Q2 2020 China Biologic Products Holdings Inc Earnings Call
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Good day and good evening welcome to the China Biologic second quarter 2020 earnings call.
All participants will be in listen only mode should you need assistance. The secondly conference specialist I processing star than zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions to ask the question. You Me Press Star then one on your telephone keypad.
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I would now like to turn the conference over to the company for opening remarks and introductions. Please go ahead.
Thank you for joining us on todays call.
China Biologic announced its second quarter 2020 financial results on August 17, 2020, after the market close.
Earnings releases are available on the company's website.
Today, you will hear from China, Biologics, Chairman and CEO Mr. Joseph Chow, we'll start off the call with a review of the company's operating results and report recent developments.
He'll be followed by Mr. <unk> senior Vice President of China, Biologic, who will give it a detailed account of the Companys financial results.
Tenda biologic CFO Mr. mean young will be available during the Q and a section following their prepared remarks [noise].
Before we proceed I would like to remind you of our Safe Harbor statement. Our conference call May include forward looking statements made under the Safe Harbor provision for the private Securities Litigation Reform Act of 1995.
Although we believe that the expectations reflected in our forward looking statements are reasonable as of today.
Those statements are a bit subject to risks and uncertainties that could cause actual results to differ dramatically from those projected.
There can be no assurance that those expectations will prove to be correct.
Information about the risks so dish associated with investing in China, but my logic is included in our filings with the Securities and Exchange Commission.
Which we encourage you to review before making an investment decision.
The company does not assume any obligation to update any forward looking statements as a result, with new information future events changes in market conditions or otherwise, except as required by law.
The company will also discuss non-GAAP measures, which are more thoroughly explained and reconciled to the most comparable measures reported under generally accepted accounting principles in the company's earnings release and filings with the SEC.
We're reminded that non-GAAP measures should not be viewed in isolation, whereas an alternative to the equivalent GAAP measures that non-GAAP measures are not uniformly defined by all companies, including those in the <unk> biopharmaceutical industry.
Now I'm pleased to present, Mr., Joseph Chow, Chairman and CEO of China biologic.
Thank you Phil.
Hello, everyone and welcome to China, Biologic second quarter 25 conference call.
As we discussed on our last earnings call.
Our revenue operating profit and that profit was lower during the second quarter.
Total sales and the second quarter off 2020 decreased by 14.9% in RMB terms, which was due to the receding hadn't davin impact.
Proactively adjusted sales focus.
However, we did achieve improvement in our operating margins and that margin, mainly due to the status cutting measures to lower sales and marketing expenses.
These reflects our continued efforts to for actually adjust our sales in the promotional formats.
Well as our channel kind of accretion and customer management strategies.
Lower second quarter performance was reflected in our different product sectors.
Oh plasma products total cells and the second quarter of 20 Twond.
Decreased by 12.8% in RMB terms.
The decline was mainly due to decrease the sales of eight IC products for which we saw tremendous growth and the first quarter.
And the first quarter, we achieved approximately 880% growth in IC sales.
With dependent brought under control all the national level in the second quarter overall med.
Indeed has declined.
The lower second quarter plasma product performance was also due to.
Lower all of them in sales the overall supply volatile for all of that has been Ted healthy growth, while manufacturing and sales activity as our peer Cabot has returned to normal levels.
Following the relaxation of important team restrictions.
Although our album and production in the second quarter remained flat our actual sales performance and direct hostel channel reflected at an overall, 10% volume growth.
While we decreased sales within distribution networks.
Dissipation of a potential Albany shortage in late 2020.
Looking from decline in Poles.
The performance of our placenta polypeptide product was largely in line with our expectation.
With revenue declining approximately 50% quarter over quarter as the product has being included all the Russell agile that drops in many regions socket too aggressive medical reinvestment control Ed the change of are involved in policy.
However, we're pleased to report that operating margins of this product has shown approximately 10 to said.
