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| China Pharma Output to Hit US$100 billion in 2008 |
12/31/2007 |
| by
Life Science: China |
| After a solid 2007, the Chinese pharmaceutical industry is expected to grow 20% next year. Total ouput for the industry in 2008 is forecasted to exceed CNY740 billion (US$100 billion), according to a report by Shanghai Security News.
This optimistic forecast follows on strong industry growth in 2007. For the first three quarters of this year, China's pharmaceutical industry output exceeded CNY445 billion (US$61.8 billion), an increase of 25.21 percent. Exports have played an important role in this growth. The Chinese Medicines and Health Products Import and Export Chamber of Commerce (CCCMHPIE) reports that through October healthcare exports rose 23.3% to US$19.8 billion, led by US$11 billion of active pharmaceutical ingredients.
The Chinese domestic market continues to grow. IMS Health forecasts the domestic pharma market to reach US$90 billion in 2008, growing up to 13%. Part of this growth is due to an expanding middle class in prosperous large cities such as Beijing, Shanghai, and Guangzhou. Increasing demand for healthcare services is fostering growth in sales of both domestic and imported pharmaceuticals. In addition, increased awareness of health maintenance is lifting sales of traditional Chinese medicines.
Another major factor that is expected to drive industry growth is the implementation of the Chinese government urban and rural cooperative medical insurance systems. If fully funded and implemented as planned, the new rural insurance system is expected to bring about CNY400 billion (US$55 billion) annually of new pharmaceutical spending; the insurance system for urban residents may result in CNY600 billion (US$83 billion) each year. Much of this spending will benefit domestic manufacturers, particularly makers of generic drugs and Chinese medicines. Longer term, the insurance systems should improve access and affordability of patent and biological medicines.
Source: Shanghai Security News (in Chinese) |
| Position:
None |
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| Pharma R&D Outsourcing Set to Grow |
12/26/2007 |
| by
Life Science: China |
| For contract research organizations (CROs) in China, 2007 has been an exciting year. While the successful IPO of Shanghai’s Wuxi Pharmatech (NYSE: WS ) was clearly a high point, there have been other indicators of the increasing profile of China’s CROs. This includes Hutchison China MediTech’s (LSE: HCM ) partnership with Eli Lilly (NYSE: LLY ) in drug discovery, MPI Research’s collaboration with Shanghai Medicilon to develop a research facility, the acquisition of the Taiwanese CRO Apex International Clinical Research by Parexel (Nasdaq: PRXL ), and the recent investment of over US$30 million in ShangPharma by Texas private equity firm TPG.
Industry fundamentals have been driving this activity. The problems faced by multinational pharma and biotech companies, including dwindling pipelines and soaring R&D costs, are well documented. Pharma companies have responded by moving more of their activities to developing countries, hoping to take advantage of lower costs and large numbers of potential patients for clinical trials. According to the Tufts Centre for the Study of Drug Development, the number of drug companies conducting clinical trials worldwide jumped from 956 in 1997 to nearly 1,800 last year.
Speaking to the Washington Times, David Lepay, senior adviser for clinical science at the US Food and Drug Administration (FDA) said, "There is no question clinical research is globalizing. It does indeed expedite the product-development process in the United States; that's a positive public health benefit."
The European Commission reports that in 2006 the pharmaceutical and biotechnology industry accounted for €70.5 billion (US$100 billion) in global R&D spending, with R&D spending growing nearly 16% a year. Estimates by JP Morgan analysts indicate that by 2009 as much as 41% of this spending will be on outsourced R&D, creating a market that could exceed US$50 billion.
While much of this spending will remain “onshore” in the US and Europe, the amount going to developing countries such as India and China is increasing. The Washington Times reports that ten years ago, 86 percent of all clinical trials were done in the U.S. Today, 30 percent of clinical trials are done in countries outside the U.S. and Europe, and only 57 percent are done in the United States.
"U.S. companies will want a hold out there for future growth opportunities," said Tony Farino, leader of U.S. Pharmaceuticals & Life Sciences Advisory Services at PricewaterhouseCoopers. "U.S. markets continue to be important, but Asian markets are rapidly becoming more important because there is a tremendous amount of people with chronic conditions that are not on medication."
