China Biologic Products' (CBPO) CEO David Gao on Q2 2016 Results - Earnings Call Transcript

| About: China Biologic (CBPO)
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China Biologic Products, Inc. (NASDAQ:CBPO) Q2 2016 Earnings Conference Call August 5, 2016 7:30 AM ET

Executives

Bill Zima – Investor Relations

David Gao – Chairman and Chief Executive Officer

Ming Yang – Chief Financial Officer

Ming Yin – Senior Vice President

Analysts

Jessica Li – Bank of America Merrill Lynch

Iris Wang – Credit Suisse

Yolanda Hu – Morgan Stanley

Jack Hu – Deutsche Bank

Milo Liu – China Merchants Securities

Helena Hugh – SPQ

Operator

Good day and welcome to the China Biologic Products Incorporated Second Quarter 2016 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]

I’d now like to turn the conference over to Bill Zima. Mr. Zima, please go ahead, sir.

Bill Zima

Thank you, operator. Hello, everyone, and thank you for joining us on today’s call. China Biologic's quarterly financials results on August 4th after the market closed. Earnings release is now available on the company's website.

Today, you will hear from China Biologic's Chairman and CEO, Mr. David Gao, who will start off the call with a review of recent company's developments, strategies and basic operating results, followed by the company's Senior Vice President, Mr. Ming Yin, who will address financial results in more details. The company’s Chief Financial Officer, Mr. Ming Yang, is also on the call and will be available during the Q&A session that follows the prepared remarks.

Before we proceed I would like to remind you of our Safe Harbor statement. Our conference call may include forward-looking statements made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Although we believe that the expectations reflected in our forward-looking statements are reasonable as of today, those statements are subject to risks and uncertainties that could cause the actual results to differ dramatically from those projected. There can be no assurance that those expectations will prove to be correct.

Information about the risks associated with investing in China Biologic is included with our filings with the Securities and Exchange Commission, which we encourage you to review before making an investment decision. The Company does not assume any obligation to update any forward-looking statements as new information, future events, changes in market conditions or otherwise, except as required by law.

The company will also discuss non-GAAP measures, which are more thoroughly explained and reconciled to the most comparable measures reported under generally accepted accounting principles in the company's earnings release and filings with the SEC. You're reminded that such non-GAAP measures should not be viewed in isolation or as an alternative to the equivalent of GAAP measure and that non-GAAP measures are not uniformly defined by all companies, including those in the biopharmaceutical industry.

With that said, I'm pleased now to present Mr. David Gao, Chairman and CEO of China Biologic Products. David, please go ahead.

David Gao

Thank you, Bill. Hello, everyone, and welcome to China Biologic's second quarter 2016 conference call. We are pleased to deliver healthy financial results for the second quarter of 2016, is double-digit growth both our top and bottom lines despite a negative currency impact of approximately 8 percentage points.

Our gross margin experienced solid improvement over the last quarter as we continued to maintain our better product mix with a slightly higher product pricing, while setting out comparatively small volume of our lower margin finished products made from purchased plasma last year. We continue to expand our presence in geographic areas and the hospitals we serve directly, while making efforts to further penetrate tier-1 cities.

In order to take advantage of favorable product pricing of searching hyper-immune products such as tetanus immunoglobulin, we significantly ramp up our production capacity of these products at the expense of IVIG production. In doing so, our tetanus immunoglobulin achieved the number one market position in China, in the second quarter. Additionally, our non-plasma placenta polypeptide products also experienced this stronger than expected growth during the reporting quarter due to our efforts to improve market penetration into more hospitals.

Now with respect to highlighting the progress made at our various facilities. In June, we were pleased to receive operating permit for our Xinglong plasma collection station located in Hebei Province. Plasma collection growth from our existing stations as well as from our outsourcing partner, Xinjiang Deyuan's stations, remains on track as planned. We are also pleased that our new Huitian facility began delivery of products to the market ahead of schedule, in June, while the construction of our new facility in Shandong Province remains on track with its construction plan.

We have placed great emphasis on the importance of our R&D program and recently received CFDA approval to commence clinical trials of new Human Coagulation Factor VIII at our Guizhou facility. The trial period is expected to last no more than three years before commercial launch. By then we believe that Factor VIII produced by our Guizhou facility can improve its production efficiency and the economics of plasma collected by Guizhou Taibang by further facilitating hemophilia patients.

