China Biologic Products Holdings Inc
Q3 2018 Earnings Call Transcript

Published: 3 Nov 2018

[Operator:]

Good day, and welcome to the China Biologic Products Holdings Third Quarter 2018 Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I will now turn the conference over to Sam Martin at Foote Group. Please go ahead.

[Samuel Martin:]

Thank you, operator. Hello, everyone. Thank you for joining us on today's call. China Biologic announced its quarterly financial results on November 1, 2018, after the market closed. An earnings release is now available on the company's website. Today, you will hear from China Biologic's Chairman, David Hui Li, who will start off the call with a review of the company's basic operating results, overall strategy and recent developments for the company. He will be followed by China Biologic's CEO, Dr. Bing Li, who will present the company's corporate strategy in more detail. Mr. Ming Yin, Senior Vice President of the company, who will then give a detailed account of the company's financial results. China Biologic's President, Mr. Zhijun Tong; and the CFO, Mr. Ming Yang, will be available during the Q&A session following the prepared remarks. 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 provisions of the Private Securities Litigation Reform Act of 1995. Although we believe 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 China 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, 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. You are reminded that such non-GAAP measures should not be viewed in isolation or as an alternative to the equivalent GAAP measure and that non-GAAP measures are not uniformly defined by all companies, including those in the biopharmaceutical industry. Now I'm pleased to present David Hui Li, Chairman of China Biologic Products.

[David Hui Li:]

Thank you. Hello, everyone. Welcome to China Biologic third quarter 2018 conference call. I'm delighted and honored to welcome our new CEO, Dr. Bing Li, to his first earnings call since his employment in August. We are very pleased to have a leader with such deep industry knowledge and track record of success. With Dr. Li as the CEO and Mr. Zhijun Tong assuming the role of President, I'm confident that China Biologic now has the right team in place to build a world-class biopharmaceutical and biotechnology company with a leading position in key therapeutic areas. To kick off today's discussion, I will present a high-level overview of the management’s strategy and then turn the call over to Dr. Li to go through current operations in more detail. Looking ahead, China Biologic has 3 major short to medium-term strategic goals

[Bing Li:]