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| Position:
None |
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| Sinovac Announces Positive Early Phase II Vaccine Results |
12/24/2007 |
| by
Life Science: China |
| Sinovac (AMEX: SVA ), a Beijing based developer of vaccines, announced favorable preliminary results in its Phase II clinical trials of its pandemic influenza (H5N1) whole viron inactivated vaccine. Investors cheered the news, bidding shares up nearly 22%.
The Phase II trial of the H5N1 whole viron inactivated vaccine was conducted by Beijing Centers for Disease Control and Prevention. Consisting of 402 volunteers between the ages of 18 to 60, each volunteer was vaccinated with two doses of 5 ug, 10 ug or 15 ug. The preliminary results of the trials suggested that each of the three dosages was capable of producing varying degrees of immune response. In particular, the anti-HI seroconversion rate, the increasing GMT and protection rate of the H5N1 whole viron inactivated vaccines for the 10ug and 15ug dosages reached the EMEA evaluation standards of seasonal flu vaccines, which is an indication of good immunogenicity of the vaccine. There were no adverse reactions reported in any of the volunteers.
The H5N1 virus has gained worldwide attention as the cause of “avian influenza”. Strains of the virus are found in Europe, Asia, Africa and the Middle East and the virus is easily transmissible among birds. Humans with H5N1 have typically caught it from chickens, which were in turn infected by other poultry or waterfowl. To date, all cases in humans have resulted from physical contact with infected birds. Humans with H5N1 have typically caught it from chickens, which were in turn infected by other poultry or waterfowl. The mode of transmission in humans has been primarily through the slaughtering and preparation of poultry products or through the use of infected poultry manure as fertilizer or feed.
The primary concern regarding H5N1 has been its tendency to mutate and its increasing ability infect mammals. In particular fears of a global pandemic have arisen due to its potential to be transmissible via airborne means, although there have been no documented cases of H5N1 infections due to airborne transmission. The virus is also particularly virulent; the World Health Organization (WHO) estimates that 60% of persons infected by the Asian strain of H5N1 have died from it. This has resulted in a global effort to develop effective treatments for the virus, including vaccines.
H5N1 influenza is a particular concern in China. As of Dec. 18th, the WHO reports a total of 340 cases of human H5N1 infections, with 209 deaths. 27 of those cases occurred in China. Numerous other cases have developed in China’s Asian neighbors including 100 cases in Vietnam and 115 cases in Indonesia.
Sinovac began its research on the H5N1 pandemic influenza vaccine in February 2004. Phase I clinical trials on the vaccine were completed in Sept. 2006 with the support of the Chinese Ministry of Science and Technology. The company is concurrently conducting Phase I trials on a split H5N1 vaccine.
"We are very pleased with the achievements of our team that led to the development of a pandemic influenza vaccine,” said Mr. Weidong Yin, Chairman, President and CEO of Sinovac. “After Phase II clinical trials of the whole viron H5N1 vaccine, the vaccine dosages and schedule can now be determined.”
“This accomplishment is a further step towards providing an effective prevention option for the government in the event of a future influenza pandemic. In addition to announcing the positive results of the Phase II clinical trial for the H5N1 whole viron vaccine, we are making progress on the clinical trials for the H5N1 split vaccine, which should provide additional prevention options in the face of a future influenza pandemic."
Shares of Sinovac have been on a tear since its earnings report on Dec. 11. The company reported a 141% rise in sales and net income growth of over 220% due to strong sales of its Healive inactivated Hepatitis A vaccine and Anflu influenza vaccine. Healive was also selected as one of two inactivated hepatitis A vaccines to be purchased by the Beijing CDC for its Hepatitis A vaccination program. Since the Dec. 11 report, shares have risen nearly 38% to close today at US$4.88. |
| Position:
None |
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| MPI Partners with Medicilon in CRO JV |
12/20/2007 |
| by
Life Science: China |
| MPI Research, a privately held contract research organization (CRO) based in the US, will partner with Shanghai Medicilon to develop a preclinical research center in China. The 50,000 square foot preclinical testing facility will be located in the Chuansha Economic Park in the Pudong area of Shanghai, and will comply with US FDA and other international regulatory standards.
