Shares of China Biologic Products (NASDAQ: CBPO), a biopharmaceutical company focused on developing plasma-based products, fell sharply after the company announced plans to sell over 3 million shares of common stock, but it has recovered nicely during the following weeks. Here is what you need to know about this stock.

Earnings lull in focus

The latest offering followed a lackluster earnings performance in Q1 2014. Total sales of the company's plasma-based products only increased 4.1% to $56.3 million from $54.0 million in the same quarter of 2013. While there remains a strong market demand for such products, namely IVIG, as reflected in the 12% increase per year from 1984 to 2008, performance was hindered as a result of the productions suspension of the Guizhou facility. The suspension occured because China Biologic initiated construction of a new production facility, which it anticipated to be delayed due to slower-than-expected approval of its land use rights. Consequently, the company saw a 37% decrease in sales at Guizhou, falling in line with its internal forecast. However, earnings still improved despite the sales decrease.

Competition in the space 
In the hemophilia market, China Biologic competes with several large biopharmaceutical companies on the basis of product quality, cost synergies, product portfolio and logistical capabilities. In particular, Novo Nordisk (NVO) and Baxter International (BAX) are significant competitors. For instance, Novo Nordisk's NovoEight, which was approved in the U.S. in October 2013 and in the EU in November 2013, is a recombinant Factor VIII replacement therapy for hemophilia A patients. Complimentary to NovoEight, the company also markets NovoSeven and NovoThirteen, bolstering its hemophilia franchise.

On the other hand, Baxter's ADVATE for hemophilia A continues to acquire significant market share internationally. The company recently received authorization of a new manufacturing facility in Singapore to support production of recombinant proteins, including ADVATE and possibly BAX 855, if and when it receives regulatory approval. Further, the National Blood Authority (NBA) issued a four-year award for ADVATE as Australia's preferred recombinant FVIII product. Once it becomes effective on July 1, 2014, it will grant 2,300 people diagnosed with hemophilia A access to ADVATE. Recent efforts by Baxter to expand its commercial presence in the UK for the treatment of 5,600 people with hemophilia A compliment this achievement.

Fortunately for China Biologic Products, it has an advantage over the above companies because of its firm grip on the Chinese market. With respect to domestic competition, China Biologic is the market leader of plasma-based Factor VIII. I expect the company will continue to benefit from increasing demand for plasma-based products.

It is important to note that by no means is China a small market opportunity. Currently, it is estimated that the nation has 100,000 hemophilia patients, with only 10% of patients actually registered and treated in 40 registered hospitals, representing a $2.5 billion market opportunity through 2015. As China Biologic continues to raise awareness of its products among patients and physicians in China, it should see a favorable boost in domestic demand.

As a matter of fact, China Biologic has already seen a 12% rise in total sales of its immunoglobulin products, compared to 2% in the same quarter last year. This was accompanied by a 21% year-over-year increase in total sales of Factor VIII. Combined with its other plasma-based products, the company generated approximately $204 million in sales in 2013.

Of course, global sales of Novo Nordisk's and Baxter's plasma-based products eclipse those of China Biologic, bringing in more than $1.7 billion and $1.4 billion last year, respectively. However, both companies have yet to make significant inroads in China, where Baxter only received approval for ADVATE earlier this year, and Novo has yet to bring a hemophilia product to the market.

An extensive pipeline bolsters potential growth 
Despite the recent decline, shares are up around 81% this year, and I suspect China Biologics has favorable prospects for continued growth. As its plasma-based products continue to acquire more share of the $2.5 billion market in China, its valuation should rise accordingly. In addition, investors and analysts are optimistic about the value potential of China Biologic's extensive pipeline. Human Coagulation Factor VIII, Human Prothrombin Complex Concentrate and Human Hepatitis B Immunoglobullin are all in late-stage clinical development. If successful in clinic, these products are immediately expected to bolster earnings as commercial production is planned for later this year.

Final thoughts

Of course, the company will continue to burn cash in the meantime as it advances these important clinical products, but the offering should alleviate any concern regarding its capacity to fund such programs. Further, the Chinese market represents a significant opportunity for China Biologic, and I suspect that it will sustain the upper hand over its international competitors during the foreseeable future.