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China Biologic Products Inc (CBPO) Q4 2018 Earnings Conference Call Transcript

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China Biologic Products Inc  (NASDAQ: CBPO)
Q4 2018 Earnings Conference Call
March 07, 2019, 7:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

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) 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.

Samuel Martin -- Account Executive

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 of March 6th, 2019, after the market close. 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.

Bing Li -- Director, Chief Executive Officer

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 fourth 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 next -- in the near future. Besides enforcing a cap on the drug expense as percentage of total medical costs, limiting prescription for the high-cost drugs and establishing adjuvant drug lists, relevant authorities may issue more healthcare policy to control our 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 the efficiency of prescriptions, which could possibly slow down the volume growth of our major products. On the price side, the wider implementation of centralized procurement might result in further price cuts at hospital level, if plasma products are included the relevant procurement lists.

Despite those challenges, China Biologic made meaningful progress in improving our sales and marketing capability during the fourth quarter, including hiring new industry talents, further broadening our sales channel coverage, and reducing inventory level.

Through our focus on optimize our distribution channels, IVIG inventory at Guizhou subsidiary decreased by over 40% from September 30, 2018 to December 31, 2018. For key to the fulfillment of those efforts is onboarding of our new Chief Business Officer, Dr. Homer He. Dr. He has more than 30 years' experience of management in global healthcare industry and has previously played various senior commercial roles in China and multinational pharmaceutical companies. And also, he is very familiar with vaccine and medical device companies, including recently served as Vice President and General Manager at Danaher Dental Platform, so -- where he was in charge of most of their 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 support expanding product pipelines in both plasma and medical device business, in particular, the clinical development of the key late-stage products as well those highlights, Guizhou subsidiary obtained approval from NMPA, former CFDA, for clinical trials of its new generation IVIG. We expect to be able to complete those clinical trials over the next three (ph) years.

Furthermore, the Board recently approved a capital expansion plan to build a 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 Taibang's manufacturing capacity, enabling us to enhance our production efficiency and quality and better meet the increasing market demand for plasma therapeutics 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 talent. We will also further increase our effort to educate Chinese doctors about the benefits of IVIG, PCCs and other coagulation factor products in treating patients across a wide range of clinical indications. We will also increase our effort in product development to ensure the timely launch of our key pipeline product. As part of our core strategy, we will continue to assess suitable acquisition targets that will better position China Biologic for long-term growth.

You may have seen in the release that the Board of Directors on March 4th, 2019 approved extension to the Company's previously authorized $100 million share repurchasing program for another six months until October 31st this year. This again reflects the confidence of the Board in Company's long-term growth prospective (ph), and Company's new management teams executed our new business plan.

This concludes my prepared remarks. I will now turn the call to Mr. Ming Yin, our Senior Vice President, to review financial results for fourth quarter and fiscal year of 2018. Ming, please go ahead.

Ming Yin -- Senior Vice President

Thank you, Bing, and hello, everyone. Now, I will walk you through the key P&L items for the fourth quarter and the 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 percentage of total sales, cost of sales decreased to 32.7% from 34.1% in the same quarter 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 price 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 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 expense decreased to 30.3% in the fourth quarter of 2018 from 44.1% in the same quarter of 2017. Excluding TianXinFu, total operating expense 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 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% in RMB terms and 241.9% in US dollars 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 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 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 expense and $1.8 million in amortization expense for intangible assets and land use rights related to 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 and 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 increase in sales of placenta polypeptide products, human albumin products, certain special immunoglobulin products, and coagulation factor products, which was partly offset by decrease in 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 sales price year-over-year.

The sales volume of human albumin products increased by 17%, primarily due to the increased sales volume in distributor and pharmacy channels, which was partly offset by decreased prescription volume at various hospitals due to the ongoing healthcare regulatory change in China. The sales volume of IVIG products decreased by 3.4% for 2018, mainly reflecting decreased prescription volume at various hospitals.

The average price for human albumin and IVIG products decreased by 5.6% and 2.3%, respectively, in RMB terms in 2018 compared to 2017 because greater sales volume in the distributor channel and lower price 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. 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 US dollar 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 volume of human coagulation factor VIII and human prothrombin complex concentrate products, which is reflective of our 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 price in connection with wider implementation of 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 for 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 partly offset by lower sales prices 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 expense increased by 7.9% to 37.3% for 2018 from 29.4% for 2017. Excluding TianXinFu, total operating expense increased by $42.5 million, or 39%, to $151.5 million for 2018. This increase mainly consisted of increase of $43.6 million in selling expense, partly offset by a decrease of $1.8 million in general and administrative expense.

Selling expense 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 expense 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 channel was disqualified due to the two-invoice policy, we implemented new sales strategy 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 expense included 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 expense accounted for 18.8% of total sales in 2018 compared to 9.4% in 2017.