The testing facility, scheduled to be fully operational by 2009, is intended to offer an expanded range of GLP and non-GLP preclinical services for customers of both MPI and Medicilon. It will be capable of conducting enabling studies for US FDA Investigational New Drugs (IND), offer support services for preclinical testing, and submit INDs and New Drug Applications (NDAs) for clients of both companies. The laboratory will also have Association for Assessment and Accreditation of Laboratory Animal Care (AALAC) certification.
While the parent companies remain independent, Dr. Chun-Lin Chen, co-founder of Medicilon, Inc. as well as Shanghai Medicilon will serve as the CEO of the joint venture Medicilon-MPI Preclinical Research (Shanghai) LLC. Dr. Chen received his PhD from OklahomaStateUniversity, and completed post-doctoral training in the United States. A multidisclipinary team from MPI will relocate to Shanghai to oversee FDA compliance, and over 70 Medicilon professionals will be assigned to the new center.
“With one fourth of the world’s population, China is an important force in shaping the global pharmaceutical and biotechnology markets,” said William U. Parfet, MPI Research’s Chairman and CEO. “We have carefully looked for more than three years to find a CRO partner that shares our values and commitment to excellence, and we have finally found one in Shanghai Medicilon. We look forward to forging a future together as a worldwide leader of preclinical research services.”
“We are eager to collaborate with such a high-quality preclinical CRO as MPI Research,” says Dr. Chen. “Both companies are committed to learning from each other. As we incorporate the scientific expertise, high GLP standards and broad range of services offered by MPI Research, we also look forward to sharing our knowledge.”
With headquarters in Mattawan, Michigan, MPI has over 1600 employees and 60,000 sq.ft. of laboratory space. The company offers a broad range of research capabilities in preclinical drug discovery and development research.
Shanghai Medicilon was founded in 2004 to provide fully integrated drug discovery services to the pharmaceutical and biotechnology industries. Located in Shanghai’s Zhangjiang Hi-Tech Park, Medicilon has over 250 employees and 80,000 sq. ft. of laboratory space providing integrated drug discovery and development services. |
| Position:
None |
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| Medtronic Expands in China |
12/19/2007 |
| by
Life Science: China |
| Medtronic, Inc. (NYSE: MDT ), the US$12 billion (sales) medical device maker, announced that it is expanding its presence in China via joint venture. The company will partner with Shandong Weigao Group Medical Polymer Co. Ltd. (HKG: 8199 ) to market spine and orthopedic therapies in China. Medtronic also has acquired a 15% stake in Weigao for US$221 million.
The joint venture will market Medtronic’s spinal products and Weigao’s orthopedic products in China, including therapies for the hip, shoulder, spine and trauma. Under the joint venture agreement Medtronic will have a 51% interest in the joint venture and Weigao will have a 49% interest.
“China is key to our global strategy as we continue to expand our geographic footprint,” said Medtronic president and CEO Bill Hawkins. “Weigao has a broad orthopedic and trauma product line that compliments Medtronic’s offerings, but even more importantly, we feel we can generate synergies with their very strong presence and reputation in China. We view Weigao as an ideal strategic partner.”
Based in WeihaiCity of ShandongProvince, Weigao focuses on the development, manufacturer and sale of medical devices and products. Its orthopedic products include plates, screws and spinal implants used in the treatment of traumatic injuries. The company also manufacturers an extensive line of medical consumables, including drug-eluting stents, syringes, IV tubing, and equipment for use in renal dialysis and blood donation. The company’s sales network is established in 100 Chinese cities, with service to over 2700 hospitals and over 1100 clinics and blood banks.
Weigao is publicly listed on the Hong Kong Growth Enterprise Market (GEM). For FY 2006 the company reported revenues of over US$100 million, with net margins of 21.7%. For the nine months ended Sept. 30 2007, the company reports sales of US$107 million, up 36.8% over the previous year. Net margins also increased to 27.4%. The company’s stronger performance was due in part to the acquisition of several orthopedic products including spinal implants and artificial joints. Weigao shares have done well this year, rising 121% to a recent HKD17.50.