Finally, I’d like to briefly mention our follow-on offering, which we successfully completed in June in which 2.78 million shares of common stock was sold. With the completion of this offering, we added new institutional investors to our shareholder base, improved our ownership structure and increased the liquidity of our stock. Entering into the second half of 2016, we intend to focus our operational efforts on number of key areas that include exploring new geographic areas to expand plasma donor coverage while also driving plasma collection growth volume at our existing stations.

Second, managing public tenders in various local markets to ensure stable and improved product pricing. Third, further investing in our R&D platform to accelerate the release of new products to the market and to improve production yields and the plasma utilization efficiency to better meet the demands of the market. And finally, further enhancing our equity ownership in Guizhou Taibang and potentially becoming its sole equity owner.

This concludes my prepared remarks. I will now turn the call over to Ming Yin, our Senior Vice President, to review second quarter financial results. Ming, please go ahead.

Ming Yin

Thank you, David, and hello, everyone. We are pleased to announce that we achieved the robust growth in both sales and net income during the second quarter 2016. Now let me walk you through the key P&L items to provide a more details on how we achieved this growth. During the second quarter 2016, total sales increased by 15.5% year-over-year to $91.4 million from $79.1 million in the same quarter 2015 or by 23.4% in RMB terms. The increase was primarily attributable to the increase in the sales volume of human albumin products, human tetanus immunoglobulin products and placenta polypeptide products, as well as an increase in the sales price of human tetanus immunoglobulin products.

Our human albumin and IVIG products remained the two largest sales contributors. As a percentage of total sales, sales from human albumin products, IVIG products, accounted for 41.2% and 33.6% respectively in the second quarter 2016. The sales volume of human albumin products increased by 39.3% and the sales volume of IVIG products decreased 8% in the second quarter 2016, while the average for this two products increased by approximately 2.4% and 4.4% respectively in RMB terms in the second quarter of 2016 compared to the same quarter of 2015.

Revenue from albumin products increased by 22.4% in the second quarter 2016, compared to the same quarter 2015, rising to 9% of total sales. Revenue from placenta polypeptide products increased by 41.6% in the second quarter of 2016 compared to the same quarter of 2015, reaching 11.9% of total sales. And revenue from other plasma products including human coagulation factor VIII and human prothrombin complex concentrate also increased by 62.5% in the second quarter of 2016 compared to the same quarter of last year, rising to 4.3% of total sales.

Cost of sales was $31.5 million in second quarter of 2016, compared to $27.1 million in the same quarter of 2015. Cost of sales as a percent of total sales was 34.4%, compared to 34.2% in the same quarter 2015. Gross profit increased by 15.2% year-over-year to $59.9 million from $52 million in the same quarter 2015. Gross margin was 65.6% in the second quarter of this year, which is similar to the gross margin of 65.8% in the second quarter 2015.

Selling expenses increased by 15.4% to $3 million from $2.6 million in the same quarter of 2015. As a percentage of total sales, selling expenses remained the same at 3.3% compared to the same quarter of 2015.

G&A expenses were $12.6 million compared to $8.1 million in the same quarter of 2015. The increase in general and administrative expenses was mainly due to the increase in share-based compensation expenses, as well as a $1.2 million prepayment provision in the reporting quarter. Excluding the impact of the share-based compensation expenses, general expenses would have been 8.6% and 7.6% as a percentage of total sales in the second quarter of 2016 and 2015, respectively.

R&D expenses increased to $1.3 million from $1.0 million in the same quarter of 2015, primarily because we received a government grant of $0.9 million in May 2015 and recognized it as a reduction in R&D expenses in the second quarter of 2015. Excluding this impact, R&D expenses as a percentage of total sales would have decreased to 1.4% in the second quarter of 2016 from 2.4% in the same quarter of 2015.

Income from operations increased by 6.7% to $43 million from $40.3 million in the second quarter of last year. Operating margin decreased year-over-year to 47.1% from 50.9%.

Income tax expense was $7 million, representing an effective income tax rate was 15.7%. Net income attributable to the Company increased by 15.4% to $30.8 million resulting in a net margin of 33.6%. Fully diluted net income per share increased to $1.10 in the from $0.99 in the same quarter of 2015.

Non-GAAP adjusted net income attributable to the Company was $35.2 million or $1.26 in the second quarter of 2016, representing an increase of 31.3% in RMB terms or 23.1% in U.S. dollar terms over the same period last year.

