Tianyin Pharmaceuticals Co (NYSE AMEX:TPI)

First Quartr 2012 Results

In preparation for the new Good Manufacturing Practice (GMP) standards stipulated by the PRC government in early 2011, which requires pharmaceutical companies to be in compliance by 2013, Tianyin Pharmaceutical Inc. (the “Company” or “TPI”) initiated the process of optimizing the manufacturing facilities and production lines according to the newly issued guidelines. Concurrently, the city of Chengdu has re-designated its industrial parks in nearby counties to be dedicated to particular industries such as automobile, pharmaceuticals, chemical engineering and etc. for individual locations. As a consequence, the TPI’s manufacturing facility at the Longquan district, east of Chengdu, which is designated for automotive industry, is scheduled to be relocated to Qionglai city, south of Chengdu that is dedicated to pharmaceutical industry. The Qionglai facility (QLF) is approximately 18 miles from the recently completed Jiangchuan macrolide facility (JCM) which is also located south of Chengdu. The proposed relocation project also includes our traditional Chinese medicine (TCM) pre-extraction plant which is located near the center of city of Chengdu surrounded by rapidly expanding residential area.

The manufacturing site is estimated to be 80 mu or 53,000 m2. Both pre-extraction plant and the formulation plant are scheduled to be relocated. The combined QLF plant, designed and constructed according to the newest GMP standards, is expected to relieve the current capacity saturation at TPI’s manufacturing facilities. The re-location and construction cost is estimated at $25 million for Phase I which, when completed in 2012, will expand the current capacity by 30%. For Phase II QLF, an additional $10 million may be invested to double the current capacity that is scheduled to complete in 2013.

Tianyin Pharmaceutical Inc.

Fiscal Year 2011 Annual Financial Results Conference Call

September 27, 2011

Operator: Good day, ladies and gentleman. Thank you for standing by. Welcome to the Tianyin Pharmaceutical Fiscal Year 2011 Annual Financial Results Conference Call.

During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. If you have a question, please press the star, followed by the one on your touchtone phone. If you would like to withdraw your question, you can press the star, followed by the two, and if you are using speaker equipment, please lift the handset before making your selection. This conference is being recorded today, Tuesday, September 27th, 2011.

Fiscal 2011 financial results

• Revenue delivered $95.2 million, exceeding the guided $90.0 million revenue forecast for fiscal year 2011, a gain of 48.9% year over year from $63.9 million in fiscal year 2010;
• Income from operation increased 23.1% year over year to $18.1 million from $14.7 million in fiscal year 2010;
• Net Income (excluding non-cash equity compensation of $1.9 million) increased to $17.5 million, up 35.4% year over year from $13.0 million in fiscal year 2010; Net income exceeded previously guided $16.0 million net income forecast excluding non-cash 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 17.0% and 32.5%, respectively;

CHENGDU, China, June 3, 2011 /PRNewswire-Asia-FirstCall/ -- Tianyin Pharmaceutical Co., Inc., a pharmaceutical company that specializes in patented biopharmaceutical medicine, modernized traditional Chinese medicine, branded generics and other pharmaceuticals today announced that the Board of Directors has reinstated the stock repurchase program that authorized the repurchase of up to 3 million TPI's common stock on the open market at prevailing market price.

"The stock repurchase program illustrates our confidence in the long-term growth of the Company and our commitment to returning capital to our shareholders," said Dr. Jiang, Guoqing, Chairman and CEO of TPI.

TPI will update investors on the status of the repurchase program on a quarterly basis, in conjunction with the reporting of its quarterly and annual financial results.

Third Quarter Results:

• Revenue increased 56.3% year over year to $24.9 million from $15.9 million in third quarter fiscal year 2010;
• Operating income increased 39.9% year over year to $5.0 million from $3.6 million in third quarter fiscal year 2010;
• Net Income increased to $3.7 million, up 27.7% year over year from $2.9 million in third quarter fiscal year 2010;
• Earnings per share of $0.13 per basic share, or $0.12 per diluted share, up from $0.11 per basic share, or $0.09 per diluted share a year earlier, a gain of 19.3% and 35.5%,  respectively;
• Cash and cash equivalents totaled $31.1 million on March 31, 2011 or $1.10 per basic share in cash;
• Targeting 900 hospitals coverage by the end of fiscal year 2011 up from the current 880 hospitals network;
• Forecasting $30 million JCM macrolide API revenue for the first year of operation

Due to the recent healthcare reform and the resulting pricing pressure on  generic pharmaceutical sales nationwide, since January 2011, our generic division which makes up approximately 40% of our total revenue is expected to experience sales reduction for the next few quarters. In addition, the longer than expected equipment installation and GMP certification preparation process following the newly issued SFDA GMP standards by the PRC government at the beginning of March 2011, are expected to reduce the previously forecast revenue of JCM macrolide facility. We therefore revise our fiscal year 2011 revenue guidance to $90.0 million representing 40.8% year over year growth, from the previously guided $113.0 million in total revenue.

