China Pharma Holdings, Inc. (CPHI) is a Nevada-based holding company with all of its operations conducted in the People's Republic of China (PRC) through its wholly-owned subsidiary, Hainan Helpson Medical & Biotechnology Co., Ltd. (Helpson). Helpson is principally engaged in the development, manufacture, and marketing of pharmaceutical products for human use, focusing on high-incidence and high-mortality diseases and medical conditions prevalent in the PRC.

Business Overview

Helpson manufactures a diverse portfolio of pharmaceutical products in the form of dry powder injectables, liquid injectables, tablets, capsules, and cephalosporin oral solutions. The majority of its products are sold on a prescription basis and have been approved for at least one or more therapeutic indications by the National Medical Products Administration (NMPA), formerly known as the China Food and Drug Administration (CFDA).

Navigating the Evolving Regulatory Landscape

China's consistency evaluation of generic drugs continues to be a key focus for Helpson. The company has been actively working on the consistency evaluation process, but the dynamic changes in the detailed policies, market trends, expected investments, and expected returns on investment have resulted in slow progress across the industry. One of Helpson's flagship products, Candesartan tablets, a hypertension medication, has recently passed the generic-drug-consistency-evaluation in early August 2023.

Helpson has adopted a more cautious and flexible approach towards initiating and progressing any projects for existing products' consistency evaluation. This is due to the changing macro environment of drug sales in China, particularly the implementation of Centralized Procurement (CP) activities in selected pilot cities, which have significantly reduced the prices of drugs that won the bids. The consistency evaluation has also been adopted as one of the qualification standards for participating in the CP activities, requiring Helpson to carefully balance the market access, financial resources, and time investment needed to obtain the CP qualification against the sharp decline in drug prices.

Diversifying into Comprehensive Healthcare

In response to the Chinese government's focus on the "Healthy China 2030" initiative and the growing demand for comprehensive healthcare solutions, Helpson has expanded its product portfolio beyond traditional pharmaceuticals. The company has launched Noni enzyme, a natural, Xeronine-rich antioxidant food supplement, as well as wash-free sanitizers and masks to address the market needs caused by the COVID-19 pandemic.

As the Chinese government has officially terminated its zero-case policy, the responsibility to protect people from the impact of COVID-19 has shifted more to the citizens themselves. Helpson has sufficient production capacity for medical masks, surgical masks, KN95 masks, and N95 masks to meet the personal protection needs. The company's N95 medical protective mask has received a registration certificate and is currently being sold nationwide in mainland China.

Helpson will continue to optimize its product structure and actively respond to the evolving health needs of the Chinese population.

Financials

For the three months ended March 31, 2023, Helpson reported revenue of $1.37 million, a 30.1% decrease compared to $1.96 million in the same period of the previous year. This decline was primarily due to the decrease in product selling prices caused by the inclusion of certain Helpson products in the Centralized Procurement of drugs in recent quarters.

The company's cost of revenue for the three-month period ended March 31, 2023, was $1.66 million, or 121.2% of total revenue, compared to $1.78 million, or 90.9% of total revenue, in the same period of 2022. The increase in the proportion of cost to revenue was mainly due to the fact that the fixed costs remained flat while the revenue decreased.

Consequently, Helpson reported a gross loss of $0.29 million for the three months ended March 31, 2023, compared to a gross profit of $0.18 million in the same period of the previous year. The gross loss margin was 21.2% in the current quarter, compared to a gross profit margin of 9.1% in the same period of 2022.

Selling expenses for the three-month period ended March 31, 2023, were $0.11 million, or 7.9% of total revenue, compared to $0.14 million, or 7.4% of total revenue, in the same period of 2022. The decrease in selling expenses was due to the adjustment of healthcare reformation policies, which led to a reduction in the number of personnel and expenses to efficiently support sales and the collection of accounts receivable.

General and administrative expenses were $0.49 million, or 35.7% of total revenue, for the three months ended March 31, 2023, compared to $0.42 million, or 21.3% of total revenue, in the same period of 2022. The increase in general and administrative expenses as a percentage of revenue was primarily due to the decrease in revenue.

Research and development expenses for the three-month period ended March 31, 2023, were $0.03 million, or 2.3% of total revenue, compared to $0.02 million, or 1.2% of total revenue, in the same period of 2022. These expenditures were mainly for the consistency evaluations of Helpson's existing products.

Helpson recorded a reversal of allowance for doubtful accounts of $2,066 for the three months ended March 31, 2023, compared to a reversal of $10,036 in the same period of 2022. This change was mainly due to the decrease in revenue.

For the three months ended March 31, 2023, Helpson reported a net loss of $0.96 million, compared to a net loss of $0.48 million in the same period of the previous year. The increase in net loss was primarily due to the decrease in revenue during the current quarter.

Liquidity

As of March 31, 2023, Helpson had cash and cash equivalents of $0.84 million, representing 5.2% of its total assets, compared to $1.42 million, or 8.6% of total assets, as of December 31, 2022. The company's CEO has advanced $1.14 million to Helpson for use in operations.

Helpson has obtained various lines of credit to support its operations, as detailed in the company's financial statements. The company also issued a convertible note to an institutional investor, as disclosed in the financial statements.

Although Helpson has obtained additional lines of credit and the CEO has provided funding, there can be no assurance that the company will be able to achieve its future strategic goals, including the launch of new products. This raises substantial doubt about Helpson's ability to continue as a going concern.

Risks and Challenges

Helpson's operations are subject to various risks and challenges, including the political, economic, and legal environments in the PRC, as well as fluctuations in the foreign currency exchange rate. The company is also vulnerable to certain concentrations, with a limited number of large customers and suppliers accounting for a significant portion of its accounts receivable and raw material purchases, respectively.

Outlook

Helpson has not provided any specific guidance or outlook for the future. The company's performance will continue to be influenced by the evolving regulatory landscape, the implementation of Centralized Procurement activities, and its ability to navigate the changing market dynamics in the Chinese pharmaceutical industry.

Conclusion

China Pharma Holdings, Inc., through its subsidiary Helpson, operates in the dynamic and challenging Chinese pharmaceutical market. The company has faced revenue declines due to pricing pressures from Centralized Procurement activities, but it is diversifying its product portfolio and exploring opportunities in the comprehensive healthcare sector. Helpson's ability to adapt to the evolving regulatory environment and market conditions will be crucial to its future success. Investors should closely monitor the company's progress in navigating these challenges and its efforts to maintain a sustainable business model.