Tianyin Pharmaceuticals (TPI)

Q4 2011 Results

September 27, 2011 9:00 a.m. ET


James Jiayuan Tong – Chief Financial Officer and Chief Business & Development Officer


Adam Waldo – Lismore Partners LLC



Good day ladies and gentlemen and thank you for standing by. Welcome to the Tianyin Pharmaceutical fiscal year 2011 annual financial results conference call. [Operator instructions.]

I would now like to turn the conference over to James Tong of Tianyin Pharmaceuticals. Please go ahead.

James Jiayuan Tong

Thank you operator. Good morning, good evening ladies and gentlemen. Welcome to Tianyin Pharmaceutical fiscal year 2011 earnings conference call. I am James Jiayuan Tong, chief financial officer and chief business development officer of TPI along with Dr. Jiang Guoqing, chairman and chief executive officer of the company, and Simon Minute Ren, director of investor relations of Tianyin Pharmaceutical.

During this conference call we will be reviewing the fiscal year 2011 financial highlights followed by the question and answer period. Before we continue please know that this call will contain forward-looking statements made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995.

Any statements set forth in this presentation 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 unanticipated changes in product demand, increased competition, failure to obtain or maintain intellectual property protection, fluctuation in the economy, results of research and development, failure to obtain regulatory approvals and other information detailed from time to time in TPI’s filings and future filings with the United States Securities and Exchange Commission. The forward-looking statements contained in this presentation are made only for this date and TPI is not under any obligation to revise or update these forward-looking statements.

Fiscal year 2011, ending June 30, 2011, financial highlights: The fiscal year 2011 revenue delivered $95.2 million, exceeding the $90 million revenue guidance for fiscal year 2011, a gain of 49.9% year over year, from $63.9 million in fiscal year 2010.

Income from operations increased 23.1 year over year to $18.1 million from $14.7 million in fiscal year 2010. Net income, excluding noncash equity compensation of $1.9 million, increased to $17.5 million, up 35.4% year over year from $13 million in fiscal year 2010.

Net income exceeded the $16 million net income forecast, excluding noncash equity compensation. Earnings per share increased to $0.55 per basic share or $0.53 per diluted share, up from $0.47 per basic share or $0.40 per diluted share in fiscal year 2010, a gain of 17% and 32.5% respectively.

Cash and cash equivalents totaled $31.7 million on June 30, 2011, or $1.12 per basic share in cash. Targeting Jiangchuan Macrolide facility (JCM) GMP certification in October 2011, we are reaffirming $30 million JCM Macrolide API revenue for the first year of operation.

Sales: For the fiscal year ended June 30, 2011, we delivered $95.2 million in fiscal year 2011, up 48.9% from $63.9 million for the fiscal year 2010, supported by our continued sales channel expansion and market penetration by our current product portfolio, especially the lead products. The results exceeded our target of $90 million for fiscal year 2011 guidance, which validates our growth strategy.

Among the revenue mix, the revenue contribution from TPI’s organic portfolio delivered $78.1 million, a gain of 22.2% over $63.9 million in fiscal year 2010. We are exploring various growth strategies to sustain the current momentum. In addition to introducing distribution revenue from TMT, Tianyin Medicine Trading, and Macrolide API revenue from JCM.

For our core product portfolio, we are focusing on AAA and AA hospitals in major cities of China as an in-depth approach to developing a high-end hospital pharmaceutical market. Lead product sales are Ginkgo Mihuan Oral Liquid (GMOL): $20.5 million, Apu Shuangxin Oral Liquid (APU) $6.6 million, Xuelian Chongcao (XLCC): $4.1 million, Azithromycin Dispersible Tablets (AZI): $3.9 million, Qingre Jiedu Oral Liquid (QRE): $2.9 million, which totaled $38.0 million or 48.7% of the organic portfolio revenue.

Cost of Sales: For the fiscal year ended June 30, 2011 it was $52.7 million or 55.4% of the revenue, compared with $30.6 million, or 47.9% of the revenue for the fiscal year 2010. Our cost of sales primarily consists of the costs of direct raw materials, labor, depreciation and amortization of manufacturing equipment and facilities, and other overhead.

The increase of our cost of sales from the previous year was due to the additional distribution business through TMT, amounting to $17.1 million at 11% gross margin, pricing pressure on generic pharmaceutical sales, and increase of raw material costs.

Gross profit for fiscal year 2011 was approximately $42.5 million with a 44.6% gross margin, compared with $33.3 million with 52.1% gross margin in the previous year.

The decrease in gross margins was attributable to the addition of TMT revenues, the distribution arm of TPI, whose gross margins averaged 11%. The pricing pressure on our generic products also contributed to the reduction of the gross margins.

During the fiscal year 2011, our organic product portfolio delivered approximately 52% gross margin, about 0.8% lower than 52.8% in fiscal year 2010. Given the blend of the TMT lower-margin distribution revenue and recent gross margin compression associated with our proprietary portfolio under the current pricing trend, we anticipate that our overall gross margin in the near term, on a quarter-to-quarter comparison basis, may trend lower, but on a sequential basis should stabilize and improve depending upon the revenue mix percentages of TMT revenue, upcoming JCM macrolide API revenue as compared to the proprietary portfolio's revenue performance.

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