INVESTOR PRESENTATION April 2014
Forward Looking Statements Certain statements in this presentation may be deemed forward-looking statements" within the meaning of federal securities laws. The matters discussed herein that are forward-looking statements are based on current management expectations that involve risks and uncertainties that may result in such expectations not being realized. Forward-looking statements involve risks and uncertainties that may cause actual results, performance or financial condition to be materially different from the expectations of future results, performance or financial condition expressed or implied in any forward-looking statements. Such risks include, but are not limited to, competition in the veterinary bio-pharmaceutical industry, declines in demand for the Company s products, rising raw materials costs, changes to management or key personnel, risks associated with conducting business in China, the Company s ability to realize revenue opportunity at the Huxian Facility, as anticipated, or at the currently being constructed Kunshan Facility, the Company s ability to expand into markets outside of China and other risks detailed in the Company s filings with the Securities and Exchange Commission. Actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements due to numerous potential risks and uncertainties. Forward-looking statements made during this presentation speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this presentation. Because forward-looking statements are subject to risks and uncertainties, we caution you not to place undue reliance on any forward-looking statements. All written or oral forward-looking statements by the Company or persons acting on its behalf are qualified by these cautionary statements. 2
Company Snapshot Skystar Bio-Pharmaceutical Company Exchange/Ticker NASDAQ: SKBI Stock Price (4-24-2014) $6.30 Shares Outstanding 7.6M Market Cap $47.9M P/E (LTM) 5.73 Revenues: FY2013 / Q4 13 $42.48M / $9.62M (unaudited) EPS: FY2013 / Q4 13 $1.37 / $0.36 (unaudited) Fiscal 2014 Revenue Guidance $46.0M - $50.0M 3
Overview Headquartered in Xi an, Shaanxi Province, China with over 300 employees Engaged in: R&D Manufacturing Sales & Distribution of veterinary drugs and animal health products in China Skystar is a proxy to: China s domestic consumption habits Animal husbandry space Skystar is the only US-listed China animal health sector pure play 4
Focus on Five Major Product Lines Skystar services China s animal husbandry industry across the 29 farming provinces Provides a complimentary product suite for farmers consisting of: Veterinary vaccines Veterinary medicines Probiotics (microorganisms) Animal feed additives and Aquaculture vaccines (fish farming) 5
Facilities Skystar s facilities and processes are China Good Manufacturing Practice ( GMP ) certified by the Ministry of Agriculture (MOA) as conforming to strict government standards 5 year renewable operating licenses 100+ drugs and associated formularies 6
Distribution and Customer Base 2,893 distribution agents 1,122 direct customers 360 franchised stores with exclusivity agreements Distribution to all 29 farming provinces in China (As of December, 2013) 7
Government Policy Initiatives China s 12th Five Year Plan calls for an explicit consolidation of animal farms to scale (further reducing the number of backyard farmers) with a target of 92 percent or more of poultry farms, 50 percent of pig farms and 38 percent of dairy farms reaching that target by 2015 The definition of scale for is 2,000+ chickens; 50+ pigs. Various Chinese documents refer to farms with a 100 or more cows as scale 8
Market Indicators The market scale of China s animal vaccine production reached CNY 10.22 billion/usd 1.65 billion in 2013 2014: Global Meat Trade Chicken consumption topped 13 million tons in 2012 China s meat consumption topped 71 million tons in 2011 feeding 1.35 billion citizens Pork accounts for 3/4 of all meat consumption with half of the world s pigs consumed in China Source: USDA In 2000-74% of all pig farms had 50 animals or less; in 2010, 50% of all pig farms were considered medium sized with 3,000 animals or less *Source: Institute for Agriculture and Trade Policy 9
Market Indicators China s output from aquaculture is the largest in the world and accounts for about 67% of the world s total production The global market for aquaculture was valued at USD 135.10 billion in 2012 and is expected to reach USD 195.13 billion in 2019, (Transparency Market Research) The global production of aquaculture was 66 million tons in 2012 and is expected to grow at a CAGR of 2.3% from 2013 to 2019 *Source: China s fishery yearbook and FAO of the United Nations 10
