China Pharma's revenue in the second quarter of 2007 was $8.57 million, up 115.57% compared to $3.98 million in the second quarter of 2006. The sales of China Pharma's long-standing products were again record high, of which cefaclor increased 244.82% and neoandrographolade increased 340.11%, compared to the second quarter of 2006. Sales of new products have been growing fast as well, among which PusenOK increased 221.81% and hepatocyte growth-promoting factor increased 473.14% on a year-over-year basis. Granisetron hydrochloride which was launched in the middle of the second quarter is experiencing encouraging sales. Gross profit increased 108.4% to $3.90 million from $1.87 million in the second quarter of 2006. The growth of gross profit benefits from the diversified product portfolio of China Pharma and the high growth of revenue. Net income was $3.33 million, up 81.71% as compared to the same period a year ago. Fully diluted earnings per share were $0.09, an 80% increase from the $0.05 in the second quarter of 2006.
"We are happy to report record high revenue and net income for the second quarter 2007. This was a very successful quarter for China Pharma, both in terms of financial performance and execution of our key business strategies. Our increased market penetration for our existing portfolio and the wide acceptance of our newly launched products including hepatocyte growth-promoting factor, Ozagrel sodium and Granisetron hydrochloride have contributed to the strong growth of our revenue," commented Ms. Zhilin Li, President and CEO of China Pharma. "Our strong performance is the result of building an extensive and diversified portfolio of therapeutics which allows us not to depend on any one product for revenue growth."
Selling expenses were 326,000 US dollars for the quarter, or 3.8% of revenue, compared to 82,000 US dollars, or 2% of revenue, in the same quarter last year. China Pharma has 16 sales offices and 550 proxy agents throughout China. During the second quarter of 2007, China Pharma strengthened its marketing force, expanding and deepening its nationwide sales networks all over 29 provinces, sovereignties and autonomous regions as well as enrolling more salespeople on its payroll, which shall give a clear indication to the increase of selling expenses for the quarter.
General and administrative (G&A) expenses were 203,000 US dollars, or 2.3% of revenue, in the second quarter of 2007, compared to 436,000 US dollars, or 11% of revenue, in the same period a year ago. The decrease of G&A expense is due to two factors, one is that China Pharma has cut down expenses for entertainment, travels and office overheads, and the other is that the Company had accrued sufficient allowance for doubtful accounts in the first quarter of 2007, therefore, no more allowance for doubtful accounts was required for the second quarter. It is typical in China that the collection cycle of pharmaceutics industry is usually longer. But the truth is that China Pharma eventually collected all its trade accounts receivable in its history, never suffering losses from bad accounts at all.
Income from operations was $3.37 million in the second quarter of 2007, a 149.6% increase from $1.35 million in the same period of 2006. The increase of income from operations was a reflection of the growth of sales of China Pharma. Thanks to the increasing acceptance of its products and continuous penetration into the market, China Pharma has been maintaining steady growth of sales.
Financial Condition
As of June 30, 2007, China Pharma had $2.44 million in cash and cash equivalents, which was a 1,151% increase from $195,000 on June 30, 2006, and a 272% increase from $656,000 by the end of 2006. Total liabilities were $8.19 million and working capital was $28.33 million. Days sales outstanding was 174. And shareholders' equity stood at $31 million.
Business Outlook
China Pharma has solid research and development cooperation with leading institutions in China, and has developed a diversified portfolio of therapeutics with strong potential. Its marketing channels are under continuous expansion and the size of its sales force is ever growing. China Pharma's existing product portfolio has record high sales, and sales of its new products are growing dramatically. For this reason, the Company's revenue can be expected to grow continuously. And the China State Food and Drug Administration (SFDA) issued on July 11, 2007 a new regulation for registering new drugs, which is expected to quickly resume normal procedures at SFDA for approving new drugs. This will speed up the process for China Pharma to bring new drugs to the market. Moreover, the People's Republic of China (PRC) has committed to expand its rural cooperative medical system (CMS) to cover more rural areas in the country, and will spend $1.3 billion in this program on an annual basis. CMS is currently covering about 51% rural areas, and by 2010, the whole country will be covered by this program. China Pharma expects to greatly benefit from the CMS program.
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