Non-GAAP adjusted net income and diluted earnings per share for the three months ended June 30, 2016 excluded $4.4 million of non-cash employee share-based compensation expenses.

Now, let’s look at our results for the first half of 2016. Total sales for the first half of the year increased by 26.2% in RMB terms, or 18.5% in U.S. dollar terms over the prior year period, to $177 million. The increase in sales was primarily driven by the increase in sales volume of human albumin products, human tetanus immunoglobulin products and placenta polypeptide products, as well as increase in the sales price of human tetanus immunoglobulin products. As a percentage of total sales, sales from human albumin products, IVIG products were 39.7% and 36.6%, respectively, for the six months ended June 30, 2016.

Gross profit increased by 13.9% year-over-year to $111.5 million resulting in gross margin of 63%. Operating income in first half of 2016 increased by 7.9% over the prior year period to $80.9 million. Net income attributable to the Company increased by 14.2% to $57 million for the six months ended June 30 2016, resulting net margin 32.2%.

Non-GAAP adjusted net income attributable to the Company was $65.6 million, or $2.36 per diluted share, representing an increase of 30.6% in RMB terms or 22.6% in U.S. dollar terms over the same period of last year. Non-GAAP adjusted net income and diluted earnings per share in the six months ended June 30, 2016 exclude $8.6 million of non-cash employee share-based compensation expenses.

Now I would like to turn to the balance sheet and then cash flow items. As of June 30, 2016, we had $204 million in cash and cash equivalents, primarily consisting of cash on hand and demand deposits.

Net cash provided by operating activities for six months ended June 30, 2016 was $57 million, an increase of $22.4 at a same period last year, largely consistent with the improvements in the results of operations, the speed-up of accounts receivable collection, the shortened inventory cycle and the increase of non-cash operating expenses for the first half of 2016 as compared to the same period of 2015.

Accounts receivable increased by $13.9 million during the first half of 2016, as compared to $18.8 million during the same period in 2015. The accounts receivable turnover days for plasma products decreased to 42 days during the first half of 2016 from 49 days during the same period in 2015, mainly because we no longer offered the long credit term policy to human rabies immunoglobulin product distributors in the first half of 2016 as we did in the same period of 2015 to penetrate the market.

Inventories increased by $12.5 million, as compared to $25.3 million during the first half of 2015, primarily because of the decrease of plasma purchased from the collection stations of Xinjiang Deyuan as of June 30, 2016 compared to the amount as of June 30, 2015.

Net cash used in investing activities for the six months ended June 30, 2016 was $26.3 million. During the first half of 2016, we paid $26.6 million for acquisition of property, plant and equipment, intangible assets and land use rights for Shandong Taibang and Guizhou Taibang. And granted a loan of $6.3 million to Xinjiang Deyuan pursuant to a cooperation agreement in August 2015, which was partially offset by the receipt of a refund of $6.5 million from the local government of Guiyang with respect to deposits of land use rights.

Net cash provided by financing activities for the first half of 2016 was $32.2 million, mainly consists of proceeds of $2.4 million from stock option exercised and the maturity of a $37.8 million time deposit as a security for a 24-month loan which was fully repaid in June 2015, partially offset by a dividend of $7.9 million paid to the minority shareholder by Shandong Taibang.

Our working capital as of June 30, 2016 was $340.3 million and our current ratio was 6.3. Total shareholders' equity was $535.5 million as of June 30, 2016 compared with $467 million as of December 31, 2015.

Turning to our full year guidance, we reiterate our outlook for the total sales growth of 21% to 23% in RMB terms and non-GAAP adjusted net income growth of 24% to 26% in RMB terms over 2015 financial results. This guidance does not factor in any potential foreign currency translation impact. We previously adopted exchange rate of approximately RMB6.21 to $1, based on weighted average quarterly exchange rate in 2015 in translating 2015 financial results.

We expect that total sales and non-GAAP adjusted net income in U.S. dollar terms in 2016 will be adversely affected by foreign currency translation impact. This guidance assumes only organic growth and excludes potential acquisition and will necessarily assume no significant diverse price, product price changes during 2016. Our full year forecast reflects our current and preliminary views, which are subject to change.