International Standards China s MOA since 2004 has imposed strict GMP certification standards In 2011, the MOA imposed stricter standards for manufacturing and inspection of animal drugs and vaccine facilities Since 2004, out of the 2,400 drug manufacturers only 1,300 have met the GMP standard 11
Products Veterinary vaccines Active and inactive vaccines to prevent sickness and disease in poultry and livestock Veterinary medicines Probiotic micro-organisms Animal feed additives Aquaculture products Skystar s complementary product lines reflects a business model that addresses key segments of the animal farming industry and allows the Company to capture more market share 12
Revenues By Product Offering FY2013 Revenues - $42.5M Feed Additives 4% MicroOrganisms 32% Veterinary Medicines 60% Veterinary Vaccines 4% FY2013 revenues increased 26.5% year over year 13
Production Facilities The Company currently has four manufacturing facilities Two of them are located in Xi an city, Shaanxi Province, China, of which one site is located in the town of Sanqiao and the other site is located in the town of Huxian The third manufacturing facility is located in Songzi, Jingzhou City, Hubei Province, China and the fourth manufacturing facility is located in Kunshan, Jiangsu Province, China 14
Facility Completion Status Description Approx. Size Status The Sanqiao Plant Micro-organism facility Feed additive facility 21,500 sq. ft. 10,700 sq. ft. Complete Complete 45,200 sq. ft. 36,600 sq. ft. 10,400 sq. ft Complete Complete Complete 48,800 sq. ft. Complete 10,700 sq. ft. Complete The Jingzhou Plant GMP standard veterinary medicine facility and warehouse Administration building, dorm and other 39,095 sq. ft. 24,122 sq. ft. Complete Complete The Kunshan Plant Micro-organism manufacturing facility Boiler room Administration building 35,654 sq. ft. 6,712 sq. ft. 39,443 sq. ft. In progress Complete Complete The Huxian Plant GMP standard veterinary medicine facility Quality control, research and development, and administration building Warehouse GMP standard bio-pharmaceutical facility with the production lines for active bacteria, inactivated vaccines, coccidiosis vaccines and aquaculture vaccines. Animal laboratory complying with Animal Bio-safety Level 2 (ABSL-2) requirements 15
R&D Facility #1 Xi an R&D Facilities 20+ researchers responsible for developing new medicines and vaccines to prepare and respond to epidemics, pandemics and diseases Veterinary Medicine and Microorganism Labs One Quality Inspection Center 16
R&D Facility #2 Shanghai R&D Facilities Researchers from the Chinese Academy of Agricultural Sciences Responsible for evaluating and implementing manufacturing and medical technology around China and around the world Responsible for evaluating and implementing short-term and long-term planning for future medications and vaccines 17
Research Affiliations University research affiliations include: Shaanxi Microbial Research Institute Jiangsu Microbial Research Institute China Northwestern University China Northwest Agriculture and Forestry University Fourth Military Medical University 18
R&D: Bringing Products to Market 2 Issued and 2 Pending Vaccine Patents Using both Traditional Chinese Medicine and modern Western approaches (i.e. antibiotics) to develop treatments such as kits used to treat Swine High-Fever Syndrome (BlueEar Disease) Long-term goal to reduce dependence on pre-payment of raw materials to maintain gross margin by introducing new high margin premium products to market in the near term 19
Sales and Technical Support Training and technical support at trade shows, fairs and exhibitions Training for animal husbandry experts are provided at the local level Training seminars for local farmers in the usage of Skystar products 20
Competitive Landscape Largest competitors are State-owned Enterprises Government is supportive of a free market in this niche Majority of competitors only offer 1-2 product lines and broad shotgun approach to treatments High barriers of entry for international competitors 21
