing gross margins of 60.2% and 65.2%, respectively. The decrease of the gross margin was mainly due to the sales derived
from the raw material purchased from Xinjiang Deyuan Bioengineering Co., Ltd., or Xinjiang Deyuan, whose cost is moderately higher
than plasma from our own collection stations. Excluding this impact, our gross margin remained consistent for the three months
ended March 31, 2016 as compared to the same period in 2015.
Our cost of sales and gross margin are
affected by the volume and pricing of our sold products, raw material costs, production mix and respective yields, inventory provisions,
production cycles and routine maintenance costs. 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 expected 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 and volume, product mix, yields and manufacturing efficiency.
The increase in cost of sales for the
three months ended March 31, 2016 as compared to the same period in 2015 was generally in line with the increases in sales
volume and cost of plasma. The increase in cost of sales as a percentage of sales for the three months ended March 31, 2016
as compared to the same period in 2015 was mainly due to the moderately higher cost of plasma purchased from
Xinjiang Deyuan partially offset by the increase in the average sales price of certain plasma products.
Operating expenses
|
|
For the three months ended March 31,
|
|
|
Change
|
|
|
|
2016
|
|
|
2015
|
|
|
Amount
|
|
|
%
|
|
|
|
(U.S. dollars in millions, except percentage)
|
|
Operating expenses
|
|
|
13.6
|
|
|
|
11.1
|
|
|
|
2.5
|
|
|
|
22.5
|
|
as a percentage of total sales
|
|
|
15.9
|
%
|
|
|
15.8
|
%
|
|
|
|
|
|
|
0.1
|
|
Our total operating expenses increased
by $2.5 million, or 22.5%, to $13.6 million for the three months ended March 31, 2016, from $11.1 million for the same period in
2015. As a percentage of sales, total expenses increased by 0.1% to 15.9% for the three months ended March 31, 2016, from 15.8%
for the same period in 2015. The increase of the total operating expenses was mainly due to the increase of the general and administrative
expenses as discussed below.
Selling expenses
|
|
For the three months ended March 31,
|
|
|
Change
|
|
|
|
2016
|
|
|
2015
|
|
|
Amount
|
|
|
%
|
|
|
|
(U.S. dollars in millions, except percentage)
|
|
Selling expenses
|
|
|
1.2
|
|
|
|
2.0
|
|
|
|
(0.8
|
)
|
|
|
(40.0
|
)
|
as a percentage of total sales
|
|
|
1.4
|
%
|
|
|
2.8
|
%
|
|
|
|
|
|
|
(1.4
|
)
|
Our selling expenses decreased by $0.8
million, or 40.0%, to $1.2 million for the three months ended March 31, 2016, from $2.0 million for the same period in 2015. As
a percentage of sales, our selling expenses decreased by 1.4% to 1.4% for the three months ended March 31, 2016, from 2.8% for
the same period in 2015 primarily due to the promotion activities on human rabies immunoglobulin products we carried out in the
three months ended March 31, 2015.
General and administrative expenses
|
|
For the three months ended March 31,
|
|
|
Change
|
|
|
|
2016
|
|
|
2015
|
|
|
Amount
|
|
|
%
|
|
|
|
(U.S. dollars in millions, except percentage)
|
|
General and administrative expenses
|
|
|
11.3
|
|
|
|
7.9
|
|
|
|
3.4
|
|
|
|
43.0
|
|
as a percentage of total sales
|
|
|
13.2
|
%
|
|
|
11.2
|
%
|
|
|
|
|
|
|
2.0
|
|
Our general and administrative expenses
increased by $3.4 million, or 43.0%, to $11.3 million for the three months ended March 31, 2016, from $7.9 million for the same
period in 2015. General and administrative expenses as a percentage of sales increased by 2.0% to 13.2% for the three months ended
March 31, 2016, from 11.2% for the same period in 2015. The increase in general and administrative expenses was mainly due to the
increase of share-based compensation expenses totaling $2.6 million.
Research and development expenses
|
|
For the three months ended March 31,
|
|
|
Change
|
|
|
|
2016
|
|
|
2015
|
|
|
Amount
|
|
|
%
|
|
|
|
(U.S. dollars in millions, except percentage)
|
|
Research and development expenses
|
|
|
1.1
|
|
|
|
1.3
|
|
|
|
(0.2
|
)
|
|
|
(15.4
|
)
|
as a percentage of total sales
|
|
|
1.3
|
%
|
|
|
1.9
|
%
|
|
|
|
|
|
|
(0.6
|
)
|
Our research and development expenses decreased
by $0.2 million, or 15.4%, to $1.1 million for the three months ended March 31, 2016, from $1.3 million for the same period in
2015. We received government grants of RMB 0.9 million (approximately $0.14 million) and recognized it as a reduction of research
and development expenses for the three months ended March 31, 2016. Excluding this impact, our research and development expenses
remained consistent in RMB term for the three months ended March 31, 2016 as compared to the same period in 2015. As a percentage
of sales, our research and development expenses for the three months ended March 31, 2016 and 2015 were 1.3% and 1.9%, respectively.