That concludes our prepared remarks. We will now take questions. Operator we are now ready to take some questions.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session [Operator Instructions] And our first question will come from Jessica Li of Bank of America Merrill Lynch. Please go ahead with question.

Jessica Li

Hello, thank you for taking my questions, congratulations on the great quarter. I just have a couple of questions. First couple you please give us an update on the development progress of your key pipeline candidates such as fibrinogen and second-generation IVIG. And second question, could you just please elaborate a little bit more on the progress of your Shandong new production facility. How much you spent so far on the CapEx, when should we expect it to start operation? Thank you.

David Gao

Thanks, Jessie, the first question, yes we actually during the quarter we made some positive progress for the product, new product fibrinogen, CFDA issued the self-inspection listing in April and all products fibrinogen was included. During the second quarter we almost completed the self-inspection.

We expect to start the provincial level FDA inspection on our clinical documents soon. And afterwards we will receive a further inspection on this clinical documents by the central FDA, which is also the new procedure requirement. We now expect to go through the onside-inspection and all pertaining the GMP certification to launch this product in the first half of 2017, if our products and successfully can pass this CFDA, review on the clinical data.

And during the second quarter our new-generation IVIG the clinical development we didn’t make any meaningful progress at this moment. And the second question – answer the regarding to the new facility. Up to now we incurred the total CapEx around RMB500 million on the accumulative base among, which about RMB200 million was recorded in the first half of this year. We expect to invest another RMB100 million in the second half of 2016. And the total CapEx as we disclosed in the prior calls will be in the range of RMB800 million RMB1 billion or equivalent $120 million to $150 million.

And currently the progress for the construction of the new Shandong facility is on track with our construction plant, most equipments we ordered has been shipped to us and in our new plant and waiting for the equipment to be fully installed in the first half of 2017. This is consistent with what we discussed on our last earnings calls. And our expectation to have this new facility enter the plant validation and to start production product phase in the second half of 2017. As of the expected timeline or the timetable to have the new facility to be fully operational after passing the GMP certification, remains unchanged at this moment. Hope that I answered your question, Jessica.

Jessica Li

Yes, great. Very good. Thank you so much. Congratulations again.

David Gao

Thanks.

Ming Yang

Thanks.

Operator

And our next question will come from Iris Wang of Credit Suisse. Please go ahead with your question.

Iris Wang

Hey, thank you for taking my questions and David and Ming Yin, congratulations on a strong quarter. Could you please update us the changes in the competition landscape of albumin and IVIGs in China, especially in the second quarter? Did you see the import of albumin continue to be strong overseas, the year-on-year growth, in the first quarter? Secondly, how do you reach your recent tender price in the Fujian Province? And when do you expect that your revenue and bottom line will benefit from the incoming price increase? Thank you.

Ming Yang

I’ll address the first question regarding the competitive landscape regarding albumin and IVIG. Firstly, I will share you some of the industry data for the first half of 2016. According to the most updated batch pool data, which might not be incomplete, given some industries who has not published their data yet, the overall albumin products grew 20% year-over-year during the second quarter. And in the first half of year the growth rate is about 22%.

As we discussed during the last call, the overall albumin growth was 27% in first quarter 2016. Multinational companies year-over-year growth decreased to 13% during second quarter from 43% in first quarter 2016. While growth from domestic companies picked up the growth momentum to 30% during second quarter, compared with only 3% growth rating in first quarter.

Multinational companies maintain their market share above 60% in the first half of the year. For IVIG, the overall IVIG approval for the whole industry grew 30% year-over-year for the second quarter, compared with approximately 8% in the first quarter 2016. Specifically, I want to talk little bit about the companies – the market share according to the batch approval data.

Our albumin and IVIG grow 33% and 15% respectively for the first half of the year. And our market share based on the batch approval data and as of June are 7% and 18% respective, both ranked number one among domestic players. That’s my answer for the first question.

Second question for the Fujian, the recent tender and results, we do see some – we do see the Fujian – they recently published their term results. And unfortunately with did not win any of the biddings due to the three primary reasons. First Fujian Province tender approach was similar to most other province is known as double envelope tender. But Fujian has a unique, the completed system compared with other province. Second, Fujian was never a strategic market for the China Biologic and we already spend time and effort to secure the tenders.

