Q1 2020 Earnings Call
Welcome to the tightest biological product Holdings first quarter 2020, <unk> earnings Conference call.
For the first part of this call all participants will be in listen only mode and afterwards there'll be a question and answer session.
Today's conference is being recorded at this time I would like to turn the call over to San Martin.
For opening remarks that introduction. Please go ahead.
Okay.
Please go ahead.
Okay.
Thank you operator, Hello, everyone. Thank you for joining us on the date.
China Biologic announced its first quarter Twentytwenty financial result.
Nytwenty twentytwenty off the market clays.
On expertise is available on the company's looks like.
Today, you will have from China, Biologics, Chairman and CEO Mr. trade show.
We will start the cool with a review of the company's basic operating result on reports recent developments for the company.
He will be followed by Mr. <unk> senior Vice President of China, Biologic, who will get a detailed account of the Companys financial results [noise].
China Biologic CFO Mr., among young will be available during the Q and a session. Following the prepared remarks.
Before we proceed I would like to remind you all safe Harbor statements.
Oh Conference call May include forward looking statements made under the Safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Well, the we believed that the expectations reflected in all forward looking statements a reasonable as of today.
These statements are subject to risks uncertainties that could cause the actual results suggest that dramatically from those projected.
I can be notice here is that the expectations will prove to be correct.
Information about the risks associated with investing in China Biologic is included in our filings with the Securities Exchange Commission, which we encourage you to review before making investment decisions.
The company does not assume any obligation to update any forward looking statements as a result information future events or changes in market conditions or otherwise, except as required by law.
The company will also discuss non-GAAP measures, which I'm already explained and reconciled to the most comparable measures reported under generally accepted accounting principles and the Companys earnings release I'm filings with the FCC.
You reminded that such non-GAAP measures should not be viewed in isolation or I don't know tied to the equivalent GAAP measures and non-GAAP measures are not uniformly refer to find quite well companies, including those in the biopharmaceutical industry.
Now I'm pleased to present, Mr trade up shop, Chairman and CEO of China biologic.
[noise]. Thank you Sam.
Hello, everyone and welcome to try to biologics first quarter 20, Twond he called for school.
China Biologic lover, eight exceptionally strong performance and the first quarter of 20 Twond.
Totally driven by substantial growth in Ivy I cheese sales could actually to be all breakup cold that 19.
Despite this the majority or other products at standard operation.
Including sales and marketing activities and plasma collection.
That being negatively impact inside that hadn't diavik.
Our exceptionally strong performance in Fiveg sales during the first quarter was attributable to full manufacturers.
First.
The inclusion of Ivy I T S a supplemental treatment.
For the critical condition is related to the Kuroda virus in fact, it created a short.
A substantial rising demand for ideology, especially you Kobe province, the outbreaks accenture.
So that.
We received large amount of the IB AG purchase orders from supplier, but from.
Distributers it'll koubei as a result of our assets taken last year to increase distributors penetration you will be province, and solidify relationship whiskey commercial partners.
A key highlight helped us successful sales and marketing strategy, what's the National distributors conference held in one city late 20 2019.
This conference gave us the opportunity to not only solidify relationship with our existing keep distributors, but also be <unk> partnerships with new distributors, including some of the major players, yes, we'll be province, convincing them to switch from our competitors to China biologic.
So that the high level off Ivy I G inventory, we had build up last year due to previously sluggish sales of ideally I'd. She is should we have sufficient supply to meet the significantly increased demand from our customers.
The fourth and final factor that contributed to the strong sales of Ipi G.
With our self build cold chain logistics systems, which insured quick response and timely delivery all products to our customers.
As a result of these factors.
Our Ivy I GE revenue in the first quarter of Twentytwenty increased nearly 180% over the same quarter last year.
Which around 19% of this gross.
Coming from distribution channels over 40% of the growth coming from big problems.
Given the limited amount of available possible inventory remaining and the amount of <unk> AG oversold and the first quarter.
We anticipate that sales of GE will decelerate and the remaining quarters. So twentytwenty.
We have already seeing a decreasing demand from Ivy I G. Since March as the F. dynamic situation in China has been gradually brought under control by stringent quarantine bashers.
