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Tianyin Pharmaceutical Co., Inc. (NYSEMKT:TPI)

Q2 2009 Earnings Call Transcript

February 18, 2009 at 8:45 am ET

Executives

Guoqing Jiang - Chairman of the Board, President, Chief Executive Officer,

Stewart Lor - Director

Analysts

Dean Hebert - Private Investor

Ron Taylor - Chesapeake Group

Yale Jen - Maxim Group

Operator

Welcome to the Tianyin Pharmaceutical Inc’s second quarter fiscal 2009 earnings conference call on the 18th of February 2009 at 13:45.

Throughout today’s presentation, all participants will be in a listen-only mode. After the presentation there will be an opportunity to ask questions. (Operators Instructions) I will now hand the conference over to Mr. [Jianping]. Please go ahead sir.

[Jianping Hou]

Thank you, Operator. Good morning ladies and gentlemen. My name is [Jianping] of Heading Communications International.

We would like to thank all the shareholders and investors who have joined us today’s for Tianyin Pharmaceutical’s second quarter earnings conference call. The agenda for today’s call includes prepared comments from Mr. Stewart Lor, Director of the Company. He will provide a summary of both second quarter and the first six months results for the period ended December 31st, 2008. Additionally, he will discuss new developments the Company has made and outlook for the remainder of this year. By now, every one should have access to the earnings release where we have detailed all our financial performance in the second quarter.

Before we get started, I want to read our Safe Harbor statement regarding today’s conference call. This conference call may contain forward-looking statements concerning Tianyin Pharmaceutical Incorporate as referred here as “we” or “our”. The word “operate,” “will be,” “will allow,” “expects to, “intends to” or “likely results,” expected to” or “continue,” “is anticipated,” “estimate,” or similar expressions are intended to identify forward looking statements. Such statements include also concerning our expected financial performance, our corporate strategy and our operation. The actual result could differ materially from those projected in the forward looking statement as a result of a number of risks and uncertainties. Including a general economic condition in China including regulatory effect, whether we are able to manage our planned growth efficiently and our profitable operation including whether our management staff and manage and exploit existing and the potential market opportunities. Unless otherwise required by applicable law, we do not undertake in a way specifically disclaim any obligation to update any forward looking statements to reflect occurrences; developments, all anticipated events or circumstance absolute base of such a statement.

All forward looking statements are expressly qualified in their entirety by this cautionary statement and the risk factors detail in the Company’s most current report on Form 14-C filed on February 11, 2008 with the SEC at www.sec.gov.com. Tianyin Pharmaceuticals undertakes no duty to revise or update any forward looking statements to reflect event or circumstances after the date of this conference call.

Also if you are unable to listen to the entire call at this time, an audio replay will be available for 14 days. Information about the replay is available in the press release issued yesterday.

[Audio Difficulty]

Stewart Lor

Thanks,. Good morning ladies and gentlemen, on behalf of the Chairman of the Board and CEO Dr. Jiang, we would like to thank everybody who is joining us for the second quarter 2009 conference call. First of all, I would like to take a moment to thanks all of our team members at Tianyin Pharmaceutical for their hard work and commitment during the quarter

I also would like to thank our advisors and investors for their ongoing loyalty, enthusiasm, and support in this difficult time. We are certainly pleased with our results for the second quarter as Tianyin continue to execute on our growth plan by capitalizing on a significant growth opportunity in Chinese Pharmaceuticals Industry.

Now I would like to run through the second quarter numbers in more details. All numbers here are in U.S. dollars. Fiscal second quarter 2009 revenue was $10.1 million up by 30.4% or 2.4 million from $7.7 million in the same period of 2008 and 5.6 sequentially from the first quarter of 2009.

This reflects a 23.3% year-over-year increase in Ginkgo Mihuan Oral Liquid sales as well as increased sales of other core products such as Arpu Shuangxin Oral Liquid which increased 130% to $2.8 million from the second quarter of fiscal 2008. This was a record quarter for us.

[Inaudible] for the three month ended December 31st, 2008 was approximately $4.9 million or 48.9% of revenue up $0.3 million from $4.6 million in the same period of 2008 and up $5.6 million from the first quarter of 2009.

This shows the gross profit of $5.2 million and gross margin of 51% compared to $3.2 million in gross profit and a gross margin of 41% during the second quarter of 2008, and $4.9 million in gross profit and a gross margin of 51% during the first quarter of 2009. Thus gross profits grew by 51.8% on a year-over-year basis and 5.7% compared to the first quarter of 2009.