Based on the revised revenue forecast of $90.0 million along with the new 25% income tax rate starting in January 2011 from the previous 15% for Chengdu Tianyin, we revise our net income forecast to $16 million, representing 32.9% year over year growth from previous $18 million. The forecasted net income excludes any non-cash expenses associated with stock compensation plans or stock option expenses. 

Our analysis of the market condition suggests that although the pricing pressure on the generic division is likely to continue for the remainder of 2012 calendar year, the JCM along with TMT distribution business are expected to support the growth of TPI for the coming fiscal year.

• Revenue increased 69.6% year over year to $25.3 million from $14.9 million in 2Q FY2010
• Operating income increased 69.0% year over year to $5.3 million from $3.2 million in 2Q FY2010.
• Net Income was $4.4 million, up 69.2% year over year from $2.6 million in 2Q FY2010.
• Earnings per share of $0.16 per basic share, or $0.14 per diluted share, up from $0.10 per basic share, or $0.08 per diluted share a year earlier, a gain of 52.5% and 70.9% respectively.
• We reiterate our fiscal year 2011 revenue guidance of $113.0 million, representing 76.8% year over year growth and net income guidance of $18.0 million, representing 50.0% year over year growth

Will TPI seek equity capital.

On November 30, 2010, we received unanimous consent from eight accredited investors to amend certain terms in Series C Warrant, which we issued pursuant to the Securities Purchase Agreement entered into by and among us and the Investors on October 27, 2009, as disclosed in the Current Report on Form 8-K that we filed on October 30, 2009. Pursuant to Sections 3(e) and (f) of the Series C Warrant, the Investors had certain weighted average anti-dilution protection in the event we issue any Additional Shares of Common Stock, Convertible Securities or Common Stock Equivalents (as those terms are defined in the Series C Warrant) at a price per share less than the Warrant Price then in effect. We requested that the Investors amend the Series C Warrant to delete Sections 3(e) and (f) thereof; in consideration thereof, the holders of the Series C Warrant shall have a right until May 1, 2011, to pre-approve any Additional Issuances at a price less than the Warrant Price then in effect. The Warrant Amendment is attached hereto as Exhibit 99.1.

This Trading Plan (the “Trading Plan”) is entered into on October 11, 2010 (“Seller’s Adoption Date”) between Time Poly Management Limited (“Seller”) and UBS Financial Services Inc. (“UBSFS“) for the purpose of selling shares of common stock (“Stock”) of Tianyin Pharmaceutical Co., Inc. (“Issuer”), TPI (Ticker), including; Stock that the Seller has the right to acquire under outstanding stock options (“the Options”); Stock that is acquired by Seller pursuant to the Issuer's employee stock purchase plan (the "ESPP Stock"); Stock that is acquired upon vesting of outstanding restricted stock units/awards from Issuer (“RSUs/RSAs”); and, Stock that is acquired upon vesting of outstanding performance share awards from Issuer (“PSAs”) listed on Exhibit A, in accordance with Rule 10b5-1(c)(1) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

The Filer entered into a Rule 10b5-1 Trading Plan on October 11, 2010 (the “Trading Plan”, attached hereto as Exhibit 7.1), pursuant to which a total number of 1,000,000 shares of the Issuer’s Common Stock will be sold by the Filer during the period from October 11, 2010 to June 30, 2011 according to the specific trading instructions as set forth in the Trading Plan. As of the date of this Schedule, a total number of 94,899 shares of the Issuer’s Common Stock have been sold pursuant to the Trading Plan, thus reducing the Filer’s ownership of the Issuer’s Common Stock from 9,351,824 shares to 9,256,925 shares.

Who is Time Poly?

The securities disclosed herein were acquired through a share exchange transaction between the Issuer, Raygere Limited, a company organized under the laws of the British Virgin Islands (“Raygere”), and Time Poly Management Limited, Happyvale Limited and Fartop Management Limited, each a BVI company, and Cmark Holding Co., Ltd., an exempted company organized under the laws of the Cayman Islands (collectively, the “Raygere Stockholders”), pursuant to which all the shares of Raygere were transferred to the Issuer and Raygere became the Issuer’s wholly-owned subsidiary (the “Share Exchange”).