Yes, we are collecting information to determine the consumption rates of our products in hospitals, we learned that some distribution areas other than the heart hits Koubei Province are still holding IDI Jeep they purchased from us in their old warehouse asked in these areas.
Yes.
There are having trouble to be low usage rate of ipi GE to treat symptoms of the Corona virus.
Usage rates of ideology to treat other disease has to be lower than normal asked some patients put off go into hospital during that.
Data tear it down.
The high inventory of our distributors couldn't equity negatively impact our ideology sales to them at the last few most.
Without the exceptional contribution reported by GE sales this quarter.
We would potentially have seen a year over year decline in our total revenue and the reporting quarter, especially one can test.
With a high base in the first quarter of 29, Ting Dura, which there was a temporary rice incremental all that.
Other than ideology and although the most are most of our products were negatively impacted by that.
Got it was the majority of our product sells either declining or only marginally growing.
Cash inflows revenue declined.
Approximately 26% year over year as a large quantity often no urgent surgical operations the hospitals happiness suspended due to the Corona virus outbreak.
Our exceptional operating income growth and the first quarter was also attributable to reduced.
Cost, resulting from delays to our normal operational activities caused by Florentine regulations.
We expect our operating expense will increase.
Was power.
Yes sales and marketing General administration to R&D activities gradually return to normal level.
Taking a longer term view, however, we expect sales and marketing spares may decrease in the future as a result of our new initiative to establish our own professional promotional team as part of a step to gradually takeover the provoke promotional activities from third party organizations.
During the reporting quarter.
Our implementation of earnings growth quality management strategy since mid 29 team continued to pay off the accounts receivable turnover days for plasma products shortened to 78 days and the first quarter of 2020, compared with 95 days and the fourth quarter of 29 King.
Reflecting our increased the collection efforts to control credit exposure and the ongoing evaluation of credit terms, especially with distributors.
We are further pleased to announce that are changing for subsidiary has received a certificate of approval to manufacture a new product.
Second generation artificial to run later.
Began manufacturing in May.
In addition, the relevant authorities have recently completed a novel site inspection over the production line of our Shandell subsidiaries, new product coagulation factor at night, we expect to receive the certificates of approval to manufacture this product in the second quarter a launch the product.
So the market and the third quarter.
Another area of our operation impacted by the.
I've dynamic has been possible collection total plasma collection volume in our own collection stations declined over 40% and the first quarter.
Compared to the same quarter last year due to temporary closing of collection stations during the Kuroda virus outbreak.
Even though all of our collection stations resumed operations in much collection was far below normal level as fewer people are willing to come out to the station.
To donate plasma in fear of another southern power breakup virus and transportation was less convenient.
Yes. This is our partners engine, Joe Province has significantly reduced the volume of plasma delivered to us things late 2019.
Resulting in a further decline of our overall plasma supply and the reporting quarter.
We're actively taking measures to resolve these issues and minimize as negative impact.
Well anticipate the impact of the reduced.
Last month supply will be reflected in the company's performance in the second half of 2020 or next year.
Looking ahead to the rest of the year, we anticipate that overall sales maybe under great pressure due to the declining Tibet and that short to mid term.
The Corona virus outbreak test consumed a huge amount of medical resources in China.
Led to a shortage in reimbursement following that May result in hospital.
Reducing their purchase of certain drugs and the next few quarters.
In addition, even if the after that having largely brought under control in China. It's conceivable that for a significant appear of type people will continue to avoid go into hospitals for less urgent medical conditions in fear of another southern outbreak of the virus.
We will make proactive adjuster adjustment to our operational strategies to mitigate the impact of those demand destruction lower than expected plasma collection volume and intensified competition.
Our sales and marketing focus will be are adapting our sales formats.
And channels customer management, and targeting our sales strategy towards hospital customers brands and supply chains.
We will also endeavor to accelerate the process are fueling newly approved the plasma collection stations and applying for more station Turner's to offset the negative impact from the lower plasma volume.
That concludes my prepared remarks, I will now turn the call over to Mr., meaning in our senior Vice President to review our financial results for the first quarter 20, Twond Ming. Please go ahead.
