The information in this prospectus supplement is not complete and may be changed. This prospectus supplement and the accompanying prospectuses are not offers to sell these securities and are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Filed pursuant to Rule 424(b)(7)
Registration Nos. 333-171069
333-182624
and 333-196591

PROSPECTUS SUPPLEMENT (Subject to Completion)
Issued June 17, 2014
(To Prospectuses dated December 16, 2010, July 23, 2012 and June 17, 2014)

3,212,500 Shares

China Biologic Products, Inc.

Common Stock

 

China Biologic Products, Inc. is offering 1,000,000 shares of its common stock. The selling stockholders identified in this prospectus supplement are offering an additional 2,212,500 shares of common stock. We will not receive any proceeds from the sale of shares by the selling stockholders.

Our common stock is listed on the NASDAQ Global Select Market under the symbol “CBPO.” The last reported sale price of our common stock on the NASDAQ Global Select Market on June 13, 2014 was $47.37 per share.

 

Investing in our common stock involves certain risks. See the “Risk Factors” section beginning on page S-8 of this prospectus supplement.

 

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus supplement or the accompanying prospectuses. Any representation to the contrary is a criminal offense.

 

PRICE $     A SHARE

 

Price to Public

Underwriting Discounts and Commissions(1)

Proceeds to Company

Proceeds to Selling Stockholders

Per Share

$

$

$

$

Total

$

$

$

$

 

We have granted to the underwriters an option to purchase up to an additional 481,875 shares of common stock from us at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus supplement.

The underwriters expect to deliver the shares to purchasers on or about            , 2014.

 

MORGAN STANLEY

AEGIS CAPITAL CORP

           , 2014

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PROSPECTUS SUPPLEMENT

		Page
About This Prospectus Supplement			S-1
Prospectus Supplement Summary			S-2
Risk Factors			S-8
Special Note Regarding Forward-Looking Statements			S-28
Use of Proceeds			S-29
Market Price of Common Stock			S-29
Exchange Rate Information			S-30
Dividend Policy			S-30
Capitalization			S-31
Dilution			S-32
Management’s Discussion and Analysis of Financial Condition and Results of Operations			S-33
Industry			S-52
Business			S-56
Principal and Selling Stockholders			S-70
Shares Eligible for Future Sale			S-73
Taxation			S-75
Underwriting			S-79
Legal Matters			S-85
Experts			S-85
Where You Can Find Additional Information			S-85
Incorporation of Documents by Reference			S-86

DECEMBER 16, 2010 PROSPECTUS

		Page
Summary			5
Risk Factors			10
Special Note Regarding Forward-Looking Statements			23
Use of Proceeds			23
Description of Securities to Be Registered			23
Dilution			26
Selling Stockholders			26
Plan of Distribution			28
Legal Matters			30
Interests of Named Experts and Counsel			30
Disclosure of Commission Position on Indemnification for Securities Act Liabilities			30
Where You Can Find More Information			31
Incorporation of Certain Information by Reference			31

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JULY 23, 2012 PROSPECTUS

		Page
About this Prospectus			ii
Prospectus Summary			1
Risk Factors			3
Special Note Regarding Forward-Looking Statements			3
Use of Proceeds			3
Price Range of Our Common Stock			3
Selling Stockholders			3
Plan of Distribution			4
Legal Matters			6
Experts			6
Where You Can Find More Information			6
Incorporation of Certain Information by Reference			6

JUNE 17, 2014 PROSPECTUS

		Page
About this Prospectus			1
Prospectus Summary			2
Risk Factors			4
Forward-Looking Statements			4
Ratio of Earnings to Fixed Charges			5
Use of Proceeds			5
Description of Capital Stock			6
Description of the Warrants			9
Description of the Units			10
Selling Stockholder			11
Plan of Distribution			12
Legal Matters			14
Experts			14
Where You Can Find More Information			14
Information Incorporated by Reference			15

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ABOUT THIS PROSPECTUS SUPPLEMENT

This document is in two parts. The first part is this prospectus supplement, which describes the terms of the offering and also adds to and updates information contained in the accompanying prospectuses and the documents incorporated by reference into this prospectus supplement and the accompanying prospectuses. The second part consists of a prospectus dated December 16, 2010, included in the registration statement on Form S-3 (No. 333-171069), a prospectus dated July 23, 2012, included in the registration statement on Form S-3 (No. 333-182624), and a prospectus dated June 17, 2014, included in the registration statement on Form S-3 (No. 333-196591), all of which provide more general information. To the extent there is a conflict between the information contained in this prospectus supplement, on the one hand, and the information contained in the accompanying prospectuses or any document incorporated by reference in this prospectus supplement or the accompanying prospectuses, on the other hand, you should rely on the information in this prospectus supplement.

You should rely only on the information contained or incorporated by reference in this prospectus supplement, the accompanying prospectuses or any free writing prospectus provided in connection with this offering. Neither we nor any of the underwriters have authorized anyone to provide you with any information other than the information contained or incorporated by reference in this prospectus supplement, the accompanying prospectuses and any free writing prospectus provided in connection with this offering. Neither we nor any of the underwriters are making an offer to sell securities in any jurisdiction where the offer or sale is not permitted. The information contained or incorporated by reference in this prospectus supplement, the accompanying prospectuses and any free writing prospectus is accurate only as of the respective dates thereof, regardless of the time of delivery of this prospectus supplement, the accompanying prospectuses or any free writing prospectus, or of any sale of our securities. It is important for you to read and consider all the information contained in this prospectus supplement and the accompanying prospectuses, including the documents incorporated by reference therein, in making your investment decision.

In this prospectus supplement, unless otherwise indicated or unless the context otherwise requires, all references to:

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PROSPECTUS SUPPLEMENT SUMMARY

This summary highlights selected information contained or incorporated by reference in this prospectus supplement and the accompanying prospectuses. This summary does not contain all of the information that you should consider before deciding to invest in our common stock. Before making an investment decision, you should read carefully this entire prospectus supplement, the accompanying prospectuses and the documents that we have filed with the Securities and Exchange Commission, or the SEC, that are incorporated by reference into this prospectus supplement and the accompanying prospectuses, including the “Risk Factors” section beginning on page S-8 of this prospectus supplement and the financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2013 and in our Quarterly Report on Form 10-Q for the three months ended March 31, 2014.

About China Biologic Products, Inc.

Overview

We are a biopharmaceutical company principally engaged in the research, development, manufacturing and sales of human plasma-based biopharmaceutical products, or plasma products, in China. We are the largest non-state-owned producer of plasma products and the second largest producer in China based on 2012 sales, according to The Marketing Research Bureau, Inc., or MRB, an independent research firm. We operate our business through two majority owned subsidiaries, Shandong Taibang, a company based in Tai’an, Shandong Province and Guizhou Taibang, a company based in Guiyang, Guizhou Province. We also hold a minority equity interest in Huitian, a company based in Xi’an, Shaanxi Province.

We have a strong product portfolio with over 20 different dosage forms of plasma products. Our principal products are human albumin and immunoglobulin for intravenous injection, or IVIG. Albumin has been used for almost 50 years to treat critically ill patients by assisting the maintenance of adequate blood volume and pressure. IVIG is used for certain disease prevention and treatment by enhancing specific immunity. These products use human plasma as their principal raw material. Sales of human albumin products represented approximately 42.3%, 37.9%, 44.1%, 44.6% and 54.5% of our total sales for the three months ended March 31, 2014 and 2013 and 2013, 2012 and 2011, respectively. Sales of IVIG products represented approximately 36.5%, 47.5%, 38.0%, 39.0% and 32.3% of our total sales for the three months ended March 31, 2014 and 2013 and 2013, 2012 and 2011, respectively. All of our products are prescription medicines administered in the form of injections.

Our sales model focuses on direct sales to hospitals and inoculation centers and is complemented by distributor sales. In 2013, we generated sales of $203.4 million, an increase of 10.0% from 2012, and recorded net income attributable to our company of $54.6 million, an increase of 20.7% from 2012. In the three months ended March 31, 2014, we generated sales of $56.3 million, an increase of 4.1% from the same period in 2013, and recorded net income attributable to our company of $18.3 million, an increase of 22.5% from the same period in 2013.

We operate and manage our business as a single segment. We do not account for the results of our operations on a geographic or other basis.

Our Competitive Strengths

We believe that the following competitive strengths enable us to compete effectively in and capitalize on the growth of the plasma products market:

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Our Business Strategy

Our mission is to become a first-class biopharmaceutical enterprise in China. To achieve this objective, we have implemented a business strategy with the following key components:

Corporate History and Structure

China Biologic Products, Inc. was originally incorporated on December 20, 1989 under the laws of the State of Texas as Shepherd Food Equipment, Inc. On November 20, 2000, Shepherd Food Equipment, Inc. changed its corporate name to Shepherd Food Equipment, Inc. Acquisition Corp., or Shepherd. Shepherd is the survivor of a May 28, 2003 merger between Shepherd and GRC Holdings, Inc., or GRC, a Texas corporation. In the merger, the surviving corporation adopted the articles of incorporation and bylaws of GRC and changed its corporate name to GRC Holdings, Inc. On January 10, 2007, a plan of conversion became effective pursuant to which GRC was converted into a Delaware corporation and changed its name to China Biologic Products, Inc. On July 19, 2006, we completed a reverse acquisition with Logic Express Ltd., or Logic Express, a British Virgin Islands company, as a result of which Logic Express became our wholly owned subsidiary, the former shareholders of Logic Express became our then controlling stockholders, and Logic Express’s majority owned PRC subsidiary, Shandong Taibang, became our majority owned indirect subsidiary.

Our common stock was initially quoted on the over-the-counter market maintained by Pink Sheets LLC. On February 29, 2008, our common stock was approved for quotation on the Over-The-Counter Bulletin Board under the trading symbol “CBPO.OB.” On November 25, 2009, our common stock was approved for listing on the NASDAQ Global Market under the symbol “CBPO” and subsequently approved for listing on the NASDAQ Global Select Market on December 7, 2010.

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The following chart reflects our current corporate organizational structure as of the date of this prospectus supplement:

Corporate Information

Our principal executive offices are located at 18^th Floor, Jialong International Building, 19 Chaoyang Park Road, Chaoyang District, Beijing 100125, People’s Republic of China. Our corporate telephone number is (8610) 6598-3111 and our fax number is (8610) 6598-3222. We maintain a website at http://www.chinabiologic.com that contains information about our company, but that information is not part of this prospectus supplement or incorporated by reference herein.

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The Offering

The number of shares of our common stock to be outstanding immediately after this offering is based on 23,419,093 shares of our common stock outstanding as of March 31, 2014, and excludes:

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Summary Consolidated Financial Data

The summary consolidated statement of comprehensive income data for 2013, 2012 and 2011 and the summary balance sheet data as of December 31, 2013 and 2012 are derived from our audited consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2013, which is incorporated by reference into this prospectus supplement. The summary consolidated statement of comprehensive income data for the three months ended March 31, 2014 and 2013 and the summary consolidated balance sheet data as of March 31, 2014 are derived from our unaudited interim condensed consolidated financial statements contained in our Quarterly Report on Form 10-Q for the three months ended March 31, 2014, which is also incorporated by reference into this prospectus supplement.

You should read the summary consolidated financial data below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus supplement and our consolidated financial statements and related notes thereto incorporated by reference in this prospectus supplement and the accompanying prospectuses. Our historical results are not necessarily indicative of results to be expected in future periods.

		Year Ended December 31,												Three Months Ended March 31,
		2013				2012				2011				2014				2013
		(U.S. dollars in thousands, except per share data)
Consolidated statement of comprehensive income data:
Sales			203,357				184,813				153,092				56,267				54,032
Cost of sales			65,484				58,836				46,018				17,715				16,617
Gross margin			137,873				125,977				107,074				38,552				37,415
Operating expenses:
Selling expenses			10,643				14,421				14,596				2,282				1,836
General and administrative expenses			36,074				34,034				31,520				7,217				8,688
Research and development expenses			4,223				3,033				3,978				1,074				913
Impairment loss of goodwill			—				—				18,160				—				—
Loss on abandonment and write off of long-lived assets			—				—				6,603				—				—
Total operating expenses			50,940				51,488				74,857				10,573				11,437
Income from operations			86,933				74,489				32,217				27,979				25,978
Other income (expenses):
Equity in income of equity method investee			2,170				2,666				1,858				337				129
Change in fair value of derivative liabilities			—				1,769				11,976				—				—
Interest expense			(1,135	)			(1,270	)			(4,671	)			(621	)			(236	)
Interest income			4,433				2,910				1,357				1,596				648
Other income (expenses), net			—				571				(454	)			—				—
Total other income, net			5,468				6,646				10,066				1,312				541
Earnings before income tax expense			92,401				81,135				42,283				29,291				26,519
Income tax expense			15,540				15,163				10,900				5,338				4,607
Net income			76,861				65,972				31,383				23,953				21,912
Less: Net income attributable to non-controlling interest			22,259				20,750				13,201				5,679				6,996
Net income attributable to company			54,602				45,222				18,182				18,274				14,916
Net income per share of common stock
Basic			2.05				1.73				0.73				0.72				0.55
Diluted			1.96				1.62				0.37				0.69				0.53

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		December 31,								March 31,
		2013				2012				2014				Pro Forma As Adjusted(1)
		(U.S. dollars in thousands)
Summary Consolidated Balance Sheet Data:
Cash and cash equivalents			144,138				129,609				77,548				122,602
Restricted deposit			—				—				30,188				30,188
Accounts receivable, net of allowance for doubtful accounts			17,270				11,206				23,485				23,485
Total current assets			264,293				222,160				230,528				275,582
Restricted cash and deposit, excluding current portion			30,524				2,912				71,665				71,665
Total assets			403,781				311,047				413,952				459,006
Short-term bank loans, including current portion of long-term bank loans			9,822				7,935				34,869				34,869
Total current liabilities			63,439				47,719				81,264				81,264
Long-term bank loans, excluding current portion			30,000				—				70,000				70,000
Total liabilities			99,812				53,628				157,960				157,960
Total stockholders’ equity			303,970				257,419				255,992				301,046

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RISK FACTORS

You should carefully consider the risks described below, and all of the other information contained or incorporated by reference in this prospectus supplement, the accompanying prospectuses and any free writing prospectus we may provide you in connection with this offering before deciding to invest in our common stock. If any of these risks actually occurs, it could have a material and adverse effect on our business, financial condition and results of operations. In addition, such risks are not the only risks facing us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial could, in the future, also materially and adversely affect our business, financial condition or results of operations. As a result, the trading price of our common stock could decline and you may lose all or part of your investment.

Risks Relating to Our Business

The biopharmaceutical industry in the PRC is strictly regulated and changes in such regulations, including banning or limiting plasma products, may have a material and adverse effect on our operations, revenues and profitability.

The principal raw material of our existing and planned biopharmaceutical products is human source plasma, which, due to its unique nature, is subject to various quality and safety control risks which include, but are not limited to, contaminations and blood-borne diseases. In addition, current technology cannot eliminate entirely the risk of biological hazards inherent in plasma that are not currently known or for which screens are currently commercially available, which could result in a widespread epidemic due to blood infusion. As a result, the biopharmaceutical industry in the PRC is strictly regulated by the government. The regulatory regime regulates the process of administrative approval of medicine and its production, and includes laws and regulations such as the PRC Pharmaceutical Law, the Implementation Rules on the PRC Pharmaceutical Law and the Regulations on the Administration of Blood Products. These laws and regulations require entities producing blood products to comply strictly with certain hygienic standards and specifications promulgated by the government. In the event that human plasma is discovered to be not compliant with the government’s hygienic standards and specifications, the health department may revoke its approval of the blood product, or otherwise limit the use of such blood product. Changes in these laws and regulations, including banning or limiting plasma products, could have a material and adverse effect on our operations, revenues and profitability.

If the biopharmaceutical products we sell are found to be contaminated, our operation, revenues and profitability would be severely and adversely affected and we may be subject to civil and criminal liabilities.

We currently obtain plasma from human donations to our plasma stations in Shandong, Guangxi and Guizhou Provinces. If any of our human donors is infected with diseases, then the plasma from such donor may be infected. Although we pre-screen all donors in order to ensure that they are not infected with HIV and Hepatitis C and have not contracted liver disease, screening tests may fail to identify and exclude from our supply the plasma from infected donors due to technical limitation and human errors. If such contaminated plasma is not appropriately screened out, our entire plasma supply for the relevant plasma station may become contaminated. If the plasma from our collection is found to be contaminated and we sell biopharmaceutical products made from that plasma, we could be subject to civil liability from suits brought by consumers. Further, we may lose our registration and have criminal liability if we are found by the government to have been criminally negligent. If this occurs, our business, prospects, results of operations and financial condition will be materially and adversely affected.

