China Biologic Products, Inc. (NASDAQ:CBPO) Q4 2018 Earnings Conference Call March 7, 2019 7:30 AM ET
Sam Martin - IR
Bing Li - CEO
Ming Yin - SVP
Ming Yang - CFO
Conference Call Participants
Yolanda Hu - Morgan Stanley
Serena Shao - Credit Suisse
Good day, and welcome to the China Biologic Products Holdings, Inc. 2018 Fourth Quarter 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] Please note this event is being recorded.
I would now like to turn the conference over to Sam Martin from the Foote Group. Please go ahead.
Thank you, operator. Hello, everyone and thank you for joining us on today's call. China Biologic announced its fourth quarter and fiscal year 2018 financial results on March the 6, 2019, after the market closed. An earnings release is now available on the company's website.
Today, you will hear from China Biologic's CEO, Dr. Bing Li, who will present recent developments of the company. Mr. Ming Yin, Senior Vice President of China Biologic will then give a detailed account of the company's financial results. China Biologic's CFO, Mr. Ming Yang, will be available during the Q&A session following 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 in 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 a result of 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 are reminded that such non-GAAP measures should not be viewed in isolation or as an alternative to the equivalent GAAP measures and that non-GAAP measures are not uniformly defined by all companies, including those in the biopharmaceutical industry.
Now, I'm pleased to present Dr. Bing Li, CEO of China Biologic.
Thanks, Sam. Hello, everyone online and welcome to China Biologic’s fourth quarter and fiscal year 2018 conference call. As China’s plasma industry continues to adapt to a changing regulatory environment and intensified competition, China Biologic delivered results for the first quarter in line with our previously revised guidance.
And looking ahead, first of all, we anticipate the regulatory policy headwinds will continue to be challenging in the near future. Besides enforcing a cap on the [indiscernible] expense as a percentage of total medical costs, limiting prescription for the high cost drugs and establishing adjuvant drug lists [indiscernible] healthcare policy to ensure overall medical spending, which could impact our business.
For example, the central government may implement a series of indicators for performance appraisals at hospital level to better monitor the efficacy of treatments and efficiency of prescriptions, which could possibly slow down the volume growth of our major products.
On the price side, the volume implementation of centralized fulfillment might result in further price cuts at a hospital level if plasma products are included in the relevant procurement lists. Despite those challenges, China Biologic made meaningful progress, improving our sales and marketing capability during the fourth quarter, including hiring new industry talents for the broadening of our sales channel coverage on reducing inventory level.
So our focus on optimizing our distribution channels, IVIG inventory at Guizhou subsidiary decreased by over 40% from September 30, 2018 to December 31, 2018. For the fulfillment of those efforts is on-boarding of our new Chief Business Officer, Dr. Homer He. And Dr. He has more than 30 years experience of management in global healthcare industry and has previously played very senior commercial roles in China at a multinational pharmaceutical company.
And also he’s very familiar with vaccine and medical device companies, including recently served as Vice President and General Manager at [indiscernible]. So where he was in charge of more software, Great China business. We look forward to benefiting from Dr. He’s experience, expertise in those areas as we continue to strengthen China Biologic’s commercial capability and implement stronger marketing planning and execution.
In terms of R&D, we’re also significantly increasing our effort to further expand product pipelines in both plasma and medical device business, in particular, the clinical development of the late stage products as well as those highlights, Guizhou subsidiary, obtaining approval from NPA, former CFDA for clinical trials of this new generation IVIG. We expect to be able to complete those clinical trials over the next few years.
Furthermore, the board recently approved a capital expansion plan to build our replacement fractionation facility in Guizhou which is expected to be commercially launched in 2022. The new state of the art facility will more than double Guizhou, Taiwan’s manufacturing capacity, enabling us to enhance our production efficiency and quality and further meet the increasing market demand for plasma service in China.
