Q3 2020 China Biologic Products Holdings Inc Earnings Call
Good day and welcome to the China Biologic products third quarter 2020 earnings Conference call.
All participants will be in a listen only mode should you need assistance. Please signal a conference specialist I pressing the star key followed by T. Rowe price.
After today's presentation there'll be an opportunity to ask questions. Please note. This event is being recorded.
I would now like to turn the conference over to Mr. from <unk>. Please go ahead.
Thank you operator.
Hello, everyone and thank you for joining us on today's call.
China Biologic announced its third quarter 2014 financial results on November 24 through 2020 after the market closed and.
Earnings release is available on the company's website.
Good day, you will hear from China, Biologics, Chairman and CEO Mr. Joseph China.
Start off the call with a review of the company's basic operating results and reported recent developments he.
He will be followed by Mr., Megan senior Vice President.
Good what detailed accounts of the company's financial results China.
Biologics CFO Mr. Ming Yang will be available during the Q1 day session. Following the prepared remarks.
Before we proceed I would like to remind you of our safe Harbor statement.
This call May include forward looking statements made under the Safe Harbor provisions of 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 subject to risks and uncertainties that could cause the 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 associated with investing in try to biologic 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 of new information future events.
Hi, This is mark [noise] book.
The wise, except as required by law.
The company will discuss non-GAAP measures, which are more thoroughly explained and reconciled to the most comparable measures reported under generally accepted accounting principles and the guy.
GAAP in the company's earnings release and filings with the FCC Yeah.
You are reminded that such non-GAAP measures should not be viewed in isolation or as you know.
Alternative to the equivalent GAAP measures and that non-GAAP measures are not uniformly defined by all companies, including those in the biopharmaceutical industry.
Im pleased to present, Mr., Joseph Zhao Chairman and CEO of China biologic.
Thank you Bill Hello, everyone and welcome to China, biologic quota Twentytwenty culprits coal.
The day, while the basket a possible supply has somewhat recovered from.
The COVID-19 pandemic.
The overall bucket the bad debt.
By some recovery, it's still below pre paying down debt levels.
Under these circumstances, our revenue and the third quarter achieved positive year over year growth <unk> one per se.
Factoring in a decrease in IB <unk> sales are the modest sales growth for other men products.
That said, we saw an encouraging reported from the second quarter with our.
Over 20% over quarter over quarter growth.
That's reflects our strong outlook in the past quarter to regain our sales momentum volume that cold at 19.
Disruption.
We were also pleased.
<unk> nearly 12% non-GAAP operating income growth over the same quarter last year that's.
That's the most notably driven by increased sales and marketing efficiency pathway per eye cuddly.
Adjusted our marketing strategies and operating on that.
However, the growth and the operating income.
Was partly offset by a decline in interest income due to the low work.
Nice nationwide interest rate as well as an increase in income tax.
That led to flat year over year net income growth.
Our Ivy I'd sales and the third quarter decreased by 11% as compared to the highest phase and the same quarter fall when he died team.
During the third quarter off 2019, we achieved over 50% I.
<unk> deep roll over the thoughtful.
Oh weather.
The quarter of 2018.
Kind of creeping into new hospitals with arguably all bought distributers.
On a quarter over quarter basis, we were encouraged to see a strong rebound up I I T cell with over 80% growth and the full third quarter over the second quarter of 2020.
Holiday thing our assets. So you can call sales and marketing capabilities and overtaking competitors over the past year.
Sales volume for albumin products increased by 1% during the third quarter over the same quarter all 2019.
Reflecting our conservative approach to a line lightning inventory with placebo bucket.
As we continue our strategy to focus more on direct sales and establish long term direct relationships with hospital customers. We were pleased to see an overall, 20% growth from all of themselves all that and the Iraq Hospital channel over the same quarter of last year.
And we decreased the sales within the distribution that England anticipation all potential all of them shortage delayed 2020, resulting from a decline in pool, which was consistent with the sales model adopted and the second quarter.