If our supply of quality plasma is interrupted, our results of operations and profitability will be adversely affected.

The production of plasma products relies on the supply of plasma of suitable quality. For the three months ended March 31, 2014 and the years ended December 31, 2013, 2012 and 2011, the cost of plasma we used for production accounted for approximately 78%, 74%, 74% and 67%, respectively, of total production cost. The supply and market prices of plasma may be adversely affected by factors such as heightened or new regulatory restrictions, higher living standards or outbreaks of diseases, any of which would impact our costs of production. We may not be able to pass on any resulting increase in costs to our customers and therefore any substantial fluctuation in supply or market prices of plasma may adversely affect our results of operations and profitability.

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We may not be able to carry on our business if we lose any of the required permits and licenses. Moreover, Huitian has suspended the production at its production facilities for technical upgrade and will apply for a new GMP certificate upon the completion of the upgrade; however, it may not be able to obtain the certificate, which would prevent it from carrying on its business at these facilities and harm our profitability.

We and Huitian are required to obtain from various PRC governmental authorities certain permits and licenses, including permits for pharmaceutical manufacturing and GMP certificates for each of our plants, as well as pharmaceutical distribution permits.

Each of the production facilities operated by us and Huitian is required to obtain a GMP certificate for its pharmaceutical production activities. In February 2011, the China Food and Drug Administration, or CFDA, enacted a new GMP standard, or the New GMP Standard, which has significantly increased standards for quality control, documentation, and overall manufacturing processes that applied to us and each of our production facilities as of December 31, 2013. In order for us to meet the New GMP Standard, we have upgraded the related production facilities of Shandong Taibang and Guizhou Taibang, which obtained the renewed GMP certificates and resumed commercial production of plasma products in June 2013 and March 2014, respectively. However, Huitian suspended its production in late 2013 and is constructing a new production facility to meet the New GMP Standard. The suspension of Huitian’s production may have a negative effect on its business and profitability, which may in turn affect the income we derive from our minority investment in Huitian and materially and adversely affect our financial condition and results of operations.

We have also obtained permits and licenses and GMP certificates required for the manufacturing and sales of our products. Our permits and licenses are subject to periodic renewal and/or reassessment by the relevant PRC governmental authorities, and the compliance standards may be subject to change from time to time. We intend to apply for the renewal of such permits and licenses when required by applicable laws and regulations. However, there is no guarantee that we may renew such permits and licenses in a timely manner, or at all. If we are unable to renew our permits and licenses or failed an inspection which would impair our permits and licenses, our business, prospects, financial condition and results of operations may be materially and adversely affected.

In addition, any changes in compliance standards, or any new laws or regulations that may prohibit or render it more restrictive for us to conduct our business or increase our compliance costs may adversely affect our operations and profitability. For example, we expect our on-going compliance cost to increase under the New GMP Standard as compared to the previous standard. As a result, our business and financial condition may be materially and adversely affected.

We do not have discretion to increase the prices of certain of our products, which are subject to price controls by the PRC government.

Retail prices of certain pharmaceutical products are subject to various regulations. According to the “Regulations on Controlling Blood Products” promulgated by the PRC State Council in 1996, regional offices of the Pricing Bureau and the PRC Ministry of Health have the authority to regulate retail prices for controlled plasma products. In addition, retail prices of pharmaceutical products fully or partially covered under the national insurance system are also subject to retail price ceilings set out in the National (Medical) Insurance Catalog, or the NIC, which may be adjusted by the PRC National Development and Reform Commission, or NDRC, from time to time. The hospitals which are participants of the national insurance program cannot sell the products to patients at prices exceeding such retail price ceilings. In addition, provincial governments often establish a tender price ceiling for products sold to hospitals based on, among other things, regional living standards, cost of production of the manufacturers and the corresponding retail price ceiling. The prices at which we sell directly to hospitals and distributors and the distributor’s wholesale prices cannot exceed the applicable tender price ceiling. Five of our principal products, including human albumin, IVIG, human rabies immunoglobulin, human tetanus immunoglobulin and factor VIII, are included in the NIC and are also subject to tender price ceilings. Two of our principal products, placenta polypeptide and human hepatitis B immunoglobulin, although not included in the NIC, are also subject to tender price ceilings in certain PRC provinces. In addition, NDRC may adjust the retail price ceilings applicable to our

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products from time to time, and any downward adjustment of our product prices implemented by the government may have a negative impact on our results of operations. See “Business — Regulation” for further details.

We do not have discretion to increase the prices we charge our customers and distributors for price-controlled products above the relevant controlled tender price ceiling. Although we may appeal to the local governments for price increases, such increases are only granted on a case-by-case basis and there is no guarantee that we would obtain any such relief. We may not be able to obtain government approval to increase our prices even if the cost of manufacturing our products increases as a result of increases in the cost of raw materials or other costs, and, if we were unable to obtain relief, our revenue and profitability would be adversely affected. If the margin of any of these products becomes prohibitively low, we may stop manufacturing such product, which may further adversely affect our revenue and profitability.

We may fail to obtain, maintain or renew required licenses and permits for our plasma stations. In addition, if we fail to adequately monitor our plasma stations, follow proper procedures or comply with safety requirements, we may be subject to sanctions by the government, civil and criminal liability. Any of these events could have a material and adverse effect on our business, reputation and prospects.

We currently operate ten plasma stations through Shandong Taibang and two plasma stations through Guizhou Taibang. Huitian, a company in which we hold a minority interest, has three plasma stations in Shaanxi Province. To enable growth in our sales, we are seeking opportunities to build more plasma stations. The operation of plasma stations is highly regulated and there is no assurance that we will be able to obtain, maintain and renew the required licenses and permits for existing and new plasma stations in desirable locations or in a timely manner, if at all. For example, we have experienced difficulties and delays in obtaining and/or renewing the business licenses and collection permits for a new plasma station in Pu Bei, Guangxi Province and an existing plasma station in Wei Ning, Guizhou Province, which was eventually closed in August 2011. While we monitor our plasma intake procedures through frequent unscheduled inspections of our stations, there remain risks that our plasma stations may fail to comply with hygiene and procedural requirements for plasma screening, collection, storage and tracking. If we fail to comply with any of these requirements, we may lose our plasma collection permits or incur criminal liability if we are found by the government to have been criminally negligent. In the case of plasma contamination, we may also be subject to civil liability from suits brought by consumers of our biopharmaceutical products. In addition, failure to comply with hygiene and procedural requirements may cause harm to donors, who may contract diseases from other donors, among other things. Any such incident may subject us to government sanctions, civil or criminal liabilities. If any of these events were to occur, our business, reputation and prospects would be materially and adversely affected.

Our operations, sales, profit and cash flow will be adversely affected if our plasma products fail to pass inspection in a timely manner.

The PRC government inspects each batch of our plasma products before we can ship it to our customers. CFDA has quality standards which require the regulators to assess, among other things, the appearance, packing capacity, thermal stability, pH value, protein content and percentage of purity of the product. We must strictly comply with relevant rules and regulations throughout the lifecycle of each product including plasma collection, delivery, production and packaging. Government regulators typically take more than a month to inspect one batch of plasma products. The process begins when the regulator randomly selects samples of our products and delivers them to the PRC National Institute for the Control of Pharmaceutical and Biological Products, or NICBPB, for testing, and the process ends when the products are given final approval by NICBPB. In the event that the regulators delay the approval of or reject our products or change the requirements such that we are unable to comply, our operations, sales, profit and cash flow will be adversely affected.

We face risks relating to general domestic and global economic conditions. Disruptions in the capital and credit markets could adversely affect our results of operations, cash flows and financial condition, or those of our customers, suppliers and creditors.

We currently generate sufficient operating cash flows, which, coupled with access to the credit markets, provide us with significant working capital. However, any uncertainty arising out of domestic and global

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economic conditions, including any disruption in credit markets, may impact our ability to manage normal relationships with our customers, suppliers and creditors and adversely impact our results of operations, cash flows and financial condition, or those of our customers, suppliers and creditors. Disruptions in the capital and credit markets as a result of uncertainty, changing or increased regulation or failures of significant financial institutions could adversely affect our access to capital needed to conduct or expand our business or conduct acquisitions or make other investments. Such disruptions may also adversely impact our customers and suppliers, which, in turn, could adversely affect our results of operations, cash flows and financial condition.

In addition, despite the positive impact of insurance schemes, our products are still not affordable to many patients and fewer patients can afford these products when economic conditions worsen in China. As our economy grows, we expect more Chinese people will become consumers of medical treatments and procedures, including procedures requiring human plasma. However, any potential global economic slowdown may result in slower economic growth in China and an unfavorable economic environment, which in turn may make our products less affordable to more patients and result in an overall decreased demand for our products. Such reductions and disruptions could have a material and adverse effect on our business operations.

If we are unable to obtain additional capital or if we experience any shortage of raw materials in future years, we may be unable to proceed with our long-term business plan and we may be forced to curtail or cease our operations or further business expansion.

We anticipate that we may seek additional working capital to support our long-term business plan, which includes identifying suitable targets for horizontal or vertical mergers or acquisitions, so as to enhance the overall productivity and benefit from economies of scale. Our working capital requirements and the cash flow provided by future operating activities, if any, will vary greatly from quarter to quarter, depending on the volume of business during the period and payment terms with our customers. We may not be able to obtain adequate levels of additional financing, whether through equity financing, debt financing or other sources, especially during times of market contraction. To raise funds, we may need to issue new securities which could result in additional dilution to our stockholders. Additional financings could result in significant dilution to our earnings per share or the issuance of securities with rights superior to our current outstanding securities or that contain covenants that would limit our operations and strategy. If we are unable to raise additional financing, we may be unable to implement our long-term business plan, develop or enhance our products and services, take advantage of future opportunities or respond to competitive pressures on a timely basis. In addition, a lack of additional financing could force us to substantially curtail or cease operations.

In addition, our production volume, capacity utilization and future expansion are affected by the supply of raw materials, especially plasma. If we experience any shortage of plasma supply or fail to secure sufficient plasma supply for our production, we may not be able to fully utilize our production capacity or proceed with our expansion plans.

Our cash flow could be negatively affected as a result of our extension of relatively long payment terms to customers that we believe are credit worthy.

As is customary in our industry, we extend relatively long payment terms (up to six months) to customers that we believe are credit worthy. Our accounts receivable, net of our allowance for doubtful accounts, as of March 31, 2014 and December 31, 2013, 2012 and 2011 were approximately $23.5 million, $17.3 million, $11.2 million and $16.8 million, respectively. Almost all of our accounts receivable are due from hospitals and clinics. Although we attempt to establish appropriate reserves for our receivables, those reserves may not prove to be adequate in view of actual levels of bad debts. The failure of our customers to pay us timely would negatively affect our cash flow and working capital, which could in turn adversely affect our business.

We rely on a Secondment Agreement with the Shandong Institute, which is expected to terminate upon the future privatization of the Shandong Institute, for certain of our employees. If the Secondment Agreement is breached or terminated, it could have an adverse effect on our operations and on our financial results.

The Shandong Institute has provided us with approximately 66 of our employees, including certain key management personnel, out of our total of approximately 1,578 employees as of March 31, 2014, pursuant to a secondment agreement, or Secondment Agreement, dated October 28, 2002, between Shandong Taibang and

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the Shandong Institute. Pursuant to the Secondment Agreement, we are responsible for the salaries of these employees, as well as for their social benefits such as insurance. Our Secondment Agreement with the Shandong Institute will expire on the earlier of October 2032 or the privatization of the Shandong Institute, which was originally expected to occur before the end of 2008. However, the privatization of the Shandong Institute has been delayed indefinitely due to delay by the Shandong Department of Health in implementing the privatization plan. Upon expiration or termination of the Secondment Agreement, we plan to hire the seconded employees directly. However, we cannot assure you that all of the employees will accept our employment offers at that time. Guangli Pang, Shandong Taibang’s chief executive officer is employed through the Secondment Agreement. Although none of our seconded employees have indicated that they do not plan to continue working for us after the privatization, if the Secondment Agreement is terminated or expires and we are unable to hire those employees or their replacements on time, our operations, as well as our financial results, may be materially and adversely affected.

If the distributors on whom we rely do not purchase our products, our business and results of operations will be adversely affected.

We sell a third of our products in China through our network of approximately 113 distributors as of March 31, 2014, located in about 28 provinces, municipalities and autonomous regions throughout China. While we have established working relationships with many of our distributors and strictly regulate their sales and marketing activities by annual distribution agreements, there are no restrictions in these distribution agreements preventing our distributors from also sourcing products produced by our competitors. Our own marketing and sales staff work to develop and maintain relationships with our distributors, but there can be no assurance that we will be able to maintain such relationships. For the three months ended March 31, 2014 and the years ended December 31, 2013, 2012 and 2011, sales to distributors represented approximately 36.0%, 33.2%, 33.6% and 37.2%, respectively, of our total revenues. If a number of our distributors cease to purchase our products and we are unable to find suitable replacements, our business and results of operations will be materially and adversely affected.

Our inability to successfully research and develop new biopharmaceutical products could have an adverse effect on our future growth.

We believe that the successful development of biopharmaceutical products can be affected by many factors. Products that appear to be promising in the early phases of research and development may fail to be commercialized for various reasons, including the failure to obtain the necessary regulatory approvals. In addition, the research and development cycle for any new medicine is a relatively lengthy process. In our experience, the process of conducting research and various tests on new products before obtaining a Certificate of New Medicine from CFDA and subsequent procedures may take approximately three to five years. There is no assurance that our future research and development projects will be successful or that they will be completed within the anticipated time frame or budget. Also, there is no guarantee that we will receive the necessary approvals from relevant authorities for the production of our newly developed products. Even if such products could be successfully commercialized, there is no assurance that they will be accepted by the market as anticipated.

Some of our owned or leased properties have title defects or non-compliance, which could adversely affect our business operations.

Some of our owned or leased properties have title defects or non-compliance. We cannot assure you that we will be able to rectify such defects and non-compliance in a timely manner or at reasonable costs, if at all. In addition, we use properties built on collectively owned rural land for two of our plasma collection stations. Under PRC laws, collectively owned rural land may not be used for commercial purposes and we may be required to vacate and seek other space to house our collection facilities. We plan to construct facilities on a new site and relocate one of the two collection stations. For the other collection station, under the lease agreement for the collectively owned rural land among us, the local government and the economic collective which owns the land, the economic collective is required to assist us in securing legal rights to use such land. If the economic collective fails to perform its obligations under the lease agreement, or the lease agreement is deemed to be void, voidable or otherwise unenforceable, or if ownership disputes or claims regarding the land

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otherwise arise, we may be required to relocate our collection station. Any disputes or claims relating to our owned or leased properties or land or any efforts in securing alternative sites and properties could divert our resources and management’s attention from our regular business operations. In addition, we may not be able to secure alternative sites and properties, if required, in a timely manner or at reasonable costs, which could adversely affect our business operations.

Our financial position and operations may be materially and adversely affected if our product liability insurance does not sufficiently cover our liabilities.

Under current PRC laws, manufacturers and vendors of defective products in the PRC may incur liability for loss and injury caused by such products. Pursuant to the General Principles of the Civil Law of the PRC, or the PRC Civil Law, which became effective in 1987, a defective product which causes property damage or physical injury to any person may subject the manufacturer or vendor of such product to civil liability.

The Product Quality Law of the PRC, or the Product Quality Law, was enacted in 1993 and revised in 2000. The Product Quality Law was enacted to protect the rights and interests of end-users and consumers and to strengthen the supervision and control of the quality of products. Under the Product Quality Law, manufacturers who produce defective products may be subject to fines and production suspension, and in severe cases, be subject to criminal liability and may have their business licenses revoked.

The PRC Law on the Protection of the Rights and Interests of Consumers, or the Consumers’ Rights Law, was enacted in 1993 to further protect the legal rights and interests of consumers in connection with the purchase or use of goods and services. All businesses, including our business, must observe and comply with the Consumers’ Rights Law.

The Tort Liability Law of the PRC was enacted in December 2009, which states that manufacturers are liable for damages caused by defects in their products. If the defects are caused by third parties such as transporters or storekeepers, manufactures may be entitled to claim for compensation from such third parties after paying the compensation amount to the consumer.

We maintain two product liability insurance policies for sales in the PRC for Shandong Taibang and Guizhou Taibang’s products in the amount of RMB20 million (approximately $3.2 million) each. If our products are found to be defective and our insurance coverage is insufficient to cover a successful claim against us, our financial position and operations may be materially and adversely affected.

