China Biologic Products Holdings Inc
Q3 2020 Earnings Call Transcript

Published: 25 Nov 2020

[Operator:]

Good day and welcome to the China Biologic Products Third Quarter 2020 Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Mr. Philip Lisio. Please go ahead.

[Philip Lisio:]

Thank you, operator. Hello, everyone and thank you for joining us on today’s call. China Biologic announced its third quarter 2020 financial results on November 24, 2020, after the market closed. An earnings release is available on the company’s website. Today, you will hear from China Biologic’s Chairman and CEO, Mr. Joseph Chow, who will start off the call with a review of the company’s basic operating results and report recent developments. He will be followed by Mr. Ming Yin, Senior Vice President, who will give a detailed account of the company’s financial results. China Biologic’s CFO, Mr. Ming Yang, will be available during the Q&A session following the prepared remarks.

[Joseph Chow:]

Thank you, Phil. Hello everyone and welcome to China Biologic’s third quarter 2020 conference call. Today, while the domestic plasma supply has somewhat recovered from the COVID-19 pandemic, the overall market demand, despite some recovery, is still below pre-pandemic levels. Under these circumstances, our revenue in the third quarter achieved positive year-over-year growth of 1%, factoring in the decrease in IVIG sales and modest sales growth for our other main products. That said, we saw an encouraging rebound from the second quarter with over 20% quarter-over-quarter growth. This reflects our strong effort in the past quarter to regain our sales momentum following the COVID-19 disruption. We were also pleased to report nearly 12% non-GAAP operating income growth over the same quarter last year. This was mainly driven by increased sales and marketing efficiency as we proactively adjusted our marketing strategies and operating formats. However, the growth in the operating income was partly offset by a decline in interest income due to the lower nationwide interest rate as well as an increase in income tax. That led to a flat year-over-year net income growth. Our IVIG sales in the third quarter decreased by 11% as compared to the high sales in the same quarter of 2019. During the third quarter of 2019, we achieved over 50% IVIG growth over the third quarter of 2018, by penetrating into new hospitals with our newly available distributors. On a quarter-over-quarter basis, we were encouraged to see a strong rebound of IVIG sales with over 80% growth in the third quarter over the second quarter of 2020, validating our assets to enhance sales and marketing capabilities and overtaking competitors over the past year.

[Ming Yin:]

Thank you, Joseph, and hello, everyone. Now I will walk you through the key P&L items for the third quarter 2020. Total sales in third quarter 2020 increased by 1.8% in U.S. dollar terms or 0.8% in RMB terms to $138.5 million from $136.1 million in the same quarter of 2019. Total sales for biopharmaceutical products increased by 1.9% in U.S. dollar terms or 0.8% in RMB terms to $126.6 million in the third quarter 2020 from $124.3 million in the same quarter of 2019, as a combined result of the increase in sales of albumin, coagulation factor and placenta polypeptide products, which were partly offset by a decrease in sales of IVIG products. For plasma products, total sales in third quarter of 2020 increased by 0.8% in U.S. dollar terms or decreased by 0.2% in RMB terms to $120.8 million from $119.8 million in the third quarter of 2019. Revenue from human albumin increased by 3.8% in U.S. dollar terms or 2.8% in RMB terms to $48.8 million in third quarter 2020 from $47 million in third quarter 2019, primarily due to increase in direct sales to hospital customers. The sales volume of human albumin products increased by 1.3% in the third quarter 2020 over the same quarter last year. The average price increased by 2.5% in U.S. dollar terms or 1.5% in RMB terms in the third quarter of 2020 compared to same quarter 2019, mainly because of a higher proportion of direct sales in total sales.

[Operator:]

Thank you. The first question today comes from Jason Liu with Credit Suisse. Please go ahead.

[Jason Liu:]

Hi, there. Congratulations management on the strong quarter results amidst COVID-19, and congratulations on the process on the merger agreement. I have two quick questions for management, but first regarding the merger agreement. Do you see some of the steps that were listed in the announcement in order for the closing of the merger to occur by the first half of 2021? But we were wondering on the company level, if there are any steps at the management team as well as the company staff or departments will need to take as a result of the merger? And then my second question, as I would expect, we won’t really ask many questions anymore going forward. Looking into kind of future growth and potential where CBPO could go to, can you share a little more about long-term vision of where we think CBPO can get to in medium term or even longer term? Thank you.