Thank you, David, and welcome to everyone on this call today. In line with our previous revised forecast for full year 2018, our results in third quarter reflects the impact of ongoing regulatory reforms and intensified competition in China's plasma industry. In terms of regulatory reforms, hospitals are still enforcing the cap on the fees for drugs as a portion of the total medical care cost and eliminate prescriptions for albumin and IVIG, which impact our direct sales revenues. In some regions, IVIG is still listed as a supplementary drug. This is probably one of the reasons behind more significant declines of our IVIG sales volume than albumin products. We're also seeing a substantial more competitive market environments. Price-based competition with regard to albumin and IVIG among our distributors has continued to increase. And before change in management, our commercial strategy and execution fall behind that of our peer companies and resulting loss of market shares in our key products. In specific, the lack of terminal promotion capability in our previous commercial organization has result in sluggish growth or in some cases, contraction in overall sales, which started late 2017. While our plasma collection volumes and production capability has been growing steadily, our total inventory reached a peak of nearly US$230 million level or RMB 1.6 billion as of the end of September, at the end of third quarter 2018. Excluding TianXinFu, our inventory turnover in the days management was 590 days for the third quarter, end of third quarter of 2018 and it was 530 days for year-end of 2017. So compare to average of around 430 days from year 2012 to 2016. So for – among and for finished products, inventory turnover in days at the end of third quarter or 2018 was around 4.5 months. Among them, IVIG's inventory is nearly 10 months of sales. And finished growth product inventory for albumins are at a healthier level than IVIG, which is around three months of sales. So inventory situation at our Guizhou subsidiary is worse where the business faces more intensive competition. The inventory situation at Shandong subsidiary is relatively better, which Shandong subsidiary is a stronger brand and better defense to competition compared to Guizhou. So in addition, the amount of inventory in our distribution channel is also very high, with some of the distributors reaching amount equivalent of six months in terms of sales volume. This has partially contributes the increase of account receivables, as high inventory discourages our distributors to pay our receivables on time. Also ask for longer payment terms. Given the challenge we faced, improving our sales and marketing capability is critical to restore the balance between market demand and our increasing productions at our new product. We are making significant progress in restructuring our commercial teams and revitalizing our commercialization capabilities. And for the market, we still have strong confidence in the enormous potential of China plasma product markets, but new demand must be created through medical educating targeted end users. It is particularly true for a product like IVIG and a newly launched coagulation products such as PCCs, fibrinogens and Factor XIII. For these products, we continue to see significant gaps in usage in China compared to western countries. So, I would like to share with you some of our progresses made on this front. Our commercial leadership team members, a majority of them are already on board and the rest of them is going to officially join the company. Those new members are industry veterans with deep experience in commercial management from related medical areas. They are in the process of building customized sales and marketing teams by restructuring existing commercial teams and highly more mid to junior level staffs. We expect the process of building a fully function upgraded sales marketing team will be completed by first quarter of 2019. For our sales force, we plan to launch professional promotion efforts for doctor and patient education in our strategic hospital, with a focus on IVIG and new products such as PCCs and fibrinogens. In parallel, we will screen and identify new high potential hospitals via our newly established sales force effectiveness system and our new market access team, will work to get our products listed in those hospitals effectively. For the distribution management, we plan to identify and establish stronger partnerships with reliable distributors to supplement our direct sales efforts and support market access. Recent regulatory reforms have had a particular large impact to us because we traditionally rely most on direct sales to hospitals without using distributors. So now, we are – in addition to distributor partnership, we're also exploring partnerships with varied retail pharmacy chains and use pharmacies as an alternative channel to hospital sales. For marketing, we will conduct stronger marketing planning activities and execution at national and regional levels. And also, ensure better integration with our overall sales strategy. We believe that strengths in sales and marketing capability does not necessarily require significant expansion in term of the headcounts and expenses. And the marginal increase of sales marketing expenses will be far offset by incremental sales created. The key is to find appropriate commercial talent to lead with the transformation. We are confident that today we already have the right commercial leadership in place to ensure the success. While we are making effort to lower our overall inventory, we are also facing some difficulties caused by delay of lot release. The process is handled by the National Institute for Food & Drug Control, so NIFDC, particularly at our Shandong subsidiaries. It caused shortage of albumin factor VIII and certain special immunoglobulin products, which have relatively high market demand currently. The cause of the delay is due to the temporary workforce shortage at NIFDC inspection institute at Jilin and the typical lot release time for products from our Shandong subdivision, which required to be inspected in Jilin Institute for drug control is around 30 days but has recently been delayed to around 50 days. So we expect that this issue will be resolved in the fourth quarter, it should be temporary. But further delay may impact our capability – our abilities to reach our full year guidance for this year. So as David mentioned, M&A is core strategy for China Biologics. Through M&A, we plan to add new biopharma and medical device products to our portfolio and potentially acquire stronger operational capabilities in commercial R&D and manufacturing. So in addition, we want to expand our industrial leadership position to outside of China transitioning from plasma products into other related therapeutic area and medical device, which really evolves China Biologic to a next-generation leading biopharma and biotech company. So in terms of the potential target of M&A, we believe those targets should bring products and technologies that can expand our offering in the strategic therapeutic areas related to China Biologics. In addition, it may also bring highly desired operating capability in different areas. Those product and technologies are in China Biologics' strategy for future expansion. Organic development may require lengthy R&D process and significant investment, and we believe acquisitions can provide more efficient alternatives. We have already built a small but very high – but highly capable M&A teams. And the team is actively working on the key initiatives under my direct supervision. So this concludes my prepared remarks. I will now turn the call over to Ming Yin, our Senior Vice President, to review third quarter financial results. Ming, please go ahead.

[Ming Yin:]