Looking to the year ahead, we will continue to focus on strengthening China Biologic’s commercial capability and expanding our sales penetration at hospital level, as well as managing the inventory and hiring key industry talents. We also further increased our effort to educate Chinese doctors about the benefits of IVIG, PCCs and other coagulation structure products in treating patients across a wide range of clinical indications. We will also increase our efforts in product development to ensure a timely launch of key pipeline products.
As part of our cost strategy, where we will continue to assess suitable acquisition targets that will better position China Biologics for the long-term growth. You may have seen in the release that the board of directors on March 1, 2019 approved extension to the company’s previous, USD100 million share repurchase improvement for another six months until up 2% this year. This again reflects the confidence of the board in company’s long term growth perspective and company’s new management teams executed on new business trend.
This concludes my prepared remarks. I will now turn the call to Mr. Ming Yin, our Senior Vice President to review finance results for the fourth quarter and fiscal year 2018. Ming, please go ahead.
Thank you, Bing and hello, everyone. Now, I will walk you through the key P&L items for the fourth quarter and fiscal year of 2018.
Total sales in the fourth quarter of 2018 increased by 33.5% in RMB terms, or 27.5% in US dollar terms, to $114.9 million from $90.1 million in the same quarter of 2017. The increase in total sales was partly attributable to an $8.8 million contribution from TianXinFu, which accounted for approximately 7.7% of total sales for the quarter.
Excluding TianXinFu, total sales in the fourth quarter of 2018 increased by 23.2% in RMB terms, mainly attributable to sales increases in human albumin and IVIG products. For plasma products, total sales in the fourth quarter of 2018 increased by 25.2% in RMB terms, or 19.8% in US dollar terms, to $90.3 million from $75.4 million in the same quarter of 2017.
Cost of sales increased by 22.1% to $37.6 million in the fourth quarter of 2018 from $30.8 million in the same quarter 2017. As a percentage of total sales, cost of sales decreased to 32.7% from 34.1% in the same quarter of 2017. The decrease in cost of sales as a percentage of total sales mainly reflected the higher gross margin of TianXinFu.
Excluding TianXinFu, cost of sales increased to 35.1% of total sales, mainly because of lower sales prices for our human albumin and IVIG products, which was partly offset by higher sales price for our placenta polypeptide product.
Gross profit increased by 30.4% to $77.3 million in the fourth quarter of 2018 from $59.3 million in the same quarter of 2017. Gross margin was 67.3% and 65.8% in the fourth quarter of 2018 and 2017, respectively.
Total operating expenses in the fourth quarter of 2018 decreased by $4.9 million, or 12.3%, to $34.8 million from $39.7 million in the same quarter of 2017. As a percentage of total sales, total operating expenses decreased to 30.3% in the fourth quarter of 2018 from 44.1% in the same quarter of 2017. Excluding TianXinFu, total operating expenses decreased by $12.1 million, or 30.5%, to $27.6 million in the fourth quarter of 2018. This decrease mainly consisted of a decrease of $13.1 million in general and administrative expenses, excluding TianXinFu.
Income from operations for the fourth quarter of 2018 increased by 127.7% in RMB terms, or 116.8% in US dollar terms, to $42.5 million from $19.6 million in the same period of 2017. Excluding TianXinFu, income from operations increased by 120.6% in RMB terms, or 110.7% in US dollar terms, in the fourth quarter of 2018 compared to the same quarter of 2017.
Net income attributable to the Company increased to $34.8 million from a net loss of $24.6 million, factoring in the one-time $40.3 million income tax charge in the same quarter of 2017. Fully diluted earnings per share was $0.87 compared to fully diluted loss per share of $0.86 in the same quarter of 2017. Excluding TianXinFu, net income attributable to the company increased by 248.4% on RMB terms and 241.9% in US dollar terms in the fourth quarter of 2018 compared to the same quarter of 2017.
Non-GAAP adjusted income from operations increased by 36% in RMB terms and 29.6% in US dollar terms to $39.8 million from $30.7 million in the same quarter 2017. Excluding TianXinFu, non-GAAP adjusted income from operations increased by 25.5% in RMB terms and 19.9% in US dollar terms in the fourth quarter of 2018 compared to the same quarter of 2017.