Product liability claims or product recalls involving our products could have a material and adverse effect on our business.

Our business exposes us to the risk of product liability claims that are inherent in the manufacturing, distribution and sale of plasma products. Plasma is a biological substance that is capable of transmitting viruses and pathogens, whether known or unknown. Therefore, our plasma and plasma products, if not properly collected, tested, pathogen-inactivated, processed, stored or transported, could cause serious disease and possibly death to patients. Further, there are viral and other infections of plasma which may escape detection using current testing methods and which are not susceptible to inactivation methods. Any infection of disease by persons using our products could result in claims against us. Since our establishment in 2002, we have been subject to three lawsuits filed by patients who were treated with our products and received blood and/or plasma transfusions. In two of these cases, we were ordered to contribute a portion of the compensation for the patients even though the courts did not find that our products were defective or caused the patients’ illness. The required contribution by us was immaterial in these two cases. The trial court ruled in favor of us in the third case, which is currently being appealed. We cannot assure you that there will be no future claims against us or that we will always succeed in defending against such claims. Furthermore, the presence of a defect in a product could require us to carry out a recall of such product.

A product liability claim, regardless of merit or eventual outcome, or a product recall could result in substantial financial losses, civil and criminal liabilities, administrative sanctions, revocation of business and product permits and licenses, negative reputational repercussions and an inability to retain customers. If our products are found to be defective and our insurance coverage is insufficient to cover a successful claim against us, our financial position and operations may be materially and adversely affected.

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We are subject to intense competition and may encounter increased competition from both local and overseas pharmaceutical enterprises if PRC regulators relax the approval process for plasma products or international trade restrictions. A change in our competitive environment could adversely affect our profitability and prospects.

We face intense competition from local and foreign entities that manufacture and sell products that compete with ours in the PRC. These competitors may have more capital, better research and development resources, expanded manufacturing and marketing capabilities and more experience than we do. The plasma-based biopharmaceutical manufacturing industry in China is highly regulated, and although we believe that compliance with the regulatory requirements pose a competitive barrier to enter into the Chinese market, over time, however, there may be new entrants. If the government relaxes these restrictions and allows more competitors to enter into the market, these competitors may have more capital, better research and development resources, more manufacturing and marketing capability and experience than us. Our operating results and financial condition may be adversely affected if (i) competition intensifies, (ii) competitors reduce prices to gain market share, or (iii) competitors develop new products having comparable medicinal applications or therapeutic effects which are more effective or less costly than ours.

In addition, we also face competition from imported products. Since 2009, there has been a substantial increase in volume of imported human albumin in China, which competes in domestic human albumin market. In addition, we compete with foreign biopharmaceutical manufacturers that set up production facilities in the PRC and compete directly with us. The increased supply of both domestic and foreign biopharmaceutical products in the PRC may result in lower sales or lower prices for our products. There is no assurance that we will remain competitive or that our profitability and prospects will not be adversely affected.

We depend heavily on key personnel, and turnover of key employees and senior management could harm our business.

Our success, to a certain extent, is attributable to the expertise and experience of our senior management and key research and technical personnel who carry out key functions in our operation. If we lose the service of any of our senior management or key research or technical personnel or fail to attract additional personnel with suitable experience and qualification, our business operations and research capability may be adversely affected.

Future acquisitions may have an adverse effect on our ability to manage our business.

Selective acquisitions form part of our strategy to further expand our business. If we are presented with appropriate opportunities, we may acquire additional companies, products or technologies. Future acquisitions and the subsequent integration of new companies into ours would require significant attention from our management. The diversion of our management’s attention and any difficulties encountered in any integration process could have an adverse effect on our ability to manage our business. Future acquisitions would expose us to potential risks, including risks associated with the integration of new operations, technologies and personnel, unforeseen or hidden liabilities, the diversion of resources from our existing businesses and technologies, the inability to generate sufficient revenue to offset the costs and expenses of acquisitions, and potential loss of, or harm to, relationships with employees, customers and suppliers as a result.

We may lose our competitive advantage and our operations may suffer if we fail to prevent the loss or misappropriation of, or disputes over, our intellectual property or proprietary information.

We regard our intellectual property, particularly our patents and trade secrets, to be of considerable value and importance to our business and our success. We rely on a combination of patent, trademark and trade secret laws, as well as confidentiality agreements to protect our intellectual property rights. Failure to protect our intellectual property rights could harm our brands and our reputation, and adversely affect our ability to compete effectively. Further, enforcing or defending our intellectual property rights, including our patents and trade secrets, could result in the expenditure of significant financial and managerial resources.

As of March 31, 2014, we held 42 issued patents and had 14 pending patent applications in the PRC for certain manufacturing processes and packaging designs. We may not be able to successfully obtain the approval of the PRC authorities for our patent applications. As of March 31, 2014, we also had seven trademarks registered in the PRC.

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While we are not aware of any infringement on our intellectual property and we have not been notified by any third party that we are infringing on their intellectual property, our ability to compete successfully and to achieve future revenue growth will depend, in significant part, on our ability to protect our proprietary technologies and operate without infringing upon the intellectual property rights of others. Policing unauthorized use of proprietary technologies is difficult and expensive. The steps we have taken may not be adequate to prevent unauthorized use of our intellectual property rights.

The legal regime in China for the protection of intellectual property rights is still at its early stage of development. Despite many laws and regulations promulgated and other efforts made by China over the years to tighten up its regulation and protection of intellectual property rights, private parties may not enjoy intellectual property rights in China to the same extent as they would in many Western countries, including the United States, and the enforcement of such laws and regulations in China has not achieved the levels reached in those countries. The administrative agencies and the court system in China are not well-equipped to deal with violations or handle the nuances and complexities between compliant technological innovation and noncompliant infringement.

We also rely on confidentiality agreements with our management and employees to protect our confidential proprietary information. However, the protection of our intellectual property may be compromised as a result of:

Any of these events or occurrences may have a material and adverse effect on our operations.

There can be no assurance that the steps taken by us to protect our intellectual property rights will be adequate or that third parties will not infringe or misappropriate our patents, trademarks, confidential proprietary information or similar proprietary rights. Litigation may be necessary to enforce our intellectual property rights and the outcome of any such litigation may not be in our favor. Given the relative unpredictability of China’s legal system and potential difficulties enforcing a court judgment in China, there is no guarantee that we would be able to halt any unauthorized use of our intellectual property through litigation in a timely manner.

Furthermore, there can be no assurance that other parties will not assert infringement claims against us, and we may have to pursue litigation against other parties to assert our rights. Any such claim or litigation could be costly and we may lack the resources required to defend against such claims. If we are unsuccessful in defending against such infringement claims, we may be required to pay damages, modify our products or suspend the production and sale of such products. We cannot guarantee that we will be able to modify our products on commercially reasonable terms.

Finally, any event that would jeopardize our proprietary rights or any claims of infringement by third parties could have a material and adverse effect on our ability to market or sell our brands, and profitably exploit our products.

A disruption in the supply of utilities, fire or other calamity at our manufacturing plant would disrupt production of our products and adversely affect our sales.

Our products are manufactured at our production facilities located in Tai’an, Shandong Province and Guiyang, Guizhou Province in the PRC. While we have not in the past experienced any calamities which disrupted production, any disruption in the supply of utilities, in particular, electricity or power supply, or any outbreak of fire, flood or other calamity resulting in significant damage at our facilities would severely affect our production and have a material and adverse effect on our business, financial condition and results of operations.

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We maintain insurance policies covering losses with respect to damages to our properties and products. We do not have insurance coverage for inventories of raw materials or business interruption. There is no assurance that our insurance would be sufficient to cover all of our potential losses.

If we do not maintain strong financial controls, investor confidence in us may decline and our stock price may decline as a result.

As required by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring every public company to include a management report on such company’s internal control over financial reporting in its annual report, which must also contain management’s assessment of the effectiveness of our company’s internal control over financial reporting. In addition, the independent registered public accounting firm auditing the financial statements must also attest to the operating effectiveness of our company’s internal controls.

A report of our management and attestation by our independent registered public accounting firm is included in our Annual Report on Form 10-K for the year ended December 31, 2013. Our management has concluded that our internal controls over financial reporting as of December 31, 2013 were effective. We have in the past and may in the future discover material weakness in our internal controls. For example, we identified material weaknesses related to review controls on the accounting for income taxes and derivative instrument valuation as described under Item 9A of our Annual Report on Form 10-K for year ended December 31, 2010, which were subsequently remediated in 2011 as described under Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2011. However, there is no guarantee that these remedies will continue to be effective. Failure to achieve and maintain an effective internal control environment could result in us not being able to accurately report our financial results, prevent or detect fraud or provide timely and reliable financial and other information pursuant to the reporting obligations we have as a public company, which could have a material and adverse effect on our business, financial condition and results of operations. This could reduce investors’ confidence in our reported financial information, which in turn could result in lawsuits being filed against us by our stockholders, otherwise harm our reputation or negatively impact the trading price of our common stock.

A dispute from a minority shareholder of Guizhou Taibang against us, if not resolved in our favor, could result in dilution to our shareholding percentage in Guizhou Taibang.

Guizhou Jie’an Company, or Jie’an, a minority shareholder of Guizhou Taibang, initiated two law suits against Guizhou Taibang in December 2013 in connection with its equity interest in Guizhou Taibang and certain related matters in 2007 and 2013, respectively, both of which are still pending final judgment. See “Item 3 — Legal Proceedings” in our Annual Report on Form 10-K for the year ended December 31, 2013, “Part II — Item 1 — Legal Proceedings” in our Quarterly Report on Form 10-Q for the three months ended March 31, 2014 and “Legal Proceedings” in our Current Report on Form 8-K filed with the SEC on June 6, 2014 for details. If we decide to ratify the approval, or if we are ordered by the court, to register the 1.8 million shares for Jie'an, our ownership interest in Guizhou Taibang may be diluted by 1.46% (i.e., from 54% to 52.54%) and Jie’an may be entitled to receive damages of RMB20.0 million (approximately $3.2 million) (being its pro rata share of Guizhou Taibang’s profits associated with the 1.8 million shares in controversy and interest accrued thereon from the date when Jie’an’s capital contribution would have become effective till December 31, 2013) from Guizhou Taibang. As of March 31, 2014, our company had recorded, in its balance sheet, payables to Jie’an in the amounts of RMB5.0 million (approximately $0.8 million) for funds received in relation to the 1.8 million shares of capital infusion, RMB1.4 million (approximately $0.2 million) for the over-paid subscription and RMB3.0 million (approximately $0.5 million) for the accrued interest. Though we do not expect Jie’an to prevail in these pending litigations, we cannot assure you the final judgment will be in our favor. If Guizhou Taibang is ordered to register the 1.8 million shares for Jie'an, our ownership interest in Guizhou Taibang will be diluted, and our control of Guizhou Taibang and our business may be adversely affected.

Risks Relating to Doing Business in China

Changes in China’s political or economic situation could harm us and our operating results.

Economic reforms adopted by the Chinese government have had a positive effect on the economic development of the country. The reformed economic infrastructure and legal systems, however, may be subject

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to abrupt adjustments by the government. These adjustments, especially in the following areas, could either benefit or damage our operations and profitability:

The Chinese economy differs from the economies of most member countries of the Organization for Economic Cooperation and Development, or the OECD, in many ways. For example, state-owned enterprises still constitute a large portion of the Chinese economy, and weak corporate governance and the lack of a flexible currency exchange policy still prevail in China. As a result of these differences, we may not develop in the same way or at the same rate as might be expected if the Chinese economy was similar to those of the OECD member countries.

Uncertainties with respect to the PRC legal system could limit the legal protections available to you and us.

We conduct substantially all of our business through our operating subsidiaries in the PRC. Our operating subsidiaries are generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws applicable to foreign-invested enterprises. The PRC legal system is based on written statutes, and prior court decisions may be cited for reference but have limited precedential value. Since 1979, a series of new PRC laws and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, since the PRC legal system continues to evolve rapidly, the interpretations of many laws, regulations, and rules are not always uniform, and enforcement of these laws, regulations, and rules involve uncertainties, which may limit legal protections available to you and us. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention. In addition, most of our executive officers and directors are residents of China and not of the United States, and substantially all the assets of these persons are located outside the United States. As a result, it could be difficult for investors to affect service of process in the United States or to enforce a judgment obtained in the United States against our Chinese operations and subsidiary.

You may have difficulty enforcing judgments against us.

Most of our assets are located outside of the United States and most of our current operations are conducted in the PRC. In addition, most of our directors and officers are nationals and residents of countries other than the United States and substantially all the assets of these persons are located outside the United States. As a result, it may be difficult for you to effect service of process within the United States upon these persons. It may also be difficult for you to enforce in U.S. courts judgments on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors.

There is also uncertainty as to whether the courts of the PRC would recognize or enforce judgments of U.S. courts. Our counsel as to PRC law has advised us that although recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law, recognition and enforcement of a foreign judgment by PRC courts depend on treaties or reciprocity between China and the country where the judgment is made. China does not have any treaties or other arrangements with U.S. that provide for the reciprocal recognition and enforcement of U.S. judgments. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates basic principles of PRC law or national sovereignty, security, or the public interest. So it is uncertain whether a PRC court would enforce a judgment rendered by a court in the United States.

The PRC government exerts substantial influence over the manner in which we must conduct our business activities.

The PRC government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, import and export tariffs,

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environmental regulations, land use rights, property, and other matters. We believe that our operations in China are in material compliance with all applicable legal and regulatory requirements. However, the central or local governments of the jurisdictions in which we operate may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations.

Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy and any regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof and could require us to divest ourselves of any interest we then hold in Chinese properties or joint ventures.

Restrictions on currency exchange may limit our ability to receive and use our sales effectively.

Substantially all of our sales are settled in RMB, and any future restrictions on currency exchanges may limit our ability to use revenue generated in RMB to fund any future business activities outside China or other payments in U.S. dollars. Although the Chinese government introduced regulations in 1996 to allow greater convertibility of the RMB for current account transactions, significant restrictions still remain, including primarily the restriction that foreign-invested enterprises may only buy, sell or remit foreign currencies after providing valid commercial documents at those banks in China authorized to conduct foreign exchange business. In addition, conversion of RMB for capital account items, including direct investments and loans, is subject to governmental approval and companies are required to open and maintain separate foreign exchange accounts for capital account items. We cannot be certain that the Chinese regulatory authorities will not impose more stringent restrictions on the convertibility of the RMB.

Fluctuations in exchange rates could adversely affect our business and the value of our securities.

The value of our common stock will be indirectly affected by the foreign exchange rate between the U.S. dollar and RMB and between those currencies and other currencies in which our sales may be denominated. Appreciation or depreciation in the value of the RMB relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations. Fluctuations in the exchange rate will also affect the relative value of any dividends we issue that will be exchanged into U.S. dollars, as well as earnings from, and the value of, any U.S. dollar-denominated investments we make in the future.

Since July 2005, the RMB has no longer been pegged to the U.S. dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future PRC authorities may lift restrictions on fluctuations in the RMB exchange rate and lessen intervention in the foreign exchange market.

Very limited hedging transactions are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions. While we may enter into hedging transactions in the future, the availability and effectiveness of these transactions may be limited, and we may not be able to successfully hedge our exposure at all. In addition, our foreign currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currencies.

Currently, some of our raw materials and major equipment are imported. In addition, we incur interest expense for our U.S. dollar denominated loans. In the event that the U.S. dollars appreciate against RMB, our costs will increase. If we cannot pass the resulting cost increases on to our customers, our profitability and operating results will suffer. In addition, if our sales to international customers grow, we will be increasingly subject to the risk of foreign currency depreciation.

Restrictions under PRC law on our PRC subsidiaries’ ability to make dividends and other distributions could materially and adversely affect our ability to grow, make investments or acquisitions, pay dividends to you and otherwise fund and conduct our business.

Substantially all of our profits are earned by our PRC subsidiaries. However, PRC regulations restrict the ability of our PRC subsidiaries to make dividends and other payments to their offshore parent companies.

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PRC legal restrictions permit payments of dividends by our PRC subsidiaries only out of their accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. Our PRC subsidiaries are also required under PRC laws and regulations to allocate at least 10% of their annual after-tax profits determined in accordance with PRC GAAP to a statutory general reserve fund until the amounts in said fund reaches 50% of their registered capital. Allocations to these statutory reserve funds can only be used for specific purposes and are not transferable to us in the form of loans, advances or cash dividends. Any limitations on the ability of our PRC subsidiaries to transfer funds to us could materially limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends and otherwise fund and conduct our business.