Oh placenta polypeptide products devastated about the performance that we had expected with close to 30% growth on both a year over year and the quarter over quarter basis.
This reflected our risk appetite in sales team reorganization channel optimization as well as changing all involving policy. Although its products. We have integrated pinching gross sales expertise with our existing polypeptide products sales team to broaden sales channels.
<unk> sales strategies.
Those revenue of our biomaterial products was comparable to the same quarter last year, while the net profit from that sector increased over 10% due to better than expected sales performance of higher margin Dura made her products.
Going forward however.
Through a made a products sales are expected to be impacted by the recent announcement of the gel. So provincial government procurement department, all but overall that people said price cut.
We are in the process of evaluating the impact and developing relevant strategies to cope with the challenging environment.
That's we ensure that we were able to have been 10 all market share.
With sales growth.
Across both of our products.
Further strengthened our market position and even improved our market share over the second quarter. Okay.
According to the latest the CPGA data most of our major profit products, including all woman I.
Ivy I G factor eight.
As I've worked in.
Good market share and the third quarter over the second quarter.
Our other products been 10 compared to be stable market share with our PCC already occupied that people said market share and the hospitals, including <unk> and they seem to be a data.
Although our third quarter's performance demonstrated encouraging rebound from the second call GAAP, we do acknowledge unbelieving macro related items.
From teeth in connection with the pandemic.
We're also expecting that there might be intensified competition due to our competitors because inventories shipments.
And late Twentys when he asked we have seen from each day from batch approval data that both of our peer companies companies have lost inventory positions, but only reported moderate or not to growth for the first day bulk of the year.
The face these challenges we have embarked all various initiatives to continue to transform our business.
Now I will walk you through some developments within our operating segments during the past quarter.
First in our sales and marketing talks it but from the optimized our commercial teams structure.
Improved efficiency, our sales and the marketing strategies.
Inhales the medical marketing support function.
We employed a multi dimensional evaluation systems full stock performance, including work competition and collaboration between our sales and marketing functions and channel inventory management expenses, especially capabilities.
Had established battery incentive compensation structure.
Also.
With the aim of launching customized for both from the Atlas go doctors and pacing at your cases, you know, it's the teaching hospitals we.
We have been recruiting more experienced net sales professionals, who can help educate physicians.
Oh, the health care professionals and patients.
Increase our promotional ability at the terminal level.
These various initiatives aimed at improving our operational efficiency in the past several quarters haven't reflected possibly dolls.
Our non-GAAP operating income increased by 18% in RMB to a non-GAAP operating margin increased by over five per cent <unk> percentage point and the first type cut nine miles of 2020 compared with the same period last year.
In addition, we continue to strengthen our control over a credit exposure and increased our collection efforts.
The average accounts receivable turned over a period of a plasma products.
Were shortened to 82 days in the first day miles from 2020, compared with 89 days in full year 2019.
We have established a new set of a customer credit evaluation and the management systems, allowing us to assess customer crowded of more of the nation.
And manage customer receivable bortz quickly.
Bar, new products coagulation factor nine.
For which we received does it typically take approval problem for manufacturing in late July.
We have be GAAP manufacturing and are waiting for the batch approval for the first batch of those products.
We're also applying fold the inclusion of those products and the national reimbursement looks pretty improve accessibility to hospitals and customer.
The research and development of our other pipeline products, but.
But not limited to the new generation <unk>.
He will then and high.
Troubling.
Three Q.
Human fibrin sealant Aswell as absorbable forward repair membranes are progressing as expected.
In terms of plasma supply of plasma collection volume has further improved by more than 13% growth through the third quarter, when compared year over year all quarter over quarter.
The total collection volume and the first nine months was only 6% lower than the same period of products here.
At this pace, we expect our full year.
Collection volume will catch up and be comparable to last year.
Yes, it's the read out our teams great athletes in exploring various measures to make up for the reduced collection volume and the first quarter.
Including new donor recruitment plans and extended collection hour.