Thank you, Bing, and hello, everyone. Now I will walk you through the key P&L items for third quarter 2018. Total sales in third quarter 2018 increased by 21.9% in RMB terms or 19.6% in U.S. dollar terms to $119.1 million from $99.6 million in the same quarter 2017. The increase in total sales was partly attributed to $11.5 million contribution from TianXinFu, which accounted for approximately 9.7% of total sales for the quarter. Excluding TianXinFu, total sales in third quarter of 2018 increased by 10.2% in RMB terms, attributable to sales increase in placenta polypeptide products, human albumin products, coagulation factor products and certain immunoglobulin products, which was partly offset by decrease in sales of IVIG products. For plasma products, total sales in third quarter of 2018 increased by 6.7% in RMB terms or 4.6% in U.S. dollar terms to $88.4 million from $84.5 million in the same quarter 2017. During the third quarter 2018, human albumin and IVIG products remained the company's two largest sales contributors. Revenue from human albumin increased by 20.6% in RMB terms or 18.3% in U.S. dollar terms from $32.8 million in third quarter 2017 to $38.8 million in third quarter of 2018. Revenue from IVIG products decreased by 19.6% in RMB terms or 21.2% in U.S. dollar terms from $30.7 million in the third quarter 2017 to $24.2 million in third quarter of 2018. As a percentage of total sales, sales from human albumin and IVIG products were 32.6% and 20.3%, respectively, in third quarter of 2018. Excluding the contribution of TianXinFu, human albumin and IVIG products represent 36.1% and 22.5% total sales, respectively, compared to 33% and 30.9%, respectively, in third quarter of 2017. The large decrease of IVIG sales percentage mainly reflect the combined effects of decreased sales volume and sales price year-over-year. The sales volume of human albumin products increased by 28.8% for third quarter 2018 compared to the same quarter 2017, primarily due to increased sales volume in distributor and pharmacy channels, which was partly offset by decreased prescription volumes and various hospital due to ongoing healthcare regulatory changes in China. The sales volume of IVIG products decreased by 17.6% for the third quarter 2018 compared to same quarter 2017, mainly reflecting decreased prescription volumes at various hospital with same effect of policy headwinds to human albumin. The average price for human albumin and IVIG products decreased by 6.4% and 2.5%, respectively, in RMB terms in third quarter 2018 compared to same quarter of 2017 because of greater sales volume in distributor channel and a lower price to certain distributors, reflecting intensify the market competition for major plasma products. In U.S. dollar terms, the average price for human albumin and IVIG products decreased by 8.2% and 4.3% year-over-year, respectively. Revenue from specialty immunoglobulin products increased by 21.8% in RMB terms or 19.5% in U.S. dollar terms. In third quarter 2018 compared to same quarter 2017, reaching 14.9% of total sales. This increase was mainly due to higher sales volume of human tetanus immunoglobulin products and human rabies immunoglobulin products. Revenue from coagulation factor products, including human coagulation factor A, human prothrombin complex concentrate and the newly launched human fibrinogen products increased by 27.1% in RMB terms or 24.6% in U.S. dollar terms in third quarter 2018 compared to the same quarter 2017, representing 6.4% of total sales. The growth mainly came from launch of human fibrinogen products in the beginning of 2018. Revenue from placenta polypeptide products increased by 30.2% in RMB terms or 27.7% U.S. dollar terms in third quarter of 2018 compared to same quarter 2017, reaching 16.1% of total sales, which was supported by higher unit selling price in connection with wider implementation of the two-invoice policy. However, sales volume of placenta polypeptide products continued to decline as a result of their inclusion in regional supplemental drug lists, which put pressure on their prescription volume. Cost of sales increased by 17% to $37.9 million in third quarter 2018 compared to same quarter of 2017. As a percentage of total sales, cost of sales increased to 31.8% from 32.6% in the same quarter 2017. The decrease in cost of sales as a percentage of total sales mainly reflect higher gross margin of TianXinFu. Excluding TianXinFu cost of sales increased to 33.4% of total sales, mainly because of lower sales price for its human albumin and IVIG products, which was partly offset by a higher sales price for the company's placenta polypeptide products. Gross profit increased by 21% to $81.2 million in third quarter 2018 from $67.1 million in the same quarter 2017. Gross margin was 68.2% and 67.4% in third quarter 2018 and 2017, respectively. Total operating expenses in third quarter of 2018 was $52.5 million compared to $29.1 million in same quarter 2017. As a percentage of total sales, total operating expense increased to 44.1% in third quarter 2018 from 29.2% in same quarter 2017. Excluding TianXinFu, total operating expense increased $18.3 million to 62.9% to $74.4 million in third quarter to $74.4 million in third quarter of 2018. This increase mainly consist of increase of $13.1 million in selling expense and increase of $4.1 million in general and administrative expenses, excluding TianXinFu. Selling expense in third quarter of 2018 was $27.4 million compared to $10.3 million in same quarter 2017. Approximately half of that increase was related to sales placenta polypeptide products with the remainder related to the sales of plasma products and TianXinFu sales of H2 remainder products. For placenta polypeptide products and certain hyper-immune products because due to previous multilayer distributed channels was disqualified due to two-invoice regulation, the company implemented new sales strategies, including using internal sales force and engaging third-party contract service organizations to promote its products. With other plasma products, in order to solidify its competitiveness within distribution channel customers, the company incurred additional promotion and marketing costs. TianXinFu's selling expense include $2 million amortization expense for intangible assets of our customer