Failure to comply with PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident stockholders to personal liability, limit our ability to acquire PRC companies or to inject capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to distribute profits to us or otherwise materially adversely affect us.

In October 2005, the PRC State Administration of Foreign Exchange, or SAFE, issued the Notice on Relevant Issues in the Foreign Exchange Control over Financing and Return Investment through Special Purpose Companies by Residents Inside China, or Circular 75, which required PRC residents to register with the competent local SAFE branch before establishing or acquiring control over an offshore special purpose company, or SPV, for the purpose of engaging in an equity financing outside of China on the strength of domestic PRC assets originally held by those residents. Amendments to registrations made under Circular 75 are required in connection with any increase or decrease of capital, transfer of shares, mergers and acquisitions, equity investment or creation of any security interest in any assets located in China to guarantee offshore obligations. Failure to comply with the requirements of Circular 75 may result in fines and other penalties under PRC law for evasion of applicable foreign exchange restrictions. Any such failure could also result in the PRC subsidiaries being impeded or prevented from distributing their profits to the SPV’s affiliates outside of China and transmit the proceeds from any reduction in capital, share transfer or liquidation to the SPV, or from engaging in other transfers of funds into or out of China.

We have asked the beneficial holders of our stock who are PRC residents as defined in Circular 75 to register with the relevant branch of SAFE, as currently required, in connection with their equity interests in us and our acquisitions of equity interests in our PRC subsidiaries. However, we cannot provide any assurance that they can obtain the above SAFE registrations required by Circular 75. Moreover, because of uncertainty over how Circular 75 will be interpreted and implemented, and how or whether SAFE will apply it to us, we cannot predict how it will affect our business operations or future strategies. For example, our present and prospective PRC subsidiaries’ ability to conduct foreign exchange activities, such as the remittance of dividends and foreign currency-denominated borrowings, may be subject to compliance with Circular 75 by our PRC resident beneficial holders.

In addition, such PRC residents may not always be able to complete the necessary registration procedures required by Circular 75. We also have little control over either our present or prospective direct or indirect stockholders or the outcome of such registration procedures. A failure by our PRC resident beneficial holders or future PRC resident stockholders to comply with Circular 75 could subject these PRC resident beneficial holders to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our subsidiaries’ ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects.

We may be unable to complete a business combination transaction efficiently or on favorable terms due to complicated merger and acquisition regulations.

In August 2006, six PRC regulatory agencies, including the China Securities Regulatory Commission, or CSRC, promulgated the Regulation on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or Circular 10, which became effective in September 2006 and was amended in June 2009. This regulation, among other things, governs the approval process by which a PRC company may participate in an acquisition of assets or equity interests. Depending on the structure of the transaction, Circular 10 requires the PRC parties to make a series of applications and supplemental applications to the government agencies. In some instances, the application process may require the presentation of economic data concerning a

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transaction, including appraisals of the target business and evaluations of the acquirer, which are designed to allow the government to assess the transaction. Government approvals will have expiration dates by which a transaction must be completed and reported to the government agencies. Compliance with Circular 10 is likely to be more time-consuming and expensive than in the past and the government can now exert more control over the combination of two businesses. Accordingly, due to Circular 10, our ability to engage in business combination transactions has become significantly more complicated, time consuming and expensive, and we may not be able to negotiate a transaction that is acceptable to our stockholders or sufficiently protect their interests in a transaction.

Circular 10 allows PRC government agencies to assess the economic terms of a business combination transaction. Parties to a business combination transaction may have to submit to the PRC Ministry of Commerce, or MOFCOM, and other relevant government agencies an appraisal report, an evaluation report and the acquisition agreement, all of which form part of the application for approval, depending on the structure of the transaction. The regulations also prohibit a transaction at an acquisition price obviously lower than the appraised value of the PRC business or assets and in certain transaction structures, require that consideration must be paid within defined periods, generally not in excess of a year. The regulation also limits our ability to negotiate various terms of the acquisition, including aspects of the initial consideration, contingent consideration, holdback provisions, indemnification provisions and provisions relating to the assumption and allocation of assets and liabilities. Transaction structures involving trusts, nominees and similar entities are prohibited. Therefore, such regulation may impede our ability to negotiate and complete a business combination transaction on financial terms that satisfy our investors and protect our stockholders’ economic interests.

Under the Enterprise Income Tax Law, we may be classified as a “resident enterprise” of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC stockholders.

The Enterprise Income Tax Law, or the EIT Law, and its implementing rules became effective on January 1, 2008. Under the EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. The implementing rules of the EIT Law define de facto management as “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise.

On April 22, 2009, the PRC State Administration of Taxation, or SAT, issued the Notice Concerning Relevant Issues Regarding Cognizance of Chinese Investment Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria of de facto Management Bodies, or the Notice, further interpreting the application of the EIT Law and its implementation on non-Chinese enterprise or group controlled offshore entities. Pursuant to the Notice, an enterprise incorporated in an offshore jurisdiction and controlled by a Chinese enterprise or group will be classified as a “non-domestically incorporated resident enterprise” if (i) its senior management in charge of daily operations reside or perform their duties mainly in China; (ii) its financial or personnel decisions are made or approved by bodies or persons in China; (iii) its substantial assets and properties, accounting books, corporate chops, board and shareholder minutes are kept in China; and (iv) at least half of its directors with voting rights or senior management often resident in China. A resident enterprise would be subject to an enterprise income tax rate of 25% on its worldwide income and must pay a withholding tax at a rate of 10% when paying dividends to its non-PRC shareholders. However, it remains unclear as to whether the Notice is applicable to an offshore enterprise incorporated by a Chinese natural person. Nor are detailed measures on imposition of tax from non-domestically incorporated resident enterprises are available. Therefore, it is unclear how tax authorities will determine tax residency based on the facts of each case.

We may be deemed to be a resident enterprise by Chinese tax authorities. If the PRC tax authorities determine that we are a “resident enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, we may be subject to the enterprise income tax at a rate of 25% on our worldwide taxable income as well as PRC enterprise income tax reporting obligations. In our case, this would mean that income such as interest on financing proceeds and non-China source income would be subject to PRC enterprise income tax at a rate of 25%. Second, although under the EIT Law and its implementing rules dividends paid to us from our PRC subsidiaries would qualify as “tax-exempt income,” we cannot guarantee

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that such dividends will not be subject to a 10% withholding tax, as the PRC foreign exchange control authorities, which enforce the withholding tax, have not yet issued guidance with respect to the processing of outbound remittances to entities that are treated as resident enterprises for PRC enterprise income tax purposes. Finally, it is possible that future guidance issued with respect to the “resident enterprise” classification could result in a situation in which a 10% withholding tax is imposed on dividends we pay to our non-PRC stockholders and with respect to gains derived by our non-PRC stockholders from transferring our shares. Finally, if we were treated as a “resident enterprise” by PRC tax authorities, we would be subject to taxation in both the U.S. and China, and our PRC tax may not be creditable against our U.S. tax. We are actively monitoring the possibility of “resident enterprise” treatment for the 2013 tax year and are evaluating appropriate organizational changes to avoid this treatment, to the extent possible.

We face uncertainty from China’s Circular on Strengthening the Administration of Enterprise Income Tax on Non-Resident Enterprises’ Share Transfer that was released in December 2009 with retroactive effect from January 1, 2008.

SAT released a circular on December 15, 2009 that addresses the transfer of shares by nonresident companies, generally referred to as Circular 698. Circular 698, which is effective retroactively to January 1, 2008, may have a significant impact on many companies that use offshore holding companies to invest in China. Circular 698, which provides parties with a short period of time to comply with its requirements, indirectly taxes foreign companies on gains derived from the indirect sale of a Chinese company. Where a foreign investor indirectly transfers equity interests in a Chinese resident enterprise by selling the shares in an offshore holding company, and the latter is located in a country or jurisdiction where the effective tax burden is less than 12.5% or where the offshore income of his, her, or its residents is not taxable, the foreign investor is required to provide the tax authority in charge of that Chinese resident enterprise with the relevant information within 30 days of the transfers. Moreover, where a foreign investor indirectly transfers equity interests in a Chinese resident enterprise through an abuse of form of organization and there are no reasonable commercial purposes such that the corporate income tax liability is avoided, the PRC tax authority will have the power to re-assess the nature of the equity transfer in accordance with PRC’s “substance-over-form” principle and deny the existence of the offshore holding company that is used for tax planning purposes.

SAT released the Announcement on Several Issues concerning the Administration of Income Tax of Non-tax-resident Enterprises, or Public Notice 24, which went into effect on April 1, 2011, to clarify several issues related to Circular 698. Under Public Notice 24, the term “effective tax” refers to the effective tax on the gain derived from the disposition of equity interests of an overseas holding company; and the term “does not impose income tax” refers to cases where the gain derived from disposition of the equity interests of an overseas holding company is not subject to income tax in the country or region where the overseas holding company is a resident.

There is uncertainty as to the application of Circular 698. For example, while the term “indirectly transfer” is not defined, it is understood that the relevant PRC tax authorities have jurisdiction regarding requests for information over a wide range of foreign entities having no direct link with China. Moreover, the relevant authority has not yet promulgated any formal provisions or formally declared or stated how to calculate the effective tax in the country or jurisdiction and to what extent and the process of the disclosure to the tax authority in charge of that Chinese resident enterprise. In addition, there are not any formal declarations with regard to how to decide “abuse of form of organization” and “reasonable commercial purpose,” which can be utilized by us to balance if our company complies with the Circular 698.

As a result, we may become at risk of being taxed under Circular 698 and we may be required to expend valuable resources to comply with Circular 698 or to establish that we should not be taxed under Circular 698, which could have a material and adverse effect on our financial condition and results of operations.

We may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption laws, and any determination that we violated these laws could have a material and adverse effect on our business.

We are subject to the Foreign Corrupt Practice Act, or FCPA, and other U.S. laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the relevant statute, for the purpose of obtaining or retaining business. We have

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operations, agreements with third parties, and make most of our sales in China. PRC anti-corruption laws also strictly prohibit bribery of government officials. Our activities in China create the risk of unauthorized payments or offers of payments by the employees, consultants, sales agents, or distributors of our company, even though they may not always be subject to our control. It is our policy to implement safeguards to discourage these practices by our employees. However, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants, sales agents, or distributors of our company may engage in conduct for which we might be held responsible. Particularly, most of the hospitals and inoculation centers in China are state-owned entities, which employees may be recognized as foreign government officials for the purpose of FCPA. Therefore, any payments, expensive gifts or other benefits provided to an employee of the state-owned hospital or inoculation center may be deemed violation of FCPA. Violations of FCPA or PRC anti-corruption laws may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, prospects, operating results and financial condition. In addition, the U.S. government may seek to hold our company liable for successor liability under FCPA violations committed by companies in which we invest or that we acquire.

If we become directly subject to the scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm our business operations, stock price and reputation and could result in a loss of your investment in our stock, especially if such matter cannot be addressed and resolved favorably.

In recent years, U.S. public companies that have substantially all of their operations in China, particularly companies like us which have completed the so-called reverse merger transactions, have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered around financial and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese companies has sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits, SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative publicity will have on our company, our business and our stock price. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend our company. This situation will be costly and time consuming and distract our management from growing our company. If such allegations are not proven to be groundless, our company and business operations will be severely impacted and your investment in our stock could be rendered worthless.

The disclosures in our reports and other filings with the SEC and our other public pronouncements are not subject to the scrutiny of any regulatory bodies in the PRC. Accordingly, our public disclosure should be reviewed in light of the fact that no governmental agency that is located in China where substantially all of our operations and business are located have conducted any due diligence on our operations or reviewed or cleared any of our disclosure.

We are regulated by the SEC and our reports and other filings with the SEC are subject to SEC review in accordance with the rules and regulations promulgated by the SEC under the Securities Act and the Exchange Act. Unlike public reporting companies whose operations are located primarily in the United States, however, substantially all of our operations are located in China. Since substantially all of our operations and business takes place in China, it may be more difficult for the Staff of the SEC to overcome the geographic and cultural obstacles that are present when reviewing our disclosure. These same obstacles are not present for similar companies whose operations or business take place entirely or primarily in the United States. Furthermore, our SEC reports and other disclosure and public pronouncements are not subject to the review or scrutiny of any PRC regulatory authority. For example, the disclosure in our SEC reports and other filings are not subject to the review of the CSRC, a PRC regulator that is tasked with oversight of the capital markets in China. Accordingly, you should review our SEC reports, filings and our other public pronouncements with the understanding that no local regulator has done any due diligence on our company and with the understanding

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that none of our SEC reports, other filings or any of our other public pronouncements has been reviewed or otherwise been scrutinized by any local regulator.

The Chinese member firm of the KPMG network, of which our independent registered public accounting firm is also a member, may be temporarily suspended from practicing before the SEC. If a delay in completion of our audit process occurs as a result, we could be unable to timely file certain reports with the SEC, which may lead to the delisting of our stock.

The vast majority of our sales are to customers in China, and we have all of our operations in China. Certain of our independent registered public accounting firm’s audit documentation related to their audit reports included in our annual reports may be located in China, and certain audit procedures may take place within China’s borders. The Public Company Accounting Oversight Board, or the PCAOB, is currently unable to conduct inspections in China or review audit documentation located within China without the approval of Chinese authorities. Like many U.S. companies with significant operations in China, our independent registered public accounting firm may rely on a Chinese member firm for assistance in completing the audit work associated with our operations in China.

On January 22, 2014, Judge Cameron Elliot, an SEC administrative law judge, issued an initial decision suspending the Chinese member firms of the “Big Four” accounting firms, among others, from practicing before the SEC for six months as a result of their failure to provide certain including KPMG documents to the SEC because to do so would violate Chinese law. On February 12, 2014, the accounting firms filed an appeal with the SEC regarding the administrative law judge’s decision. The accounting firms can also further appeal the final decision of the SEC through the federal appellate courts. The decision is not yet effective and will only become effective when and if the SEC endorses it. If the decision goes into effect, the work of our auditors could be delayed and it will be difficult for us to engage qualified independent auditors.

A delay in completion of the audit process could delay the timely filing of our quarterly or Annual Reports with the SEC. A delinquency in our filings with the SEC may result in NASDAQ initiating delisting procedures, which could have a material and adverse effect on our results of operation and financial condition.

Our independent registered public accounting firm’s audit documentation related to their audit reports included in our Annual Report may include audit documentation located in China. PCAOB currently cannot inspect audit documentation located in China and, as such, you may be deprived of the benefits of such inspection.

Our independent registered public accounting firm issued an audit opinion on the financial statements included in our Annual Report filed with the SEC. As auditors of companies that are traded publicly in the United States and a firm registered with the PCAOB, our auditor is required by the laws of the United States to undergo regular inspections by the PCAOB. However, work papers located in China are not currently inspected by the PCAOB because the PCAOB is currently unable to conduct inspections without the approval of the Chinese authorities.

Inspections of certain other firms that the PCAOB has conducted outside of China have identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. However, the PCAOB is currently unable to inspect an auditor’s audit work related to a company’s operations in China and where such documentation of the audit work is located in China. As a result, our investors may be deprived of the benefits of PCAOB’s oversight of our auditors through such inspections.

The inability of the PCAOB to conduct inspections of our auditors’ work papers in China makes it more difficult to evaluate the effectiveness of our auditor’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections. Investors may consequently lose confidence in our reported financial information and procedures and the quality of our financial statements.

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Risks Relating to Our Stock and This Offering

Although publicly traded, the trading market in our common stock has been substantially less liquid than the average trading market for a stock quoted on the NASDAQ Global Select Market and this low trading volume may adversely affect the price of our common stock.

Our common stock is traded on the NASDAQ Global Select Market under the symbol “CBPO.” The trading market in our common stock has been substantially less liquid than the average trading market for companies trading on the NASDAQ Global Select Market. Reported average daily trading volume in our common stock for the three months immediately prior to June 11, 2014, was approximately 27,048 shares. Limited trading volume will subject our shares of common stock to greater price volatility and may make it difficult for you to sell your shares of common stock at a price that is attractive to you.

The market price of our common stock is volatile, leading to the possibility of its value being depressed at a time when you want to sell your holdings.

The market price of our common stock is volatile, and this volatility may continue. Numerous factors, many of which are beyond our control, may cause the market price of our common stock to fluctuate significantly. These factors include, among others:

Securities class action litigation is often instituted against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs to us and divert our management’s attention and resources. Moreover, securities markets may from time to time experience significant price and volume fluctuations for reasons unrelated to operating performance of particular companies. For example, in July 2008, the securities markets in the United States, China and other jurisdictions experienced the largest decline in share prices since September 2001. These market fluctuations may adversely affect the price of our common stock and other interests in our company at a time when you want to sell your interest in us.