Operating expenses were $2.7 million versus $1.2 million in a second quarter of 2008 and $2.7 million in the first quarter of 2009. Selling and general and administration expenses for the period increased to approximately $2.6 million from $1.2 million in the second quarter of 2008. Research and development expenses were $84,220 in the three months ended December 31st, 2008 versus $34, 106 in the same period a year ago. Operating income was $2.5 million representing a 25.4% increase from the year ago period or 14.5% increase compared to the first quarter of 2009.

The operating margins where 24.5% and 25.5% for the second quarter of 2009 and year ago period respectively. The operating margin is increased 190 basis points in the second quarter of 2009 from 22.6% in the first quarter about 2009. Net income for the second quarter of 2009 increased 24.5% in $2.1 million from $1.7 million in same period a year ago. In addition net income increased 14.9% from $1.8 million compared to the first quarter 2009, Dollar earnings per share were $0.13 compared to $0.13 for the second quarter of 2009 and 2008 respectively based upon a 15.7 million and 4.8 million shares.

Our propriety and key products continued to gain market share in time. Ginkgo Mihuan Oral Liquid contributed approximately $2.6 million or 25.7% of total revenue in the second quarter an increase of 23.3% or $0.5 million compared to the same period of 2008. Ginkgo Mihuan Oral Liquid is a traditional Chinese Medicine which is highly effective in treating cerebral thrombosis, coronary heart disease or myocardial infarction.

This drug was Tianyin Pharmaceuticals’ number one selling drug in fiscal year 2008 and contributed approximately 25.6% of the Company’s 2008 fiscal revenue. Our estimation is that Ginkgo Mihuan Oral Liquid currently has over 80% of the compound Ginkgo subscription market at approximately 23% of the heart disease market in China which is estimated to be an adjustable market of approximately $4.3 billion annually by Chinese Southern Pharmaceutical Economic Research Institute.

We expect Ginkgo Mihuan Oral Liquids will continue to be a significant contributor of our revenue growth as we further extend sales network and increase production capacity. Second quarter capacity and utilization was over 90% and we have been focusing on producing high margin products to maximize our profits with limited capacity. We expect this will be eliminated once our new production facility is online in the spring.

In the first half of 2009, revenue has increased to$19.7 million up to 31.8 % from the $14.9 million we recorded in the first half of 2008. Gross profit increased by 60.7 % to $10 million in the first half of 2009 versus $6.1 million in the first six months of 2008. Gross margin grew 51% in first half of 2009 compared to 40.6% in first half of 2008. The increase in gross profit and improved margin were primarily attributable for the focus on higher margin product such as Ginkgo Mihuan Oral Liquid, Arpu Shuangxin Oral Liquid and our cost control implemented in the manufacturing process.

Operating income in the first half of 2009 increased 22.3% to $4.6 million compared to $3.8 million in the first half of 2008. Operating margin was 24.5 % and 25.5% for the second quarter of 2009 and 2008 respectively. Net income for the first six months of 2009 was $3.8 million up to 21.3 % from $3.2 million on the first half of 2008. For the diluted earnings per share was $0.16 compared to $0.25 for the first six month of 2009 and 2008 respectively based upon a 24.7 million and 12.8 million shares.

Looking at the balance sheet, cash equivalent and restricted cash total of $12.7 million on December 31st, 2008. This is compared to $12.1 million total cash, cash equivalent and restricted cash on June 30th, 2008. The advance payment of $2.2 million was paid to Research Institute for several new drugs and the development which we believe were just common indications with significant market potentials. The Company had $20.8 million in working capital as of December 31st and a current ratio of 6.9 to1, net cash contributed by operations was $3.9 million which mainly resulted from the increase in revenue.

During the first six months of fiscal 2009, we have made further progress in broadening our portfolio. We have received three approvals from the SFDA to produce Laonian Kechuan Tablets, Fuke Zhidai Tablets, and Tongbianling Capsules. We have launched Laonian Kechuan Tablets before Chinese New Year and plan to launch Fuke Zhidai Tablets and Tongbianling Capsules in the first half of calendar year 2009.