As well as our integration and the strengthening of control at a nice from other stations to ensure apart from a quality and safety.
We are pleased to report that arguably Bill collection station you Young Coty holdings that he recently passed all official inspection and expected to commence commercial operations. So.
The construction of our two new possible station in Shenandoah also progressed, well and are expected to be commercially laws.
It's 121.
And we'll continue our assets applying for more they should be per miss to further improve our possible supply volume.
Looking ahead for the fourth quarter and yet.
We are expecting expecting a certainty related to the pandemic from specialty tea.
<unk> more fierce competition.
The rippling effect from centralized procurement, especially for a biomaterial products.
Well continue to take various measures and make per active adjusted to ensure our operational strategies are you a line month and to maintain our core products leading market positions.
Well go always endeavor.
Our long track record of providing quality products the basis, and I think from new product development and bring better health care to the sell side.
That concludes my prepared remarks.
I'll now turn the call over to this that being <unk>, our senior Vice President to review financial results for the second quarter 2020.
Moving please go ahead.
Thank you Joseph and Hello, everyone now I will walk you through the key PNR items for the third quarter two garden line.
Total sales in third quarter, two non money increased from 1.8% U.S. dollar terms well your 0.8 per say your R&D terms to 138 book, arguing noticed from $436.1 million due same quarter to another 90 per.
Sales for bio pharmaceutical products increased by 1.9% in U.S. dollar terms, well, 0.8% from RMB terms to 126.6 moving on to third quarter, two non plenty from $124.3 million due same quarter of 2019.
It was a combined result of increasing sales now when the combination of factors based on their part of <unk> products, which were partially offset by a decrease he sounds her I V I chip cards.
Oh plasma products total sales in the third quarter 2020 from <unk> 0.8 per se enjoy her terms or decreased by 2.2% in RMB terms to $120.8 million from $119.1 million each day quarter from 2009 Ti revenue from human albumin increased by.
<unk> per se U.S. current terms or 2.8 per se in RMB terms to.
$48.8 million due CIRCOR two from money from $47 million, who serve reported 2019 primary due to you Crissy direct sales for hospital customers resell volume from human albumin products increased by 1.3% third quarter two non funding over the same quarter last year the average price.
Increased by 2.5% in U.S. dollar terms or 1.5% in RMB terms. These third quarter two zone money compared to same quarter 2090, maybe because of a higher proportion of direct sounds we've heard ourselves.
Revenue from I.B. IC products decreased by 10.1% in U.S. dollar terms for 2.9% in RMB terms to $32.2 million through third quarter, two non money from a relatively high comparison base of 35 point <unk>.
Moving on to third quarter to low 90 day during which period, we had a strong rebound of Ivy I'd yourselves after implementing new promotional strategy.
The sales going mob ideology products decreased by 2.8% moving the same share of last year. The average price remained relatively stable in RMB terms <unk> third quarter 2020, compared to same quarter of 2009 Te <unk> third quarter 2020, I'd be age he and the human albumin products remain our two larger.
No country ourselves contributors as a percentage of kers das nodes of human albumin, and Ivig products were 35.2% to 23.2%, respectively. So quarter to zone plenty revenue from other unit volume products increased by 3% New York U.S. dollar terms or 1.8% in RMB terms. He served.
Quarter to them when compared to the same quarter, 2019, representing 17.3% or sales as compared to 17% of total sounds the same quarter 2009 Ti revenue from other management products increased by 15.2% in U.S. dollar terms for 30.9 per se RMB terms.
So for 2020 compared to the reported 2019.
With increasing sales of Threeg combination products, namely population factory first PCC and human fibrinogen products representing low.
25% or sounds to me sort of quarter to them plenty compared to 10.1 per cent per snow. He same quarter 2019 revenue from three cents per <unk> products increased by 20.9% in U.S. dollar terms were 20.3 per se RMB terms, you serve poor 2020 as compared to same quarter two.