On January 16, 2008, we entered into and consummated the transactions (the “Share Exchange”) contemplated under a Securities Exchange Agreement (the “Share Exchange Agreement”) by and among us, Raygere Limited (“Raygere”), a company organized under the laws of the British Virgin Islands (“BVI”) and Time Poly Management Limited (“Time Poly”), Happyvale Limited (“Happyvale”) and Fartop Management Limited (“Fartop”), each a BVI company, and Cmark Holding Co., Ltd.( “Cmark”), an exempted company organized under the laws of the Cayman Islands. At the time of the Share Exchange, Time Poly, Happyvale, Fartop and Cmark owed collectively 100% of the capital stock of Raygere. Under the terms of the Share Exchange Agreement, the Raygere stockholders transferred to the Company all the shares of Raygere and Raygere became a wholly-owned subsidiary of the Company. As part of the Share Exchange, the shareholders of Raygere were issued 12,790,800 shares of the Company’s common stock, which represented 87.68% of the 14,587,200 issued and outstanding shares of the Company’s Common Stock immediately following the Share Exchange.

Fiscal Year 2011 Financial Guidance

We reiterate our fiscal year 2011

• revenue guidance of $113.0 million, representing 76.8% year over year growth

• net income guidance of $18.0 million, representing 50.0% year over year growth.

Our forecast is based on the following growth drivers:

1) steady revenue growth of the existing product portfolio including our flagship products such as Gingko Mihuan Oral Liquid (GMOL) for age-related cardiovascular and central nervous system disorders such as coronary heart diseases and stroke, Xuelian Chongcao Oral Liquid (XLCC) for immunity enhancement, Azithromycin Tablets (AZI) for bacterial infections and Apu Shuangxin (Benorylate) Granules (APU) for rheumatoid arthritis;

2) capacity ramp-up of Tianyin's newly completed production facility;

3) new product market entries from Tianyin's pipeline;

4) revenue contribution from Jiangchuan macrolide facility;

5) business development of Tianyin Medicine Trading (TMT), Tianyin’s distribution arm for specialty products by other pharmaceuticals that provide synergy to our existing product portfolio. In our forecast, we assume steady pricings for our products and revenue growth driven by increased sales. Forecasted net income does not include non-cash expenses associated with stock compensation plans, stock option expenses and/or future interest expense.

Our current facilities operate at approximately 80% of the total capacity on 24 hours per day schedule. We will be able to further utilize the remaining capacity and optimize the production with high-efficiency equipment base on increasing market demand

Business Development & Outlook

Jiangchuan Progress Update

Jiangchuan focuses on the production of one of the world's best-selling antibiotics, macrolide antibiotics, such as Azithromycin. Jiangchuan holds a license from China's SFDA to produce macrolide antibiotics and a related business license from the Industry and Commerce Bureau and Tax department. Tianyin owns 77% of Jiangchuan and will utilize Jianchuan as the foundation of a broader, longer term strategy to build a significant presence in the rapidly growing macrolide antibiotics market. Construction of the new production facility in Xinjin Industrial Development Area commenced on January 8, 2010 with Phase I capacity of 240 ton capacity, followed by Phase II (total of 480 ton capacity including phase I) with a total estimated capital expenditures of $20 million. Tianyin anticipates Jiangchuan's revenue contribution to begin in the 2^nd half of fiscal year 2011.

Development of Tianyin Medicine Trading Distribution Business

Since the inception of Tianyin Medicine Trading (TMT), we have been developing the distribution portfolio of TMT, Tianyin's distribution arm for specialty products manufactured by other pharmaceuticals that provide synergy to our existing organic product portfolio. Previously, TMT distributes mainly Tianyin's own products. In early November this year, we have successfully obtained one year distribution rights from state-owned Jiangsu Lianshui Pharmaceutical (Lianshui) to distribute approximately 15 Lianshui-branded generic injection products including cough suppressant, antiobiotics along with other healthcare indications. We forecast the annual distribution revenue from TMT to reach approximately $10 million.