relations associated with the company's acquisition of TianXinFu. Excluding this intangible asset amortization expense, selling expense accounted for 21.4% of total sales in third quarter of 2018 compared to 10.4% in same quarter 2017. General and administrative expense in third quarter 2018 was $22.2 million compared to $17.4 million in same quarter of 2017. As a percentage of total sales, general and administrative expenses were 18.6% and 17.5% in third quarter 2018 and same quarter of 2017, respectively. The increase in general and administrative expense largely results from increased legal fees mainly in relation to the lawsuit filed against the company in Cayman Islands by Mr. David Gao, the former Chairman, CEO of the company, whose employment with the company had previously been terminated for cost. Shandong Taibang's increased depreciation expense and property tax for its new facility and increase of onetime provision in connection with certain fixed assets among certain nonoperating collection stations, which was partly offset by a decrease in share based compensation expense for third quarter 2018 compared to same quarter 2017. Research and development expense in third quarter 2018 was $2.9 million compared to $1.4 million in same quarter 2017. As a percentage of total sales, research and development expense increased to 2.4% in third quarter 2018 from 1.4% in same quarter of 2017. Income from operations for third quarter 2018 decreased by 23.1% in RMB terms or 24.5% interest U.S. dollar terms to $28.7 million from $38 million in the same quarter of 2017. Operating margin decreased to 24.1% in third quarter of 2018 from 38.2% in same quarter 2017. Excluding TianXinFu, income from operations for third quarter 2018 decreased by 34.8% in RMB terms or 36.1% in U.S. dollar terms to $24.3 million and the operating margin decreased to 22.6%. Income tax benefit was $3.6 million for third quarter 2018 compared to an income tax expense of $5.7 million in the same quarter of 2017, mainly due to a $7.5 million reversal of U.S. tax corporate income tax. For the year-end December 31, 2017, we recorded a onetime income tax charge of $40.3 million, which represented the management’s estimate – estimation of amount of U.S. corporate income tax based on the deemed repatriation to the United States companies’ accumulated earnings mandated by the new U.S. income tax law that went into – in effect on December 22, 2017. Based on several new regulations and rules issued by U.S. Department of Treasury in 2018, the management reassessed amount and reversed $7.5 million in third quarter 2017 – 2018. Excluding the tax reversal impact, the effective income tax rate was 11.5% and 13.8% for third quarter 2018 and 2017, respectively. Net income attributable to the company increased by 6.3% in RMB terms or 4.1% in U.S. dollar terms to $32.9 million in third quarter of 2018 from $31.6 million in same quarter 2017. Net margin decreased to 27.6% in third quarter 2018 from 31.7% in same quarter of 2017. Diluted net earnings per share decreased to $0.94 in third quarter 2018 compared to $1.11 in the same quarter of 2017. Excluding TianXinFu, net income attributable to the company decreased by 5.7% in RMB terms or 7.6% in U.S. dollar terms in third quarter 2018 compared to the same quarter 2017. The net margin decreased to 27.1% in third quarter 2018 from 31.7% in same quarter 2017. Non-GAAP adjusted income from operations decreased by 15.6% in RMB terms or 17.4% in U.S. dollar terms to $38.5 million in third quarter of 2018 from $46.6 million in same quarter 2017. Excluding TianXinFu, non-GAAP adjusted income from operations decreased by 29.5% in RMB terms or 30.9% in U.S. dollar terms in third quarter of 2018 compared to same quarter of 2017. Non-GAAP adjusted income attributable to the company decreased by 12.7% in RMB terms and 14.5% in U.S. dollar terms to $33.7 million in third quarter 2018 from $39.4 million in the same quarter 2017. Non-GAAP net margin decreased to 28.3% in third quarter 2018 from 39.6% in same quarter of 2017. Non-GAAP adjusted net income per diluted share decreased to $0.96 in third quarter 2018 from $1.38 in the same quarter of 2017. Excluding TianXinFu, non-GAAP adjusted net income attributable to company decreased by 25.8% in RMB terms or 27.4% in U.S. dollar terms in third quarter 2018 compared to same quarter 2017. Non-GAAP adjusted income from operations for third quarter 2018 excludes a $7.8 million in non-cash employee share based compensation expense and $2 million in amortization expense of intangible assets and land use rights related to the acquisition of TianXinFu. Non-GAAP adjusted net income and diluted earnings per share for third quarter 2018 excludes $6.9 million in non-cash employee share based compensation expense, $1.4 million in amortization expense of intangible assets and land use rights related to acquisition of TianXinFu and net income tax benefit of $7.5 million related to the U.S. tax reform. Financial outlook. The company reiterates its previously revised full year 2018 forecast. The company expects non-GAAP adjusted income from operations to increase by 0% to 2% in RMB terms and non-GAAP adjusted net income to decrease by 2% to 4% in RMB terms over the full year 2017 financial results. Excluding TianXinFu, full year 2018 non-GAAP adjusted net income from operation expect to decrease by 16% to 18% in RMB terms and non-GAAP adjusted net income to decrease by 19% to 21% in RMB terms over the full year 2017 financial results. This guidance does not factor in any potential foreign currency translation impact having previously adopted the exchange rate of approximately RMB 6.76 equal to US$1 based on the weighted average quarterly exchange rate in 2017 – in translating 2017 financial results. The company expects the non-GAAP adjusted net income from operations and non-GAAP adjusted net income in U.S. dollar terms in 2018 could be affected by the foreign currency translation impact. This guidance excludes potential acquisitions and naturally assumes no significant adverse product price changes during 2018. This forecast reflects the Company’s current and preliminary views, which are subject to change. That concludes our prepared remarks. We will now take questions. Operator, we’re now ready to take some questions.

