Biostar Pharmaceuticals (NASDAQ:BSPM)

Third Quarter 2011 Results

Second Quarter 2011 Results

• Total net sales in 2Q2011 increased 33.6% from 2Q2010 to $25.9 million. Total net sales in 1H2011 increased 29.7% from 1H2010 to $41.2 million.
• Diluted earnings per share were $0.15 and $0.20 for the 2Q2011 and 2Q2010, based upon 27,783,978 and 27,797,012 diluted common stocks outstanding, respectively.
• Non-GAAP diluted earnings per share were $0.20 and $0.21for 2Q2011 and 2Q 2010 respectively.

SECOND QUARTER AND FIRST HALF 2011 FINANCIAL SUMMARY:

Looking ahead, with our expanded sales network, enhanced brand positioning and diversified product portfolio, we remain confident about the company's business outlook. We maintain the previously provided guidance for top-line growth of 20-25% for our fiscal year ending December 31, 2011. We anticipate to continue improving our operations to drive growth and increase value for our shareholders."

Business Developments

Biostar continued to expand its reach into the rural market, which has less competition and pharmaceutical consumption per capita is almost 10% of urban areas. As of March 31, 2011, Biostar has opened 10,000 rural sales outlets in 22 provinces. The Company plans to include all 10 of its products at all rural locations, in addition to select pharmaceuticals from other producers, in order to drive incremental revenues through existing locations, while improving profitability.

Aoxing continued to grow by contributing $11.1 million of sales, a 20% increase from 2010. The Company plans to add 130 new staff to the sales team during 2011 which would bring the total number to 400 and will continue to make meaningful investments in its marketing strategy, by incorporating television, print and radio across multiple provinces. Aoxing is currently sold in 22 provinces and the management team plans to expand into four additional provinces, including Hainan, Hunan, Guangxi, and Zhejiang during 2011.

Biostar launched 5 new products during 2010, including health products such as Tangning Capsule, Yizi Capsule, Shengjing Capsule and Aoxing Ointment. Total revenue from new products was approximately $0.7 million during the first quarter of 2011. In early April 2011, the Company's Zushima Analgesic spray, a pain reliever product intended for use by military personnel passed the examination of Chinese military drug administration. Currently the Company is preparing for the additional required documents and expects to receive the final approval and license to produce in Zushima Analesic spray in late 2011.

"We are optimistic about 2011 and the ability to sell through all of our products through a robust distribution channel and rural sales network. We are confident in meeting our target for the year of 20-25% growth in revenues year-over-year.

Fourth Quarter Results:

• Revenue for the fourth quarter of 2010 increased 65.7% to approximately $28.2 million compared to $17.1 million for the fourth quarter of 2009.

"We are very pleased to report solid operating progress for both the fourth quarter and full year, which was supported by robust revenue growth across several products. We implemented a broader marketing strategy for our flagship Xin Aoxing Capsule, complemented by our expansion into more retail locations in rural areas. This enabled us to achieve record sales and earnings for the year," commented Ronghua Wang, Chairman and Chief Executive Officer of Biostar. "We expect to have 13,000 rural locations by the end of 2011, up from approximately 10,000 at the end of 2010, and believe this sales channel will further drive incremental growth for the year."

• Operating income for the fourth quarter of 2010 totaled approximately $7.9 million, a 146% increase from $3.2 million reported for the fourth quarter of 2009
• Adjusted Non-GAAP net income for the fourth quarter was $6.3 million, or $0.24 per diluted common share vs. $0.12 the year before.

• Biostar's preliminary estimates of its combined revenues for October and November 2010 shows that the revenues for the period increased 68% to approximately $18.3 million, compared to $10.9 million for the same period of 2009.

• Sales of Xin Aoxing Capsules, Biostar's flagship product, increased by 67% to $12.4 million or 68% of total unaudited revenue for the first two months of the fourth quarter 2010.

Similarly, the Company estimates its unaudited revenues for the first 11 months of 2010 to be $70.2 million, approximately 88% of the Company's full year revenue guidance of $80 million, an increase of 49% compared to the same period of last year. Xin Aoxing's sales were $47.2 million, growing 47% during the first 11 months of 2010. The Company continued its expansion into rural communities in China with products now being sold at over 9,500 locations as of November 30, 2010, up approximately 12% from the end of the third quarter ending September 30, 2010.