90 accounted for 4.2% put ourselves to 3.3 per cent for themselves. They reported 2009 keep reflecting our recent efforts he said.
Sales team reorganization channel optimization comprise a full pay tender per pet products Cotto cellscope, our mature products from third quarter, two non plenty increased by 2.2% in U.S. dollar terms or 0.7 per se in RMB terms to $11.9 million from 11.8 million.
Ours who's been a quarter of 2019 counting for 8.6 per cent for themselves to 2.7% Makoto sounds in the same quarter 2019 car.
Car from sales decreased by 3.2% to $46 million to third quarter, two non 20 from $47.5 million east in quarter, two zone, 99% income sounds cost per south decreased to 33.2% you from quarter. Two is on plenty from 34.9% news from quarter to go non t.
Many of the costs, a lower proportion products made from higher cost all source plasma gross.
Gross profit increased by 4.4% to $92.5 million to third quarter 2014 from $88.6 million to same quarter 2019 gross margin increased to 66.8% to 65 from one person's third quarter 2009 to total operating expenses.
Quarter, two from 20 increased by $4.9 million or 30.8% to $40.5 million from $35.6 million. These same quarter 2019. This increase was mainly because of a $9.8 million decrease in general and administrative expense, which was partially offset by $3.4 million.
He.
Secrecy, Sunny expense and $1.5 million PPC research and you can run from the expense.
As a percentage of total sales.
Operating expense increased to 29.2% third quarter 2020 from 26.2% sales for 2090 cents expense, he third quarter, 2022% or $3.4 million for 19 from 2% to $14.3 million from $70.7 million per same quarter 2009.
He was presented themselves sunny expense decreased to 2.3% <unk> third quarter to around 20 from 13% from the same quarter, whose own 90. The decrease reflects our continued after a true proactively or justice house promotion message as well as channel penetration and it comes from Andrew strategies.
General and administrative expense increased by $9.8 million.
64.5% to $25 million. This third quarter 2020 from $50.2 million. These same quarter 2019 as percentage of total sales general and administrative expenses increased to 18.1 per se. So reported 2020 compared to 11.2% you same quarter 2019, the increase was.
Mainly because of $8.8 million increase the share based compensation expense, excluding the impact per share based compensation expense general and administrative expense would have been 7% and a 6.4% because it sounds <unk> third quarter 2020, and two low 90, respectively.
Research and development expense. He served for a two day and funny decreased by $1.5 million or 55.6% to 1.2 million non from $2.7 million. These same quarter 2019 as percentage of gross house research and development expense decreased to 0.9% you so quarter to non 20 from 2%.
Same quarter 2019 income.
Income from operations he served quarter to non plenty decreased by 1.9% Dressbar terms for 2.2% in RMB terms to $52 million from $53 million. We say reported 2019 operating margin decreased to 37 point products. During the third quarter two zone plenty from 3.9 per same same quarter 2019.
Net income tax expenses third quarter, 2020 was $9.7 million compared to $7.6 million due same quarter 2019, the effective income tax rate was 2.3% and 12.6 per cent for third quarter 2020 entries on non two respectively.
Net income attributable to company increased by 16% U.S. dollar terms 60.7 per se RMB terms to $39.5 million due so important to them plenty from $47 million in same quarter to low 90, net margin decreased to 28.5% third quarter two zone plenty from 34.5% sales.
What it does on 90 diluted earnings per share decreased to 99 cents EPS airport it to them one as compared to $1.21 cents. These same quarter 2019, non-GAAP adjusted income from operations increased by 12.8 per se in U.S. dollar terms <unk> 11.7 per cent RMB terms to six.
$9.4 million in third quarter, two non pointing up from $61.5 million due from quarter 2019 non-GAAP.
Net income attributable to company increased by 1.3% from U.S. dollar terms or 0.2% in RMB terms to put the park $41 million due third quarter 2020 from $54.4 billion to same quarter 2019, non-GAAP net margin was 939.3 per se in third quarter.
Who's on funding compared to 40 per same same quarter to low 90 day.