[Operator:]

We’ll now being the question-and-answer session. [Operator Instructions] Today’s first question will be from Yang Wong with Bank of America Merrill Lynch. Please go ahead.

[Yang Wong:]

Hi, can you hear me?

[Bing Li:]

Yes. We can hear you. Please go ahead.

[Yang Wong:]

Okay, great. Yes. Thanks for taking my questions. So basically, I have two quick ones. So first, I’m wondering regarding pricing pressure and the cost control at hospital pressure. And do – does management expect such pressure will continue in 2019 or will be improved in 2019? That’s the first one. And the second one, I understand the management is restructuring the sales team and they’re going to target more terminal such as hospitals. Can you be more specific for each of your product, which disease or which specialty of doctor do you want to target? And what kind of impact can we expect to see, I mean, regarding the timeline? Can we expect to see some sales improvement in six months or nine months or maybe longer? Thank you.

[Ming Yin:]

Yes, Yang, let me try to answer the first question. Yes, I just kind of echo what you mentioned on the call before the margin pressure directly resulting from the policy headwinds to our – especially, in our direct sales channel. I just want to show – provide some color on how the high winds impact the third quarter 2018. And then we will address the visibility for 2019. So basically, for the 2018 third quarter, our direct channel sales continue to be negatively impacted by the regulation changes to control the direct sales ratio and controlled medical insurance we’re spending. And for IVIG, we have particularly the impact because those cause an impact. Under the strict control on the medical insurance spending, there are increasing number of hospital mandating that drugs should be prescribed strictly according to the approved indications. And overall, prescription value is also limited. And because IVIG, among the top overall spending drugs in many hospitals. So there are folks on the hospitals, cost control activities. Besides the prescription limitation for the IVIG on its off label usage, they are a trend, more hospitals starting to classify IVIG as a supplementary drug due to the limited awareness among the doctors around the benefit of the IVIG. And unlike the IVIG, we believe, the albumin, which has been fully understood and utilized in China because of the education pretty much we believe is being implement by the multinational company to educate the doctors. So albumin, in that sense, has better performance compared with IVIG. So to answer your question to 2019, we actually – unfortunately, we cannot provide a visibility on the government’s policies, the impact whether they’re going to carry on this impact to 2019. So in other words, we’re not actually – wait for the government’s blessing to trying to release the policy, the control on drug spending. So as our CEO, Dr. Li, just mentioned, we were actively trying to utilize our newly formed sales marketing teams to promote the IVIG, to educate the doctors. So we believe with the new – the market leadership in place. So we were actually hope we can quickly turn this problem around because we – rather than wait for the government to release the medical control on the spending to increase our IVIG sales, we’re better off to actively promote those products so we can address better in this issue to hopefully we can improve ourselves for IVIG among the drug sales channel in those hospitals. We can see the prescription – the volume can start to pick up. So from that perspective, we hope our 2019, the margin pressure can be mitigated in certain – to a certain level. So that’s my answer to your first question.