"Historically for our Company, the fourth quarter is the strongest sales quarter and December is the strongest sales month. Strong reorders for Xin Aoxing in new markets, driven by a successful advertising program, and supported by sales growth in several other products gives us confidence we will meet our 2010 guidance. We are also on track to meet our 10,000 location target for the rural expansion program and believe this sales channel will drive incremental growth during 2011," commented Ronghua Wang, Chairman and Chief Executive Officer of Biostar. "We will continue to maintain stringent credit terms with our customers to enhance working capital. At the same time, we are working on expanding Xin Aoxing's delivery format to include an injectable form, which we expect to be more effective when applied to patients diagnosed with acute or severe Hepatitis B."

The revenue and other financial estimates contained in this press release have not been audited or reviewed by our independent certified public accountants and accordingly they express no opinion or other form of assurance as to this information. The Company provides no assurance that these preliminary estimates will not change following the Company's completing the fourth fiscal quarter of 2010 and the financial audit of such results of operations, or that such changes will not be material.

"We were pleased with the balanced growth across several products in our portfolio which resulted in a near 30 percent revenue growth and strong cash flow,” commented Ronghua Wang, Chairman and Chief Executive Officer of Biostar. “The third quarter results are a testament to increased customer acceptance of many of our new products, our growing brand recognition and our ability to leverage the proper distribution channels. As we strive to optimize our sales and marketing strategies and enter additional rural markets, we anticipate further growth for our products.”

Financial Guidance

The Company is reiterating its 2010 sales and net income guidance of $80 million and $18 million, respectively.

 Biostar Pharmaceuticals, Inc. today announced it has expanded its rural distribution network in the third quarter ended September 30, 2010 to 8,500 locations, an increase of approximately 21.4% from the second quarter ended June 30, 2010.

Biostar sees significant opportunities created by the state-implemented New Rural Cooperative Medical System to expand its rural distribution network. As of September 30, 2010, 10 of the Company's products were available for sale in approximately 8,500 rural retail locations across 22 provinces. Based on current internal projections, management expects the Company's rural retail distribution to double over the next few years. Sales to rural markets grew 66% in the first half of 2010 to $4.8 million, representing approximately 15% of total sales.

"We continue to expand our rural distribution network aggressively," commented Ronghua Wang, Chairman and Chief Executive Officer of Biostar. "With the PRC government allocating nearly $5.6 billion to expand basic medical services to all 900 million rural farmers by 2010, Biostar is well positioned to capitalize on this secular growth opportunity. We see many more years of healthy growth as more Chinese consumers have access to our products and our brand awareness continues to grow. Expanded rural distribution, coupled with strong growth in existing markets, makes us confident in reaching our 2010 sales and net income guidance of $80 million and $18 million, respectively."

Financial results of the second quarter ended June 30, 2010.

• Revenue increased 46.4% to $19.4 million.
  
• 2010 Non-GAAP adjusted net income increased 50.9% to $5.8 million.
  
• Adjusted EPS of $0.21 vs. $0.16.

"We are pleased to report another quarter of strong revenue growth, which benefited from the 42% growth in sales of our flagship product. We are seeing dividends from the resources allocated to expand brand recognition and awareness for our Xin Aoxing Capsules as a preferred medical treatment for Hepatitis B in China," commented Ronghua Wang, Chairman and Chief Executive Officer of Biostar. "The addition of new rural network locations and our nutritional supplement product line is anticipated to generate incremental revenues for the balance of 2010. Collectively, our growth plan gives us confidence in meeting our 2010 guidance."

"We are making progress on all aspects of our business. We expect to receive the final approval to produce Zushima Analgesic Spray in October. With $30 million in anticipated capacity, we expect to generate $3 million in revenue for fiscal 2011 and to grow at least 50% for the coming years. We will remain focused on expanding our sales footprint, branding our leading products, while introducing higher margin products, which we believe will collectively drive further growth and increased profitability," concluded Mr. Wang.

Biostar reiterates guidance for 2010:

• Revenue expected to be between $80.0 to $82.0 million.
  