Non-GAAP adjusted earnings per diluted share was $1.39 cents in third quarter, two from 20 compared to $1.40 cents. We reported on 90 non-GAAP adjusted income from operations per third quarter, two non 20 excludes $15.3 million non cash employee share based compensation expense and.
$2.1 million the Mckinnsey expense items, you tend to have assets non use rights related to the acquisition of kids, who non cap just net income earnings per diluted share from third quarter, two non plenty excludes $30.8 million from the non cash employee share based compensation expenses and one point and moving.
Yeah, I'm, a transition expense of intangible assets and non use rights related to an acquisition from his you who has done since the September 32020, we have $566.9 million the cash on hand and demand deposits from one on new NRC time deposit and five.
$129.4 million and short term investments.
Net cash provided by operating activities from first nine months 2020 was $488.5 million compared to $156.4 million per cent pure to low 90 the increased.
$32.1 million from net cash provided by operating activities was mainly because of a decrease the inventories and an increase in net income compared to the same share 2019, which was partially offset by an increase in accounts receivable inventories decreased by 22 million borrowers, who first nine months from 2020 compared with.
<unk> increased from $8 million is similar to 2019 the decrease the decrease on inventory first nine months to non plenty was primarily because of the high sales volume ideology products during that period, which clean up the high energy inventories are anti.
End of year 2019.
Accounts receivable increased by $33.1 million during the first nine months to non plenty as compared to $19.2 million. During the same period in 2019, largely in line with increasing sales revenue accounts receivable turnover days well past, we part of the shortened to 82 days during the first nine months was on 20 from long haul.
Today's hearing the same share to 2009, two reflecting our ongoing efforts to shorten the credit terms on some summer did scooters and increased collection efforts to control kind of exposure net.
Net cash provided by investing activities book first nine months from 2020 was $228.3 million as compared to net cash used in investing activities $37.6 million from same period in 2019 during the first nine month to month 20, we received 2369.
From one going on from maturity value of a trend how does it in short term investments.
This was partly offset by payments from 14.1 million non per acquisition property plant equipment and turned last month non use rights and a payment from 2126 point something new and article purchase of time deposits and short term investments net cash used in financing activities for the free.
First nine months 2020 was $12 million as compared to $238.7 million for the same period of 2019. During the first nine months 2020, our subsidiaries paid dividend per share point $3 million to non controlling interest.
Shareholders, which was partly offset by per season overdue point $3 million from stock option stock option exercise.
That concludes our prepared remarks.
Operator were now ready to take some questions.
Thank you.
Well now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
We are using a speaker phone please pick up your handset before pressing the keys to.
<unk>. Your question. Please press Star then two at.
At this time, a pause momentarily to assemble our roster.
The first question today comes from Jason Lewis with Credit Suisse. Please go ahead.
Hi, there congratulations and then on the strong quarter results. The net stack of an 18 and non congratulations on the price is on that merger agreement.
I had two quick questions from management. The first regarding the merger agreement you do see some of the steps that we've listed in the announced that in order for the closing of the merger to occur by the first half from 21 I'm wondering on the company level. If there are any steps that the management team as well as the company staff or department.
It's going to take a as a result from the merger and then my second question as I would expect we wont Bill asked many questions anymore going forward I'm looking into kind of future growth and potential where CBPO could grow to can.
Can you share a little more about long term vision of where we think should be able to get to and medium term more or even longer term. Thank you.
Jason I think you are this is chosen China by.
I see.
I somehow I I think you paraphrase the first part of your question day.
Because I know the second question is Oh look how the.
She feels a mid to long term prospects. The first time, we're talking something about a non incidents a role in blood sugar or something I I couldn't quite get it.
Sure I was wondering for their merger agreement, we see the steps listed in order for their budgets are Kurt on the share holder 11 and on the shareholder level I was wondering from the management team or from the company are are there any steps that the company has to take you know from opera either operations.
Or from a key personnel that would have to be done for the merger jobs will be completed.