[Bing Li:]

In term of the second question, regarding the product focus and in terms of the hospital promotion area, the product we’re going to have to focus on for promotion purpose going to be IVIG, and newly launched coagulation product, as PCC and fibrinogen. So those products, typically in China, are prescribed in the departments, like surgical, ICUs and oncology department. But we are – in addition, we’re going to build much strong efforts in immunology department, which we believe have mostly the future potential for IVIG. So – but the question about when it’s going to impact our sales forecast, we believe it’s going to take probably one to two quarter to complete the coverage and take effects. And when you’re in a process, doing the long-term strategy and 2019 budget right now, so it’s hard to give you a number in this call.

[Yang Wong:]

Okay. Yes, thanks a lot for the color.

[Operator:]

Next question will be from Jack Hu with Deutsche Bank. Please go ahead.

[Jack Hu:]

Thank you and good evening. Also Dr. Li, welcome on board. I have three questions tonight. The first question actually is when we look at the industry approval data for the two major products and other smaller IVIG products, so industry data clearly indicated there are meaningful improvement or even an inflection point during 3Q versus 1H versus last year and also, there are already a few of your competitors already reported 3Q, so and also if you had some improvement in albumin growth. So my question is how do you see the industry trend from here? Are we really actually having an inflection point going forward from here? My second question, actually it’s also for you, Dr. Li. Can you maybe share with us your tactics on how to decrease inventory, company-side and at distributor level? My last question is on the stock repurchase plan. I think I heard David mentioned previously that there’s a $100 million within six months. So my question is, is there a mandate that you have to complete this $100 million repurchase within six months? Thank you.

[Bing Li:]

Okay. Thanks for welcome. In terms of the competition, the industry dynamics, I think you – the observation you have on the competitive landscape is right. I think most of the key figures in this industry has already realized that sales marketing, commercial capability to generate demand is critical for the future success in this industry. So we are, at this moment, pretty far behind because we’re late to transform the company. But at the same time, we believe with the, probably that vast talent commercial team that can make us stand out in this industry, if you look at activities – promotion activities that, I mean conducted by our competitor, we know that they have not – they’re far from optimal commercial capability. So hope that answers your question. And going forward, we think to compete on commercial capability will be the key – I mean, from this point. So it’s not a one-time industry dynamic. And in terms of your specific question on how to reduce the distribution inventory, this is – I mean, that high inventory level at distributor is a result of lack of end-user promotion capability. So it’s really – I mean, this is going to be a byproduct for us to clean up the inventory at distributor level. So it’s nothing specific we should do. And also, in the process, we’re going to build a stronger partnership with the key distributors at regional levels. So maintaining healthy distributor inventory revenue is also key for our commercial strategy.

[David Li:]

With respect to the question of the share buyback. The Board of Directors authorized a share repurchase program under which China Biologic may repurchase up to $100 million worth of shares over the next six months. $100 million shares buyback reflects our confidence in the company’s long-term growth prospects, as we execute upon our new business plan with our strengthened management team. As we said in the release, repurchase may be made from time to time on the open market at the prevailing market prices. The timing and the extent of any repurchase will depend upon market conditions, the trading price of its shares and other factors. And those are subject to restrictions relating to volume, price and timing under the applicable laws. So we can’t really comment on the specific timing of any potential repurchase.

[Jack Hu:]

Thank you.

[Operator:]

Next question will be from Yolanda Hu with Morgan Stanley. Please go ahead.

[Yolanda Hu:]

Thanks for taking my questions. My first question is for Mr. Bing Li. The overall plus/minus trade is better occurring. So besides hiring more sales experts, strategically, what change have you made since you're on board? And given rising competition and reimbursement controls, what do you plan to do to improve the efficiency of sales marketing of key products such as IVIG in the future? And how should we expect this split between direct sales and indirect sales over the time to lower inventory at Guizhou subsidiary? Do you plan to cut price, as did by many competitors earlier? Second question, maybe for Yin. The conversion from low ex factory price to high ex factory price continued for PP during the past few quarters. So with significant volume growth that we note, going forward, how should we position this part of the line? Should we expect profit contribution from PP to decline as percentage total? Thank you.