Thank you John and non Irwin now I will walk you through the two arms for first quarter two among Lenny.
Hello sales in the first quarter, two non point to increased by 25.3% Northstar terms or 29.4% RMB terms to $162.6 million from $129.8 million in the same quarter 2019.
Total sales for ball from social products increased by 31.3% and terms or.
35.7% in RMB terms to $153 million in first quarter 2020 from 100.
Point 5 million borrowings same quarter of 2019, mainly because of increasing sales in the IB edge products, which was partly offset of line decreasing cells of ongoing and planned Santa Monica products.
For passive products total sales in first quarter 2014 increased by 13.6% New York on terms or 42.1% in RMB turned to $149.7 million from $108.8 million same quarter of 2019.
Revenue from Ivy I'd products increased by 169.7% in York Foreign terms or 170.2% RMB terms from $29 million in first quarter 2000, $19 million to $78.2 million in first quarter, two non point, mainly due to the.
Temporary substantial growth in demand for.
In connection with Covance 19, our brick supported by our higher average inventory that was the result of sluggish sell of product in the previous quarter.
The sales volume of IB I'd products increased by 188.3% during this quarter over the same period of last year.
The average price decreased by 6.6% Newstar terms and 3.5% RMB terms because of a high percentage sales volume in the distributor channel in the first quarter, two standpoint, and compared to second quarter 2019.
Revenue from human albumin decreased by 26.9% in us our terms or 24.5% RMB terms to $41.5 million in first quarter 2020 from the exceptional a high number of 40 or $56.8 million.
In the first quarter 2019 during which there was a temporary shortage of how we supplying the market related to the lower import volume.
The sales volume of human albumin products decreased by 25.2% in first quarter 2020 over same quarter last year.
Average price volume album inquiries by 0.9% in RMB terms compared to the same quarter 2019, because of a high percentage of while cells warm in the direct sales channel in us dollar.
In terms the average price for human albumin decreased by 2.3% in first quarter 2020, compared to the same quarter 2019 in first quarter of 2000, pointing I'd be I'd and human albumin products remain.
Our two largest sounds contributors as percentage of total cells sales of LG and human albumin products were 48.1%, 25.5%, respectively in first quarter two non warning.
Revenue from other in Logan products increased by 3.8% in Europe, our terms or 7% in RMB terms.
Quarter 2020.
Energy third quarter 2019.
Representing a 4% of total sales as compared to 10.1% of total sales grew same quarter 2019.
Revenue from other platform products increased by 66.7% and you want our terms for some 2.5% RMB terms.
First quarter, two non funding compared to quarter of 2019.
Growth in revenue from.
All the three carbonation factor products, namely human coagulation factor eight human prothrombin complex concentrate and human fibrinogen products, reaching 10.1% of total cells in the first quarter two non clinical research is 7.6% total sales in same quarter 2009.
Revenue from placement, our pipeline products decreased by 57.1% Eurostar terms or 55.7% in RMB terms in the first quarter two non point.
Lets compared to second quarter 2009, chief.
Accounting or 2% of Protocell compared to 5.9% turns out in same quarter tools on managing the main reason for this decrease with.
This products, including the drunkenness.
For monitoring and the prescription control in many regions.
Which put downward pressure on its smells Lorne.
Total sales for bomb mature product from first quarter 2020 decreased by 27.8% Northstar terms or 25.7% RMB terms to $9.6 million from $13.3 million in second quarter 2019 minutes you too.
Declining sales artificial do remain our products in connection with reduced number among urgent surgical operation during the cold in 19 alberich.
Cost of sales increased by 39.4% to six to 1.6 million bars in first quarter 2020 from $44.2 million in same quarter 2019.
As a percentage of total cells cost of sales increased 37% in first quarter. Two some plenty from 34.1% same quarter 2019, as combined result of decreased sales price for our major plasma products lower percentage or high margin placenta polypeptide and do remain a product in total sales.
And increase plasma collection costs.
Gross profit increased by 18% to 101 willing buyers in the first quarter of 2020 from $85.6 million in same quarter 2019, gross margin was 62.1% and 65.9% in first quarter 2019 and to them on 2020 in 2009, new respectively.
