Biostar Pharmaceuticals (NASDAQ:BSPM)

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

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

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

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

Biostar reiterates guidance for 2010:

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

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

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

First quarter 2010 Conference call Excerpts:

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

See full transcript...

Added to the GeoSpecial list on August 14, 2009 @ $3.85
 
Catalyst: Leader in its industry with strong competitive advantage
Peak performance: Reached a high of $5.51 on April 23, 2010.
Current Price: $3.50

Current road block: Dilution; Sub par first quarter 2010 margin performance; Regulatory issues.

Remains on the GeoSpecial list.  The company has reiterated its guidance, which should bode well for EPS comparisons in 2010, especially during the second half of the year. The company put to rest negative rumors regarding its standing with China regulatory bodies.

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

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

For those following BSPM, it is no secret by now that there was a rumor flying around about the suspension of their main oleanic acid drug in Shaanxi Province. It is quite possible that the stir and unusual trading activity was created by some news and blog sources (These are translated versions of the pages):

Source 1

Source 2

This morning, BSPM issued a press release addressing this matter:

"On April 22, 2010 the Shaanxi SFDA published on its website a notification stating that the marketing language used in connection with several pharmaceutical products sold in the province are not within approved parameters."

The good news is that the company has swiftly remedied the problem:

"The Company has made proper modifications to its sales and marketing materials and has accordingly received a new advertising approval for its Xin Aoxing from the Shaanxi SFDA on April 27, 2010."

"The notification has not disrupted production or sales of Xin Aoxing and is not expected to have any impact on previously announced fiscal 2010 revenue and net income guidance."

Since BSPM was trading above $5.00, we are optimistic that shares will gravitate back to those levels and may offer a short-trading opportunity for investors.

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

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

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

^d GeoTeam assumption.

Notes from Brean Murray, Carret & Co. China Growth Conference on November 19, 2009

Our second interview of the day was with the CEO of Biostar Pharmaceuticals (OTCBB:BSPM). The Company demonstrated that it has a coherent understanding of its markets and the steps necessary to accelerate growth.

Biostar is a pharmaceutical company that manufactures & distributes 15 nonprescription, prescription and nutraceutical products.

Biostar's Appeal

We are most excited about three aspects of Biostar's story.

First of all, BSPM flagship Hepatitis drug is the only-over-counter option available in China. According to the BSPM two other companies have the license for such a drug, but failed to compete due lack of market of awareness. For example, one of its competitors, in an effort to cut costs, chose to market tablets versus Biostar's choice to produce capsules. In the end the less effective tablet product failed to garner favor, and Biostar's choice to first focus on quality obviously paid off.

We asked management if this favorable insulation from competition can continue.

Answer:

First, the Chinese government is not issuing anymore OTC hepatitis licenses and is also limiting advertising campaigns for for prescription hepatitis manufacturers.

Secondly, China is encouraging Pharma companies to educate and provide hepatitis treatment to the neglected rural regions where Hepatitis is much more prevalent. BSPM intends to respond to this significant market opportunity by being an early entrant into the rural areas.

Finally, the Company recently completed a capital raise enabling it to construct a raw materials processing facility. This vertical move may help Biostar achieve the following benefits:

• The Company's goal is to utilize 25% of raw material production internally.
• BSPM may generate another source of revenue as it will sell the remaining 75% externally.
• Margins should improve.
• Supply disruption risks may be mitigated.

Answer:

"We have a conservative management structure that is concerned primarily with quality and not quantity of products. There are several ways we can still enjoy rapid growth with our current structure. First, we don’t have full China coverage which we expect to gain within two years. Second, our penetration into into the rural areas offers a whole new avenue of growth for new and seasoned product portfolio. Third, we can consider making acquisitions of distributors to increase our market presence into areas we are not serving."

We were also pleased to learn that it takes BSPM as little as one month to push a product through a distribution network.

Our last inquiry touched upon the status of Biostar's capacity utilization?

Answer: At 100% capacity Biostar can approach a $100 million annual revenue run rate. "We are currently operating at 60% with goals of reaching 80% in 2010."

In summary, what we have is a conservative management team with aggressive goals to grow via market penetration, emphasizing product quality and control of its raw material supply.

Investors may begin to notice BSPM if it continues to build on the EPS momentum established in the previous two quarters of 2009, boasting growth in excess of 100%. Income from operations targets of $15.9 million for 2009 and $21.1 million for 2010 affirms that Biostar will continue to post solid earnings gains in the upcoming year.

With implied 2010 EPS of $0.71 and a current price of $3.15, BSPM is selling at a P/E of 4.4 in a sector that is gaining steam. Thus, both value and growth investors may find the BSPM an intriguing play.

Excerpt From GeoBargain & GeoSpecial Review article, November 17, 2009.

Biostar Pharmaceuticals (OTC BB:BSPM) Closing Price Nov. 16, 2009: $3.16

• Added to the GeoSpecial List on August 17, 2009 at $3.80.
• Has yet to perform

Biostar Pharmaceuticals announced the closing of a $3.6 million equity financing on November 6, 2009. The proceeds will be used to fulfill Biostar’s vertical integration strategy to “manage and control a large portion of its production which includes harvesting, raw material processing, pharmaceutical ingredient synthesizing and finally medicine manufacturing in our current facility.”

The GeoTeam is speculating that the end result should lead to increased sales and margins. The Company also reaffirmed its income from operations make-good targets of $15.9 million for 2009 and $21.1 million for 2010. At a share price of $2.95, the stock is selling at a meager P/E of 5.67 on the GeoTeam’s calculated 2010 fully taxed EPS of $0.52. This is a situation that value investors may find favorable.

Biostar Pharmaceuticals (OTC BB:BSPM), GeoSpecial

The Company reported a sharp increase for its 2009 third quarter financial results.

On November 6, 2009, BSPM announced that is on track to meet its make-good provisions, which call for income from operations of $15.9 million for 2009 and $21.1 million for 2010.

BSPM has reported 2009 nine months net income of $8.8 million. This implies that fourth quarter net income will be around $3.0 million (with a 25% tax rate) and EPS of around $0.11

See BSPM new release