The initial feedback to Laonian Kechuan Tablets from our sales person is very positive and we expect the drug to be one of the contributors of our overall growth in fiscal 2009 and beyond. To support our growing portfolio and production capacity, we continue to increase market penetration and expand our distribution network. As of December 31st 2008, we have approximately 720 sales persons throughout China. Additionally we continue to build strategic partnerships with new distributors for the expansion of our distribution network and increased market penetration.

Now I will cover some developments in Chinese Health Care Industry. In January 2009, the China’s State Council issued the 3-Year Reform Plan during a meeting according to statement on the Central Government’s website. www.gov.cn. The Chinese Government will invest R&D $150 billion in a new Health Care Reform between 2009 and 2011 and will soon handle the final slot for the Health Care Reform as well as the implementation. The R&DA $150 billion will be used in five important areas, medical insurance, essential medications, basic health care service system, improved access to public services and reform of public hospital.

The plan clarifies the medical insurance reform in detail. According to the plan, the medical insurance system will expand to cover college students and rural migrant workers and the target is to cover all the 90% of urban and rural residents. TCM are considered to be a cost effective way to increase the medication coverage and have been ingrained in Chinese culture for thousands of years. With our expanse of sales network, comprehensive product portfolio, strong development pipelines and experienced management, we believe we are well positioned to capitalize this growth opportunities driven by government support and new funding.

Now, I would like to cover some recent events. Can you imagine if you look at Tianyin and it is undervalued and represent a good opportunity to repurchase stock to restock the treasury. On October 27, 2008, our Board of Directors authorized to repurchase up to $3 million of Tianyin’s common stock from time to time in the open market but through properly negotiated transaction. The buyback would be conducted through June 30, 2009 and occurs on a daily basis. It took several months to set up the accounts, transfer the funds and get it ready for the repurchase. The buyback has just got it on January 30th.. Tianyin has been buying back shares on almost daily basis. All buying today had been done through the open market and in properly negotiated transactions.

Tianyin is subject to Form 10-B and the rules regarding buyback including the timing and amounts of the purchase. Tianyin have $12.7 million in net cash and improvements on December 31, 2008 and then a related $3.9 million in cash from operations for the first six months of 2009. We are prepared to make prudent decisions as it relates to cash management and capital allocations.

We will make the best investment which we believe is in the best interest of the shareholders. In addition, the senior management recognizes the value in the Company and plans to buy 10 million stocks in their personal accounts as well. Recently, Tianyin has completed installation of steel framework roving and several construction of the new production facility and began the decoration works recently. We expect it will commence production in the spring of 2009. The new plan will expand over all production capacity by three times. While we are planning to launch several recent approvals with the new capacity coming online, we will be able to have the base to quickly capitalize on the market opportunity of these drugs.

The new capacity is expected to meet production needs of an increasing market demand of drugs in product portfolio supported by Chinese government’s investment in healthcare, increasing personal income and our expanded self network and market penetration. We believe the new capacity will be the key element to maintaining and enhancing our 2009 revenue and profit growth as well as diversification of revenues.

We will continue evaluating potential acquisitions opportunities which will complement the existing products and manufacturing line as well as provide accretive earnings growth. We are only interested in acquisition which will be accretive in nature from an earning perspective but also will help us expand our franchise in a meaningful way. If progress is made, we will give investors a full update on our initiative on this topic.

Looking ahead into the second half of 2009, Tianyin Pharmaceuticals plans to maintain the growth momentum through various strategic initiatives. We anticipate strong growth in fiscal year 2009 and we would like to reaffirm that we anticipate that revenue for fiscal 2009 will exceed $46 million with a net income of at least $7.5 million. We are confident that this target is achievable through a combination of organic growth from our current portfolio; new product launches and further increasing our marketing efforts.

We plan to emphasize on our further improving of sales and marketing to take advantage of the Chinese government's commitment to provide healthcare to 90% of rural and urban residents according to the new Medical Reform Plan. In addition, we must continue our research and development efforts to maximize product development activities and continue to expand the product pipeline. We believe that our emphasis of broadening our product pipeline coupled with our enhanced sales and marketing efforts and the plan expansion of our production capacity will continue to use significant increase in revenue in the second half of 2009.

In conclusion, we are pleased with our results for the quarter and believe we are well positioned to drive further growth in the coming years. We continue to benefit from Chinese strong economic growth, government's efforts to provide healthcare to Chinese population, increasing personal income as well as aging population in China. We intend to continue to capitalize on these trends by focusing on our strengths and capabilities which includes our experienced management team, modern GMP certified production facility, nationwide and expanding sales networks and distribution channels. We will continue to focus on high profit products will launching new profitable drugs to drive top line and bottom line growth with consistent execution.