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Our stockholder rights plan and provisions in our currently effective certificate of incorporation and bylaws or of Delaware law might discourage, delay or prevent a change of control of our company or changes in our management and, therefore depress the trading price of the common stock.

Upon stockholders’ approval on July 20, 2012, we have adopted amended and restated certificate of incorporation and bylaws, which contained provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the raider and to encourage prospective acquirers to negotiate with our board of directors, rather than to attempt a hostile takeover.

These provisions include, among others:

On November 19, 2012, our board of directors adopted a stockholder rights plan, which provides, among other things, that when specified events occur, our stockholders will be entitled to purchase from us a newly created series of preferred stock. The preferred stock purchase rights are triggered by the earlier to occur of (i) ten business days (or a later date determined by our board of directors before the rights are separated from our common stock) after the public announcement that a person or group has become an “acquiring person” by acquiring beneficial ownership of 10% or more of our outstanding common stock or (ii) ten business days (or a later date determined by our board of directors before the rights are separated from our common stock) after a person or group begins a tender or exchange offer that, if completed, would result in that person or group becoming an acquiring person. The issuance of preferred stock pursuant to the stockholder rights plan would cause substantial dilution to a person or group that attempts to acquire us on terms not approved by our board of directors.

We have submitted to our stockholders for approval at our 2014 annual meeting of stockholders to be held on June 20, 2014 the proposal to amend our bylaws, which, if adopted, will authorize our stockholders who hold 25% of our entire capital stock issued and outstanding and are entitled to vote to call a special meeting of the stockholders.

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We believe these provisions protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with our board of directors and by providing our board of directors with more time to assess any acquisition proposal. These provisions, however, may have the effect of entrenching our management team and may deprive you of the opportunity to sell your shares to potential acquirers at a premium over prevailing prices. This potential inability to obtain a control premium could reduce the price of our common stock.

We do not intend to pay dividends for the foreseeable future.

For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock. Accordingly, investors must be prepared to rely on sales of their common stock after price appreciation to earn an investment return, which may never occur. Investors seeking cash dividends should not purchase our common stock. Any determination to pay dividends in the future will be made at the discretion of our board of directors and will depend on our results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant.

The sale or availability for sale of substantial amounts of our common stock could adversely affect their market price.

Sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could adversely affect the market price of our common stock and could materially impair our future ability to raise capital through offerings of our common stock. As of March 31, 2014, there were 23,419,093 shares of common stock outstanding, and we will offer 1,000,000 shares of common stock from our treasury stock in this offering (or 1,481,875 shares of common stock from our treasury stock if the underwriters exercise their option to purchase additional shares in full).

Subject to certain exceptions described under the caption “Underwriting,” we, our directors and executive officers, the selling stockholders and certain other stockholders have agreed not to offer, sell or agree to sell, directly or indirectly, any shares of our common stock without the permission of the underwriters for 90 days after the date of this prospectus supplement. When the lockup period expires, we and our locked-up security holders will be able to sell shares in the public market. Moreover, the underwriters may, in their discretion, release all or some portion of the shares subject to lock-up agreements prior to the expiration of the applicable lock-up period.

Subject to the applicable restrictions and limitations under Rule 144 of the Securities Act and other than restricted shares that certain stockholders hold, all of our common stock outstanding is eligible for sale in the public market. In addition, holders of a substantial number of shares of our common stock have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for public offering of our securities. If such holders, by exercising their registration rights, cause a large number of securities to be registered and sold into the public market, these sales could have an adverse effect on the market price for our common stock. Moreover, we have contractual obligations to use commercially reasonable effort to include, upon request, up to approximately 2.9 million shares of our common stock in our registration statements that we may file for public offering of our securities. We also have contractual obligations to use commercially reasonable effort to cause the restrictive legend attached to those shares to be removed. Once such restrictive legend is removed, such shares will become eligible for sale in the public market, subject to applicable restrictions and limitations under the securities laws. The stockholder of those shares has recently demanded us to instruct our transfer agent to remove the restrictive legend attached to such shares. We have responded to such demand with explanation and may have further discussion with such stockholder. We cannot assure you that such discussion will result in an amicable conclusion. If the stockholder initiates legal actions against us to seek removal of the restrictive legend or claim damages (if any), we may incur legal costs in defending our company and such dispute may adversely affect the market price for our common stock. Furthermore, we cannot guarantee favorable result in the legal proceedings and we may even be ordered to cause the restrictive legend attached to those shares to be removed. If so, we cannot assure you that those shares will not be sold into the public market.

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This email and any attachments thereto may contain private, confidential, and privileged material for the sole use of the intended recipient. Any review, copying, or distribution of this email (or any attachments thereto) by others is strictly prohibited. If you are not the intended recipient, please contact the sender immediately and permanently delete the original and any copies of this email and any attachments thereto.

We cannot predict the effect, if any, that future sales of shares of our common stock into the market, or the availability of shares of common stock for future sale, will have on the market price of our common stock. Sales of substantial amounts of common stock (including shares issued upon the exercise, conversion or exchange of other securities), or the perception that such sales could occur, may materially and adversely affect prevailing market prices for our common stock.

You must rely on the judgment of our management as to the use of the net proceeds from this offering, and such use may not produce income or increase the price of our common stock.

We intend to use the net proceeds from this offering primarily for general corporate purposes, which may include working capital, capital expenditures and other corporate expenses. In addition, if appropriate opportunities arise to acquire or invest in complementary products, technologies or businesses, we may use a portion of the net proceeds for such acquisition or investment. We will have significant discretion in applying the net proceeds of this offering. Unforeseen events or changed business conditions could result in our applying the net proceeds from this offering in a manner other than as described in this prospectus supplement. You will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. You must rely on the judgment of our management regarding the application of the net proceeds of this offering. The net proceeds may be used for corporate purposes that do not improve our profitability or increase the price of our common stock. The net proceeds from this offering may also be placed in investments that do not produce income or that may lose value.

Stock prices of companies with business operations primarily in China have fluctuated widely in recent years, and the trading prices of our common stock are likely to be volatile, which could result in substantial losses to investors.

The trading prices of our common stock are likely to be volatile and could fluctuate widely in response to factors beyond our control. For example, if one or more of the industry analysts or ratings agencies who cover us downgrades us or our common stock, or publishes unfavorable research about us, the price of our common stock may decline. If one or more of these analysts or agencies cease to cover our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause the price of our common stock or trading volume to decline. In addition, the performance and fluctuation of the market prices of other China-based, U.S.-listed health care companies may affect the volatility in the price of and trading volume for our common stock. In recent years, a number of PRC companies have listed their securities, or are in the process of preparing for listing their securities, on U.S. stock markets. Some of these companies have experienced significant volatility, including significant price declines following their initial public offerings. The trading performances of these PRC companies’ securities at the time of or after their offerings may affect the overall investor sentiment towards PRC companies listed in the United States and consequently may impact the trading performance of our common stock. These broad market and industry factors may significantly affect the market price and volatility of our common stock, regardless of our actual operating performance.

In addition to market and industry factors, the price and trading volume for our common stock may be highly volatile for specific business reasons. Any of these factors may result in large and sudden changes in the volume and price at which our common stock will trade. We cannot give any assurance that these factors will not occur in the future again. In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted securities class action litigation against that company. If we were involved in a class action lawsuit, it could divert the attention of senior management, and, if adversely determined, could have a material and adverse effect on our business, financial condition and results of operations.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus supplement, the accompanying prospectuses and the documents incorporated by reference into these documents contain certain statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. The words “anticipate,” “expect,” “believe,” “goal,” “plan,” “intend,” “estimate,” “project,” “may,” “will,” and similar expressions and variations thereof are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. Those statements appear in this prospectus supplement, the accompanying prospectuses and the documents incorporated herein and therein by reference, particularly in the sections entitled “Prospectus Supplement Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” and include statements regarding the intent, belief or current expectations of our company and management that are subject to known and unknown risks, uncertainties and assumptions and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to those set forth under “Risk Factors” beginning on page S-8 of this prospectus supplement, under Item 1A, “Risk Factors,” in our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q (as amended, as applicable) to the extent not restated herein, and in our future filings made with the SEC.

This prospectus supplement, the accompanying prospectuses and the information incorporated by reference in this prospectus supplement and each accompanying prospectus also contain statements that are based on management’s current expectations and beliefs, including estimates and projections about our company, industry, financial condition, results of operations and other matters. These statements are not guarantees of future performance and are subject to numerous risks, uncertainties, and assumptions that are difficult to predict.

This prospectus supplement contains certain data and information that we obtained from various government, private and commercial sources and publications. Statistical data in these sources and publications also include projections based on a number of assumptions. The plasma products market may not grow at the rate projected by market data, or at all. The failure of this market to grow at the projected rate may have a material and adverse effect on our business and the market price of our common stock. In addition, the rapid development of China’s plasma products market results in significant uncertainties for any projections or estimates relating to the growth prospects or future condition of our market. Furthermore, if any one or more of the assumptions underlying the market data are later found to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements obtained from such government, private and commercial sources and publications.

Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the SEC, we do not plan to publicly update or revise any forward-looking statements contained herein after we distribute this prospectus supplement, whether as a result of any new information, future events or otherwise.

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USE OF PROCEEDS

We estimate the net proceeds from the sale of common stock by us in this offering will be approximately $45.1 million (or approximately $66.8 million if the underwriters’ option to purchase additional shares is exercised in full) after deducting the underwriting discount and estimated offering expenses payable by us. These estimates are based upon an assumed public offering price of $47.37 per share, the closing trading price of our common stock on June 13, 2014.

We will not receive any proceeds from the sale of shares by the selling stockholders.

We intend to use the net proceeds from this offering primarily for general corporate purposes, which may include working capital, capital expenditures and other corporate expenses. In addition, if appropriate opportunities arise to acquire or invest in complementary products, technologies or businesses, we may use a portion of the net proceeds for such acquisition or investment. However, we have no present commitments or agreements to enter into any such acquisitions or investments. The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations and the anticipated growth of our business. As a result, our management will have broad discretion to allocate the net proceeds from this offering. Pending their ultimate use, we intend to invest the net proceeds in short-term, investment-grade, interest-bearing instruments.

MARKET PRICE OF COMMON STOCK

The following table sets forth the high and low trading prices of our common stock on the NASDAQ Global Select Market, for the periods indicated. The last reported sale price of our common stock on the NASDAQ Global Select Market on June 13, 2014 was $47.37 per share.

		Price Per Share
		High				Low
		($)				($)
2012
First Quarter			11.00				8.00
Second Quarter			10.30				7.07
Third Quarter			11.00				8.80
Fourth Quarter			17.18				9.41
2013
First Quarter			31.15				13.07
Second Quarter			28.54				19.10
Third Quarter			29.86				21.86
Fourth Quarter			30.38				26.50
2014
First Quarter			38.60				26.66
Second Quarter (through June 13, 2014)			48.49				33.49

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EXCHANGE RATE INFORMATION

We use U.S. dollars as our reporting currency in our financial statements and in this prospectus supplement. When reporting the operating results and financial position of our PRC subsidiaries, we use the monthly average exchange rate for the year and the exchange rate at the balance sheet date, respectively, as published by OANDA Corporation, an Internet-based currency information provider. In other parts of this prospectus supplement, any RMB denominated amounts are accompanied by translations. With respect to amounts not recorded in our consolidated financial statements included elsewhere in this prospectus supplement, all translations from RMB to U.S. dollars were made at the noon buying rate in the City of New York for cable transfers in RMB per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York. Unless otherwise noted, all translations from RMB to U.S. dollars have been made at RMB6.2471 to $1.00, the noon buying rate in effect as of June 2, 2014. We make no representation that the RMB or U.S. dollar amounts referred to in this prospectus supplement could have been or could be converted into U.S. dollars or RMB, as the case may be, at any particular rate or at all. The PRC government restricts or prohibits the conversion of RMB into foreign currency and foreign currency into RMB for certain types of transactions. On June 6, 2014, the noon buying rate was RMB6.2498 to $1.00.

The following table sets forth information concerning exchange rates between the RMB and the U.S. dollar for the periods indicated. These rates are provided solely for your convenience and are not necessarily the exchange rates that we used in this prospectus supplement or will use in the preparation of any other information to be provided to you.

		Noon buying rate
Period		Period end				Average(1)				High				Low
		(RMB per $1.00)
2009			6.8259				6.8295				6.8176				6.8470
2010			6.6000				6.7696				6.6000				6.8330
2011			6.2939				6.4475				6.2939				6.6364
2012			6.2301				6.2990				6.2221				6.3879
2013			6.0537				6.1478				6.0537				6.2438
December			6.0537				6.0738				6.0537				6.0927
2014
January			6.0590				6.0509				6.0402				6.0600
February			6.1448				6.0816				6.0591				6.1448
March			6.2164				6.1729				6.1183				6.2273
April			6.2591				6.2246				6.1966				6.2591
May			6.2471				6.2380				6.2255				6.2591
June (through June 6, 2014)			6.2498				6.2509				6.2471				6.2548

DIVIDEND POLICY

We have never declared dividends or paid cash dividends. Any future decisions regarding dividends will be made by our board of directors. We currently intend to retain and use any future earnings for the development and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. Our board of directors has complete discretion on whether to pay dividends. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.

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CAPITALIZATION

The following table sets forth our capitalization as of March 31, 2014:

You should read this table together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus supplement and our consolidated financial statements and the related notes appearing in our Quarterly Report on Form 10-Q for the three months ended March 31, 2014, which is incorporated by reference in this prospectus supplement. This table does not include our short-term bank loans (including the current portion of long-term bank loans), which were $34.9 million as of March 31, 2014.

		March 31, 2014
		Actual				As Adjusted
		(U.S. dollars in thousands)
Long-term bank loans, excluding current portion			70,000				70,000
Common stock (par value $0.0001; 100,000,000 shares authorized; 27,398,797 shares issued as of March 31, 2014 and as adjusted; and 23,419,093 shares and 24,419,093 shares outstanding as of March 31, 2014 and as adjusted, respectively)			3				3
Additional paid-in capital			73,219				93,248
Treasury stock: 3,979,704 shares as of March 31, 2014 at cost; and 2,979,704 shares as adjusted			(99,594	)			(74,569	)
Retained earnings			192,018				192,018
Accumulated other comprehensive income			18,963				18,963
Noncontrolling interest			71,383				71,383
Total shareholders’ equity			255,992				301,046
Total capitalization(1)			325,992				371,046

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DILUTION

If you invest in our common stock, your interest will be diluted to the extent of the difference between the amount per share paid by purchasers of shares of common stock in this public offering and the as adjusted net tangible book value per share of our common stock immediately after this offering.

Our net tangible book value as of March 31, 2014 was approximately $182 million, or $7.78 per share of common stock. Net tangible book value per share represents the amount of our total assets of approximately $414 million less our total liabilities of approximately $158 million and noncontrolling interest of approximately $71 million, and less our net intangible assets of approximately $3 million, divided by the shares of common stock outstanding at March 31, 2014. After giving effect to our sale of 1,000,000 shares of common stock in this offering at an assumed public offering price of $47.37 per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us of approximately $2.3 million, our as adjusted net tangible book value as of March 31, 2014 would have been $227 million, or $9.30 per share of common stock. This represents an immediate increase in as adjusted net tangible book value of $1.52 per share to existing stockholders and an immediate dilution of $38.07 per share to new investors.

The following table illustrates this dilution:

Assumed public offering price						$	47.37
Net tangible book value per share as of March 31, 2014		$	7.78
Increase per share attributable to this offering			1.52
As adjusted net tangible book value per share after giving effect to this offering							9.30
Net tangible book value dilution per share to investors in this offering						$	38.07

The foregoing calculations are based on 23,419,093 shares of our common stock outstanding as of March 31, 2014, and exclude:

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following management’s discussion and analysis should be read in conjunction with our financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013 and our Quarterly Report on Form 10-Q for the three months ended March 31, 2014, both of which are incorporated by reference in this prospectus supplement and the accompanying prospectuses. In addition to historical information, the following discussion contains certain forward-looking information. See “Special Note Regarding Forward-Looking Statements” included elsewhere in this prospectus supplement for certain information concerning those forward looking statements. Our financial statements are prepared in U.S. dollars and in accordance with United States generally accepted accounting principles.