GeoTeam® September 2010 Rodman & Renshaw notes:

TPI Tianyin Pharmaceuticals (NYSE AMEX:TPI)

• Has 56 products with a combination of patented medicine, modernized Chinese medicine, branded generics and other pharmaceuticals. Products are successful because of their efficacy in treating high-incidence healthcare indications in China and little side effects. TPI is the sole manufacturer of several revenue-driving products and most of which are eligible for government reimbursement.
• Introduces 7 to10 new products each year
• Usually takes new products about 3 years to reach maturity
• Revenue expectation for new products is $500,000 - $1 million revenues for the first year and gradually increasing, possibly to several million dollars in the following 3 to 5 years.
• 70% of the revenue was contributed by prescription medicines in Tianyin's portfolio; more than 30% of the revenue was contributed by the patented biopharmaceutical.
• China healthcare sector is growing about 15-19% annually
• current tax rate 18%
• No acquisitions in works
• Will be working to call in warrants. Have around 9.0 million outstanding including 3.8 million at $1.60, another 4.3 million at $2.5 and the rest at $3.25 to $4.50.
• CFO, CBDO and Director, James Jiayuan Tong, formerly with Rodman & Renshaw and has been tracking the progress of the company since its U.S. listing in early 2008.Joined company in April 2010. Recruiting him into the company was a more than two year process so he knew exactly what he was signing up for. He is a PhD and MD. Very impressive individual.

• FY2010 revenue exceeds our revenue guidance of $63.0 million for FY2010, up 49.0% year over year (yoy) to $63.9 million from $42.9 million for FY2009.
  
• Gross profit delivered $33.3 million, up 55.6% yoy from $21.4 million for FY2009
  
• Gross margins increased to 52.2% from 49.8% for FY2009.
  
• Net income rose 51.9% yoy to $12.0 million at 19.0% net margin from $7.9 million at 18.0% net margin for FY2009; the net income also exceeds our net income guidance of $11.0 million for FY2010.
  
• Earnings per share equals to $0.47 per basic share, or $0.40 per diluted share, up 25.0% year over year from $0.32 per diluted share in FY2009.
  
• Cash and cash equivalents were $27.0 million on June 30, 2010 as compared to $12.4 million in cash and cash equivalents on June 30, 2009.
  
• FY2010 operating cash flow rose 85.5% year over year to $15.4 million from $8.3 million in FY2009

"For the fiscal year 2010, we have reached and exceeded our revenue and net income targets of $63.0 million and $11.0 million respectively. We thank our 1,365 employees whose diligence and persistence make possible Tianyin's successful operating performance not only for this year but for the past almost a decade of growth. In addition, we exceeded our revenue target of $22.0 million for Gingko Mihuan Oral Liquid through our continuous effort in sales expansion and market penetration," stated Dr. Jiang, Guoqing, Tianyin's Chief Executive Officer. "In addition to our 10 late-stage pipeline drugs pending approval that target various high-incidence medical indications in China, the future lays ahead with our initiative in the growing pharmaceutical raw material space. We expect our Jiangchuan macrolide facility to contribute to our revenue growth in the fiscal year 2011."

 Fiscal year 2011 Guidance:

The management reaffirms

• Revenue guidance of $113.0 million.
  
• Net income guidance of $18.0 million, representing 77.0% and 50.0% year over year growth respectively.

Our intent over the short-term is to build a check list to assess the risk position of firms in the ChinaHybrid space. For the time being this will consist of the following: (this list is likely to grow substantially)

- Is the company's auditor ranked in the top 100?
- Is the auditor located in the U.S.A? If located in China the PCAOB (Public Company Oversight Board) may be denied access to investigate the practices of the auditing firm. Short sellers have been using this information as a tool to validate their opinions.
- Are the company's internal controls satisfactory?
- Are their any outstanding legal issues?
- Do the company's top ten customers represent less than 10% of revenues?
- Operating cash flow divided by current liabilities is greater than one. The higher the better.
- Cash divided by current liabilities. This is an the most conservative liquidity ratio. The higher the better
- Is the company buying back stock?
- Chinese filings match respective SEC filings.(In process)

Short term and risk adverse investors should be aware of the quality issues currently present in the ChinaHybrid Space, questioning the validity of what seem like solid fundamental stories. It is beginning to get ugly so be cautious and understand that more pain may have to be endured, as ChinaHybrids are easy prey for short investors. The broad brush that is being applied to theses stocks appears unfair, but we can’t ignore the psychological impact this can have on investors’ portfolio decisions. If history is our guide, fear will eventually create an immense opportunity to invest in the companies that prove they can meet quality litmus tests enact shareholder friendly moves. Credibility can also be restored if independent legal/SEC opinions validate accounting practices currently in question.

We have yet to verify if the Chinese filings for ChinaHybrid stocks we monitor match respective SEC filings. We are in the process of completing this task. Conservative investors may want to limit exposure or buy put options on stocks, that have this availability, as insurance against long positions, until we publish our findings. Odds are we will identify some promising companies that will fail this litmus test.