Total operating expense in first quarter, two non point decreased by $8.6 million or 20.7% too.
$33 million from $41.6 million in second quarter 2019.
This decrease consist of $4.2 million decreasing selling expense and $3.8 million decrease in general and administrative expense and a zero point $6 million decrease in research and development expenses percentage of total cells.
Total operating expense decreased to 20.3% in first quarter 2020 from 32% in second quarter, two long 19th selling expense in first quarter 2020 decreased by $4.2 million or 22.5% to $14.5 million from 18.7.
In dollars for same quarter too long 19 as percentage of total selves selling expense decreased 2.9% first quarter 2020 from 14.4% in same quarter 2019. The decrease was primarily due to a decrease in marketing and promotion expense related to present our pipeline.
Products.
Who sells revenue decrease delivered late in the first quarter two them wanting the decrease in standing spends as percentage of total cells.
Was also due to delay of normal cells and promotion activities. During the co in 19 abdomen because several core into regulations.
General and administrative expense decreased by $3.8 million or 18.4% to $16.8 million in the first quarter 2020 from $20.6 million in same quarter 2019. The decrease was mainly due to decreases in loans for power for accounts receivable, reflecting our it.
Active implementation of earning quarterly management as well as decreasing consulting service fees.
As a percentage of total sales general and administrative expense decreased to 10.3% in first quarter two some point.
Fair to 15.9% in same quarter 2019.
Research and development expense in first quarter, 2020 decreased by $4.6 million or 26.1% to $1.7 million from $2.3 million in same quarter 2019.
With some of clinical trial programs in hospitals clinics thing temporarily halted during Colby 19 identical.
And in total cells research and development expense decreased to 1% in first quarter 2000 plenty from 1.8% in same quarter of 2019 income from operations in first quarter 2020 increased by 54.5% in us dollar terms or.
60.1% in RMB terms to $68 million from $44 million in same quarter 2019 operating margin increased to 41.8% in first quarter two them funding from 33.9% in same quarter 2019 income tax expense in first quarter 2000.
20 was $11.6 million compared to $7.9 million in same quarter 2019.
The effective income tax rate was 15.7% and 15% will first quarter of 2001 in 2019, respectively.
Net income attributable to the company increased by 41.6% in US dollar terms or 43, 46.3% RMB term to $53.4 million in first quarter two them wanting from $37.7 million in same quarter of 2019.
Now margin increased to 32.8% in first quarter 2000, plenty from 29.1% in same quarter 2019 diluted earnings per share increased to $1.36 cents in first quarter 2020, as compared to 94 cents on same quarter off 2019.
Non-GAAP adjusted income from operations increased by 47.3% you asked our terms or 52.1% in RMB terms to $76.9 million in first quarter 2020 from $52.2 million Synthon order of 2019.
Non-GAAP.
Adjusted net income attributable to the company increased by 30% who use of our terms for 42.3% RMB terms to $40 million to $61.4 million in first quarter two bond fund.
$44.9 million in second quarter overlap of two of 2019 non-GAAP net margin for is to 37.6%, 8% first quarter 2020 compared to 34.3% in same quarter 2019.
Non-GAAP adjusted earnings per diluted share increased to $1.56 cents in first quarter. Two is on 20 as compared to $1.11 cents in same quarter how 2019.
Non-GAAP adjusted income from operations for first quarter 2020. This includes $6.9 million in noncash employee share based compensation expense.
Only marcin amortization expense of intangible assets and menus REIT related to position our tension.
Non-GAAP adjusted net income and earning per diluted share for the first quarter 2020 exclude $6.3 million in noncash.
Employee share based compensation expense and $1.7 million in amortization expense of intangible assets in land use rights related to the acquisition of cases.
As of March 31st 2020, we had 122.9 million motors in cash on hand and demand deposits.
$496.1 billion in time deposits and $372.7 million in short term investments.
Net cash provided by operating activities for the first quarter 2020 was $75.7 million as compared to $32.2 million for same quarter 2019 inquiries are up $43.5 million in net cash provided by operating activities was mainly because of it.
Decreasing inventories increasing net income compared to the same quarter 2019, which was partly offset by increasing our accounts receivable.
