China Biologic (CBPO), a specialty biopharmaceutical company immersed in the plasma industry, continues to experience impressive growth on many fronts (see initial article here). At the same time, however, the company faces intense competition in the plasma space, which is home to Baxter (BAX) and Novo Nordisk (NVO), which market ADVATE and NovoSeven, NovoEight and NovoThirteen, respectively. China Biologic previously struggled with a Q1 decline in albumin import volume, which has directly impacted product pricing. As a Chinese company operating in China, it is also at the mercy of an unpredictable and omnipotent regulatory regime. In 2H 2014, for example, the company's overall performance was curtailed largely due to the production suspension of the Guizhou facility. Despite these odds, China Biologic has continued its impressive course to new highs, and is only expected to exceed Q4 2014 growth estimates on March 4^th.

Here is a recap of important developments that took place over the last several months:

• China Biologic announced it received GMP certification for a new production facility. The facility will significantly expand China Biologic's production capacity as overall demand increases for its plasma-based products. Management has stated that the addition production capacity should improve the company's financials this year. It also signifies that the company is making significant efforts to capture a larger market share. This follows the company's strategic decision to increase its minority stake in the Guizhou facility to a majority position late last year. This strongly suggests that the company is expecting increasing demand in China for its plasma-based products. Thus, I can only perceive this positively.
• China Biologic recently reinstated a poison pill to deter a hostile takeover attempt. Since hostile takeovers can be detrimental to shareholders, this is certainly positive. Indeed, this also indicates that management is highly aware of the likelihood of a hostile takeover attempt, given its increasing market share.

The stock has risen more than $30/share since the release of my earlier article. As we approach the Q4 2014 earnings report, it is important to posit the directions that the stock could head. As with any earnings report, the company will provide earnings and revenues guidance, and likely offer insight as to what investors should expect over the first half of the year. In this context, I have provided my own thoughts on what I expect the company to report. First, total sales of China Biologic's plasma-based products should decline, primarily due to the lower demand for IVIG products. I base this conclusion off of the fact that the 2014 outbreak of hand, foot, and mouth disease attributed to the massive increase in Q3 demand for plasma-based products in China. Thus, it is no surprise that total sales rose 29.5% to $68.9 million in Q3 2014 from $53.2 million in Q3 2013. However, the number of cases of hand, foot, and mouth disease tends to drop during winter months. Accordingly, I expect a total sales increase over the same quarter in 2013, but a sales decrease over Q3 2014.

Second, I expect total revenues should improve due to China Biologic's favorable value added tax rate (VAT), in conjunction with more stabilized product pricing as management's efforts to create static product pricing come to fruition. Genuine consumption (19% hospital consumption year-over-year growth rate for albumin and IVIG in China) should also increase revenues. In addition, management's marketing strategy in targeting Tier 1 cities should pay off, as Tier 1 cities represent a significantly untapped market at this time. This should generate total revenues of $243 million, or roughly 19% over 2013.

Third, while Q3 2014 earnings per share (EPS) increased to $0.81, beating analyst estimates by $0.17, China Biologic should not see a similar EPS increase in Q4 for the above reasons. If anything, the company should fall in-line with analyst estimates. But it is important to note that the company has consistently beat in prior quarters, so there is a real possibility that it could beat again in Q4.

Based on this assessment, I would approach a pre-earnings investment in China Biologic with caution. For those without positions, consider holding off until after the report. The stock has risen sharply for no apparent reason, and all technical indicators suggest that it is currently swimming in overbought territory. Thus, reassessing a position in China Biologic at a later time (i.e., when the stock has returned to a lower price) is warranted. For those with a position in China Biologic, consider a hedged investment strategy that compensates for an earnings drop. This can take the form of selling a call to receive a premium and, in turn, mitigate a possible drop in PPS, or buying a put to cut losses in the event of downside after the report. Regardless of your circumstance, I wish you the best of luck going into the earnings event.