Growth Strategy Huxian Manufacturing Facility in X ian Received GMP approval in Dec 2013 to begin production of vaccines in our 151,700 sq. ft. facility This new facility represents a nearly 1,000% increase in manufacturing capacity of our vaccine product line Our Vaccine manufacturing, at full capacity, represents an additional revenue opportunity of $12M - $15M annually Allows us to begin production of our new Aquaculture product line Our Aquaculture manufacturing, at full capacity, represents an additional revenue opportunity of $8M - $15M annually Marks our entrance into the fast growing and emerging Aquaculture health industry Kunshan Manufacturing Facility Complete build-out of Kunshan Micro Organism / Probiotics facility in Q4 2014 Our Kunshan Micro Organism / Probiotics manufacturing facility, at full capacity, represents an additional revenue opportunity of approx. $30M annually Our vaccine and micro-organism product lines are our highest margin product lines with 80% and 70% gross margins, respectively, in 2013 22
Historical Annual Revenue $60.00 $52.80 $50.00 $47.50 $42.48 $40.00 $33.80 $30.00 $25.58 $20.00 $10.00 $33.59 $15.10 $9.80 (millions) $2006 2007 2008 2009 2010 2011 2012 2013 23
Historical Gross Profit/Gross Margins Gross Profit ($millions) $30.00 55.4% $25.00 51.8% 49.9% 54.0% $25.50 60.0% $26.20 55.0% 50.0% $20.00 $15.00 40.0% $18.49 $17.30 30.0% $12.78 $10.00 50.0% $21.49 44.7% $5.00 50.6% 20.0% $8.34 $4.40 10.0% $- 0.0% 2006 2007 2008 2009 Gross Profit 2010 2011 2012 2013 Gross Profit Margin 24
Historical Net Income/Net Profit Margin Net Income ($millions) Net Income 16.0 14.0 Profit Margin 29.7% 14.1 12.0 10.0 8.0 26.2% 6.0 4.0 2.0 0.0 27.8% 35.0% 25.9% 30.0% 13.7 26.3% 8.9 24.8% 10.5 21.4% 20.0% 15.0% 6.7 10.0% 7.2 24.5% 25.0% 5.0% 2.4 4.2 2006 2007 0.0% 2008 2009 2010 2011 2012 2013 *2006-2008 represents adjusted net income before non-cash charges for financing started in 2006 or the change in the fair value of the Company's warrants under EITF 07-5. / 2012 includes non-cash charges for stock grants issued as per the 2010 Stock Incentive Plan. 25
High Margin Products FY 2013 Revenues Gross Profit GM % Veterinary Medications $ 25,515,844 $ 10,333,915 40% Micro-organism $ 13,546,118 $ 9,426,397 70% Feed Additives $ 1,790,981 $ 425,187 24% Vaccines $ 1,630,773 $ 1,305,255 80% Total $ 42,483,716 $ 21,490,754 51% 26
Selected Balance Sheet Data Dec, 31, 2013 (USD) CURRENT ASSETS: Cash 8,142,296 Total current assets PROPERTY, PLANT AND EQUIPMENT, NET CONSTRUCTION-IN-PROGRESS Total assets 88,615,112 28,269,155 9,284,947 136,223,427 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: 24,965,881 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Total shareholders' equity Total liabilities and shareholders' equity 110,392,976 136,223,427 27
Management Weibing Lu, Chairman and CEO Founded Xian Tianxing Bio-Pharmaceutical Co., Ltd. (our operating company in China) in 1997 BS from Wuhan University in 1985 and MBA from Xi'an Jiaotong University in 1999 Awarded Outstanding Entrepreneur of Xi'an Feed Industry in 2002 Appointed as a Director of Xi'an Institute of Feed Industry Bing Mei, Chief Financial Officer Over 20 years of diverse international industry experience and successful track record in CFO/Controller roles with a variety of Fortune 500 and middle market companies, previously Corporate CFO of Avineon, Inc., a multinational IT solutions provider. MBA from Duke University s Fuqua School of Business where he was named a Fuqua Scholar. Certified Public Accountant in the State of Maryland, Certified Management Accountant, Certified Valuation Analyst and Chartered Global Management Accountant. Scott Cramer, Director Corporate Development and U.S. Representative Previously held Chairman, CEO and CFO of Cyber Group Corp., a public traded company Founder and President of Cramer & Rauchegger, Inc., the firm is ranked amongst the top three financial planning firms in Central Florida by the Orlando Business Journal and listed as one of Orlando s top wealth management firms by the National Association of Board Certified Advisory Practices Mr. Cramer s expertise and opinions have been frequently sought after by various television, print, wire and online media outlets such as Bloomberg TV, CNBC, Fox Business, Smart Money, Dow Jones Newswire, Reuters, Bankrate.com, AOL DailyFinance and many others. 28
Summary Skystar distributes across all 29 agricultural provinces Broad portfolio of animal health products and expanding into the Aquaculture vaccine line. Operation in an industry with high barriers to entry GMP Certification Approximately 75 vaccine manufacturing companies are GMP certified in China and, at this time, the MOA is not certifying new facilities Increased vaccine manufacturing capacity with GMP certified Huxian facility and build-out of Kunshan facility 29
Organization Chart 30