Inventory decreased $33 million in first quarter, two is on pointing compared to compare with an increase of $4 million in same quarter 2019. The decrease of inventory in first quarter. Two is on 28 was primarily due because of exceptional high sales volume IB I'd products during this period, which cleanup the high.
On the edge inventory as an opportunity to 19 the decrease of inventory in first quarter 2020 was also because of significant decline in raw material plasma collection volume as all of plasma attractions patient were closed over one months during koby 19 operate and help contains.
Brand over the virus.
And the collection volume was still below normal levels. After assumption on the collection operations in March 2020 accounts receivable increased by $35.3 million during the first quarter two loans funded as compared to the increase of $11.6 million during the same quarter of 2019.
Largely in line with the increase in South revenue accounts receivable turnover did a path from product were shortened to 78 days during the first quarter. Two long 20 from 100 days during the same quarter of 2019, reflecting our ongoing efforts to shorten credit terms on some of a private distributors and increased.
Election efforts to control Brad exposure.
Net cash used in investing activities for first quarter 2020 was 100.
$13.4 million.
Let's compare to $214.7 million was same quarter 2019.
During the first quarter two non pointing were paid $3.2 million for acquisition on property plan equipment and intangible assets and we also purchased time deposits and short term investment amount of 805 nine $859.2 million. This was partly offset by maturity value of.
Time deposits short term investment for on $749 million net cash using financing activities was first quarter 2020, with Neil as compared to $60 million for same quarter 2019.
Financial outlook.
Finally, I would like to discuss our outlook for two to unwind the co reminding all brick has impact on various aspects our operations and being plasma collection production for certain products and sales and marketing activities. We continues to actively evaluate the overall impact operates.
Our business and then we will provide financial guidance to the market, while we have a better visibility.
That concludes our prepared remarks, operator were now ready to take some questions.
Thank you we will now begin the question answer session to ask a question with Star then one and you touched on sound.
Using a speakerphone please pick up your handset before Pratt and Whitney.
Given that you all your question. Please press Star then 10 at this time, we APAC momentarily to assemble our roster.
The first question today comes from Jason Lewis with Credit Suisse.
Please go ahead.
And there are banks management, sorry, I Didnt my questions I, just had two questions for the management team.
One is regarding the inventory I know, we talked about that GE levels of inventory has decreased.
Curious to know what current inventory levels for both albumin and Ivig.
Hi, guys, Yes, and I was wondering if you will provide more color.
How the low collection volume will impact the inventory levels for the rest of type study and then second question is around the ongoing litigation with Doug and I'm, just curious to know what the impact is to the outstanding 192 times.
The remaining and how the companies looking to mitigate this thank you.
To mitigate.
[music].
I will try to address your questions is in the first question regarding the the idea now moving the inventory and on the first quarter.
As Joe just mentioned previously we had a various.
Service in the gross for the idea for the first quarter 2020 during the upcoming outbreaks, though we pretty much cleanup all of their previous.
Inventory as end of 2019, so by the.
So our operation re resumed during the Chinese Spring festival, so we pretty much Juno resume of operation we start to process all the plasma at that time, so by and are the first quarter, we pretty much how about three to four months, the new Ivy I'd products available for.
Sales.
For the first and up first quarter, Oh mean basically we.
During the.
The the virus operate we pretty much doesn't in all our production capability to GE. So basically we have a rather than less inventory for albumin and first quarter, we probably have less two months or inventory thats just a straightforward answer for first question. So second question as we disclosed.
Separately as a press release yesterday after market close so basically we had a litigation with change on Bill again.
Were you know the partner shutdown due to ensure US hundred 92 towns of plasma are we trying to a new we tried to continue to have a discussion with wishing under in trying to convince them to.
Start to read deliver into the classroom to us but in the same time the in the meantime, we we were also.
Take all the the necessary the job.
Actions, including legal action to protect our interest if the we resist or refused to up.
To to fulfill their the contract so debts.
But in the meantime, you know we.
We already trying to open the newest vendors as we previously disclosed in the in the Pony up in the in the March we opened a new centers in Shandong recently to and we also had a one centers crew and end of last year in for Quinto facility in changing city our home.