Improvements due to a significant cost cutting resulting from our recent.
Assets in sales team reorganization and channel optimization, the operating profit also increased 6.4%.
But for most of our biomaterial products, what's better than expected with revenue up about 5% and net profit up over 35%, which reflects fewer marketing and promotional activities due to cold at 19 quarantine restrictions.
We believe our second quarter performance was in line with our peer companies and the same period.
Over the market share perspective, we believe we are well positioned in various categories.
Got into the latest SCPA data most of our major possible products, including all women I VIP PCC.
Fiber.
Fibrinogen skin Maki shares and the second quarter.
Our other products maintained stable locking share with our PCC already owner occupied over a 50% in market share in hospital is included in the CGM data.
In addition, our average account receivable turnover days for possible products continued to improve to 76 days and the first half off 20, Twond from 89 days and the full year plenty United Kingdom. Thanks to our continued Atlas in re evaluate shit.
All of our credit terms with distributors and increase the collection efforts to control credit exposure in does.
Challenging Todd.
Now I will walk you through certain developments within our operating segments during the past quarter.
Our self classic impossible supply all possible clocks and volume has rebounded to normal collection levels and even improved.
By close to 10% in the second quarter compared with the same quarter last year.
From over 40% year over year drop in the first quarter.
Yes, thanks to our teams great assets.
Flooring various measures to make up for that reduced collection volume and the first quarter.
Including new dollar recruitment plans and extended the collection.
Hours.
We're also excited to report that we recently received the approval for people to a new flexion facility in New York City Shangdong Province.
That's new approval represents an important development for China biologic strategy to solidify our market penetration.
And expand our clocks and territory.
With this new approval.
We now have a two new plasma station seen stendal expected to be commercially launched in early 2021.
And the full.
Iuliano station introducing city, we have accelerated the commercial operation preparation and expected to commence operations in late 2020.
With these three pipeline flaccid collection stations lined up we believe that we are well positioned to meet the increasing market demand for possible.
Therapeutics in China, and the coming years.
Well the outflows the plasma supply web take a legal actions to protect our rise and are seeking to recruit all potential losses due to machine got will do that rich office cooperation agreement with us.
In the meantime, we are accelerating that cost structure, our newly approved the clock and stations and are applying for more station permits in order to offset the decrease of wanted to supply.
Well the new product development, we are pleased to receive thing.
We're pleased to report wherever we see the certificate of approval for manufacturing coagulation factor at night in July.
This is the first our factory by approval in China.
We began clinical trial in 27 King fold those first to market plasma based products in China, which will further improve our popham up fractionation utilization and the contribute to our long term financial growth.
We have already begun manufacturing this product and expect to launch and the third quarter [noise].
[noise] far equity investment in she of weekend, we listen to the learned that the shashi medical products at the station has revolt pharmaceutical manufacturing permit on she out we've had a company, which we have a 35% actually interest.
Due to its lack of compliance was flat over the GMP standards covering certain steps in manufacturing I AG products.
We have actively engaged in dialogue with the controlling shadow holder of weekend, all derisked potential plans to minimize our financial losses, including applying for administrative appeal and request for administrative actions by the rather than court. If there is no positive outcome.
Our appeal.
Besides the and this vacant routes. We're also exploring different doses gravity plans to mitigate our potential equity investment loss.
Looking ahead to the second half of the yen, we see continuing although certainties due to intensified competition after.
The pandemic impact, we see that preceded the pricing pressure from potential national centralized procurement shortage in public reimbursement voting as well as production shipment arrangement correlated to plus about clashing involved pop in the coming quarters.
We will continue to proactively adjust our operation strategies to mitigate.
The impact on free juice, the demand and intensified competition.
We will work to fill the gap in plus about Clarkson and explore more channels to improve overall possible supply.
And we will make every effort to maintain our long track record on providing quality products to our patients investing new products development, and bringing better health care to the society.