Overview

We are a biopharmaceutical company principally engaged in the research, development, manufacturing and sales of plasma products in China. We have a strong product portfolio with over 20 different dosage forms of plasma products. Our principal products are human albumin and IVIG. These products use human plasma as their principal raw material. Sales of human albumin products represented approximately 42.3%, 37.9%, 44.1%, 44.6% and 54.5% of our total sales for the three months ended March 31, 2014 and 2013 and 2013, 2012 and 2011, respectively. Sales of IVIG products represented approximately 36.5%, 47.5%, 38.0%, 39.0% and 32.3% of our total sales for the three months ended March 31, 2014 and 2013 and 2013, 2012 and 2011, respectively. All of our products are prescription medicines administered in the form of injections.

Our sales model focuses on direct sales to hospitals and inoculation centers and is complemented by distributor sales. In 2013, we generated sales of $203.4 million, an increase of 10.0% from 2012, and recorded net income attributable to our company of $54.6 million, an increase of 20.7% from 2012. In the three months ended March 31, 2014, we generated sales of $56.3 million, an increase of 4.1% from the same period in 2013, and recorded net income attributable to our company of $18.3 million, an increase of 22.5% from the same period in 2013.

Principal Factors Affecting our Financial Performance

The following are key factors that affect our financial condition and results of operations and we believe them to be important to the understanding of our business:

Raw Material Supply and Prices

The primary raw material used in the production of our albumin and immunoglobulin products is human plasma. The collection of human plasma in China is generally influenced by a number of factors such as government regulations, geographical locations of plasma collection stations, sanitary conditions of plasma stations, living standards of the donors, and cultural and religious beliefs. If we experience any shortage of plasma supply, we may not be able to fully utilize our production capacity. We currently operate ten plasma collection stations through Shandong Taibang and two plasma stations through Guizhou Taibang. These plasma stations provide us with a stable source of plasma supply.

Prices of and Demand for Our Products

The demand for our products is largely affected by the general economic conditions in China because the prices of our products are still not affordable to many patients. A significant improvement in the economic environment in China will likely improve consumer income which in turn would make our products more affordable and consequently increase the demand for our products. We have been able to expand our product range and consumer base by introducing new products required by customers. We believe that our technical expertise is important in introducing products that are in demand.

Production Capacity

Our sales volume is limited by our annual production capacity. As we grow our business in the future, our ability to fulfill additional and larger orders will depend on our ability to increase our production capacity. Our plan to expand our production capacity will depend on the availability of capital to meet our needs of expansion or upgrading of production lines, and the availability of stable plasma supply. To comply with

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applicable PRC laws and regulations, we have obtained permits and licenses necessary for the current operations of our plasma collection stations and production plants, and are required to apply for such permits and licenses to operate new plasma collection stations and production plants. As a result, our expansion plan also depends on our ability to renew existing permits and licenses and obtain new permits and licenses.

Competition

We face intense competition from local and foreign entities that manufacture and sell products that compete with ours in the PRC. These competitors may have more capital, better research and development resources, expanded manufacturing and marketing capabilities and more experience than we do. In our industry, we compete based upon product quality, product cost, ability to produce a diverse range of products and logistical capabilities.

Our profitability may be adversely affected if (i) competition intensifies; (ii) competitors reduce prices; (iii) PRC government requires us to reduce the prices of our products; or (iv) competitors develop new products or product substitutes with comparable medicinal applications or therapeutic effects which are more effective or less costly than ours. See “Business — Competition” for more information regarding this factor.

Taxation

China Biologic is subject to United States tax at gradual rates of up to 35%. No provision for income taxes in the United States has been made as China Biologic has no U.S. taxable income.

Taibang Biological was incorporated in the BVI, but is not subject to taxation in that jurisdiction.

Taibang Holdings was incorporated in Hong Kong and under the current laws of Hong Kong, are subject to a Profits Tax of 16.5% on profits arising in Hong Kong. However, no provision for Hong Kong Profits Tax has been made as Taibang Holdings has no taxable income.

According to the PRC government policy, new or high technology companies may enjoy preferential tax treatment of 15%, instead of 25% under the EIT Law. In 2011, Shandong Taibang renewed its High and New Technology Enterprise qualification, which entitled it to the preferential income tax rate of 15% from 2011 to 2013. Shandong Taibang expects to reapply for the its High and New Technology Enterprise qualification in the second half of 2014 to continue enjoying the preferential income tax rate of 15% for three years starting from 2014. According to Notice on Issues Concerning Relevant Tax Policies in Deepening the Implantation of the Western Development Strategy jointly promulgated by the PRC Ministry of Finance, the PRC General Administration of Customs and SAT on July 27, 2011, Guizhou Taibang, being a qualified enterprise located in the western region of PRC, enjoys a preferential income tax rate of 15% effective from January 1, 2011 to December 31, 2020. All of our other subsidiaries are subject to the regular 25% income tax rate.

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Results of Operations

The following table sets forth a summary of our consolidated statements of comprehensive income for the periods indicated. Our historical results presented below are not necessarily indicative of the results that may be expected for any other future period.

		Year Ended December 31,																								Three Months Ended March 31,
		2013								2012								2011								2014								2013
		Amount				% of Total Sales				Amount				% of Total Sales				Amount				% of Total Sales				Amount				% of Total Sales				Amount				% of Total Sales
		(U.S. dollars in thousands, except per share data)
Sales			203,357				100.0				184,813				100.0				153,092				100.0				56,267				100.0				54,032				100.0
Cost of sales			65,484				32.2				58,836				31.8				46,018				30.1				17,715				31.5				16,617				30.8
Gross margin			137,873				67.8				125,977				68.2				107,074				69.9				38,552				68.5				37,415				69.2
Operating expenses:
Selling expenses			10,643				5.2				14,421				7.8				14,596				9.5				2,282				4.1				1,836				3.4
General and administrative expenses			36,074				17.7				34,034				18.4				31,520				20.6				7,217				12.8				8,688				16.1
Research and development expenses			4,223				2.1				3,033				1.6				3,978				2.6				1,074				1.9				913				1.7
Impairment loss of goodwill			—				—				—				—				18,160				11.9				—				—				—				—
Loss on abandonment and write off of long-lived assets			—				—				—				—				6,603				4.3				—				—				—				—
Total operating expenses			50,940				25.0				51,488				27.9				74,857				48.9				10,573				18.8				11,437				21.2
Income from operations			86,933				42.7				74,489				40.3				32,217				21.0				27,979				49.7				25,978				48.1
Other income (expenses):
Equity in income of equity method investee			2,170				1.1				2,666				1.4				1,858				1.2				337				0.6				129				0.2
Change in fair value of derivative liabilities			—				—				1,769				1.0				11,976				7.8				—				—				—				—
Interest expense			(1,135	)			(0.6	)			(1,270	)			(0.7	)			(4,671	)			(3.1	)			(621	)			(1.1	)			(236	)			(0.4	)
Interest income			4,433				2.2				2,910				1.6				1,357				0.9				1,596				2.8				648				1.2
Other income (expenses), net			—				—				571				0.3				(454	)			(0.3	)			—				—				—				—
Total other income, net			5,468				2.7				6,646				3.6				10,066				6.6				1,312				2.3				541				1.0
Earnings before income tax expense			92,401				45.4				81,135				43.9				42,283				27.6				29,291				52.1				26,519				49.1
Income tax expense			15,540				7.6				15,163				8.2				10,900				7.1				5,338				9.5				4,607				8.5
Net income			76,861				37.8				65,972				35.7				31,383				20.5				23,953				42.6				21,912				40.6
Less: Net income attributable to non-controlling interest			22,259				10.9				20,750				11.2				13,201				8.6				5,679				10.1				6,996				12.9
Net income attributable to company			54,602				26.9				45,222				24.5				18,182				11.9				18,274				32.5				14,916				27.6
Net income per share of common stock
Basic			2.05								1.73								0.73								0.72								0.55
Diluted			1.96								1.62								0.37								0.69								0.53

Comparison of Three Months Ended March 31, 2014 and 2013

Sales

Our sales increased by $2.3 million, or 4.1%, to $56.3 million for the three months ended March 31, 2014, compared to $54.0 million for the same period in 2013. The increase was due primarily to the increase in sales by Shandong Taibang, partially offset by the reduced sales volume as a result of the planned production suspension of Guizhou Taibang during this period. The increased sales by Shandong Taibang were attributable to a combined effect of price and volume increases of certain plasma products. On the other hand, Guizhou Taibang reduced the sales volume of its plasma products to address the impact of the reduced production volume and maintain its sales channels and customer relationships during the period of production suspension. Guizhou Taibang suspended its production in June 2013 for GMP upgrades and did not resume operations until March 2014. In addition, foreign exchange translation accounted for 2.6% of the sales increase.

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The following table summarizes the components of our of sales by product type:

		Three Months Ended March 31,																Change
		2014								2013
		Amount				%				Amount				%				Amount				%
		(U.S. dollars in thousands)
Human albumin			23,781				42.3				20,501				37.9				3,280				16.0
Immunoglobulin products:
IVIG			20,530				36.5				25,662				47.5				(5,132	)			(20.0	)
Other immunoglobulin products			8,283				14.7				5,100				9.5				3,183				62.4
Placenta polypeptide			2,627				4.7				2,184				4.0				443				20.3
Others			1,046				1.8				585				1.1				461				78.8
Total			56,267				100.0				54,032				100.0				2,235				4.1

During the three months ended March 31, 2014 as compared to the three months ended March 31, 2013:

The price increase of human albumin products was due to the impact of a higher retail price ceiling announced by NDRC that became effective on February 1, 2013. This increased retail price ceiling provided us with more flexibility in pricing our human albumin products and allowed us to increase our ex-factory prices in certain regional markets. The price decrease of IVIG products, excluding the foreign exchange translation effect, was mainly attributable to the increased sales in tier one cities through distributors with lower markup. To improve brand recognition in the three months ended March 31, 2014, we increased our market share in tier one cities through distributors by lowering sale prices, resulting in a decline on the average sales price.

The sales volume of our products depends on market demand and our production volume. The production volume of our human albumin products depends on the plasma supply. The production volume of our IVIG products depends primarily on the plasma supply and secondarily on our allocation of production capacity among various human immunoglobulin products, which include IVIG and other hyper-immune products. The production volume of our hyper-immune products, which include human rabies immunoglobulin, human hepatitis B immunoglobulin and human tetanus immunoglobulin products, is subject to the availability of specific vaccinated plasma and our production capacity. The supply of specific vaccinated plasma requires several months of lead time. Our production facility currently can only accommodate the production of one type of hyper-immune products at any given time and we rotate the production of different types of hyper-immune products from time to time in response to market demand. As such, the sales volume of any given type of hyper-immune products may vary significantly from quarter to quarter. Depending on the market demand and profit margins of IVIG products and hyper-immune products at any given period, we also adjust the production volume of IVIG products from time to time to optimize our product mix.

The sales volume of our human albumin products increased by 10.3% in the three months ended March 31, 2014 as compared to the same period in 2013. The increase in sales volume of human albumin products was primarily due to increased sales volume by Shandong Taibang, partially offset by reduced sales volume as a result of the planned production suspension of Guizhou Taibang during the three months ended March 31, 2014. The increase of the sales volume was in line with the increase of the market demand for domestic human albumin as a result of the decreased importation in the three months ended March 31, 2014. The sales volume of our IVIG products decreased by 20.7% in the three months ended March 31, 2014 as compared to

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the same period in 2013. The decrease in sales volume of IVIG was primarily due to the reduced production volume as a result of the planned production suspension of Guizhou Taibang during this period. Shandong Taibang increased the production of human rabies immunoglobulin products with comparatively higher gross margin and thus reduced the production of IVIG products for the three months ended March 31, 2014.

The increased sales of other immunoglobulin products in the three months ended March 31, 2014 as compared to the same period in 2013 was mainly attributable to the increase in sales volume of human rabies immunoglobulin products, partially offset by the decrease in sales volume of human tetanus immunoglobulin products. The increase in sales volume of human rabies immunoglobulin was primarily a result of increased production volume during this period. We increased the supply of rabies vaccinated plasma and expanded production of that product in Shandong Taibang starting in the second half of 2013. The improvements on production yield as a result of our research and development efforts also contributed to the increase of production volume. For the three months ended March 31, 2014, we increased our sales of human rabies immunoglobulin products by $5.2 million as compared to the same period in 2013. The decrease in sales volume of human tetanus immunoglobulin products was primarily a result of the planned production suspension of Guizhou Taibang during this period.

The sales increase of other products in the three months ended March 31, 2014 as compared to the same period in 2013 was mainly attributable to the ramp-up of human coagulation factor VIII (200IU) in Shandong Taibang, which was launched in October 2012.

Cost of sales and gross profit

		Three Months Ended March 31,								Change
		2014				2013				Amount				%
		(U.S. dollars in thousands)
Cost of sales			17,715				16,617				1,098				6.6	%
as a percentage of total sales			31.5	%			30.8	%							0.7	%
Gross profit			38,552				37,415				1,137				3.0	%
Gross margin			68.5	%			69.2	%							(0.7	)%

Our cost of sales was $17.7 million, or 31.5% of our sales for the three months ended March 31, 2014, as compared to $16.6 million, or 30.8% of our sales for the same period in 2013. Our gross profit was $38.6 million and $37.4 million for the three months ended March 31, 2014 and 2013, respectively, representing gross margins of 68.5% and 69.2%, respectively. Our cost of sales and gross margin are affected by the volume and pricing of our sold products, raw material costs, production mix and respective yields, inventory provisions, production cycles and routine maintenance costs.

The increase in cost of sales in the three month ended March 31, 2014 as compared to the same period in 2013 was largely in line with the increases in sales volume and cost of plasma. In an effort to increase plasma collection volume and expand our donor base, we increased nutrition fees paid to donors consistent with the industry practice. We expected the nutrition fees to be paid to donors continue to increase as a result of improving living standards in China. Consequently, future improvements on margins will need to be derived from increases in product pricing and volume, product mix, yields and manufacturing efficiency. The increase in cost of sales as a percentage of sales in the three month ended March 31, 2014 as compared to the same period in 2013 was mainly due to the increase in cost of plasma partially offset by the change of our product mix to include products with higher margins.

Operating expenses

		Three Months Ended March 31,								Change
		2014				2013				Amount				%
		(U.S. dollars in thousands)
Operating expenses			10,573				11,437				(864	)			(7.6	)%
as a percentage of total sales			18.8	%			21.2	%							(2.4	)%

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Our total operating expenses decreased by $0.8 million, or 7.6%, to $10.6 million for the three months ended March 31, 2014, from $11.4 million for the same period in 2013. As a percentage of sales, total expenses decreased by 2.4% to 18.8% for the three months ended March 31, 2014, from 21.2% for the same period in 2013. The decrease of the total operating expenses was mainly due to the decrease of the general and administrative expenses as discussed below.

Selling expenses

		Three Months Ended March 31,								Change
		2014				2013				Amount				%
		(U.S. dollars in thousands)
Selling expenses			2,282				1,836				446				24.3	%
as a percentage of total sales			4.1	%			3.4	%							0.7	%

Our selling expenses increased by $0.5 million, or 24.3%, to $2.3 million for the three months ended March 31, 2014, from $1.8 million for the same period in 2013. As a percentage of sales, our selling expenses for the three months ended March 31, 2014 increased by 0.7% to 4.1%, from 3.4% for the same period in 2013. The increase was mainly due to the increased sales of placenta polypeptide with comparatively higher selling expenses for the first quarter of 2014 as compared to the same period in 2013.

General and administrative expenses

		Three Months Ended March 31,								Change
		2014				2013				Amount				%
		(U.S. dollars in thousands)
General and administrative expenses			7,217				8,688				(1,471	)			(16.9	)%
as a percentage of total sales			12.8	%			16.1	%							(3.3	)%

Our general and administrative expenses decreased by $1.5 million, or 16.9%, to $7.2 million for the three months ended March 31, 2014, from $8.7 million for the same period in 2013. General and administrative expenses as a percentage of sales decreased by 3.3% to 12.8% for the three months ended March 31, 2014, from 16.1% for the same period in 2013. The decrease in general and administrative expenses was mainly due to a decrease of share-based compensation for the three months ended March 31, 2014 as compared to the same period of 2013. In addition, we incurred amortization expenses in the first quarter of 2013 in relation to the acquisition of GMP certificates when we acquired Guizhou Taibang in 2008. Because intangible assets had been fully amortized by the end of 2013, we did not incur the corresponding expenses in the three months ended March 31, 2014.