To give some perspective, our sales in Fujian used to be less than 1% of total sales. And we sell through distributing in this region. And last – and third reason, we didn’t pursue the Fujian – the tender is because the Fujian Province has reputation for being very aggressive in cutting price for cross-border drugs and the tender in Fujian is a moving – moving price negotiation process that could lead to every quarter.

Provincial tendering we had on the quartered base to decide the drug providers and the price for the next quarter. So we purposely did some mid to high bidding price in order to ensure our bidding price in Fujian, would not negatively impact, our bidding price in other province, where we have a large market share and take primary focus. However, from the Fujian tendering process we do observe the intensify the competition among the suppliers, especially from multinational companies albumin products.

As you may note, none of the domestic manufacturer won the tenders from Fujian in albumin. So this could be a signal for the competition status in other province tendering. Iris, I hope that I answered your two questions.

Iris Wang

Yes, very well. Thank you.

Ming Yang

Thank you.

Operator

And our next question will come from Yolanda Hu of Morgan Stanley. Please go ahead.

Yolanda Hu

Congratulations on great quarter. I have three questions. First is just a simple follow up to Iris. Can you maybe share with us your view on the upcoming tenders, including, like, the potential ASP increase timeline, and the competition, especially in your key provinces, like Shandong and Guizhou?

Second, albumin's volume growth seems very robust in second quarter, close to 40%. You mentioned it's because of increasing plasma supply. Can you clarify that? I guess, it's meaning from your organic collection [indiscernible]. And do you think this kind of growth will likely continue in the second half? Last question is for David. Now that you have renewed your contract with the Company, so would it be possible to share with us your thoughts, and, maybe, the plan with Company in next two years? Thank you.

Ming Yang

Okay Yolanda, the first, the tendering progress as you might notice on the 10-Q we just filed, average price for albumin IVIG increased slightly in the quarter and it’s because of you mentioned several major markets – the tendering process is still ongoing. And I think before I talk about our prospects for the ASP increase on second half. I will be – it will be a benefit to talk a little bit about the current tendering format and the progress during the different province.

And as you may know the tendering is very competitive in China. And with each province and region have – still authority to adopt the different approach and we take customized strategy in each region, where primary folks on the province which will have the largest market share and serve the importance strategical location for us, such as Shandong, Guizhou Province, you just mentioned. Each of those provinces contributes to meaningful sales for us. And the Shandong region is the most significant region for us. Up to now most of the province have not complete their tendering for major products like albumin and IG.

There are three – there are four actually approach for the plasma-based products tendering in China. The first is double envelope approach, is similar to generative drugs handled by the regional government’s drug procurement platform for most of plasma drugs such albumin and IG. For example, Shandong, Guizhou, Shanghai, Hubei take this approach. And as I mentioned, most of those tendering for albumin and IG is still ongoing.

The second approach is hospital directly negotiate with manufactures through on-line procurement format for life saving essential drugs, offshore supply drugs. The products included in this kind of the tendering format are the tenders new global in Factor A and for some in complex. Option now a at least some province including Shandong, Guizhou, Henan and other province complete their procurement process.

And the third approach is the government direct procurement format. Right now there’s only one product under this approach is hepatitis B for immunoglobulin products. And last approach for plasma tender is for the rabies immunoglobulin products, which need to go through the provincial CDC tenderings, which are very similar to the vaccine tendering.

And as I mentioned that there are four different types of tendering at the various province have a different process and different time table. And looking at the remainder of the year our outlook remains cautious and based on the preliminary the pricing ASP for the most products remain unchanged at least for the third quarter. I believe we will have a better visibility on the most of province tendering results end of the third quarter.

So we will update the market – the tender results. And if the tendering results reflect upward price increase or expected price might adjust accordingly. But I think I need to just mention, most of the price increase from the tendering does not directly translate into the expected price increase, because most of the price increase need to be share with the distributor as well.

The second question regarding the albumin trend during the second half, as David mentioned earlier, our albumin has 33% year-over-year growth in the first half of 2016, but looking into our production volume are pretty fixed. So second half we expect the trend will be lower compared with first quarter.

And therefore IVIG we will continue to allocate more capacity to hyper-immune products therefore our IVIG will be further constrained. But the sales volume for the regular IVIG combined with special types of hyper-immune products, the volume will be expect to – still expect to be a high single-digit gross compared with last year.

So Yolanda, that’s my answers for your first two questions.