The Chinese market is important to Medtronic. According to Burrill & Co. the Chinese medical device market is growing at a CAGR of nearly 18% annually, twice the growth rate of GDP. Frost & Sullivan estimates that the total Chinese medical device market in 2006 exceeded US$10 billion. Although the company doesn’t specifically release China numbers, sales in Asia Pacific were US$1.2 billion in fiscal year 2007, up nearly 17% from the previous year. |
| Position:
None |
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| Guangzhou to Invest in Health Centers |
12/17/2007 |
| by
Life Science: China |
| The southern Chinese city of Guangzhou announced that it will invest over US$100 million in developing its urban community health system. As reported in Chinese in Guangming Daily, the investment by the Guangzhou Municipal Dept. of Health in 64 community health centers will include the purchase of new medical equipment as well as renovations and increased staffing.
With a population estimated at nearly 12 million, Guangzhou has approximately 80 hospitals and 130 community health service centers. The centers are meant to provide physical examinations, basic medical care, physician consultation and direct referral to the appropriate general hospital for patients in need of hospitalization. In 2006 its community health system treated 9.6 million patients, at a cost estimated at 43% of the cost of similar treatment in general hospitals.
Along with the increased funding, Guangzhou plans to more closely integrate the centers with the hospital system. The city is linking 34 major hospitals with the community health system. The hospitals will provide physician consultations, training and education, and technical to the centers. The intent is to improve patient care and reduce the numbers of patients seeking care at larger hospitals when that care could be provided in a community setting.
The efforts by Guangzhou are part of a larger effort by the Chinese government to improve the healthcare system. It is estimated that as much as US$60 billion will be spent in the coming years to build new healthcare facilities and upgrade existing ones. These investments include both public facilities as well as private hospitals.
This ongoing investment trend has positive implications for domestic Chinese medical device companies, particularly makers of diagnostic and clinical laboratory equipment. China sales for Mindray Medical Intl. (NYSE: MR ), the Shenzhen-based medical device maker, grew nearly 70% between 2004 and 2006 due to strong demand for its patient monitoring, laboratory and ultrasound equipment. The company expects sales of at least US$288 million for FY 2007, with net margins over 27%. In a recent analyst meeting Mindray management reported that they expect domestic Chinese annual sales growth of approximately 30% through 2008 due in part to increased government spending, particularly in rural areas. |
| Position:
None |
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| Health Management Services Thriving in China |
12/14/2007 |
| by
Life Science: China |
| Since the recently announced US$25 million investment in iKang by a group led by Merrill Lynch, more details have emerged regarding iKang’s business model and finances. The details indicate a thriving business leveraging IT and customer service to improve access to China’s healthcare system.
China’s rapid economic development has had many beneficial effects, but rapid change has also created some problems. Explosive growth in the cities, ongoing migration of rural residents, and a focus on economic rather than social infrastructure have presented major challenges to the Chinese healthcare system. These challenges have been highlighted by the SARS and avian flu outbreaks, as well as recurring scandals regarding substandard pharmaceuticals and medical products. In addition, many hospitals are having difficulties meeting the rising demand for hospital services, as is well documented in "CCTV Presents: China Hospital Today”
iKang is apparently benefiting from these challenges, by providing improved access to medical care for its members. As reported by Economics Observer Net (in Chinese), the company has grown by modeling itself on Western health maintenance organizations (HMOs) such as the US’ s Kaiser Permanente and WellPoint.
The company reports its medical services network consists of ten major medical centers in major Chinese cities including Beijing, Shanghai, Guangzhou, Shenzhen, Nanjing, Chengdu, and Hangzhou. iKang’s network also includes 400 additional medical institutions with cooperation agreements. The company also provides IT services including risk management and customer support services for insurance and healthcare providers. Appointment referrals, healthcare education and other services are provided via its website at www.ikang.com.
iKang’s services include physical check-up and patient consultation, physician referral and appointment reservation, disease screening, and personal health profiling and management. The company offers services such as its Ambassador card, a prepaid healthcare card that covers a medical evaluation including a physical exam, diagnostic tests and a set number of followup appointments with doctors in the iKang network. iKang’s Health Management card provides improved access to physician’s in its network through medical appointment booking services, along with health information and consultations via internet or telephone; the service runs RMB198 (US$27) per year.