Added to the GeoSpecial list on December 3, 2009 @ $4.35

Catalyst: Company has a robust drug pipeline. Substantially increased capacity.
Peak performance: Reached a high of $5.25 on January 13, 2010.
Current Price: $3.06

Current road block: The company is still dealing with dilution issues that we originally highlighted in our initial report on December 3, 2009; No knowledge of capital needs for its fiscal 2011 year:

"We believe that Tianyin is adequately funded to meet all of our working capital and capital expenditure needs for 2010."

Remains on the GeoSpecial list. Tianyin Pharmaceuticals 2010 fiscal year ends in June. If 2010 guidance holds up fourth quarter EPS should grow 24% to $0.10. This will be the first EPS growth quarter since the its 2010 first quarter when EPS grew 9.1% to $0.08. If all holds, 2010 EPS will come in at $0.35 ($0.32 fully taxed). Based on fiscal 2011 net income guidance of $19.6 million, EPS could reach $0.56 ($0.50 fully taxed). This would imply an EPS growth rate of 56.25% and may qualify TPI as a GeoBargain as it enters 2011 as long as the company does not give away stock in an equity financing. The stock trades with a forward P/E of 6.2 and less than two times its book value per share of $1.75. We also like that the company has been buying back stock.

"On October 27, 2008, the Board of Directors authorized the Company to repurchase up to $3.0 million of its common stock from time to time in the open-market or through privately negotiated transactions."

"On January 30, 2009, we announced the start of the initial purchase of shares under its previously announced stock repurchase program. Those shares will be retired to the treasury while reducing the number of outstanding shares of the common stock or sold out wholly or partially when market turns better. The initial share buyback illustrate our confidence in the long-term growth of the company and our commitment to our shareholders. As of April 3, 2009, a total of 83,785 shares have been bought back at prevailing market prices. The share repurchase program is to continue for the remainder of 2010."

This morning we coded Tianyin Pharmaceuticals (NYSE Amex:TPI) as a GeoSpecial. Our readers may be aware that we have been tracking the Company for some time. Our largest hang up had been with potential dilution from "in-the-money" warrants. Although the Company's fiscal 2010 net income June guidance of $11.3 million represents a 43.0% increase from the fiscal 2009 raw net income number of $7.9 million, the increase in shares poses some uncertainty regarding the near term EPS growth scenario. (Extra outstanding shares is dependent on share price and application of the treasury stock method). We are unsure of the final share count that will be used  for 2010 year end numbers. Tianyin reported $0.32 EPS for its 2009 fiscal year.

Having said that, this morning Tianyin issued fiscal 2011 net income guidance of $19.6 million which implies EPS of $0.56 ($0.50 fully taxed). Couple this with an overall positive outlook and the TPI story begins to gain strength:

• With approximately 39 products and a solid pipeline of 17 pharmaceutical products pending SFDA approval, Tianyin may be able to achieve consistent long term growth. It is important to note that the Company's product pipeline has been strong for some time and reflects the management team's vision.
• We are very impressed with the rapid pace of SFDA approvals TPI has achieved. The Company has received 12 new approvals over the past 12 months. This bodes well for quick pipeline revenue generation and market penetration of its product pipeline.
• The Company is aggressively targeting the macrolide antibiotics market where it sees significant opportunity.
• Tianyin has the financial means to consider acquisitions that may give upside to guidance. They have $15 million in cash, $12 million in cash flow and the potential for $25 million from warrants that are currently in the money.
• TPI has an extensive distribution channel with full province coverage, giving new products quick and broad market penetration.
• With recent fund raising proceeds, the Company increased its capacity approximately 300% for solid dosage forms and can support annual revenues in excess of $100 million.
• Bullish Management commentary:

"Management believes that our emphasis on further commercializing and broadening our product line coupled with the expansion of our production facility and capacity, enhanced sales and marketing efforts should continue to yield significant increases in revenue in 2010 and beyond. Additionally, we believe that our growth and overall market coverage could be further improved by certain strategic acquisitions or licensing opportunities. In addition, we believe the Pharmaceutical Industry could benefit from the expanded social reform which is part of the recently announced government stimulus plan.

Our forecasts do not include any potential future acquisitions or joint venture agreements. The company is currently evaluating several acquisition opportunities, including companies with complementary product portfolios, and those which would accelerate the macrolide antibiotic business growth strategy."

"It's important for our shareholders to understand the management's vision for building a successful pharmaceutical company through both organic growth and accretive acquisitions."

While short-term investors may still approach TPI with trepidation, astute long term investors may be begin to notice the opportunity, especially given the Company's overall strong fundamental story. The stock is selling at trailing P/E of 13 and forward P/E of 8.

The company came public via a reverse merger transaction on January 28 , 2008. The shell symbol that they merged into was VSCO. The new symbol is TYNP.