Research and development expenses

		Three Months Ended March 31,								Change
		2014				2013				Amount				%
		(U.S. dollars in thousands)
Research and development expenses			1,074				913				161				17.6	%
as a percentage of total sales			1.9	%			1.7	%							0.2	%

Our research and development expenses increased by $0.2 million, or 17.6%, to $1.1 million for the three months ended March 31, 2014, from $0.9 million for the same period in 2013. As a percentage of sales, our research and development expenses for the three months ended March 31, 2014 and 2013 were 1.9% and 1.7%, respectively. The increase in research and development expenses was mainly due to the expenditure paid for certain clinical trial programs and the engagement of external experts for certain pipeline products during the three months ended March 31, 2014.

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Income tax

		Three Months Ended March 31,								Change
		2014				2013				Amount				%
		(U.S. dollars in thousands)
Income tax			5,338				4,607			$	731				15.9	%
as a percentage of total sales			9.5	%			8.5	%							1.0	%

Our provision for income taxes increased by $0.7 million, or 15.9%, to $5.3 million for the three months ended March 31, 2014, from $4.6 million for the same period in 2013. Our effective income tax rates were 18.2% and 17.4% for the three months ended March 31, 2014 and 2013, respectively. The difference between our effective income tax rate and the tax rate of 15% applicable to our major operating subsidiaries in the PRC was primarily due to the withholding income tax expenses accrued on Shandong Taibang’s net income for the three months ended March 31, 2014 as a result of its dividend policy.

Comparison of 2013 and 2012

Sales

Our total sales increased by 10.0%, or $18.6 million, to $203.4 million for 2013, compared to $184.8 million for 2012. The increase in sales during 2013 was primarily attributable to a mix of price and volume increases in certain of our plasma based products. In addition, foreign exchange translation accounted for 2.0% of the sales increase.

The following table summarizes the components of our sales by product type:

		Years Ended December 31,																Change
		2013								2012
		Amount				%				Amount				%				Amount				%
		(U.S. dollars in thousands)
Human albumin			89,672				44.1				82,451				44.6				7,221				8.8
Immunoglobulin products:
IVIG			77,342				38.0				72,005				39.0				5,337				7.4
Other immunoglobulin products			19,683				9.7				19,378				10.5				305				1.6
Placenta polypeptide			12,151				6.0				10,089				5.5				2,062				20.4
Others			4,509				2.2				890				0.4				3,619				406.6
Total			203,357				100.0				184,813				100.0				18,544				10.0

For 2013 as compared to 2012:

The price increase of human albumin products was due to the impact of a higher retail price ceiling announced by NDRC that became effective on February 1, 2013. This increased retail price ceiling provides us with more flexibility in pricing our human albumin products and allows us to increase our ex-factory prices in certain regional markets. NDRC also reduced the retail price ceilings for IVIG effective in October 2012, and the ceilings were lower than the prevailing market prices in some of our regional markets. As a result, some of local governments revised tender price ceilings for IVIG products. We sought approval from local governments for favorable pricing policies in selective regional markets and successfully gained support from certain provincial governments in lifting the tender price ceilings for IVIG products. Therefore, the average price of our IVIG products remained relatively stable in 2013 as compared to 2012.

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Sales volume for our human albumin products decreased by 1.2% in 2013 as compared to 2012. The decrease in sales volume of human albumin products was primarily due to the production suspension in Guizhou Taibang that commenced in June 2013. Sales volume for our IVIG products increased by 6.0% in 2013 as compared to 2012. In early 2013, we strengthened our marketing efforts for IVIG and also engaged new distributors to sell IVIG in new territories. Consequently, we experienced a 65.0% growth in IVIG sales volume for the first quarter of 2013 as compared to the same quarter in 2012. However, the growth in IVIG sales was partially offset by the impact of production suspension of Guizhou Taibang’s plasma production facility.

For 2013 as compared to 2012, the increased sales of other products was mainly attributable to Shandong Taibang’s newly-launched human coagulation factor VIII (200IU), which accounted for 2.1% of our total sales in 2013.

Cost of sales and gross profit

		Years Ended December 31,								Change
		2013				2012				Amount				%
		(U.S. dollars in thousands)
Cost of sales			65,484				58,836				6,648				11.3	%
as a percentage of total sales			32.2	%			31.8	%							0.4	%
Gross profit			137,873				125,977				11,896				9.4	%
Gross margin			67.8	%			68.2	%							(0.4	)%

Our total cost of sales was $65.5 million, or 32.2% of our sales, for 2013, as compared to $58.8 million, or 31.8% of our sales for 2012. Our gross profit was $137.9 million and $126.0 million for 2013 and 2012, respectively, representing gross margins of 67.8% and 68.2%, respectively. Our cost of sales and gross margin were impacted by the volume and pricing of our finished products, our raw material costs, production mix and respective yields, inventory provisions, production cycles and routine maintenance costs.

The increase in cost of sales as a percentage of sales and the decrease of gross margin were mainly due to the increase in cost of plasma, which was the largest component of our cost of sales. In an effort to increase plasma collection volume and expand our donor base, we increased nutrition fees paid to donors in 2013 consistent with the industry practice.

Operating expenses

		Years Ended December 31,								Change
		2013				2012				Amount				%
		(U.S. dollars in thousands)
Operating expenses			50,940				51,488				(548	)			(1.1	)%
as a percentage of total sales			25.0	%			27.9	%							(2.9	)%

Our total operating expenses decreased by $0.6 million, or 1.1%, to $50.9 million for 2013, from $51.5 million for 2012. As a percentage of total sales, total expenses decreased by 2.9% to 25.0% for 2013 from 27.9% for 2012. The decrease of the total operating expenses was primarily due to the decrease of the selling expenses, partially offset by the increase of the general and administrative expenses.

Selling expenses

		Years Ended December 31,								Change
		2013				2012				Amount				%
		(U.S. dollars in thousands)
Selling expenses			10,643				14,421				(3,778	)			(26.2	)%
as a percentage of total sales			5.2	%			7.8	%							(2.6	)%

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For 2013, our selling expenses decreased by $3.8 million, or 26.2%, to $10.6 million, from $14.4 million for 2012. As a percentage of total sales, our selling expenses for 2013 decreased by 2.6% to 5.2% from 7.8% for 2012. The decrease was mainly due to more stringent control on selling expenses implemented in the second half of 2012.

General and administrative expenses

		Years Ended December 31,								Change
		2013				2012				Amount				%
		(U.S. dollars in thousands)
General and administrative expenses			36,074				34,034				2,040				6.0	%
as a percentage of total sales			17.7	%			18.4	%							(0.7	)%

For 2013, our general and administrative expenses increased by $2.1 million, or 6.0%, to $36.1 million, from $34.0 million for 2012. General and administrative expenses as a percentage of total sales decreased by 0.7% to 17.7% for 2013 from 18.4% for 2012. The increase in general and administrative expenses was mainly due to an increase in expenses related to payroll and employee benefits as a result of general salary increases, and an increase in nonrecurring legal expenses.

Research and development expenses

		Years Ended December 31,								Change
		2013				2012				Amount				%
		(U.S. dollars in thousands)
Research and development expenses			4,223				3,033				1,190				39.3	%
as a percentage of total sales			2.1	%			1.6	%							0.5	%

For 2013, our research and development expenses increased by $1.2 million, or 39.3%, to $4.2 million, from $3.0 million for 2012. As a percentage of total sales, our research and development expenses increased by 0.5% to 2.1% for 2013 from 1.6% for 2012. The increase of research and development expenses was primarily due to certain technical support services we engaged to improve the production yields on certain hyper-immune products during 2013. In addition, we started the clinical trial program on human fibrinogen in 2013.

Change in fair value of derivative liabilities

		Years Ended December 31,								Change
		2013				2012				Amount				%
		(U.S. dollars in thousands)
Change in fair value of derivative liabilities			—				1,769				(1,769	)			(100.0	)%
as a percentage of total sales			—				1.0	%							(1.0	)%

Our warrants issued in June 2009 are classified as derivative liabilities carried at fair value. For 2013 and 2012, we recognized a gain from the change in fair value of derivative liabilities in the amounts of nil and $1.8 million, respectively. The recognized gain from the change in the fair value of derivative liabilities for 2012 was mainly due to a decrease in the price of our common stock from $10.46 per share as of December 31, 2011 to $8.55 and $9.22, respectively, as of the two warrants exercise dates. All warrants were exercised in full by the end of June 2012.

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Interest income

		Years Ended December 31,								Change
		2013				2012				Amount				%
		(U.S. dollars in thousands)
Interest income			4,433				2,910				1,523				52.3	%
as a percentage of total sales			2.2	%			1.6	%							0.6	%

Our interest income increased by $1.5 million, or 52.3%, to $4.4 million for 2013, from $2.9 million for 2012. The increase in interest income was primarily due to our investment in certain short-term financial products with higher interest rates as well as the increase in our total cash deposits.

Income tax expense

		Years Ended December 31,								Change
		2013				2012				Amount				%
		(U.S. dollars in thousands)
Income tax expense			15,540				15,163				377				2.5	%
Effective income tax rate			16.8	%			18.7	%							1.9	%

Our provision for income taxes increased by $0.3 million, or 2.5%, to $15.5 million for 2013, from $15.2 million for 2012. Our effective income tax rates were 16.8% and 18.7% for 2013 and 2012, respectively. Tax rate applicable to our major operating subsidiaries in the PRC for 2012 and 2013 was 15%. The decrease of the effective income tax rate was mainly attributable to the decrease of the dividend withholding income tax with respect to Shandong Taibang.

Comparison of 2012 and 2011

Sales

Our total sales increased by 20.7%, or $31.7 million, to $184.8 million for 2012, compared to $153.1 million for 2011. The increase in sales during 2012 was primarily attributable to a mix of price and volume increases in certain of our plasma based products as well as substantial increase in sales of placenta polypeptide products. In addition, foreign exchange translation accounted for 2.8% of the sales increase.

The following table summarizes the breakdown of sales by major types of products:

		Years Ended December 31,																Change
		2012								2011
		Amount				%				Amount				%				Amount				%
		(U.S. dollars in thousands)
Human albumin			82,451				44.6				83,434				54.5				(983	)			(1.2	)
Immunoglobulin products:
IVIG			72,005				39.0				49,483				32.3				22,522				45.5
Other immunoglobulin products			19,378				10.5				16,669				10.9				2,709				16.3
Placenta polypeptide			10,089				5.5				1,935				1.3				8,154				421.3
Others			890				0.4				1,571				1.0				(681	)			(43.3	)
Total			184,813				100.0				153,092				100.0				31,721				20.7

We increased the prices of all of our approved plasma based products, which increases ranged from approximately 8.9% to 30.7%, except for human hepatitis B immunoglobulin products, which decreased by approximately 45.0%. For 2012 as compared to 2011, the average price for our approved human albumin products, which contributed 44.6% to our total sales, increased by approximately 8.9% and, excluding the foreign exchange translation effect, their average price in RMB terms increased by approximately 6.3%; the average price for our approved IVIG products, which contributed 39.0% to our total sales, increased by approximately 8.9%, and excluding the foreign exchange translation effect, their average price in RMB terms

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increased by approximately 6.4%. The general price increase of our human albumin products and immunoglobulin products other than human hepatitis B immunoglobulin products was primarily attributable to the shortage in supply of such products in 2012 as a result of the closure of several plasma collection stations in Guizhou in 2011. The price decrease of human hepatitis B immunoglobulin products was primarily due to the government program sponsored by the PRC Ministry of Health with respect to these products in late 2011. The sales prices of participating products in this program were generally lower than normal retail prices for public interest purposes.

Sales volume for our human albumin products decreased by 9.2% in 2012 as compared to 2011. The decrease in sales volume of human albumin products was primarily due to the decrease in the volume of the product produced as a result of the reduced raw material supply from the closure of several plasma collection stations in Guizhou. Sales volume for our IVIG products increased by 33.6% in 2012 as compared to 2011. The increase in sales volume of IVIG products was primarily due to the increased market demand. The market demand for IVIG products increased due to its wide utilization for the prevention and treatment of more diseases in 2012, which was in line with the medical practice in Europe and the United States.

Sales of placenta polypeptide products increased substantially in 2012 as compared to 2011. We began manufacturing and selling placenta polypeptide products in December 2011. Prior to December 2011, we provided processing service for Guizhou Eakan Co., Ltd., or Eakan, an affiliate of one of Guizhou Taibang’s non-controlling interest holders, for placenta polypeptide products. The revenue we derived from the sales of placenta polypeptide products is substantially higher than the processing fees we previously charged Eakan for these products.

Cost of sales and gross profit

		Years Ended December 31,								Change
		2012				2011				Amount				%
		(U.S. dollars in thousands)
Cost of sales			58,836				46,018				12,818				27.9	%
as a percentage of total sales			31.8	%			30.1	%							1.7	%
Gross profit			125,977				107,074				18,903				17.7	%
Gross margin			68.2	%			69.9	%							(1.7	)%

Our total cost of sales was $58.8 million, or 31.8% of our sales, for 2012, as compared to $46.0 million, or 30.1% of our sales for 2011. Our gross profit was $126.0 million and $107.1 million for 2012 and 2011, respectively, representing gross margins of 68.2% and 69.9%, respectively. The increase in cost of sales was largely in line with the increase in sales volume. The increase in cost of sales as a percentage of sales and the decrease of gross margin were mainly due to the increase in the cost of plasma paid to donors, which is the largest component of our cost of sales. In an effort to increase plasma collection volume and expand our donor base, we increased the nutrition fees paid to donors in 2012 as compared to 2011, consistent with the industry practice.

Operating expenses

		Years Ended December 31,								Change
		2012				2011				Amount				%
		(U.S. dollars in thousands)
Operating expenses			51,488				74,857				(23,369	)			(31.2	)%
as a percentage of total sales			27.9	%			48.9	%							(21.0	)%

Our total operating expenses decreased by $23.4 million, or 31.2%, to $51.5 million for 2012, from $74.9 million for 2011. We incurred an impairment loss of $24.8 million in 2011, including both an impairment of goodwill and the abandonment of long-lived assets as a result of the closure of several plasma collection stations in Guizhou in August 2011. No impairment loss was recorded for 2012. As a percentage of total sales, total expenses decreased by 21.0% to 27.9% for 2012 from 48.9% for 2011.

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Selling expenses

		Years Ended December 31,								Change
		2012				2011				Amount				%
		(U.S. dollars in thousands)
Selling expenses			14,421				14,596				(175	)			(1.2	)%
as a percentage of total sales			7.8	%			9.5	%							(1.7	)%

For 2012, our selling expenses decreased by $0.2 million, or 1.2%, to $14.4 million, from $14.6 million for 2011. As a percentage of total sales, our selling expenses for 2012 decreased by 1.7%, to 7.8%, from 9.5% for 2011. We took initiative to further control the selling expenses for 2012. The aforementioned factors contributed to the decrease in selling expenses as a percentage of sales for 2012.

General and administrative expenses

		Years Ended December 31,								Change
		2012				2011				Amount				%
		(U.S. dollars in thousands)
General and administrative expenses			34,034				31,520				2,514				(8.0	)%
as a percentage of total sales			18.4	%			20.6	%							(2.2	)%

For 2012, our general and administrative expenses increased by $2.5 million, or 8.0%, to $34.0 million, from $31.5 million for 2011. General and administrative expenses as a percentage of total sales decreased by 2.2% to 18.4% for 2012 from 20.6% for 2011. The increase in general and administrative expenses was mainly due to an increase in expenses related to payroll and employee benefits as a result of general salary increases and an increase in legal expenses relating to the disputes among the shareholders of Guizhou Taibang. The decrease in general and administrative expenses as a percentage of sales was primarily due to improvement of cost efficiency as a result of the economies of the scale.

Research and development expenses

		Years Ended December 31,								Change
		2012				2011				Amount				%
		(U.S. dollars in thousands)
Research and development expenses			3,033				3,978				(945	)			(23.8	)%
as a percentage of total sales			1.6	%			2.6	%							(1.0	)%

For 2012, our research and development expenses decreased by $1.0 million, or 23.8%, to $3.0 million, from $4.0 million for 2011. As a percentage of total sales, our research and development expenses decreased by 1.0% to 1.6% for 2012 from 2.6% for 2011. The decrease in research and development expenses was primarily due to the completion of the research and development tests on our factor VIII products in early 2012.

Impairment loss of goodwill

		Years Ended December 31,								Change
		2012				2011				Amount				%
		(U.S. dollars in thousands)
Impairment loss of goodwill			—				18,160				(18,160	)			(100.0	)%
as a percentage of total sales			—				11.9	%							(11.9	)%

Following the closure of plasma collection stations of Guizhou Taibang due to regulatory requirements, we revised our earnings guidance for 2011 and experienced incremental decline in our stock price and market capitalization in the third quarter of 2011. The occurrence of these events caused us to believe that the fair value of our reporting unit would more likely than not be below its book value. Therefore, we performed a two-step goodwill impairment test and concluded that, for 2011, a goodwill impairment loss of $18.2 million was recognized in our single reporting unit since the carrying amount of the reporting unit was greater than

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the fair value of the reporting unit (as determined based on the quoted market price) and the carrying amount of the reporting unit goodwill exceeded the implied fair value of that goodwill. No impairment of goodwill was recorded in 2012.

