China Pharma Holdings, Inc. Reports Full Year 2010 Financial Results

Full Year Highlights

• Revenue increased 21% to $74.4 million in fiscal year 2010 from $61.7 million in fiscal year 2009.
• Net income rose 30% to $23.4 million in fiscal year 2010 from $18.0 million in fiscal year 2009, with earnings per share rising $0.11 to $0.54 in fiscal year 2010 from $0.43 in fiscal year 2009.
• Excluding adjustments for derivative gains/losses and a one-time bad debt estimate in third quarter 2009, net income climbed 23% from $17.7 million in fiscal year 2009 to $21.8 million in fiscal year 2010*, with earnings per share rising from $0.42 in fiscal year 2009 to $0.50 in fiscal year 2010
• Significant pipeline progress made:
  • Completion of clinical trials for Candesartan (now awaiting final production approval from the Chinese State Food and Drug Administration ("SFDA")).
  • Completion of clinical trials for Rosuvastatin (submitted application for final production approval to the SFDA).
  • Completion of Phase I clinical trials of our cephalosporin-based combination antibiotic.
• Obtained "National High-Tech Enterprise" status which entitles us to favorable preferential tax treatment for the next three years (from 2011 to 2013).

"In 2010 we registered robust revenue growth, with increased sales across all product categories, while making meaningful progress in our research and development program," said Ms. Zhilin Li, China Pharma's Chairman and CEO.  "Among key pipeline milestones achieved this year, we completed clinical trials of Candesartan, our new hypertension drug, and Rosuvastatin, our generic version of Crestor.  We expect to launch these two products during 2011 and believe that they can generate higher than average gross margin compared to our current portfolio.  In 2010 we also entered Phase II clinical trials of our novel cephalosporin-based combination antibiotic. Commercializing exciting new drugs like this, along with first-to-market generic medicines, is an important part of our strategy to enhance China Pharma's growth and profitability."  

Full Year Results

Revenues for the year ended December 31, 2010 were $74.4 million, up 21% from revenues of $61.7 million for the year ended December 31, 2009, reflecting higher sales across all of the Company's product categories.  

The "Digestive Diseases" product group was the Company's fastest growing revenue category in 2010, with sales increasing 96% to $9.3 million from $4.8 million in 2009.  The strong performance of the Digestive Diseases product group primarily reflects robust incremental revenue from Omeprazole, the Company's generic gastroesophageal reflux disease drug, and Tiopronin, a drug prescribed for treatment of acute Hepatitis B and drug-induced liver damage.  Sales from the Company's second fastest revenue category in 2010, "Other Products", grew 31% to $14.1 million from $10.7 million in 2009.  The year-over-year increase of Other Products revenue mainly reflects reinvigorated sales of Vitamin B6 after its placement on the Chinese government's Essential Drug List ("EDL") in 2009.  The "CNS Cerebral and Cardio Vascular" product group ("CNS") generated sales of $23.9 million in 2010, representing an increase of 11% compared to sales of $21.5 million in 2009. We expect the upcoming new CNS products (namely Candesartan and Rosuvastatin) will strongly support the profitability and boost sales in this category once launched. Sales of "Anti-Viro/Infection & Respiratory" products, the Company's largest revenue category during 2010, grew 10% to $27.1 million from $24.7 million in 2009.

Gross profit for the year ended December 31, 2010 was $30.3 million, up 18% from gross profit of $25.7 million in 2009. Gross margin was 40.7%, compared to 41.6% for the full year of 2009, reflecting a higher mix of sales from lower-margin products, including those listed on the EDL.

Selling, general and administrative expenses in 2010 were $5.6 million, or 7.5% of sales, compared to $4.8 million, or 7.9% of sales, in 2009.  For the year ended December 31, 2010, the Company's bad debt expense was $0.5 million, compared to a bad debt benefit of $1.8 million in 2009.  Management revised bad debt allowance estimates in the third quarter of 2009, which resulted in a one-time benefit of $2.8 million.

Operating income was $24.7 million in 2010, up 9% from $22.6 million in 2009.

For the year ended December 31, 2010, the Company paid income tax at a rate of approximately 11%.  Income tax expense for the year ended December 31, 2010 was $2.7 million, compared to $2.3 million for the year ended December 31, 2009. The Company obtained "National High-Tech Enterprise" status from the PRC government in the fourth quarter of 2010.  With this designation, the Company is entitled to a preferential tax rate of 15% for the next three years (2011 to 2013), which is notably lower than the statutory income tax rate of 25%.