This concludes my prepared remarks, I will now I'll turn the call over to Mr. mean in our senior Vice President.
To review financial results for the second quarter 2020, Ma'am. Please go ahead.
There was 101 now I will walk you through that in line items for the second quarter 2014.
Total sales to second quarter, two another torn decreased by 18.1% U.S. dollar terms full 14.9% RMB turn to $111.1 million from $135.7 million in second quarter 2019, total sales for bound Hum cellular products PDP decline 20 point.
3% Youre spot on terms or 17.1 person RMB terms to $97.5 million, new second quarter 2001 from $122.3 million, who same quarter of 2019, mainly because of a decreasing sound Some Ivy League, Alberta, Congolese you factor.
On top of patent products.
Well passing products total sales to second quarter 2020 decreased by 16.2% in U.S. dollar terms or 12.8% RMB turned to $93 million from $111 million move same quarter 2019.
Revenue from Ivy I'd products decreased by 37.2% U.S. dollar terms or.
34.5% RMB terms from $27.4 million in second quarter, 2009, cheap to $17.2 million second quarter 2020.
We need because hospitals distributers reduce their purchase volume to see stock higher than normal.
Inventory during coding 19, I'll I'll break in the first quarter the sales volume.
Products decreased by 33.1% during the quarter over the same appeared on last year.
Average price decreased by 5.8% U.S. dollar terms in 2.1% in RMB terms in the second quarter 2020 compared to same quarter 2019.
Many because we charge lower cells.
Lower price for sort of dispute or to enhance our sales volume.
Revenue from human albumin decreased by 13.3% lifestyle terms for 9.8% R&D terms to $2.4 million, who second quarter 2020 from $48.9 million to second quarter 2019, primarily due to the deepest house.
The disputing the pharmacy channels.
The sales volume humane already progress decreased by 9.5% you second quarter 2020 over the same quarter last year. The average price decreased by five 4.2% utilized on terms and zero point pool person RMB terms, new segment, which was on 20 compared to 34 to 2019.
In the second quarter, 2020 ideology and human all new products remain to our two largest sounds contributors. This percentage of total cells cells, IB AG and the human albumin products were 15.5% and 38.2% respectively second quarter two.
2020.
Revenue from other into the building products increased by 8.9% U.S. dollar terms or 13.3% R&D terms in second quarter 2020, compared to the same quarter 2019, representing.
6% total sales as compared to 14% of totals now these same quarter 2019 revenue from other plans from products decreased by 19.1% us our terms or 15.8% RMB terms in the second quarter 2020 compared to same quarter 2019.
And because of the decline in sell some human fibrinogen products representing.
11.4% of total sell through second quarter 2020, compared to 11.5% of total sales these same quarter 2019.
Revenue from please send top polypeptide products decreased by 60.2% install in terms or 59% RMB terms in second quarter 2020, as compared to same quarter of 2019.
Accounting for 4.1% of total sales compared to if we 3% of to themselves in the same quarter 2019.
The main reason for this decrease was that this products was including the Dropless to full monitoring and a prescription control in many regions, which put downward pressure on sales volume.
Total sales for Paul multi mature products, either second quarter 2020 increased by 1.5% less power terms or 5.1% behind be terms to $13.6 million from 13.4 million arms in the same quarter 2019 accounting Board quote 12 point.
2% of a total sales compared to 9.9% with who sells your same quarter 2019. The decrease was mainly due to increased cells artificial do remain a products.
Cost of sales decreased by 12, 22.5% to $34.7 million during second quarter of 2020 from $44.8 million in the same quarter of 2019% of total cells cost of sales decreased to 31.2% in second quarter 2020 from 33.
Personally same quarter 2019.
Combined result of lower overhead cost the chandeliers Hy bons new facility at the nearly two year wrong pure it lower proportion products made from higher cost to all sourced plasma and a higher percentage of a high margin do remain the products in terms of cells gross profit decreased by 16% to.