Non-GAAP adjusted net income attributable to the Company increased by 23.9% in RMB terms, and 18.5% in US dollar terms, to $30.7 million in the fourth quarter of 2018 from $25.9 million in the same quarter of 2017. Non-GAAP net margin decreased to 26.7% in the fourth quarter of 2018 from 28.7% in the same quarter of 2017.
Non-GAAP adjusted net income per diluted share decreased to $0.76 in the fourth quarter of 2018 from $0.90 in the same quarter of 2017.
Non-GAAP adjusted income from operations for the fourth quarter of 2018 excluded $4.6 million in reversal of non-cash employee share-based compensation expenses, and $1.8 million in amortization expense for intangible assets and land use rights related to the acquisition of TianXinFu.
Non-GAAP adjusted net income and diluted earnings per share for the fourth quarter of 2018 excluded $5.4 million in reversal of non-cash employee share-based compensation expenses, and $1.2 million in amortization of acquired intangible assets and land use rights related to the acquisition of TianXinFu.
Fiscal Year 2018 Financial Performance.
Total sales in 2018 increased by 23.5% in RMB terms and 26.1% in US dollar terms to $466.9 million from $370.4 million in 2017. The increase in sales for 2018 was partly attributable to $44.7 million contribution from TianXinFu, which accounted for approximately 9.6% of total sales for 2018.
Excluding TianXinFu, total sales in 2018 increased by 11.7% in RMB terms as a result of increases in the sales of placenta polypeptide products, human albumin products, certain special immunoglobulin products, and coagulation factor products, which was partly offset by decreases in the sales of IVIG products. For plasma products, total sales in 2018 increased by 8% in RMB terms, or 10.2% in US dollar terms, to $354 million from $321.1 million in 2017.
During 2018, human albumin and IVIG products remained our two largest sales contributors. Revenue from human albumin increased by 10.4% in RMB terms, or 12.8% in US dollar terms, from $132.5 million in 2017 to $149.4 million in 2018. Revenue from IVIG products decreased by 5.7% in RMB terms, or 3.4% in US dollar terms, from $117.5 million in 2017 to $113.5 million in 2018.
As a percentage of total sales, sales from human albumin and IVIG products were 32% and 24.3% respectively in 2018. Excluding the contribution from TianXinFu, human albumin and IVIG products represented 35.4% and 26.9% of total sales respectively, compared to 35.8% and 31.7% respectively in 2017. The large decrease of IVIG sales' percentage mainly reflected the combined effects of decreased sales volume and decreased sales prices year over year.
The sales volume of human albumin products increased by 17%, primarily due to the increased sales volumes in the distributor and pharmacy channels, which was partly offset by decreased prescription volumes at various hospitals due to the ongoing healthcare regulatory changes in China. The sales volume of IVIG products decreased by 3.4% for 2018, mainly reflecting decreased prescription volumes at various hospitals.
The average prices for human albumin and IVIG products decreased by 5.6% and 2.3%, respectively, in RMB terms in 2018 compared to 2017 because of greater sales volume in the distributor channel and lower prices to certain distributors reflecting intensified market competition for major plasma products. In US dollar terms, the average price for human albumin decreased 3.6% in 2018 compared to 2017, and the average price for IVIG remained stable in 2018 compared to 2017.
Revenue from other immunoglobulin products increased by 18.8% in 2018 compared to 2017, reaching 12.7% of total sales as compared to 13.5% of total sales in 2017, mainly attributable to the increase in sales volume of both human rabies immunoglobulin and human tetanus immunoglobulin products.
Revenue from other plasma products, including human coagulation factor VIII, human prothrombin complex concentrate, and the newly launched human fibrinogen products, increased by 47.9% in RMB terms, or 49.8% in USD terms, in 2018 compared to 2017, representing 6.8% of total sales in 2018. The growth mainly came from the launch of our human fibrinogen products in the beginning of 2018, and the increased sales volumes of human coagulation factor VIII and the human prothrombin complex concentrate products, which is reflective of the ongoing medical marketing activities.