Net income for the year 2010 was $23.4 million, or $0.54 per basic and diluted share, compared to $18.0 million, or $0.43 per basic and diluted share in 2009. Excluding the effect of the changes in derivative warrant liability and the one-time adjustment for bad debt allowance, net income would have risen by 23% to $21.8 million in 2010 from $17.7 million in 2009 *

Financial Condition

As of December 31, 2010, the Company had cash and cash equivalents of $3.7 million compared to $3.6 million as of December 31, 2009. Year-over-year, working capital increased to $79 million in 2010 from $61 million in 2009 and the current ratio rose to 7.1 times from 6.8 times.

Accounts receivable balance rose to $61.9 million in 2010 from $51.2 million at the end of 2009. The Company's management team continues to be sharply focused on improving accounts receivable collection and expects to make further progress in the quarters to come.

For the year ended December 31, 2010, cash flow from operating activities was $7.8 million, as compared to $10.7 million in 2009.  Most of this decline was due to higher working capital usage from higher advances to suppliers and inventory levels in 2010 compared to 2009. The Company believed the current market for raw materials was fairly tight and used the opportunity in late 2010 to stock up its warehouses.

"In 2011, we anticipate adding new higher-margin revenue streams to our upcoming new products, which should help offset pockets of margin pressure coming from higher raw material costs and more competitive pricing due to government reform policies.   Overall we are very optimistic that we have the right mix of products and pipeline opportunities to position China Pharma to benefit from China's unprecedented $124 billion healthcare reform program," said Ms. Li.  "We believe our success in 2011 and beyond will be defined by our high-quality manufacturing facilities and promising pipeline, strong distribution relationships, and commercialization expertise."

Pipeline Update

As of December 31, 2010, China Pharma had nine pipeline drugs in different stages of active development.  The development of three of such products is highlighted below:

• The Company completed clinical trials of Candesartan, a front-line drug therapy for the treatment of hypertension. The Company has completed all testing procedures and currently awaits final SFDA production approval.
• The Company completed clinical trials of Rosuvastatin, a generic form of Crestor, in December 2010 and has submitted an application for SFDA production approval.  
• The Company completed Phase I clinical trials of its novel cephalosporin-based combination antibiotic in September 2010.  Phase I of the clinical trials focused on the study of clinical pharmacology as well as the evaluation of safety on the human body, while observing tolerance and pharmacokinetics to provide support for dosage and drug delivery design.  The Company has entered Phase II clinical trials for this drug.

Conference Call

The Company will hold a conference call at 8:30 am EST on March 3, 2011 to discuss full year 2010 results.  Listeners may access the call by dialing 1-800-265-0241, or 1-617-847-8704 for international callers; access code: 49845306. A webcast will also be available through the Company's website at http://www.chinapharmaholdings.com.  A replay of the call will be accessible through March 10, 2011 by dialing 1-888-286-8010, or 1-617-801-6888 for international callers; access code: 57630593.

Use of Non-GAAP Financial Measures

GAAP results for the year ended December 31, 2010 and 2009 include non-recurring benefit from change of bad debt estimates and gains and losses from changes in derivative warrant liability.  To supplement its consolidated financial statements presented on a GAAP basis, the Company has provided non-GAAP adjusted financial information, including adjusted net income and adjusted diluted earnings per share, that excludes the impact of the change in its bad debt estimates and the changes in derivative warrant liability. The Company's management believes that this adjusted measure provides investors with a better understanding of how the results relate to the Company's historical performance. A reconciliation of adjustment to GAAP results appears in the tables accompanying this press release. This additional adjusted information is not meant to be considered in isolation or as a substitute for GAAP financials. The adjusted financial information that the Company provides also may differ from the adjusted information provided by other companies.

About China Pharma Holdings, Inc.

China Pharma Holdings, Inc. is a rapidly growing specialty pharmaceutical company that develops, manufactures and markets a diversified portfolio of products focused on conditions with a high incidence and high mortality rates in China, including cardiovascular, CNS, infectious, and digestive diseases. The Company's cost-effective, high-margin business model is driven by market demand and supported by eight scalable GMP-certified product lines covering the major dosage forms. In addition, the Company has a broad and expanding nationwide distribution network across all major cities and provinces in China. The Company's wholly-owned subsidiary, Hainan Helpson Medical & Biotechnology Co., Ltd., is located in Haikou City, Hainan Province. For more information about China Pharma Holdings, Inc., please visit http://www.chinapharmaholdings.com.

Safe Harbor Statement  

Certain statements in this press release constitute forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. Any statements set forth above that are not historical facts are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements, which may include, but are not limited to, such factors as the achievability of financial guidance, success of new product development, unanticipated changes in product demand, increased competition, downturns in the Chinese economy, uncompetitive levels of research and development, and other information detailed from time to time in the Company's filings and future filings with the United States Securities and Exchange Commission. The forward-looking statements made herein speak only as of the date of this press release and the Company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company's expectations except as required by applicable law or regulation.

- FINANCIAL TABLES FOLLOW -