Between 2004 and 2007 the company reports gaining 100 million members, with revenues growing from RMB10 million (US$1.3 million) in 2005 to RMB100 million (US$13 million) in 2006. Along with iKang’s financial performance, it was the size and potential of China’s healthcare services market that attracted Merrill’s interest. According to Jiang Yu, Merrill Lynch (Asia Pacific) Ltd. regional vice president of corporate capital investment, the Chinese healthcare services market would expand 100 fold were it to reach the level of healthcare spending experienced in the US. Merrill’s investment, valued at US$15 million, was reportedly to acquire less than 20% of iKang. |
| Position:
None |
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| GSK Raises Bet on China |
12/13/2007 |
| by
Life Science: China |
| GlaxoSmithKline (NYSE: GSK ), the UK-based multinational pharma giant, announced today that it will invest US$100 million in a new research center in China. As reported in the Financial Times, the center will focus on neurodegenerative disorders including Alzheimers, Parkinson’s disease, and multiple sclerosis.
The investment by GSK, scheduled to be completed by yearend 2008, builds on its established R&D center in Shanghai. The center, already directed towards central nervous system (CNS) disorders, initiated 16 clinical trials in 2006 with another 18 anticipated by year-end 2007. Currently located in Shanghai’s Pudong New Area the center will relocate across the HuangpuRiver to Puxi district. GSK plans to hire 1,000 scientists for the center in the next six years.
“China is not about outsourcing and cheap labor,” said Moncef Slaoui, GSK chairman of research and development. “It’s about different science. We will link our fate to their fate. Within five to 10 years we will be moving from ‘made in China’ to ‘discovered in China’.”
The new research center is the latest step for Glaxo in establishing a presence in China. The company has established five subsidiaries including four manufacturing facilities in China, with a total registered capital of over US$230 million. Along with it s holding company in Beijing, GSK has offices in 29 Chinese cities and 2,800 employees.
GSK has also established a foothold in Singapore, investing more than £100 million to set up a vaccine manufacturing site dedicated to the primary production of pediatric vaccines. In March the company also expanded its medicinal chemistry laboratory in Singapore’s Biopolis biomedical research hub. With a total investment of over £30 million, the facility also focus on CNS therapies. The company has also established manufacturing and R&D facilities in Taiwan.
CNS disorders are a major therapeutic area for GSK. With a total world market for CNS therapies of £54 billion GSK brought in £3.64 billion in FY 2006, accounting for over 18% of revenues. GSK reported sales of £1.38 billion in Asia Pacific ex Japan, with sales in China and Hong Kong growing 7%. |
| Position:
None |
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| Strong Earnings Buoy China Nepstar |
12/11/2007 |
| by
Life Science: China |
| China Nepstar Chain Drugstore Ltd. (NYSE: NPD) the largest retail drugstore chain in China, reported its unaudited financial results for Q3 2007 before market open today. In the company’s first earnings report following its November IPO, Nepstar reported stronger than expected earnings due to increased margins. Investors responded by bidding up the company’s shares.
For the quarter ended Sept. 30, the company reported revenues of US$64.6 million, up 6.6% from the same quarter last year. Gross margins increased to 47.1% from a previous 35.9%, and net income rose 512.6% to US$6.2 million. The company reported US$0.10 basic earnings and US$0.08 diluted earnings per American depositary share.
Source of 3rd quarter revenues was:
- Prescription drugs - 23.3%
- Over-the-counter, or OTC, drugs - 34.4%
- Nutritional supplements - 19.3%
- Traditional Chinese herbal products - 2.7%
- Other products, including personal care products - 20.3%.