Revenue from placenta polypeptide products increased by 38.5% for 2018 as compared to 2017, reaching 14.6% of total sales, which was supported by higher unit selling prices in connection with the wider implementation of the two-invoice policy. However, sales volume of placenta polypeptide products declined as a result of their inclusion in regional adjuvant drug lists, which put pressure on their prescription volume.
Cost of sales was $146.8 million in 2018 compared to $125.5 million in 2017. As a percentage of total sales, cost of sales decreased to 31.4% from 33.9% in 2017. The decrease in cost of sales as a percentage of total sales mainly reflected the higher gross margin of TianXinFu. Excluding TianXinFu, cost of sales decreased to 33.6% of total sales, mainly because of a higher sales price for our placenta polypeptide product, which was for human albumin and IVIG products.
Gross profit increased by 30.7% to $320.1 million in 2018 from $244.9 million in 2017. Gross margin was 68.6% and 66.1% in 2018 and 2017, respectively.
Total operating expenses in 2018 increased by 59.5% to $173.9 million from $109 million in 2017. As a percentage of total sales, total expenses increased by 7.9% to 37.3% for 2018 from 29.4% for 2017. Excluding TianXinFu, total operating expenses increased by $42.5 million, or 39%, to $151.5 million for 2018. This increase mainly consisted of an increase of $43.6 million in selling expenses, partly offset by a decrease of $1.8 million in general and administrative expenses.
Selling expenses in 2018 increased by $60.8 million, or 174.7%, to $95.6 million from $34.8 million for 2017. Nearly half of the increase came from selling expenses associated with placenta polypeptide products with the remainder related to the sales of plasma products and TianXinFu's sales of its dura mater products.
For placenta polypeptide products and certain hyper-immune products, as certain previous multi-layer distribution channels were disqualified due to the two-invoice policy, we implemented new sales strategies including using internal sales force or engaging third-party contract service entities to promote our products. For other plasma products, in order to strengthen our competitiveness in front of distribution channel customers, we incurred additional promotion and marketing costs.
TianXinFu's selling expenses included an amortization expense of $7.7 million for the intangible asset of customer relationships associated with our acquisition of TianXinFu. Excluding this intangible asset amortization expense, selling expenses accounted for 18.8% of total sales in 2018 compared to 9.4% in 2017.
General and administrative expenses in 2018 increased by $1.1 million, or 1.6%, to $68.8 million from $67.7 million for 2017. As a percentage of total sales, general and administrative expenses decreased to 14.8% for 2018 from 18.3% for 2017. The slight increase in general and administrative expenses from 2017 to 2018 was a combined result of general and administrative expenses from TianXinFu, increased legal fees mainly in relation to the legal lawsuit filed against the company in the Cayman Islands by David Gao, the former Chairman and CEO of the Company whose employment with the Company had previously been terminated for cause and Shandong Taibang's increased depreciation expenses and property tax for the new facility. The increase in general and administrative expense was partially offset by a decrease in share-based compensation expenses.
Research and development expenses in 2018 increased by $3 million or 46.2% to $9.5 million from $6.5 million for 2017. In 2018 and 2017, we received government grants totaling $0.7 million and $0.4 million respectively, and we recognized them as a reduction of our research and development expenses. Excluding this impact, our research and development expenses increased by $3.3 million for 2018 from 2017. As a percentage of total sales, our research and development expenses, excluding the impact of these recognized government grants, increased to 2.2% for 2018 from 1.9% for 2017. The increase mainly consisted of TianXinFu's research and development expenses.
Income from operations in 2018 increased by 5 in RMB terms and 7.6% in US dollar terms, to $146.2 million from $135.9 million in 2017. Operating margin decreased to 31.3% in 2018 from 36.7% in 2017. Excluding TianXinFu, income from operations in 2018 decreased by 7.2% in RMB terms, and 5.1% in US dollar terms to $129 million, and our operating margin decreased to 30.6%.