General and administrative expense in 2018 increased by $1.8 million (ph), or 1.6%, to $68.8 million from $67.7 million for 2017. As a percentage of total sales, general and administrative expense decreased to 14.8% for 2018 from 18.3% for 2017. The slight increase in general and administrative expense from 2017 to 2018 was a combined result of general and administrative expenses from TianXinFu; increase in legal expense -- fees mainly in relation to the legal -- lawsuit filed against the Company in Cayman Islands by David Gao, the former Chairman and CEO of the Company, whose employment with the Company had previously been termination (ph) for cause; and Shandong Taibang's increased depreciation expense and property tax for the new facility. The increase in general and administrative expense was partly offset by a decrease in share-based compensation expense.

Research and development expense 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 the government grants totaling $0.7 million and $0.4 million, respectively, and we recognized them as a reduction in our research and development expense. Excluding this impact, our research and development expense increased by $3.3 million for 2018 from 2017. As a percentage of total sales, our research and development expense, 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 expense.

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 $109 million (ph), and 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 31st, 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 US tax reform. Based on the new regulations rule issued by US Department of Treasury in August 2018, the management reassessed the amount and an amount of $7.5 million was reversed in 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 US dollar 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 expense and $8.4 million in amortization expense of intangible assets and land use rights related to 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 expense 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 US tax reform.

As of December 31st, 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 a decrease in income tax payable.

Excluding TianXinFu, accounts receivable increased by $53.5 million during 2018, as compared to $39.9 million in 2017. The accounts receivable turnover days for plasma products increased to 95 days during 2018 from 58 days in 2017, reflecting a longer credit terms to hospital as a result of the nationwide implementation of healthcare reform measures and intensified competition in 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 a one-time repatriation tax charge of $40.3 million. In the first half of 2018, we made a first batch of tax payment of approximately $3.3 million. Based on the new regulations and rules issued by US Department of Treasury in August 2018, the management reassessed the amount. 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 slow-down 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; $10.8 million prepayment for investment in equity securities; and also purchased time deposit and short term investment in 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 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 include proceeds of $590.3 million from issuance and sale of aggregate 5,850,000 ordinary shares of the Company to certain investor, and $1.1 million from stock option exercise, partially offset by a dividend of $10.1 million paid by Shandong Taibang to its non-controlling interest shareholder and a $10 million prepayment to an investment bank for potential share repurchase.

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 $1 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.

Questions and Answers:

Operator

Thank You. We will now begin the question-and-answer session. (Operator Instructions)

And our first question comes from Yolanda Hu of Morgan Stanley. Please go ahead.

Thanks for taking my questions. My first one is on the plasma business. Since the sales guidance was not provided this time, can you walk us through the key assumptions of the plasma business such as sales volume growth and ASP erosion for albumins and IVIG? Also if possible, 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 stated in the press release?

Second question, by the end of 2018, there are close to $90 million (ph) of cash and time deposit. Do you have any plans on how to leverage it to increase ROE? Thank you.

Ming Yin -- Senior Vice President

Yes, Yolanda, this is Ming. I'm trying to provide some -- 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% than 2017 -- 2018, factoring the impact from the two-invoice policy on certain products. The substantial improvement compared to 2018, as we benefit from the expanded capacity at our new Shandong facility.

And I think for the overall albumin and IG, 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 and IG, so the 10% to 15% of growth on volume is combined the direct channel and also our distributor channel, and -- because, as you might 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 may generate from the distribution channel. So in other words, the albumin and IG growth in the direct channel may be flat from volume perspective, but most of the growth was coming from the distribution channel.

And as you've already seen from our press release we issued yesterday, we had a very healthy growth from distribution channel for both albumin and IG in the fourth quarter 2018. So we expect, in 2019, we will continue to deliver the higher growth from distribution channel and -- but the high growth from distribution channel will pretty much add expense of more -- the competition in terms of a price erosion. So that's why the -- our assumption for both albumin and IG, the average price for 2019 could be down another 3% to 5%, which reflected pretty much flat direct channel price and a high-single digit price erosion in the distribution channel. So hopefully, that answered your first question.

Operator

Thank you.

Ming Yin -- Senior Vice President

And for the CBO, the role I think -- as our CEO just mentioned, 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 in 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 market planning and execution at 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 of the medical marketing support function.

Also for the direct sales channel, we aim to launch customized promotion efforts for doctor and patient education in our strategic hospitals, which focus on IG and high-end coagulation products. And also, I think, under Dr. He's leadership, we will also recruit more experienced sales force, who can assist in the education of physician and healthcare professionals and patients to increase our promotion ability at a terminal level. And in parallel, we will screen and opt-in access to new high-potential hospitals via our newly established sales force effectiveness system.

Lastly, in terms of distribution management, we already identified and established strong partnerships with reliable distributor to supplement our direct sales effort to support market access. Recently, 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 to use pharmacies as additional supplement to the direct sales channels. We've partnered with various retail pharmacy chains. I think that's pretty much the primary strategic focus of the CBO's 2019 efforts. So that's the answer for your second question.

So yeah, for the third question, I think, yes, we had a very large amount of cash on hand. And as you are aware, we put out in the release yesterday, we -- the Board recently approved the CapEx -- the project for our Guizhou facility. Right now, we're in the feasibility study phase. We will provide the specific CapEx once ready, but I think our ballpark estimate of this plan -- by reference to the Shandong's facility building in the last couple of years, I think this project pretty much 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 $100 million share repurchase program for another six months. I think that's another cash pretty much we will be spending in the near future as well. And also our CEO, Dr. Li has mentioned, MA is (ph) still one of our strategy, will be our focus in 2018. So I think, we are currently evaluating a handful of targets. So I think, all of those projects I just mentioned, all needs pretty much a very large sum of the capital spending in the near future. So hopefully, that answered your question, Yolanda.