Loss on abandonment and write-off of long-lived assets

		Years Ended December 31,								Change
		2012				2011				Amount				%
		(U.S. dollars in thousands)
Loss on abandonment and write off of long-lived assets			—				6,603				(6,603	)			(100.0	)%
as a percentage of total sales			—				4.3	%							(4.3	)%

As a result of the closure of the plasma stations of Guizhou Taibang in 2011, certain equipment, office furniture, building improvement and plasma collection permits were abandoned or written off during the third quarter of 2011. We recognized a loss on abandonment of Guizhou Taibang’s long-lived assets of $6.6 million for 2011. We did not record any loss on abandonment in 2012.

Change in fair value of derivative liabilities

		Years Ended December 31,								Change
		2012				2011				Amount				%
		(U.S. dollars in thousands)
Change in fair value of derivative liabilities			1,769				11,976				(10,207	)			(85.2	)%
as a percentage of total sales			1.0	%			7.8	%							(6.8	)%

We issued warrants in June 2009 that were classified as derivative liabilities carried at fair value. For 2012, we recognized a gain of $1.8 million from the change in the fair value of derivative liabilities, as compared to a gain of $12.0 million for 2011. The gain from the change in the fair value of derivative liabilities in 2012 was mainly due to a decrease in the price of our common stock from $10.46 per share as of December 31, 2011 to $9.22 per share upon the exercise of the warrants on June 6, 2012. All warrants were exercised by the end of 2012.

Interest expense

		Years Ended December 31,								Change
		2012				2011				Amount				%
		(U.S. dollars in thousands)
Interest expense			1,270				4,671				(3,401	)			(72.8	)%
as a percentage of total sales			0.7	%			3.1	%							(2.4	)%

Our interest expense decreased by $3.4 million, or 72.8%, to $1.3 million for 2012, from $4.7 million for 2011. The decrease in interest expense was primarily due to the decrease of the average loan balances for 2012 as compared to 2011.

Interest income

		Years Ended December 31,								Change
		2012				2011				Amount				%
		(U.S. dollars in thousands)
Interest income			2,910				1,357				1,553				114.4	%
as a percentage of total sales			1.6	%			0.9	%							0.7	%

Our interest income increased by $1.5 million, or 114.4%, to $2.9 million for 2012, from $1.4 million for 2011. The increase in interest income is primarily due to our investment in certain short-term financial products with higher interest rates as well as the increase in our total cash deposit.

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Income tax expense

		Years Ended December 31,								Change
		2012				2011				Amount				%
		(U.S. dollars in thousands)
Income tax expense			15,163				10,900				4,263				39.1	%
Effective income tax rate			18.7	%			25.8	%							(7.1	)%

Our provision for income taxes increased by $4.3 million, or 39.1%, to $15.2 million for 2012, from $10.9 million for 2011. Our effective income tax rates were 18.7% and 25.8% for 2012 and 2011, respectively. The decrease of the effective income tax rate was mainly attributable to the effect of the non-deductible impairment loss of goodwill and loss on abandonment and write-off of long-lived assets recorded in 2011.

Liquidity and Capital Resources

To date, we have financed our operations primarily through cash flows from operations, augmented by bank borrowings and equity contributions by our stockholders. As of March 31, 2014, we had $77.5 million in cash and cash equivalents, primarily consisting of cash on hand and demand deposits.

The following table sets forth a summary of our cash flows for the periods indicated:

		Years Ended December 31,												Three Months Ended March 31,
		2013				2014				2011				2014				2013
		(U.S. dollars in thousands)
Net cash provided by operating activities			74,303				71,097				38,470				11,515				22,030
Net cash provided by (used in) investing activities			(25,568	)			(26,753	)			(7,127	)			950				(5,777	)
Net cash used in financing activities			(38,525	)			(5,104	)			(10,077	)			(78,238	)			(7,732	)
Effects of exchange rate change in cash			4,319				957				3,204				(817	)			580
Net (decrease) increase in cash and cash equivalents			14,529				40,197				24,470				(66,590	)			9,101
Cash and cash equivalents at beginning of the year			129,609				89,412				64,942				144,138				129,609
Cash and cash equivalents at end of the year			144,138				129,609				89,412				77,548				138,710

Operating Activities

Net cash provided by operating activities for the three months ended March 31, 2014 was $11.5 million, as compared to $22.0 million for the same period in 2013. The decrease in net cash provided by operating activities was mainly due to the increase of accounts receivable and inventories and the decrease of advances from customers for the three months ended March 31, 2014. The increase in accounts receivable was $6.4 million, as compared to $3.3 million in the same period of 2013, which was primarily due to the delay in our shipment of, and customers’ payments for, certain batches of products during the three months ended March 31, 2014. This delay was the result of postponed inspection and approval by National Institutes for Food and Drug Control on such products. The increase in inventories was $2.9 million for the three months ended March 31, 2014, as compared to $0.6 million in the same period of 2013, mainly attributable to the increase of raw materials due to the continued supply of plasma, our primary raw material, by plasma stations of Guizhou Taibang while the production of plasma products at Guizhou Taibang had been suspended since June 2013. The decrease of advances from customers was $1.4 million for the three months ended March 31, 2014, as compared to the increase of $1.5 million in the same period of 2013. This decrease was primarily due to a lump sum prepayment made by certain distributors in the three months ended December 31, 2013 for certain immunoglobulin products. A portion of these products were delivered during the three months ended March 31, 2014, upon which the prepayment was recognized as sales.

Net cash provided by operating activities was $74.3 million for 2013, as compared to $71.1 million and $38.5 million for 2012 and 2011, respectively. For 2013, 2012 and 2011, our net income was $76.9 million, $66.0 million and $31.4 million, respectively.

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Our net non-cash operating expense was $10.4 million, $11.1 million and $24.9 million, respectively, for 2013, 2012 and 2011. Among the non-cash operating items, our depreciation and amortization expense was $7.5 million, $8.9 million and $7.6 million, respectively, our stock compensation expense was $5.1 million, $4.5 million and $4.9 million, respectively, the amortization of discount on convertible notes was nil, nil and $3.5 million, respectively, and our income from change in fair value of derivative liabilities was nil, $1.8 million and $12.0 million, respectively, for 2013, 2012 and 2011. Additionally, the impairment loss for goodwill and loss on abandonment and write-off of long-lived assets totaled nil, nil and $24.8 million, respectively, for 2013, 2012 and 2011.

We had a net cash outflow of working capital of $12.9 million, $5.9 million and $17.8 million for 2013, 2012 and 2011, respectively. Among these cash outflows, the increase in inventory for 2013, 2012 and 2011 were $10.4 million, $3.8 million and $17.1 million, respectively. As compared to 2012, the increase of inventories was mainly attributable to increase of raw materials due to the continued supply of plasma, our primary raw material, by plasma stations of Guizhou Taibang while the production of plasma products at Guizhou Taibang were suspended beginning in June 2013. The increase in accounts receivable for 2013 was $5.7 million. Such increase was in line with the expansion of our sales during this period. Although we incurred higher accounts receivable balance, the accounts receivable turnover days decreased slightly from 28 days in 2012 to 26 days in 2013. The decrease in accounts receivable for 2012 was $5.7 million, which was mainly due to measures we took to speed up the collection of the accounts receivable. The increase in accounts receivable for 2011 was $6.1 million. As we increased our direct sales to hospitals and inoculation centers that have longer credit terms in 2011, we experienced a slower turn-over with our accounts receivable during the period.

Investing Activities

Our use of cash for investing activities is primarily for the acquisition of property, plant and equipment and intangibles, and purchase of time deposits.

Net cash provided by investing activities for the three months ended March 31, 2014 was $0.9 million, as compared to net cash used in investing activities of $5.8 million for the same period in 2013. During the three months ended March 31, 2014, we received a refund of deposit of $1.6 million from the local government due to the decrease in the size of a parcel of land to be granted to us in Guizhou. Further, we received $6.6 million upon the maturity of a time deposit. We paid $7.5 million for the acquisition of property, plant and equipment, and land use right for Shandong Taibang and Guizhou Taibang during the three months ended March 31, 2014. During the three months ended March 31, 2013, we paid $5.8 million for the acquisition of property, plant and equipment, intangible assets and land use right at Shandong Taibang and Guizhou Taibang.

Net cash used in investing activities for 2013 was $25.6 million, as compared to $26.8 million and $7.1 million for 2012 and 2011, respectively. The investing activities for 2013 mainly consisted of construction of new production facility for factor VIII at Shandong Taibang, office premise at Shandong Taibang, and upgrade of production facilities of placenta polypeptide and plasma based products at Guizhou Taibang. We paid $20.5 million for acquisition of property, plant and equipment at Shandong Taibang and Guizhou Taibang in connection with these investing activities in 2013. In 2012 and 2011, we paid $13.9 million and $8.0 million, respectively, for construction and acquisition of property, plant and equipment, and acquisition of intangible assets and land use right for Shandong Taibang and Guizhou Taibang. In addition, we made a refundable payment of $13.3 million to the local government in connection with our bid for a land use right in Guizhou Province in 2012, of which $2.1 million was refunded to us by the end of 2013 due to the decrease of the land size to be provided by the local government. Further, Guizhou Taibang made a time deposit of $6.6 million in 2013 at an interest rate higher than that in 2012.

Financing Activities

Net cash used in financing activities for the three months ended March 31, 2014 was $78.2 million, as compared to $7.7 million for the same period in 2013. The net cash used in financing activities for the three months ended March 31, 2014 mainly consisted of a payment of $70.0 million for share repurchase, a deposit of $72.1 million as cash collateral for certain long-term bank loans, a repayment of $4.9 million on a short-term bank loan, and a dividend of $1.4 million paid by our subsidiaries to the noncontrolling interest shareholders, partially offset by proceeds of $70.0 million from certain long-term bank loans. The net cash

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used in financing activities for the three months ended March 31, 2013 was mainly due to a repayment of $3.2 million on a short-term bank loan and a dividend of $4.4 million paid by our subsidiaries to the noncontrolling interest shareholders.

Net cash used in financing activities for 2013 was $38.5 million, as compared to $5.1 million and $10.1 million for 2012 and 2011, respectively. The net cash used in financing activities in 2013 mainly consisted of a payment of $29.6 million for the repurchase of our shares and a dividend payment of $17.0 million by our subsidiaries to the noncontrolling interest shareholders, partially offset by proceeds of $5.4 million from the exercise of the stock options and contribution of $2.9 million from a noncontrolling interest shareholder. The net cash used in financing activities in 2012 was mainly due to a $14.3 million repayment of short-term bank loans and a dividend payment of $7.1 million by our subsidiaries to a noncontrolling interest shareholder, partly offset by cash provided by new short-term loans of $11.1 million and proceeds from the exercises of stock option and warrants totaling $5.2 million. The net cash used in financing activities in 2011 was mainly attributable to a dividend payment of $10.5 million by our subsidiaries to the non-controlling interest shareholders, payment for acquisition of noncontrolling interest of $7.6 million, repayment of short-term bank loan of $10.8 million, partly offset by short-term bank loans of $18.6 million and proceeds of $0.3 million from exercise of stock option.

Management believes that our company has sufficient cash on hand and continuing positive cash inflow from the sale of its plasma products in the PRC market for its operations.

Obligations under Material Contracts

The following table sets forth our material contractual obligations as of December 31, 2013:

		Payments Due by Period
Contractual Obligations		Total				Less than one year				One to three years				Three to five years				More than five years
		(U.S. dollars in thousands)
Short-term bank loans			9,822				9,822				—				—				—
Long-term bank loans			30,000				—				30,000				—				—
Interest on short-term and long-term bank loans			1,238				1,158				80				—				—
Operating lease commitment			1,204				473				547				12				172
Capital commitment			4,620				4,173				447				—				—
Total			46,884				15,626				31,074				12				172

Seasonality of our Sales

Our operating results and operating cash flows historically have not been subject to seasonal variations. This pattern may change, however, as a result of new market opportunities or new product introductions.

Inflation

Inflation does not materially affect our business or the results of our operations.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our investors.

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Critical Accounting Policies

The preparation of financial statements in conformity with United States generally accepted accounting principles, or U.S. GAAP, requires our management to make assumptions, estimates and judgments that affect the amounts reported in the financial statements, including the notes thereto, and related disclosures of commitments and contingencies, if any. We consider our critical accounting policies to be those that require the more significant judgments and estimates in the preparation of financial statements, including the following:

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of fixed assets; the allowance for doubtful accounts; the fair value determinations of financial and equity instruments and the valuation of share-based compensation, assets acquired and liabilities assumed in a business combination, deferred tax assets and inventories; the recoverability of goodwill, intangible asset, land use right and property, plant and equipment; and reserves for income tax uncertainties and other contingencies. The current economic environment has increased the degree of uncertainty inherent in those estimates and assumptions.

Revenue Recognition

Revenue represents the invoiced value of products sold, net of value added taxes, or VAT.

We recognize revenue when persuasive evidence of an arrangement exists, delivery of the product has occurred and the customer takes ownership and assumes risk of loss, the sales price is fixed or determinable and collection of the relevant receivable is probable. We primarily sell human albumin and human immunoglobulin to hospitals, inoculation centers and pharmaceutical distributors. For all sales, our company requires a signed contract or purchase order which specify pricing, quantity and product specifications. Delivery of the product occurs when customer receives the product, which is when the risks and rewards of ownership have been transferred. Delivery is evidenced by signed customer acknowledgement. Our sales agreements do not provide the customer the right of return, unless the product is defective in which case our company allows for an exchange of product or return. For the periods presented, defective product returns were immaterial.

Fair Value Measurements

We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. We determine fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

The fair value measurement level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

TABLE OF CONTENTS

The fair values of the warrants that were exercised on June 6 and June 4, 2012, and outstanding as of December 31, 2011 were determined based on the Binominal option pricing model, using the following key assumptions:

		June 6, 2012				June 4, 2012				December 31, 2011
Expected dividend yield			0	%			0	%			0	%
Risk-free interest rate			0.05	%			0.04	%			0.05	%
Time to maturity (in years)			—				—				0.43
Expected volatility			47.4	%			37.3	%			80.0	%
Fair value of underlying common shares (per share)		$	9.22			$	8.55			$	10.46

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on trade accounts receivable are included in net cash provided by operating activities in the consolidated statements of cash flows. We maintain an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses, the customers’ financial condition, the amount of accounts receivable in dispute, the accounts receivable aging and customers’ payment patterns. We review our allowance for doubtful accounts monthly. Past due balances are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. We do not have any off-balance-sheet credit exposure related to our customers.

We generally ask our distributors to pay in advance before we deliver products, with few exceptions for a credit period of no longer than 30 days. For hospitals and clinics, depending on the relationship and the creditability, we generally grant a credit period of no longer than 90 days with exceptions to customers, which we believe are credit worthy, of up to six months. We have provided a bad debt allowance of $0.03 million for 2013. Due to recovery of bad debt that we previously provided an allowance, the decrease in valuation allowance of bad debt was $1,904 and $19,611, respectively, for 2012 and 2011.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined using the weighted average method. Cost of work in progress and finished goods comprise direct materials, direct production costs and an allocation of production overheads based on normal operating capacity. Adjustments are recorded to write down the carrying amount of any obsolete and excess inventory to its estimated net realizable value based on historical and forecasted demand.

We review the inventory periodically for possible obsolete goods and cost in excess of net realizable value to determine if any reserves are necessary. For 2011, we wrote off $0.3 million relating to obsolete plasma that may not qualify for production due to the 90-day quarantine period rules implemented by CFDA.

Share-based Compensation

We measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award and recognizes the cost over the period during which an employee is required to provide service in exchange for the award, which generally is the vesting period.

The fair value of options granted for 2013, 2012 and 2011 are estimated on the respective dates of grant using the Black-Scholes option pricing model with the following major assumptions:

		Years Ended December 31,
		2013				2012				2011
Expected volatility			104.00	%			104.00	%			69.43	%
Expected dividends yield			0	%			0	%			0	%
Expected term (in years)			5.38				6.01				5.00
Risk-free interest rate			0.72	%			0.82	%			1.92	%
Fair value of underlying common stock (per share)		$	10.48			$	9.61			$	15.28