Income tax expense in 2018 decreased by $46.2 million, or 72%, to $18 million for 2018 from $64.2 million for 2017. For the year ended December 31, 2017, we recorded a one-time income tax charge of $40.3 million, which represented the management's estimate of the amount of US corporate income tax based on the deemed repatriation to the United States of the Company's accumulated earnings mandated by the U.S. Tax Reform.
Based on the new regulations and rules issued by the U.S. Department of the Treasury in August 2018, the management reassessed the amount and an amount of $7.5 million was reversed in the third quarter of 2018. Excluding the impact of repatriation tax, our effective tax rate was 15.4% and 16.3% for 2018 and 2017, respectively.
Net income attributable to the Company increased by 81.9% in RMB terms, or 88.7% in US dollar terms, to $128.1 million in 2018 from $67.9 million in 2017. Net margin increased to 27.4% in 2018 from 18.3% in 2017. Diluted net earnings per share increased to $3.53 in 2018 compared to $2.38 in 2017. Excluding TianXinFu, net income attributable to the Company increased by 63.6% in RMB terms, or 69.4% in US dollar terms, in 2018 compared to 2017, and net margin increased to 27.2%.
Non-GAAP adjusted income from operations increased by 0.7% in RMB terms, or 3.6% in US dollar terms, to $177.7 million in 2018 from $171.6 million in 2017. Excluding TianXinFu, non-GAAP adjusted income from operations decreased by 13.7% in RMB terms, or 11.4% in US dollar terms in 2018 compared to 2017.
Non-GAAP adjusted net income attributable to the Company increased by 0.6% in RMB terms and 3.3% in USD terms, to $145.9 million in 2018 from $141.2 million in 2017. Non-GAAP net margin decreased to 31.2% in 2018 from 38.1% in 2017. Non-GAAP adjusted net income per diluted share decreased to $4.02 in 2018 from $4.95 in 2017. Excluding TianXinFu, non-GAAP adjusted net income attributable to the company decreased by 12.3% in RMB terms, or 10% in US dollar terms, in 2018 compared to 2017.
Non-GAAP adjusted income from operations for 2018 excluded $23.1 million in non-cash employee share-based compensation expenses, and $8.4 million in amortization expense of intangible assets and land use rights related to the acquisition of TianXinFu.
Non-GAAP adjusted net income and diluted earnings per share for 2018 excluded $19.7 million in non-cash employee share-based compensation expenses, and $5.7 million in amortization of acquired intangible assets and land use rights related to the acquisition of TianXinFu, and an income tax benefit of $7.5 million related to U.S. Tax Reform.
As of December 31, we had $338.9 million in cash on hand and demand deposits, $537.5 million in time deposits, and $76 million in short term investments.
Net cash provided by operating activities for 2018 was $103.9 million, including a $21.8 million contribution from TianXinFu, as compared to $102.2 million for 2017. Excluding TianXinFu, the $20.1 million decrease in net cash provided by operating activities was mainly attributable to the increase in accounts receivable and decrease in income tax payable.
Excluding TianXinFu, accounts receivable increased by $53.5 million during 2018 as compared to $39.9 million during 2017. The accounts receivable turnover days for plasma products increased to 95 days during 2018 from 58 days in 2017, reflecting longer credit terms to hospitals as a result of the nationwide implementation of healthcare reform measures and intensified competition in the distribution channel.
Excluding TianXinFu, income tax payable increased by $43.1 million in 2017, while decreased by $12.6 million in 2018. The increase in 2017 was mainly because of the one-time repatriation tax charge of $40.3 million. In the first half of 2018, we made the first batch of tax payment of approximately $3.3 million. Based on the new regulations and rules issued by the US Department of the Treasury in August 2018, the management reassessed the amount and an amount of $7.5 million was reversed in the third quarter of 2018.
Excluding TianXinFu, inventories increased by $42.1 million in 2017 and $42.5 million in 2018, reflecting slowdown of production and sales in reaction to the weaker market demand due to more-aggressive-than-expected implementation of government healthcare reform policies.
