China Biologic Products (NASDAQ:CBPO) reported second quarter 2020 financial results after the market close on August 17th. Sales were down 18% to $111.1 million driven by the impact of the COVID-19 pandemic. Stringent precautionary measures taken at Chinese hospitals prevented the company from engaging in promotional activities which weighed on sales.
The Beijing-based company provides plasma-based pharmaceutical products to hospitals and inoculation centers both directly and through distribution agreements. The products are used in medical emergencies and to treat immune deficiency related and life-threatening diseases.
Net income decreased 14% to $35.7 million. Earnings per share of $0.95 fell short of the consensus earnings estimate of $1.08. On the positive side, however, the gross margin increased to 68.8% and the operating margin rose to 38.4%. The company has implemented online enterprise management and logistics systems to reduce costs amid the pandemic.
In recent months, China Biologics has shifted its focus to the optimization of its distribution network. It is also aiming to reduce its credit exposure by parting ways with smaller, non-performing distributors. This transition has led to an improvement in accounts receivable turnover and given the company an improved liquidity position at a critical time.
China Biologic Products SEC Filings
Approval granted for new collection station, product manufacturing
The last few months have been marked by several company developments. In April, China Biologics received approval from the Health Commission of Shandong Province to build a new plasma collection station in Binzhou City.
Last month it received a certificate of approval to manufacture coagulation factor IX, a first-to-market plasma-based product. The company began the clinical trial for the product back in 2017. Manufacturing of coagulation factor IX is underway, and the product is expected to be launched during the third quarter.
China Biologics also holds a 35% equity stake in plasma products company Xi’an Huitian Blood Products. In July, Huitian had its manufacturing permit revoked by the Shaanxi Medical Products Administration due to its failure to meet certain good manufacturing practice standards. While the news was damaging to China Biologics’ reputation, Huitian accounted for only 1% of the company’s net income last year compared to 5% in 2017.
China Biologics makes more than 20 dosage forms of plasma products through a pair of subsidiaries. It has recently branched out in the medical device business through its 2018 acquisition of TianXinFu Medical Appliance Company. The division primarily sells regenerative medical biomaterial products to hospitals and other healthcare facilities in China.
Looking ahead
The company is facing increased competition across its core markets which combined with the recent decline in demand has put pressure on its financial performance. Despite the challenging environment, management said it has gained market share in its major product categories by leaning on its direct sales channels.
It also noted that the uncertain economic backdrop has prompted the company to take a conservative approach to the inventory management of some key products.
China Biologics is scheduled to have a second quarter conference call at 7:30am EST on August 18th. The stock was down 6% to $102 in after-market trading.