$76.4 million, you second quarter, two zones, one from $19.9 million in the same for 2019.
Gross margin was 16.8% in a 16%, 67% second quarter 2920 in 2019, respectively. Total operating expense in the second quarter. Two is on plenti decreased by $9 million or 22.1% to $33.7 million from 42.
$2.7 million in same quarter 2019.
This decrease in many consist of $12.2 million $11.2 million decrease incentive expense, which was partly offset by $1.8 million, increasing general and administrative expense and a full point, there point $4 million, increasing R&D expense as a percentage over total ourselves.
Total operating expense decreased to 30.3% in the second quarter 2020 from 30.1, 30.5% in the same quarter 2019.
Turning expense in second quarter, 2020 decreased by $11.2 million to 43.8% to $14.4 million from $25.6 million will remain the same quarter of 2019.
Percentage of total sell sending expense decreased to 13% you second quarter two zones plenty.
18.9% in the same quarter of 2019, the decrease was primarily due to decreases in marketing and promotion expense related to please send petro products.
Who sells decreasing lives and significantly in the second quarter 2020.
General and administrative expenses increased by $1.8 million or 12.2% to $16.5 million in second quarter 2020 from $14.7 million in same quarter 2019 as percentage of total sales general and administrative expense decreased to 14 point.
In 9% in the second quarter 2020, compared to 10.8% in the same quarter 2019.
The increase was mainly because of a onetime reversal of loans for the Tom for accounts receivable of $1.8 million during the second quarter 2019.
[noise] research and development expense.
Second quarter, 2020 increased by $2.4 billion or 16.7% to $2.8 million from $2.4 million in same quarter of 2019 as a clinical trial improvements the hospitals and clinics start to review in the second quarter App to tamper.
We halted coolant during the cold in 19 epidemic in first quarter. This percentage of total cells research and development expense increased to 2.5% in second quarter of 2020 from 1.8% in the same quarter 2019 income from operations in second quarter 2000.
Only decreased by 11.4% in US dollar terms for 7.9% the RMB terms to $42.7 million from $48.2 million, New same quarter 2019 operating margin increased to 38.4% second quarter 2020 from 35.5% usage.
In quarter 2019 income tax expense in second quarter, 2020 was $6.6 million compared to $8.2 million, new same quarter 2019 that effective income tax rate was 14% and 14.4% for second quarter 2.2 is on plan in 2019, respectively.
Net income attributable to the company decreased by 14.2% in US dollar terms or 10.9% R&D terms to $35.7 million in second quarter 2020 from $41.6 million. These same quarter of 2019 net margin increased to 32.
On 1% second quarter 2020 from 30.7% same quarter too.
Sure sure diluted earnings per share decreased to 91 cents in second quarter of 2020 as compared to one dollar.
Six cents, a second quarter 2019.
Non-GAAP adjusted income.
From operations decreased to decreased by 9.3% use our terms or 5.8% in RMB term to $51.4 million second quarter 2020 from $56.7 million in same quarter 2019, non-GAAP adjusted net income attributable to compete.
<unk> decreased by 10.9% in us dollar terms or 7.2% RMB terms to $43.4 million in second quarter 2020 from $48.7 million in same quarter 2019 lung GAAP net margin increased to 39.1% you second quarter 2000 point compared to.
35.9% same quarter 2019, non-GAAP adjusted earnings per diluted share decreased to $1.11 cents in second quarter 2020, compared to $1.24 cents, new same quarter 2019, non-GAAP adjusted income from operations for the second quarter 2000.
20 excludes $6.7 million in noncash employee share based compensation expense.
And $2 million amortization expense on the intangible assets and then use Ryan's relate to the acquisition of pinching Fu non-GAAP adjusted net income and earnings per diluted share for second quarter of 2020.
Grew $6.1 million seen noncash employee share based compensation expense and a $1.6 million in amortization expense on fees intangible asset unused REIT related to their position on PC, who has over June 32020, we have $545.1 million from cash on hand.