Net cash used in investing activities for 2018 was $558.9 million as compared to $60.9 million for 2017. In 2018, we paid $36.6 million for acquisition of property, plant and equipment, intangible assets and land use rights, and $10.8 million prepayments for investments in equity securities and also purchased time deposit and short term investments in the amount of $2,726.8 million.
This was partly offset by $97.7 million in cash received upon acquisition of TianXinFu and $2,117.6 million from the maturity of time deposits and short term investments.
Net cash provided by financing activities for 2018 was $571.3 million as compared to net cash used in financing activities of $18.3 million for 2017. Net cash provided by financing activities for 2018 mainly included proceeds of $590.3 million from the issuance and the sale of an aggregate of 5,850,000 ordinary shares of the Company to certain investors, and $1.1 million from stock options exercised, partially offset by a dividend of $10.1 million paid by Shandong Taibang to its non-controlling interest shareholders and $10 million prepayment to an investment bank for potential share repurchases.
Financial outlook. For the full year 2019, we expect both non-GAAP adjusted income from operations and non-GAAP adjusted net income to increase by 4% to 6% in RMB terms over full year 2018 financial results. This guidance does not factor in any potential foreign currency translation impact.
Having previously adopted an exchange rate of approximately RMB6.59 equal to USD1 based on weighted average quarterly exchange rates in 2018 in translating 2018 financial results, the Company expects that the total sales and non-GAAP adjusted net income in US dollar terms in 2019 could be affected by the foreign currency translation impact.
That concludes our prepared remarks. Operator, we’re now ready to take some questions.
[Operator Instructions] And our first question comes from Yolanda Hu of Morgan Stanley.
My first one is on the plasma business. Since business guidance was not provided at this time, can you work us through the key assumptions of the plasma business, such as just volume growth and ASP erosions for albumins and IVIG?
Also, possibly tell us the new Chief Business Officer, which areas will he be focusing on going forward, any details of the transformation of sales efforts as dated in press release?
Second question, by the end of 2018, there are close to USD90 million of cash and time deposit, do you have any plans on how to leverage it to increase ROE?
This is Bing. I’m trying to provide some of the – our assumption for the plasma business for the 2019. In 2019, we expect the core plasma business to generate a healthy revenue growth around 10% to 15%. During 2017, 2018, factoring the impact from the two-invoice policy on certain products. The substantial improvements compared to 2018 was we benefit from the expanded capacity as – at our new facility and I think for the -- overall, our assumption is, we expect the albumin and IG to, from volume perspective, to grow around mid-teens compared to 2018, because we have different channels for the albumin IG, so the 10% to 15% of growth on volume is combined the direct channel and also the -- our distributor channel.
And because as you might be aware, in 2018, our direct sales channel for both albumin and IG has a very weak performance and 2019, we expect the overall -- the growth generated from the distribution channel. So in other words, the albumin IG growth in the direct channel might be flat from volume perspective but most of the growth was coming from the distribution channel and as you already seen from our press release we issued yesterday, we had a very healthy growth from distribution channel for both albumin IG in the fourth quarter 2018.
So we expect in the 2019, we will continue to deliver the higher growth from distribution channel and -- but the high growth from distribution channel was pretty much at the expense of more – the competition in terms of a price erosion. So that's why the -- our assumption for the – both albumin IG, the average price for 2019 could be down another 3% to 5%, which reflected pretty much flat direct channel price and high single digit price erosion in the distribution channel. So hopefully that answers your first question.
And for the CBO, the role I think, as our CEO just mentioned, you know, Dr. He is a very experienced industry veteran. So he will be leading the commercial organization in charge of sales, marketing and also medical marketing. So, basically, I think the 2019, his primary work focus will be around the three functions I just mentioned. Specifically I think, under his leadership, I think, we were committed to conducting stronger marketing planning and execution at the national and regional levels and to ensure the better integration with sales strategy. And under Dr. He’s leadership, we will restructure existing commercial teams to broaden sales channel coverage at a lower cost and enhance efficiency at our medical marketing support function.