Nepstar reported same store sales declined 1.9% from the same period last year. The lower than expected revenue growth was attributed by the company to its efforts to revamp its product mix, pruning low margin products and increasing its portfolio of private label products. With 1,177 higher margin private label products now in its portfolio, sales of these products represented approximately 18.3% of the Company's revenue and 28.6% of the gross profit for third quarter. The company reported that the majority of the product mix changes will be completed by the fourth quarter 2007 and expects same store sales in the fourth quarter to rise to RMB3,948 per store per day, an increase of 2.4% from the third quarter.
Gross profits for the quarter rose to US$30.5 million. Part of the significant increase in gross profits was attributed to the product mix changes. In addition the company reported improved margins due to the centralization of merchandise procurement. Operating expenses increased 14.2%, primarily due to increased hiring to support the company’s expanding store count.
Looking forward, the company expects fiscal year 2007 revenues in a range from US$260.2 to US$261.6 million. Net income is expected to be between US$19.6 and US$20 million. The company anticipates opening 210 stores in the fourth quarter.
On the conference call, Nepstar management reiterated its intention to continue an aggressive expansion plan. The company intends to open 1050 new stores in 2008, bringing the total count to over 3050 stores, a 70% increase from current levels. Management reported that the number of store openings in 2009 would equal or exceed 2008’s activity. The company also stated that acquisition discussions were ongoing although no further details were disclosed.
Operationally, Nepstar plans to continue its efforts to enhance margins. The company expects that private label products, with their higher margins, will account for up to 40% of total revenues by yearend 2008. There will also be an increased emphasis on traditional Chinese herbal products, nutritional supplements, and personal care products. The company will also try to leverage its 11 central distribution centers to reduce costs. Currently 40% of Nepstar’s product mix is regionally procured; the company expects to decrease that amount to 20% by substituting centrally sourced products at higher margins.
The company also see opportunities in China’s ongoing healthcare reform efforts. The corruption and product quality scandals have led the Chinese government to change many of its pharmaceutical regulations. The government is requiring hospital to decrease their dependence on selling prescription medications, and imposing new quality and labeling controls on pharmaceutical makers. Nepstar management feels that these regulatory efforts will reduce the hospital industry’s near-monopoly hold on the retail pharmacy market. The company also expects increased business from the central government medical insurance plans via its 480 pharmacies that are designated to accept medical insurance. Consumer spending trends in China also appear to be moving in Nepstar’s favor.
Going forward, investors want to see the company continuing to execute on its store count expansion, and leverage its established management and distribution systems to maximize margins. Operational expenses, particularly head count, need to be followed closely and should not outpace growth in store count and revenues. The slight decline in same store sales needs to be righted, but if limited represents an acceptable trade off if the benefits of an improved product mix continues to be seen. Another test for management will be its ability to utilize its newly minted stock and US$18 million in cash in pursuing acquisitions that are accretive to earnings.
Investors responded with favor to Nepstar’s report. At midday, shares have risen over 14% to US$19.20 on heavy volume. |
| Position:
long NPD |
|
| Sinovac Net Rises on Strong Sales |
12/11/2007 |
| by
Life Science: China |
| Sinovac Biotech Ltd. (Amex: SVA), a China-based vaccine developer, today announced its unaudited financial results for the three months ended September 30, 2007. The company reported a 141% rise in sales and strong margins. Investors bid up shares on the solid report.
For the 3rd quarter the company announced sales of US$10.8 million, an increase from the US$4.5 million recorded in the same quarter last year. The revenue boost came from sales of the company’s Healive inactivated Hepatitis A vaccine, which more than doubled to 1.53 million doses. The sales gain was due in part to increased market penetration in China following the removal from the market of a competing liquid attenuated hepatitis A vaccine. Sales of its Anflu influenza vaccine were a solid 1.04 million units due to an extensive marketing campaign in partnership with GlaxoSmithKline subsidiary GSK China.
Gross profits rose to US$9.2 million, reflecting gross margins of 84.7% and a year over year increase of 266%. The company reports that expanded production of Healive resulted in improved economies of scale and decreased unit costs. Production costs of Anflu also declined from the same quarter last year.
Operating expenses increased to US$5.1 million from US$2 million reflecting increased marketing costs for Anflu. Operating income rose 691% toUS$4 million. Net income rose 226% or US$0.05 per diluted share.