And demand deposits.
$21 million in time deposits, and 440, and 74.9 million phones in the short term recipe.
Net cash provided by operating activities for the first half 2020 was $135.5 million compared to.
$94.2 million for same period of 2019, the increase of $41.3 million net cash provided by operating activities was mainly because of a decreasing inventories and increasing net income compared to the same period of 2019.
Which was partly offset by increasing accounts receivable.
Hundred decreased by $22 million in first half two unfunny compared with the increase of $3.9 million in the same period of 2019.
The decrease of inventory in the first half 2020 was primarily because of a significant decline raw material.
Plasma as all of plasma collection were close to four over one month during Colin operating.
The decrease during the first half 2020 was also because of high sales volume our value added products. During this period, which clean up the high inventories upfront and of.
Year 2019 accounts receivable inventory increased by.
$16.9 million during the first half 2020 years compared to increase of $15.2 million. During the same period 2019, largely nine was our increasing sales revenue accounts receivable account or Dade full path, we products for shorter into.
76 today 76 days during the first half 2020 from 102 days during the same period in 2019, reflecting our ongoing efforts to shorten credit terms on some of this dispute has increased collection efforts to control credit exposure net cash from.
Lighting by investing activities for the first half 2020 was.
$256.1 million compared to cash usage investing activities for one year $17.5 billion for same period of 2019.
During the first half 2020, we paid $7.1 million for acquisition of property plan equipment intangible asset than land use right and also repurchased time deposits. The short term investment amounted to 1500 $338.9 billion. This was partly offset by.
Maturity bearing on time deposit and short term investment 1800 $2 million net cash using financing activities for first half 2020 was $7 million compared to $114.9 billion for same period of 2019. During the first half two is on plenty of our subsidiary.
Paid dividend of some points moon ours to non controlling interest shareholders, which we partly offset by proceeds are zero point $3 million from stock option exercised.
That concludes our prepared remarks, operator, we're now ready are ready to take some questions.
We will now begin the question and answer session.
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The first question comes from Jason Lou.
Got it suites. Please go ahead.
Hi, Good morning, good evening, Thanks for taking my question.
Just had two questions.
The first one.
Adjusted you spoke earlier about the potential albumin shortage in and the second half the year in late 2020.
I was wondering if you can speak a little more about this potential shortage and you think.
Yes, he may increase.
And have we actually seen albumin ASP increase so far.
My first question.
Okay.
First of all right.
I think you asked the question was with with regard to plasma collection. The second was about all of them in ASP am I correct.
I get my first question was just around I.
But I am actually interested in the collection as well, but yes first questions around just overall the market of albumin in the second half with 2020.
Do we think that you mentioned that there was going to be shortage. What are the reasons started thinking speak more about this.
Okay all right.
Yes, given the outbreak of that hadn't Dab make a collection of assets was say disrupted other national level, a pretty much at all they call a industry player OSAT CBPO included a were impact in a way that say.
Due to the strict quarantine restrictions that were on label.
To open our collection stations for a sustained period of time because people are told to stay hole.
And in July.
Our collection outsized virtually ceased to operate for about a evolves and half.
And after aggressive intervention from that management and Ted relevant government authorities I, we're able to resume operation after a major interruption and people are generally ginger to come back to collection.
Station for fear of the.
Dynamic, which is natural and that caused a major disruption and possible collection side and with the shortage in.
A plausible class a aspire to have an impact other production.
Our flat plus a products although than included.
And today does it say.
In fact across the industry. In addition to that in China. The although the lock. It was started by import from international players predominately from us companies.
With the outbreak.
In.
And the U.S.
Plasma collection was also impacted significantly.
And today as a result of which there could be major shortages skus a us accounts for about 50% of the U.S. outside China us although the bucket.
And with the United States itself in a and the state. It is today and we don't know what it's going to go back to normal.