[Bing Li:]

So in term of the sales marketing, the detailed strategy for sales marketing, and we are – first of all, there's no – that's not a significant expansion to the headcount and spending expenses. That's more about targeting the right place. So we're in the process of analyzing hospital that whether we have listed or unlisted and so the sales effectiveness – sales force effectiveness system and identify hospital that we need to maintain sales. And the hospitals that we can have significant increase of sales potential and also identify the hospital that we should expand our coverage. So that is more marketing strategy effort. And then we're going to deploy a limited amount of sales force according to their priority of the hospital. And for the hospital outside our strategic focus, maybe outside the top 150 hospitals, we're probably still partnered with leveraged certain CSO to help us to promote by providing them the consistency of the product message and promotion message. And our marketing department will handle the national level and the regional level, thought leader promotion, I mean, program and make sure the product message has been consistent at national level and regional level. And also we have the management education team that supports the sales force directly to provide the professional scientifical support for their promotion efforts. So that is pretty much – I mean, this is not something new in the pharmaceutical industry. But it's probably – it's very new to plasma industry because in the past, there's not much effort needed for promotion. And this industry really doesn't have strong MNC presence other than albumin, which doesn't require significant promotion. So that's – hope that can answer your question. And – so what is your second question that I need to answer?

[Yolanda Hu:]

Prices for Guizhou subsidiary. Do you plan to cut prices?

[Bing Li:]

No. I think – I mean, the current competition from our competitor is, again, because pretty much everyone lack of – and terminal promotion capabilities. So everybody try to compete at distributor level. So cutting price is probably – I mean, short term, is a very effective way to compete, to stop the channel to send past the distributor to acquire your product. But – I mean, the way you make it work is to make sure the hospital continuously use your product then the distributor have less pressure. So once we have very strong terminal promotion capability and our product has been broadly used, prescribed by physicians, the distributor will prefer to use – to distribute our product instead of competitor’s because even we sell them at higher price, but it takes less of the inventory and working capital and make them feel much better compared to using – I mean, to distribute other company’s products. So we don’t have to compete on price, eventually. But they need to be done over the time. So, I mean, since the Guizhou subsidiary, I mean, IVIG finished product, the inventory is that around 10 months or even higher level. So you might see a little bit price dip at the beginning. But later on, we will not compete on the price cut with distributors.

[Youjue Hu:]

Okay, thank you.

[Operator:]

Next question today will be from Tony Ren with Maybank Securities. Please go ahead.

[Tony Ren:]

[Technical Difficulty] that you were saying that, Dr. Li, you were saying that you guys now look to target about 150 top hospitals and you will contract out the rest to contract sales organization, CSOs. I recall about a year ago when you guys made the TianXinFu acquisition at the time, a top rationale was that the sales force coming from TianXinFu would allow you guys to cover about 500 or 600 hospitals. So has that sales strategy recently changed? So that’s my first question. And the second, I heard you guys talking a lot about M&A on this call in biopharmaceuticals as well as medical devices. Could you, to the extent that you guys are able to and comfortable doing so, could you provide a little bit more color on these M&A initiatives? So perhaps, which geography, which therapeutic indications or which clinical departments you guys are looking after? Thank you.

[Bing Li:]

Okay, Tony. In term of the TianXinFu commercial channel synergies, I think, clearly, I mean, even though I’m new onboard, I already – I have acquired extensive exchange of information with TianXinFu’s General Manager on this. We believe in the surgical department, there are overlaps between TianXinFu’s leading product and the plasma products for – coagulation products such as, I mean, the PCCs and fibrinogen. So we are in the process of trying to – I mean, once our new commercial leadership team is ready to roll out, we’re going to try to turn their salesforce and distributors to specifically promote those products in their department. So they are – I mean, there might be hospital overlaps because changing whose focus going to be – hospital focus going to be a little bit different from plasma products focus. There might be a complete different hospital to cover it. So that’s your first question. In term of M&A, as we’re managing, we’re looking at products of technology that can enhance our offering in the same therapeutic area as our current plasma products. So those are only a few departments that we mentioned. I think, that’s going to be our focus. I cannot go to be too specific beyond that, I mean, due to the confidential, I mean, due process.

[Tony Ren:]

All right. Okay. Thank you very much.

[Operator:]

At this time, this will conclude today’s question-and-answer session. At this time, I’d like to turn the conference back over to Dr. Bing Li for any closing remarks.

[Bing Li:]

Well, thank you all for your participations and ongoing support for China Biologic. Everyone, have a good day.

[Operator:]

The conference has now concluded. We want to thank you for attending today’s presentation. At this time, you may now disconnect.