Operator

Yes. Thank you.

Our next question comes from Ziyi Chen of Goldman Sachs. Please go ahead.

Thanks for taking my questions. This is Ziyi from Goldman Sachs. Actually I have two questions. One is regarding the expansion of sales and marketing team for promotion of IV products and potentially some albumin products. So, is there a target, how many more sales reps or marketing expertise that we're going to hire? And also how are those hirings going to affect our SG&A in 2019 and over next few years?

And second question, I will like to get a sense of the inventory of albumin and also IVIG by end of the last year. And if there are any targets that we are 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 this plan was 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? Thank you.

Ming Yin -- Senior Vice President

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 onboard, so under his leadership, we already identified close to 100 hospitals. We will in 2019 closely work out in order to educate the doctors, trying to do better the market penetration by promoting our products, to educate the doctors, so that's firstly. So we already identified over 100 hospitals we will conduct marketing activities in 2019.

And secondly, we will take up very gradual approach to hire sales rep -- the new sales rep. And I think you probably are aware, there's a few competitors in China in the plasma industry. 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 hire a large size of sales reps, and by six months, we see pretty much the -- pretty much fire all the sales reps.

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 -- we will -- 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 100 hospitals we identified. So we will be pretty much leveraging our existing sales reps in Shandong and Guizhou and utilize their existing -- our existing sales reps. 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 decrease 40% of Guizhou's IVIG inventory. And I think, right now, the inventory days still were higher, I understand that. But 2019, I think, we still actually have a very challenging job to trying to de-stock another 60% of IG inventory from Guizhou. So probably 2000 -- at least three quarters in 2019, to trying to sell that the older inventory in Guizhou. That's our priority. And I think, overall, our target in -- by end of 2019, we're trying to -- we're trying to actually lower our both albumin and IG inventory to more reasonable days. I think, 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 always looking to deploy the cash to maximize the shareholder value, with options on the table including M&A, capital expansion -- 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're being open to doing so in the future based on a variety of factors, including market condition and trading price of shares. And the Board just approved the extension for another six months for the share purchase program. I think that just signifies the Board's confidence and a commitment to purchase shares.

I hope that's my answer to your third question.

Operator

Great. Thank you very much.

Ming Yin -- Senior Vice President

Thank you.

Operator

Our next question comes from Serena Shao of Credit Suisse. Please go ahead.

Serena Shao -- Credit Suisse -- Analyst

Hi, thank you for taking my question. I actually have a few questions. The first question is about the industry. It seems like both albumin and IVIG has been suffered in 2018 because of some, like, basically the watch list in the hospital. And also there was -- well, also there 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 a housekeeping question. It 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 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 some clarification on those kind of one-time charges? That's my question. Thank you.

Ming Yin -- Senior Vice President

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, they control the drug spending and control the prescriptions on the hospital. And so that's why major -- our products like albumin and IG suffered the volume drop, especially IVIG in 2018 in the hospital channel. And also for the PP product -- and that 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 their supplemental drug list. And we have -- our PP products suffered close to one-third volume drop in 2018.

So 2019, definitely, I think, just as you mentioned, the national level, the adjuvant drug lists will come out. So we don't know when, but I think there are rumors. And our PP products has a possibility to be included in this national level adjuvant drug lists. So that would definitely put a lot of pressure on these products to further grow. So we think in the short term, we probably will see a dramatic volume drop for these products in 2019. That's pretty much an inevitable situation for us. And that's my answer for your first question.

For the second question, yes, we do actually have a (technical difficulty) one-off items. So first, I think, we -- as we put out in the press release, we do actually reverse some share-based compensation expense. I think that's just because we have a few former executives who left the Company and those share-based compensation expenses was actually reported in the previous year and that -- because that share compensation expense will be vested in the four years. So on the quarter base -- or on the annual base, those expenses are going to hit us in P&L. So because those executives left the Company, so that's why we -- the Board reverse -- decided to reverse those -- the expense. So that's first reason for -- 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 the 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 has not actually come out. So in 2018 August, the US -- the IRS actually issued the detailed rules, how do calculate it. So that's why we -- it shows we overestimated another $7.5 million for the tax. So that's why we reversed that amount. So, that's the second item. So, I think, that's pretty much the two items we did -- one-off events for the 2018 fiscal year. Serena, hopefully that answered your questions.

Serena Shao -- Credit Suisse -- Analyst

Okay. Thank you so much.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Dr. Bing Li for any closing remarks.

Bing Li -- Director, Chief Executive Officer

Well, thank you all 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.

Duration: 60 minutes

Call participants:

Samuel Martin -- Account Executive

Bing Li -- Director, Chief Executive Officer

Ming Yin -- Senior Vice President

Serena Shao -- Credit Suisse -- Analyst

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