So these are the major driving forces.
The reason all than.
Sales growth was.
Healthy in the last quarter from in close because last year. There was a pile up all of than supplies in China, because certified that batch data up batch process approval process and that inventory. It was being released into the market add as going out quicker.
Early and these other factors combined together and we believe there is going to be a major shortage of all of them in supply.
And from what from our end well, we can see as that Distributers are trying to.
Stocking up although the products in anticipation of.
Product increases.
Well, we're doing on our end was that we're rationalizing our product as as supplying product to our larger and most important today.
Customers at hospitals.
Have a wholesale added distribution that side, we're starting to see certain price increases across.
Different sizes of the wholesalers and today, we believe this trend is going to continue on.
On Q4 supply all of the as resumed.
Hopefully a Israel classic Jason.
Yes, that's very clear and then I guess my my second question. So the follow up to that is I know, it's temporary sense.
We're waiting for the new collections sensors to come online, but in between that I think the rest of 2020, because it could impact our dog and.
Does that cause any inventory shortage or CBPO about them in an ideal levels before the new stations can come on line.
It is going to have an impact because say with a disruption for all of the supply and with the situation would have that do add it's going to have a some impact on our possible.
Collection and to as a result will lead to a.
Reduction in our inventory levels and debt with only a sell stuff what we have the and were taking aggressive actions right now.
In terms in the fuel.
Categories first or make working very hard to increase the yield from our existing possible production.
By utilizing better production methods.
Second we're accelerating the construction offer new collection centers as I mentioned in my report.
We received approval to build a new class in stages or accelerating that process and we expect that the plasma collection stations and Giuliano will become operational at about who love and we're also ramping up a price collection, the Atlas need our existing.
From a.
Activities as as I alluded in my previous statement, we're pretty happy to see these results these efforts or producing.
Encouraging signs and Jay.
The last two miles that we're seeing growth higher that are expected by.
From our previous Clackson levels, but with the fact that we had a disruption off a lot of half malls or first tried to make up the losses. We have that if we are maintained this level, we feel that the impact of the plasma collection.
Be manish.
Thank you Jay that that that's right.
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Thank you that's very clear. Thank you very much that's all my questions yes.
The next question comes from Stephanie and I'll deal reporter. Please go ahead.
Maybe first.
Now let me quickly is the progress that proposal to see VPN.
That is taking a little longer Mike and let him know is that becoming a distraction to cpis management from an operational perspective.
And do you expect that injury and we'll still be leading the deal if it becomes a definitive agreement.
[laughter].
Okay. Okay, well this is Joe some childcare and first of all thank you for your question and I.
The first part of your question whether it be proposal is a distraction I took the to the business operation.
Well, that's always done there's always going to be impacts.
From proposals impacting business, because say you know a there were certain things yeah.
You know, we we have to pay attention to that that could be a distraction.
But the key is how do we have managed a distraction and Jay I think so far we're okay.
The second part of question I think.
It is not a proper format for me to discuss the topics in that because say.
And just as a matter between different shareholders and to the management's focus is as all delivering operating results said. This is stay objective of today's call I I Hope you enter said that.
Yeah I know that's understood you just a quick follow up have you received any updates from your special committee on on how the potential is progressing.
Well the special Committee typically do not to give the update to me because I'm a company management and Chad today, and you know the discussions between the consortium and Special Committee and a managed by independent third Party legal counsel said into financial advisors and.
So my focus will steal all.
How do we manage the challenging time to end the Miss off the [laughter] Colvin 19 outbreak.
HM Okay.
Okay Fair enough fair enough. Thanks, Jason.
Thank you.
Once again, if you have a question.
Please press star.
Then one.
On a touchtone phone.
This concludes our question and answer session I would like to turn the conference back over to Mr., Joseph Child, Chairman and CEO of CBPO for any closing remarks.
Okay. Thank you for your participation and ongoing support of China Biologic Emigre Dave.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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