[Joseph Chow:]

Jason, thank you. This is Joseph Chow. I somehow – can you paraphrase the first part of your question? Because I know the second question is an outlook on the CBPO’s mid to long-term prospects. The first one, you were talking something about management’s role in merger or something? I couldn’t quite get it.

[Jason Liu:]

Sure. I was wondering for the merger agreement. We see the steps listed in order for the merger to occur on the shareholder level. I was wondering from the management team or from the company with – are there any steps that the company has to take from either operations or from key personnel that would have to be done for the merger to also be completed?

[Joseph Chow:]

Okay. Now, I got it. Well, first, let me begin by saying, well, anything merger related, it is not very appropriate for us to address them on an earnings call and – because this is more about a discussion of our operational results. Having said that, let me be quick in my comments with regard to your first part of the question that is we are not aware of any major plans or activities that are related to the merger and the closing of the merger in terms of personnel or operations. Everything is conducted in a normal course of business. So whatever announcement that’s related to the shareholders’ arrangement, I’m not aware of any, okay? On the second part of your question, what we see from a mid- to long-term perspective is that the plasma business for CBPO in the mid to long-term remains pretty optimistic. However, this industry has to go through some fundamental changes in terms of its sales and marketing activity. In the past, it was pretty much a seller’s market. So in terms of sales and marketing, plasma product companies typically do not have to do a lot in terms of promoting their products and educating their end users and things of that nature. With increased competition, the market is approaching into an equilibrium and going forward, competition will intensify. So those companies who can lead the path in terms of transforming a sales and marketing operation will stand to win. And at CBPO, we’re ready for that challenge. We would like to take a lead in that area. The future of this business pretty much depends on our ability to penetrate into end users, to promote our products, especially with the restricted market. It’s forced onto the basket of participants to promote the product, educate the customers and CBPO is ready for that role. And we remain optimistic in the mid- to long-term growth perspective. The restrictive nature of the business allows the participant in the market to leverage their position and grow even better. That’s my answer to your question. Thank you, Jason.

[Jason Liu:]

Thank you very much.

[Operator:]

We have one more question from Stephanie Hanna with Dealreporter. Please go ahead.

[Stephanie Hanna:]

Hi, there. Look, I just wanted to understand, I know you’re reluctant to talk about the merger, but the offer price for the merger was initially proposed before COVID, and now the offer price is unchanged. And obviously, the pandemic has had mixed impacts on both CBPO and the industry, created quite some volatility for the company. I guess after all of this, I’m just wondering why the offer price remains unchanged, does the company honestly think it is still worth $120 per share?

[Joseph Chow:]

Hi, Stephanie, this is Joseph Chow again. The offering price is typically negotiated between the two groups of shareholders one part being selling part, the other part is the purchasing part. And it was typically done through third-party independent financial advisers. They have their own models and for what I know is that both parties maintain their original outlook and despite all the volatilities and – so I’m just going to leave it at that because the management is not really heavily involved in that discussion. So I hope that addresses your question.

[Stephanie Hanna:]

Okay. But I mean how does the management feel about the offer price? I mean just in terms of the fundamentals of the company. I know you’re sort of on both sides here, but just keen to know how the rest of the management, perhaps the CFO, might want to share his thought?

[Joseph Chow:]

The fact of the matter is that, as previously announced, and I signed up for the buying side, so that’s an indication. I mean, an agreement was done. So if that explains anything.

[Stephanie Hanna:]

Yes. No, I get the price is essentially locked in. I was also just wondering, in terms of the time frame, I see that you guys are trying to complete the deal in the – by the first half next year. But when do you expect the proxy statement to be released? Would that be before the end of 2020?

[Joseph Chow:]

I think that question needs to be more directed to the legal teams because they are the ones who are preparing all these paperwork and talking to various regulators. And I don’t have much color on that other than the general sense that normally, it takes a few months to get all the documents cleared by the SEC. So I don’t have much better visibility at this point.

[Stephanie Hanna:]

Okay, thanks.

[Operator:]

I would now like to turn the conference back over to Mr. Joseph Chow for any closing remarks.

[Joseph Chow:]

Well, thank you for your participation and ongoing support of China Biologic. Have a great day.

[Operator:]

This conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.