David Gao

Okay. Yolanda, you ask me the last two question actually is to give you answer very simple. So I have no plans to retire any time soon. And I do feel that it’s a tremendous potential with this company by the way as long as I couldn’t find any better for me to do. I still think as I enjoy what I’m doing here, okay.

Yolanda Hu

Okay, thanks David. Thanks Ming.

Ming Yang

Thank you.

Operator

And our next question will come from Jack Hu of Deutsche Bank. Please go ahead.

Jack Hu

[Foreign Language] actually I have two questions here can I ask them one by one?

Ming Yang

Sure. Please go ahead.

Jack Hu

Thank you. First question is actually – your ownership on Guizhou Taibang maybe you can give us some color on that and also how should we expect this going forward. And your minority interest of payment schedule. Thank you.

Ming Yang

Hi, Jack. This is Ming. As we disclosed in our – the last night SEC filings, the settlement agreement will allow us to become the sole remaining shareholder of Guizhou Taibang by the way of capital reduction. Under the settlement agreement the two minority shareholder afraid to restore their capital contribution in Guizhou Taibang equivalent to approximately 15% of Guizhou Taibang’s current share capital for total consideration of RMB450 million or approximately US$64 million.

As part of the capital reduction plan this two minority shareholders also had an obligation to terminate all of their claims against us. We negotiate this transaction structure and evaluation with counterparties [indiscernible] compared with the cash out of this minority shareholders, the capital reduction approach that is returning investment to the investor does now required additional due diligence on the shareholders. However, Guizhou Taibang would undergo the requisite legal and administrative procedures to complete the capital reduction.

Following the capital, the completion of the capital reduction we will become the sole remaining shareholder of Guizhou Taibang. One obvious benefit is that we may resolve to of sending legal proceeding involving equity ownership in Guizhou Taibang was such minority shareholders.

Given the required legal and administrative procedure, we expect to complete the capital reduction and opting the renewed business license on Guizhou Taibang in the first quarter of this year. But we can now assure you to have a capital reduction plan and can be achieved within the timeframe under the settlement agreement due to the requisite legal and administrative procedures.

And I think since there has some uncertainties and the timeframe for completion of this transaction and we don’t – we are not assure from what time the minority shareholders reduction will be shown on the P&L but to assure you this will be definitely accretive transaction to our bottom line.

Jack Hu

Thank you. My second question is regarding the recent action the FDA took in Florida. FDA identified actually the Zika virus in two countries over there and they shut it down for lot of country collection over there. So I have two questions on this front. First is a manufacture, how do you screen Zika virus or virus as a whole. And can you get rid of Zika virus from your manufacturing process. My second question here if the Zika viruses situation were to escalate can you maybe give us some scenario whether Chinese government would take action with intensified inspection for imported albumin? Thank you.

David Gao

Okay, the first question regarding the – yes, the Zika virus, as we understand this is a newly founded virus and it is now specifically currently recorded by Chinese FDA to test the donor before the plasma collection. But we believe there are similar issues to the full blood collection as well. The main issue is due to the lack of testing the agents. But we believer our manufacturing process contained virus inactivation procedure that should be able to eliminate the similar amino-type of virus. Therefore compare with the full blood, the plasma based therapeutics should be much more safer compared with the blood without any of the virus inactivation procedures.

And the second question is we don’t actually have expectation or we don’t actually, we cannot comment on the Chinese government behalf if the Zika virus escalated and what – which action Chinese government might take.

Jack Hu

Okay. Thank you.

David Gao

Thank you.

Ming Yang

Thank you.

Operator

[Operator Instructions] Our next question will come from Milo Liu of China Merchants Securities. Please go ahead.

Milo Liu

Yes, sure. A great result and thanks for taking my questions Mr. Gao and Mr. Ming. I just have three questions here. The first one is regarding the share-based compensation. I think as you mentioned earlier the company growing additional opportunities during the period. So can you just give me – give us any guidance on this in the next quarters? And this is first one. And the second is regarding the PP products, the PP injection, because this product is actually market it us through the third-party distributors.

So would there be any impact on the – this product after the two invoice system or mechanism that recently rollout by the government. And the third question is I just wanted to because I didn’t quite catch on what you said earlier about the CapEx plan. Is it right the RMB800 million to RMB1 billion total for the next three months – for the next three years and RMB300 million for this year and what about the 2017 and 2018. Thank you, thanks.