Also for the direct sales channel, we aim to launch customers -- customized promotional efforts for doctor and the patient education in our strategic hospitals with focus on IG and high end coagulation products. And also I think under Dr. He’s leadership, we will also recruit more experienced salesforce who can assist in the education of non-physician and healthcare professionals and patients who increase our promotion ability at a terminal level. And in parallel, we will screen an opt-in access to new high potential hospitals via our newly established salesforce affecting system.
Lastly, in terms of distribution management, we already identified established strong partnerships with reliable distributor to supplement our direct sales effort to support a market access. Reason the regulatory reforms have led particularly large impact on us, because we traditionally rely most on the direct sales to the hospital without using distributors. Also, we're exploring use pharmacies as additional supplemental to the direct sales channels. We will partner with various retail pharmacy chains. I think that's pretty much the primary -- the strategic focus of 2019, the efforts. So that's the answer for your second question.
So, yes, for the third question, I think, yes, we had a very large amount of the cash on hand and as you are aware, we put out in the release yesterday, we, the board originally approved the CapEx, the project for our facility. Right now, we're in the feasibility study phase. We will provide the specific CapEx once read it but I think, our ballpark estimate this plan, by reference to the Shandong’s facility, built in the last couple of years, I think this project pretty much is going to cost us around probably up to RMB800 million. So this is one of the large CapEx in the near future. And also, our board extended the USD100 million share repurchase program for another six months. So I think that's another cash -- pretty much we will be spending in the near future as well.
And also, as our CEO Dr. Li has mentioned, and still one of our strategy will be our focus in 2018. So I think, we are currently evaluating hence for our targets. So I think all of those projects I just mentioned are -- needs pretty much very large sum of the capital spending in the near future. So hopefully that answers your question.
Our next question comes from Li Chen of Goldman Sachs.
Thanks for taking my questions. [indiscernible] I actually had two questions. One is regarding the expansion of sales or marketing team for promotional IV products and potentially some albumin products. So is there a target that how many more sales reps or marketing expertise that we're going to hire? And also, how are those hirings can affect our SG&A in 2019 over the next few years?
And second question, I would like to get a sense of the inventory of albumin and also IVIG by end of last year, and is there any target that we're targeting in 2019, for the inventory level, for those two products?
And last question probably on the $100 million share repurchase program. So what is our plan for that, because those plans were brought out last year, but it looks like we didn’t repurchase any share back. So what was the reasons and what is the plan in 2019?
I think the sales and marketing, the first question, sales and marketing, the function, yes, we actually already just I mentioned with the new CBO on board, so under his leadership, we already identified close to 100 hospitals. We were in 2019 closely working on -- in order to educate the doctors, trying to do better the market penetration by promoting our products to educate the doctors. So that's first, Li. So we already identified over 100 hospitals, we were conducting marketing activities in 2019.
And secondly, we will take a very gradual approach to hire sales rep, the new sales rep. And I think you are probably aware, there's a few competitors in China in the past couple of years, they conducted a very aggressive approach, they hired over 100 sales reps in a very short time, but it turns out that didn't work out very well and we see our competitors and hires a large size of sales rep, and by six months, we see pretty much fire all the sales rep. So, I think, that approach, we don't really appreciate that approach.
So, we will do very gradual way by trying to do the sales, in 2019, I think our goal is to try to hire probably up to another 20 sales reps and by folks on medical marketing, just I mentioned, that hundred hospital we identified. So we will pretty much leverage in our existing sales rep in Shandong and Guizhou and utilize their existing -- our existing sales rep, but the new additional hires will pretty much focus on the medical marketing function and that, the 20 sales rep hire will not actually impact too much on the SG&A side as we expected. And for the inventory, I think, for the last quarter of 2018, we did actually successfully decreased 40% of our Guizhou’s IVIG inventory.