Income tax
|
|
For the three months ended March 31,
|
|
|
Change
|
|
|
|
2016
|
|
|
2015
|
|
|
Amount
|
|
|
%
|
|
|
|
(U.S. dollars in millions, except percentage)
|
|
Income tax
|
|
|
6.6
|
|
|
|
5.6
|
|
|
|
1.0
|
|
|
|
17.9
|
|
as a percentage of total sales
|
|
|
7.7
|
%
|
|
|
8.0
|
%
|
|
|
|
|
|
|
(0.3
|
)
|
Our provision for income taxes increased
by $1.0 million, or 17.9%, to $6.6 million for the three months ended March 31, 2016, from $5.6 million for the same period in
2015. Our effective income tax rate was 16.8% and 15.9% for the three months ended March 31, 2016 and 2015, respectively.
The
statutory tax rate applicable to our major operating subsidiaries in the PRC for 2016 and 2015 is 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
March 31, 2016, we had $180.1 million in cash and cash equivalents, primarily consisting of cash on hand and demand deposits.
The following table provides the summary
of our cash flows for the periods indicated:
|
|
For the three months ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(U.S. dollars in millions)
|
|
Net cash provided by operating activities
|
|
|
24.2
|
|
|
|
16.5
|
|
Net cash used in investing activities
|
|
|
(19.9
|
)
|
|
|
(8.5
|
)
|
Net cash provided by (used in) financing activities
|
|
|
29.8
|
|
|
|
(2.1
|
)
|
Effects of exchange rate change on cash
|
|
|
1.1
|
|
|
|
(0.7
|
)
|
Net increase in cash and cash equivalents
|
|
|
35.2
|
|
|
|
5.2
|
|
Cash and cash equivalents at beginning of the period
|
|
|
144.9
|
|
|
|
80.8
|
|
Cash and cash equivalents at end of the period
|
|
|
180.1
|
|
|
|
86.0
|
|
Operating Activities
Net cash provided by operating activities for the three months
ended March 31, 2016 was $24.2 million, as compared to $16.5 million for the same period in 2015. The increase in net cash provided
by operations activities was largely consistent with the improvements in our results of operations, the speed-up of accounts receivable
collection and the increase of net non-cash operating expense for the three months ended March 31, 2016 as compared to the same
period in 2015, partially offset by an increase in inventories during the relevant period.
Accounts receivable
We sped up our collection of accounts receivable for the three
months ended March 31, 2016 as compared to the same period in 2015. The accounts receivable turnover days for plasma products were
33 days and 38 days for the three months period ended March 31, 2016 and March 31, 2015, respectively. For the three months ended
March 31, 2015, in order to penetrate the market for human rabies immunoglobulin product, we granted credit terms ranging from
two to three months to the distributors rather than requiring them to make full payments prior to deliveries. We no longer implemented
such credit policy in the three months ended March 31, 2016.
Inventories
Inventories increased by $3.9 million during
the three months ended March 31, 2016, as compared to $1.9 million during the same period in 2015, primarily due to the increase
of plasma purchased from Xinjiang Deyuan.
Net non-cash operating expenses
Net non-cash operating expenses increased
by $1.5 million during the three months ended March 31, 2016, as compared to the same period in 2015, primarily due to the increase
of share-based compensation expenses totaling $2.6 million.
Investing Activities
Our use of cash for investing activities
is primarily for the acquisition of property, plant and equipment, intangibles and long-term loan to a third party.
Net cash used in investing activities for
the three months ended March 31, 2016 was $19.9 million, as compared to $8.5 million for the same period in 2015. During the three
months ended March 31, 2016, we paid $14.6 million for the acquisition of property, plant and equipment, intangible assets and
land use right for Shandong Taibang and Guizhou Taibang, and granted a loan of $6.3 million to Xinjiang Deyuan pursuant to a cooperation
agreement we entered into with Xinjiang Deyuan in August 2015. During the three months ended March 31, 2015, we paid $8.5 million
for the acquisition of property, plant and equipment, for Shandong Taibang and Guizhou Taibang.
Financing Activities
Net cash provided by financing activities
for the three months ended March 31, 2016 was $29.8 million, as compared to net cash used in financing activities of $2.1 million
for the same period in 2015. The net cash provided by financing activities for the three months ended March 31, 2016 mainly consisted
of the maturity of a $37.8 million time deposit as a security for a 24-month loan which was fully repaid in June 2015, partially
offset by dividend of $7.9 million paid to the minority shareholder by Shandong Taibang. The net cash used in financing activities
for the three months ended March 31, 2015 mainly consisted of a repayment of $31.6 million on a short-term bank loan and a dividend
of $3.0 million to be held in escrow by a trial court in connection with disputes with a minority shareholder of Guizhou Taibang,
partially offset by the maturity of a $32.0 million deposit as security for the same short-term bank loan.
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 March 31, 2016:
|
|
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
|
|
|
1.4
|
|
|
|
0.4
|
|
|
|
0.8
|
|
|
|
-
|
|
|
|
0.2
|
|
Purchase commitment
|
|
|
76.1
|
|
|
|
29.8
|
|
|
|
46.3
|
|
|
|
-
|
|
|
|
-
|
|
Capital commitment
|
|
|
34.1
|
|
|
|
30.7
|
|
|
|
3.4
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
111.6
|
|
|
|
60.9
|
|
|
|
50.5
|
|
|
|
-
|
|
|
|
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
Critical accounting policies are those
we believe are most important to portraying our financial conditions and results of operations and also require the greatest amount
of subjective or complex judgments by management. Judgments and uncertainties regarding the application of these policies
may result in materially different amounts being reported under various conditions or using different assumptions. There have been
no material changes to the critical accounting policies previously disclosed in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2015.