Finally, we have done operations commenced and by the later 2020. So all those efforts the new collection stations, we trying to putting the commercial operation will help to mitigate the loss from shutting down to use the best short of their plasma based post of dealer.
So hopefully that answers your question.
This is Joe so that I just.
To add a few more points.
The Corona virus outbreak.
In hot all all of us, including our competitors and.
From a possible collection standpoint.
We are no worse off than our competitors.
And based on the recovery rate, we have so far.
We are ahead of our competitors in terms of by recovering that collection daily volume right now and Jay.
As far as the in higher cost do you guys.
On us and overall it was about 10% of our all sourced plasma collection.
Steven without us disputes HM.
Still experiencing some major difficult is in terms of working capital.
And also some audio social situations that Lake collection effort Asian general more challenging than normal that you will throw on top of the.
Carl the virus outbreak had all the disruptions office supply chairs and today. It does have an impact on us a high.
We think they impact is manageable collateral is speaking there will be major shortages soft plasma from all competitors and.
So that's where it is and a couple of things could happen.
Yes, they talked about collection may recover because say more people.
After they become comfortable the the Dol break has stabilized.
And because of said the unemployment situation people have borne incentive to go to the collection stations and so there are couple of things and all the dynamic of the market as shifting on the daily basis and today.
Yeah, we would like to I have a steady supply off a past month, but I'm sure our competitors shared the same view and Jay.
So that's where we are and where basically.
Holding our breath hold there is not going to be a second wave of attack from day virus and just like many of our friends in North America pursuing the say so that's.
Yes, as much the eight as sure long winded as.
My best effort to give you some color our where we we see the thing that's going.
Hopefully that address your questions Jason.
Yes. Thank you. Thank you bye.
Again, if you have a question. Please press Star then line.
The next question today comes from Stephanie Hannah with Delaware or please go ahead.
Hi, guys, Yes, just wanted to clarify a rough split between plasma that so at Cdps and collection stations that is the absolute cognizant I wasn't sure if syngenta Joey on is that really.
Like external supplier that you are to use other suppliers as well.
Can you tell it paraphrased again could say Hello.
I'm not sure I understood the question facilities.
Repeat yet again, yeah. So I guess is seeing John Doe young.
Donald supplier that you you or do you have other external the plant.
A single is still not.
Okay. Okay. So then.
Only you said earlier only 10%.
Now collection comes from them.
Collection comes from them right.
Okay and the other question I had wasted on the equity incentive plan and there was a filing recently about Scott.
And is that opens the oldest assets CBPO or is that just senior management.
Hi can participate in management.
You can anticipate well I think you know the.
I assumed you are referring to the reason.
Hey to registration statement, we filed with RCC right.
For the $1.65 million ordinary shares yes, I think that's got the the 2019 are putting incentive plan, which was on top of the.
In the means the last year, the may and we're disclosing the previous findings. So basically this registration does not actually represent issuing shares. So this shares it was only issued one incentive out.
Words are granted under the 2019 equity incentive plan vested or excised in accordance with relevant awarded agreements.
As disclosed in our latest to 20 after our board of brands third and restricted share units to certain directors only in May 2019, and under the 2019 incentive plan. So the first batch of the written de RSU restricted share units will vest in May 2020, which was.
From a promote asked to register the shares honored in 2019 plan before handing this share issuance. So so hopefully that dress your questions.
So clearly the sound cottage across to the answer is the [noise].
[noise] equity only gave into senior management the answer is no.
Yeah, Hey.
There are say a pretty good sized.
Pull off people to participate it.
In the say.
Stock incentive based incentive plan.
Because it is our believes that our key employees should also enjoy.
All share the upside off their outstanding work and.
There are more than 80 people in this program.
Hope that.
Sure.
Okay, Yeah, yeah. Thank you guys.
Again, if you have a question. Please press Star then one.
We are.
This concludes our question and answer session I would now like to turn the call back over to Mr., Joseph Chow Chairman and CEO.
For any closing.
Yes.
[noise] well.
Thank you for your participation and ongoing support of China, biologic and have a great day.
This conference has concluded. Thank you for attending today's presentation, you may now that.