• Net income between $18.0 to $20.0 million.

Please note: On July 6, 2010, GeoTeam removed all Chinese stocks that were on GeoBargains and GeoSpecial lists to respective Radar lists as we complete our "quality assessment."

First quarter 2010 Conference call Excerpts:

• Management would like to reiterate revenue guidance for 2010 of $80 million to $82 million and net income between $18 million to $20 million. This represents between 54.1% to 53.8% revenue growth and between 71.4% to 90.5% net income growth year-over-year. Management is expecting increasing demand in existing markets and the new market development of our Xin Aoxing capsule will be the major contributor of year-over-year revenue growth. We launched Beijing and Shanghai markets in the first quarter and then four new markets, including Xinyan, Shaanxi; Xinyang, Su; Hubei in Guangshen Provinces in early April. We believe these new markets will drive significant revenue growth and enable us to gain incremental market share in the latter of 2010. In addition, we expect the Mei pude acquisition to contribute asset acquisition to contribute approximately $3 million in incremental revenue during 2010.
  
• We continue to make progress on all facets of our business and continue to stress our competitive advantage. Our efforts and investment to emphasize sales and marketing will further enhance the market leadership of our Xin Aoxing capsule and increase the sales of our products (unintelligible) our distribution network, including the rural supply network. In addition, our research and development efforts to maximize product development activities will expand our product pipeline. We believe that our emphasis of broadening our product pipeline, coupled with our enhanced sales and marketing effort, and the planned expansion of (inaudible) will continue to yield significant increases in revenue in the second quarter of 2010 and beyond.
  
• We spent more on advertising expense during the first quarter. The results will be seen in the second quarter on the revenue growth. We, usually we can… we usually accomplish 40% of our revenue projection by the end of second quarter and then the rest of the 60% in the second half of the year. And, in terms of net income, we expect to reach about 20% of our net revenue to… net income to revenue percentage during the second quarter of 2010. So we are very confident we can meet this projection.
  
• You have seen our growth from the year 2008 to 2009 and we have been always (unintelligible) on our projection, to meet our projection. We have created returns to the shareholders. In terms of our current cash and then the revenue generated from operations, will be enough for us to meet the 2010 guidance. As far as the additional financing, we remain flexible on this issue, but we don’t have a specific plan on this.

See full transcript...

    -- Q1 2010 revenue increased 66.0% to $12.4 million
    -- Q1 gross margins were 77.0%, a 1,270-basis point improvement
    -- Q1 2010 Non-GAAP adjusted net income increased 32.1% to $2.4 million
       with adjusted EPS of $0.09
    -- Biostar reiterates guidance for 2010: Revenue expected to be between
       $80.0 to $82.0 million and net income between $18.0 to $20.0 million

"We are pleased to report another quarter of strong revenue growth, as Biostar gains further brand recognition and awareness for our Xin Aoxing Capsules. With momentum in several key markets, we are confident that this flagship product is becoming known as one of the major medical treatments for Hepatitis B in China," commented Ronghua Wang, Chairman and Chief Executive Officer of Biostar. "We are optimistic that with our continued expansion into new markets, supported by comprehensive marketing and distribution strategies, including direct sales, we are in position to leverage our product portfolio for optimal growth." Wang concluded.

^a The above forecasts reflect the Company's current and preliminary views and are therefore subject to change. Please refer to the Company's Safe Harbor Statement (usually in press releases) for the factors that could cause actual results to differ materially from those contained in any forward-looking statement.

^b Non-GAAP EPS figures generally exclude certain non-operating gains and losses as well as certain non-cash items. Non-GAAP information should not be viewed in isolation or as a substitute for reported, or GAAP information . For a more complete explanation of the company's definition of non-GAAP please refer to its financial press releases. The GeoTeam® non-GAAP figures may, from time to time, differ from company supplied figures.  The GeoTeam® non-GAAP figures apply a 25% and 36% tax rate for Chinese and United States companies respectively.

^c The company provided 2009 operating income guidance and 2010 net income guidance. The GeoTeam provided implied EPS figures from this data as well as implied full year 2009 net income figures.

^d GeoTeam assumption.