Okay, No I got it.
Well first let me begin by saying well anything merger related or why did it.
Not very appropriate for us to like that's all day, earning call.
And yet because this is more about and discuss our operating results.
Having said that that'd be the quick in my comments with regard to your first part of the question and that is that we're not aware of any major applies for activities that data related to the measure and the closing of the merger in terms of personnel all operation.
You know everything as say conducted at a normal course of business saw a whatever Adel said that's related to.
The share holders arrangement.
I'm not aware of any.
Okay on the second part of your question.
Good.
You know what we see from a mid to long term is a prospect is that Ted.
Apart from the business.
Flow CBPO, Ed the mid to long term I remain pretty optimistic.
However, I this industry has to go through the fundamental changes that in terms of that site sales and marketing activities and the price.
It's pretty much a sellers market.
Right. So in terms of sales and marketing plus about product companies typically do not have to be a lot in terms of per bottino products and are advocating.
Their end users and things of that nature.
Wes increased the competition the market is.
Approaching into a equilibrium and going forward competition will intensify so those company.
Who can lead the path in terms of for transforming its sales and marketing.
Operation will stand to win.
And CDP all we're ready for that challenge, we would like to take a lead in that area. The future of this business pretty much dependent all odd.
Our ability to penetrate into end users to promote our products, especially with day restricted Bakken It falls out from that the basket.
Participants for FFO, the products advocate that customers and as CBPO is ready for that role and we remain optimistic and summit in the mid to long term growth perspective, either with strict give day trip that does that allows the participant at the market.
To leverage their position and growth either better that's my answer to your question. Thank you Jason.
Thank you very much.
Again, if you have a question. Please press Star then one.
Max.
<unk> Q, we have one more question from Stephanie Hannah what Delaware, Florida. Please go ahead.
Hi, though book I, just wanted to understand I know you're reluctant to talk about the net job, but the oh set price for them a job well.
Initially could tie to the fall coated.
And now I'll set price is unchanged and obviously the pandemic has had mixed impacts on base CBPO and the industries and it created quite some volatility said the company I.
I guess I've told this I'm just wondering why the off from price remains unchanged from the company honestly think it it's still less.
In 20, so that's fair share.
Uh huh.
Hi, Stephanie this is chosen China again.
The operating price.
It's typically negotiated or between the two.
Groups off a share holder. So one part being studied in part of the other pod as the purchasing pod and today. It was typically go through a third party independent financial advisors, they have their own models and a day.
Yeah football.
Well.
So what I know, it's a sad day, both parties said men tend they're all original all look and despite all the volume volatility then day so.
So I'm just going to leave it at that because say.
The non has been there's not really a heavily involved in that discussion.
And so I hope that the question your question.
HM Okay.
That I mean, how does the management feel about the off the price I mean interesting tencent that fundamentals at the company.
I know you will set us on a buy side kids that just came from the how the rest of the management on top to see if I might want to share it but.
Yeah.
Yeah.
You know the the fact of matter is that a day.
As as previously announced and I signed up for.
For that matter for the buy side. So that's an indication I mean, you know agreement was.
Doug.
So if that explains anything.
Yeah, and I get that a price it essentially locked in.
I was also just wondering in terms of the the timeframe I see that you guys. It China complete a deal and move by the fed cash next year, but when do you expect the proxy statement today relates without eight before the end of 2020.
I I think that question needs to be more directed to a the.
The legal teams because they were good was we're preparing all day said paperboard can talk when she.
Oh, there's back later is that I I don't have much Colorado that out of that and the general it says that normally.
It takes a few miles to get all the documents cleared by the FCC, yes, so I.
I don't have.
Much better visibility at this point.
Okay.
Thanks.
Again, if you have a question. Please press Star then one.
I would now like to turn the conference back over to Mr., Joseph China for any closing them.
Well. Thank you for your participation ongoing support outside China biologic a guy.
Have a great day.
This conference has now concluded. Thank you for attending today's presentation you may now disconnect.