And I think, right now, the inventory days still are very higher. I understand that, but 2019, I think we still actually have a very challenging job, to trying to destock another 60% IG inventory from Guizhou. So probably 2000 -- at least three quarters in 2019 to trying to solve the old inventory in Guizhou, that’s our priority. And I think overall, our target in -- by end of 2019, we’re trying to actually lower our -- both albumin IG inventory to more reasonable days. I think, we hopefully, we can see the inventory days go below 400 days. That’s my answer to your second question.
Yes, for the repurchase -- stock repurchase program, as I just mentioned, the company is always looking to deploy the cash to maximize shareholder value with options on the table, including M&A, capital expense, the expansion projects as well as share buyback. As of now, we have not purchased shares from the board authorized share repurchase program from last quarter, but we've been open to doing so in the future based on variety of factors, including market condition and a trading price of the shares. And, the board has just approved the extension for another six months for the share purchase program. I think that just signifies the board’s confidence and commitment to purchase shares.
That's my answer to your third question.
Our next question comes from Serena Shao of Credit Suisse.
I actually have a few questions. The first question is about the industry. It seems like both albumin and IVIG have been suffered in 2018, because of some like basically the watchlist in the hospital and also they were, well -- also there is going to be a new supplemental drug list coming out soon, which potentially I think the placenta polypeptide going to be on that list. So do you think the impact is going to continue in 2019? What's your forecast for the growth of this product in 2019? That’s my first question.
And second question is housekeeping question, seems like in your annual results, there were quite a few one-off items, can you just clarify a little bit on each of them, like I think there was employee based – employment based, the share compensation and also you have a tax reverse as well as, I don’t know, some one-time expenses, can you be – give us clarification on those kind of one-time charges?
That’s my questions.
Serena, this is Ming again. I think, yes, you’re correct. The – pretty much, we had a very tough year in 2018, due to the stringent implementation of the government healthcare reform, mostly the control of the drug spending. And control the prescriptions on the hospital end. So that’s why many of our products like albumin IG suffered the volume the drop, especially IVIG in 2018 in the hospital channel. And also for the PP product and you’re absolutely correct. I think, in 2018, we do actually see the more than aggressive implementation on those so called supplementary or the adjuvant drug list came out, firstly from provincial level.
So, I think, we have seen our prescription volume directly like correlated with this – the execution by the provincial governments in the supplemental drug list. And we have – our PP product was suffered close to one-third of volume drop in 2018. So, 2019, definitely, I think, just you mentioned the national level, the adjuvant drug list will come out. So we don’t know when, but I think there are rumors and the PP products, there is a possibility, including in this national level, the adjuvant drug list, so that would definitely put a lot of pressure on this products to further grow. So we think in the short term, we probably will see a dramatic volume drop for this products in 2019. That’s pretty much inevitable, the situation for us. And that’s my answer for your first question.
For the second question, yes, we do actually have a few one-off items. So first, I think the – we, as we put out in the press release, we do actually reversed some share-based compensation expense. I think that’s just because of, we have informal [Technical Difficulty] and those share-based compensations expenses was actually reported in the previous year and because that share compensation expense was vested in the four years. So on a quarter basis or on an annual basis, those expenses are going to hit us on the P&L. So because those exactly will have at the company, so that’s why we -- board reversed – decided to reverse those – the expense. So that’s first reason, first item for the share based compensation expense reversal.
Secondly, I think, we do actually have some one-time tax expense, because like I explained in the call earlier, the last year, because US tax reform required the overseas companies have now operation – non US operation has to repatriate the tax to US government on the deemed repatriation base. So we estimate 40 million last year, but at that time, all those, the detailed tax rule was not actually -- came out. So in 2018 August, the RS actually issued details on how to calculate it. So that’s why we – it shows we over estimate another $7.5 million for the tax, so that’s why we reversed that amount. So that’s second item.
So I think that’s pretty much the two items we did one-off the event for the 2018 fiscal year.
Serena, hopefully that answers your questions?
Okay. Thank you so much.
This concludes our question-and-answer session. I would like to turn the conference back over to Dr. Bing Li for any closing remarks.
Thank you all for your participation and ongoing support of China Biologics. Have a good day.
The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.