Our commitment and dedication to our shareholder is stronger than ever. We will consistently update the market on these developments through regular communications and press releases. We understand that this stock market has not been performing well and that our stock prices along with the others had been depressed. But with our proven track record, the commitment of our management and our focused strategy, we are confident that we will obtain the goal to become a leading TCM manufacturer while generating superior returns of our shareholders and investors.

With that, I would like to thank everyone participating in today's call, of your continuous interest in Tianyin Pharmaceuticals. We look forward to updating on our progress next quarter. We will now open the call to any questions you may have. Operator?

Question-and-Answer Session

Operator

(Operator's instruction) Your first question comes from the line of Dean Hebert.

Dean Hebert – Private Investor

It is Dean Hebert. Actually I am just an investor and I have a question relating to your growth plan for next year. You mentioned you want to grow organically and have some offering initiatives you want to make and I was curious if there are any acquisitions that Tianyin is interested in making now as they have a public vehicle and excess cash so if there is any current strategic acquisition that you may be interested in making?

Stewart Lor

Yes there are several acquisition candidates that we are looking at and we have been in conversation with them for quite some time. To give you an example of the acquisition type of the company, there is one manufacturer of certain drugs that we believe will be very profitable to us and will be complementary to our current product portfolio and we are also looking at the distribution type of company that can help us to deliver our products to a region in a very efficient and effective manner but we are in conversation with them. I am not in a liberty to disclose anymore details of it.

Operator

(Operator's instruction) Your next question comes from the line of Richard [Lithsman].

Ron Taylor - Chesapeake Group

I noticed that you mentioned a lot about TCM today. What percentage of the portfolio will conclude western-type medicines?

Guoqing Jiang

I will address the question in two areas; one is the TCM is a significant drug in China. It is currently account for over 40% of the market so it is a very important market for us. It is a very good market for us. As far as our Company's product mix is concerned, currently our TCM products comprised the majority of the products so we have now five generic western drugs in the market that we will continue to push but western drugs will remain a smaller portion of the portfolio but we do expect the significant revenue growth from those drugs.

Operator

Sir, does that answer your question?

Ron Taylor - Chesapeake Group

Yes, thanks a lot.

Operator

(Operator's instruction) Your next question comes from the line of Yale Jen.

Yale Jen - Maxim Group

Difficult question regarding most of the TCM that is currently in your portfolio, are those drugs being in the governmental reimbursement list and how was the reimburse rates for those?

Guoqing Jiang

Yes, 22 of our 37 drugs that are already in the market are listed in the medical insurance program. They are reimbursed by the government at different levels depending on where the drugs are in different provinces and states. So the answer is yes, we are actually a Company that has the most drugs that are listed in the medical insurance program. So we will continue to push hard for those drugs into the market.

Yale Jen - Maxim Group

And what about the new drug you just recently launched or soon to be launched, were those will get into the list..?

Guoqing Jiang

Yes, so all the new drugs and some of the drugs that are not in the list, we will continue to push those to be in the reimbursement program because as you know when you are listed in the medical insurance program, it makes the buying much easier from the buyers and it certainly makes the distribution channel more effective.

Yale Jen - Maxim Group

Typically how long it would take for drug to be listed after their reviewing period?

Guoqing Jiang

It all depends, depending on the drug, depending on the strategy and depending on the provinces that we are targeting. It varies.

Yale Jen - Maxim Group

Okay but generally do you have a timeline or anticipation how long generally you anticipate this getting disposed?

Guoqing Jiang

Some of these newer drugs we anticipate to get them listed depending on, again, on the areas and the drugs, three to nine months. That would be the time that we should be able to list those if we can.

Operator

(Operator's instruction) There appears to be no further questions. Are there any further points you wish to raise?

Guoqing Jiang

Yes, again I want to thank everyone for joining us today and we look forward to updating you on our fiscal third quarter results in May 2009 and with that, I would say goodbye.

Operator

Thank you very much and ladies and gentlemen, that concludes our conference for today. Thank you for your participation and you may now disconnect.

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Source: Tianyin Pharmaceutical Co., Inc. F2Q09 (Qtr End 12/31/08)Earnings Call Transcript
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