David Gao

Okay. I'm trying to answer the last question first, the total CapEx is RMB800 million to RMB1 billion is the total CapEx for the whole project. So currently we are – we spend about half the RMB500 million already, so the next three years I think there will be remaining – the remaining for the second half of 2016 and 2017 will be this – second half this year we spend about – expect to spend about $100 million and the next year, we spend – expect to spend about another RMB100 million to RMB200 million in total.

So back to your first question regarding the compensation expense and the impact, yes, as we disclosed in the last night’s SEC filings, yes, our compensation committee, they recently engaged a reputable comforting consulting firm just as review of the company – the compensatory practice for the past few years and they conduct a evaluation for 2016 completion arrangement for the senior management officer and employees. Based on the consulting firm’s recommendation, our 2016, accretive grant reflects our past high financial performance growth in line with the benchmark of gross out of the group, so actually award practice.

So our Board totally grant about 466,000 shares for the performance based restricts stock to director, executive, and the employees. And we estimate that this year for third quarter the non-cash compensation expenses will be additional $2.5 million, and for the last quarter 2016, there will be another increase about $2.8 million. That’s the answer to your first question.

The second question regarding the two-invoice system for the policy for the placenta polypeptide, as we mentioned on the last call, the Chinese government recently proposed a national level system in 2016 healthcare reform goals. So as a result, that equates that only two-invoice can be issued by any pharma supply company involved. First is production to distribution supply chain; and second is a distribution to hospitals or other end users such as CDCs. The goal of this government initiative is to stabilize the drug price by enhancing the transparency.

And this two-invoice system will have very limited impact to our plasma products, but it might actually have some impact to our placenta polypeptide products, which generally about 10% to 15% are estimate total revenue for this year.

We may need require us to adjust our sales model to comply was two-invoice policy. We are already working on exploring the most efficient sales model for this product to combine with the new government rules. We are also ensuring very minimum negative impact to our net profits.

Milo, hopefully that answered your question.

Milo Liu

Sure. Perfect. Thank you, thank you.

Ming Yin

Thanks.

Operator

And our next question will come from Helena Hugh of SPQ. Please go ahead.

Helena Hugh

Hello. Thank you for taking my question. My question would be I want to know more details about the net profit allocated to minority interests. Just, after you're taking back the remaining shares from the Guizhou Taibang, and, in that case, what would be impact to your minority interest? Based on 2015s level, about how many percentage of net profit allocated to minority interest is because of the Guizhou Taibang minority interest? This is my first question.

And my second question is I see that your albumin product in second quarter is very strong, while the IVIG product is decreased. So could you please share more views on that two products, and the coming trend for the growth of these two products? Thanks.

David Gao

Yes. I think – Helena, I just answered you the second question already, but let me repeat. The second question regarding the albumin and IVIG trend, as we talk about the first half of 2016, we have very strong volume growth albumin, but we expect the second half, the trends of albumin growth might be trend down a little bit. But for the IVIG, the overall 2016, because last year we had very strong base for IVIG, our operational focus was primary at IVIG. So that’s why this year, our IVIG – even we have a certain number of gross, compared with strong base 2015, it seems like that we have a very – it seems like we have some decrease in the IVIG volume. But for the second half the trend will be very similar to the first half of 2016.

And for the first question regarding the minority shareholders earning, that contribution, I believe you mentioned the 15%, we intend to enhance for Guizhou. Yes, I just mentioned earlier because it may take a while for the administrative procedures to be complete. So at this moment, we don’t actually have a very – the precise timeframes, how long this process will take. So that’s why we didn’t – we cannot give the accurate estimate for this earning accretion for this portion. But if you want to quantify, I will just give you the ballpark sense because this – if this happened in the first day of the first quarter – in the last quarter of 2016, I think that this portion of the minority shareholders, the earning will be add up another at least 3%, 2% or 5% of earning to our bottom line to the last quarters results.

Helena Hugh

Yes, if for, just we take a full-year impact, such as like 2017?

David Gao

Because – yes, we would talk about the 2017 impact, once the administrative procedure complete, we will give the guidance on the next earning call, if this complete already.

Helena Hugh

Okay, thanks.

Operator

Ladies and gentlemen, this does conclude our question and answer session. I would like to turn the conference back over to management for any closing remarks.

David Gao

Thank you for your participation and ongoing support for China Biologic. Have a good day.

Operator

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect your lines.

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