"Our third quarter sales reached record levels and resulted in our second sequential profitable quarter,” said Mr. Weidong Yin, Chairman, President and CEO. “Our sales organization has continued to penetrate the market with our flagship product, Healive, our inactivated hepatitis A vaccine, in the more developed regions of China, as well as expand into new markets. In August, we launched the marketing campaign for our seasonal influenza vaccine, Anflu, in connection with the promotion agreement with GlaxoSmithKline (China) Investment Co. Ltd. (GSK China). We are pleased with the initial results and market reception to date."
Shares rose on the news in a difficult market, up nearly 23% to close at US$4.35. |
| Position:
None |
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| iKang Gets Venture Funds, IPO Next? |
12/10/2007 |
| by
Life Science: China |
| iKang, a Shanghai-based healthcare management services provider, announced on Dec. 5th that it has received US$25 million in venture funding. Made by an investment group including Merrill Lynch, ePlanet, Walden International, WI Harper, Shanghai Venture Capital Co., and Zero2IPO.com, the investment was characterized in some reports as “the last pre-IPO round of funding.”
Founded in Sept. 2000 iKang, also known as ShanghaiMed Healthcare Inc., reports that it is the largest integrated health management services provider in China. Its services include physical check-up and patient consultation, physician referral and appointment reservation, disease screening, and personal health profiling and management.
The company reports its medical services network consists of ten major medical centers in major Chinese cities including Beijing, Shanghai, Guangzhou, Shenzhen, Nanjing, Chengdu, and Hangzhou. The company also provides IT services including risk management and customer support services for insurance and healthcare providers. Appointment referrals, healthcare education and other services are provided via its website at www.ikang.com.
Healthcare management is a subsector of the healthcare services field that focuses on disease prevention, management of chronic diseases, integration of healthcare services and patient education. The Disease Management Association of America (DMAA) characterizes it as “a multidisciplinary, systematic approach to health care delivery that:
1) includes all members of a chronic disease population;
2) supports the physician-patient relationship and plan of care;
3) optimizes patient care through prevention, proactive, protocols/ interventions based on professional consensus, demonstrated clinical best practices, or evidence-based interventions; and patient self-management; and
4) continuously evaluates health status and measures outcomes with the goal of improving overall health, thereby enhancing quality of life and lowering the cost of care.
Healthcare management has become an important aspect of cost containment and quality management for health insurers and health maintenance organizations. Healthcare informatics, the use of information technology to improve healthcare services, has played a major role in the sector’s development. US companies in the space include Healthways (Nasdaq: HWAY), Magellan Health (Nasdaq: MGLN), and WebMD (Nasdaq: WBMD).
Further background on the Chinese healthcare services sector can be found in this overview from iKang investor Zero2IPO: http://www.zero2ipo.com.cn/eweekly/0315/en/0315322.html. |
| Position:
None |
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| Big Pharma Looks East to Cure Its Ills |
12/9/2007 |
| by
Life Science: China |
| The headline sums it up: “Big Pharma Faces Grim Prognosis.” Front page, above the fold, Wall Street Journal. For pharma investors the story is familiar. A flood of upcoming patent expirations, increased competition from generics, and escalating costs of drug development has cast a pall over big pharma. While there is no straightforward solution to the problems facing multinational pharmaceutical companies one thing is clear: pharma companies are looking to Asia for relief.
Lately, Pfizer (NYSE: PFE) has become a poster child for big pharma’s woes. With US$45 billion in sales it has grown on the back of blockbusters like Lipitor (atorvastatin). With over US$12 billion in sales, the cholesterol-lowering drug is the leader in its class. However, sales of Lipitor are declining due to increased competition, and that competition will only increase when Lipitor’s patent expires in 2010. Norvasc (amlodipine) and Zoloft (sertraline), two other leaders for Pfizer, have lost their exclusivity in the US with subsequent marked decline in sales.
Pfizer’s new drug development efforts have also been challenging. While there have been success such as Lyrica (pregabalin) and Chantix (varenicline), none appear likely to reach the blockbuster status necessary to replace the gaps in the company’s product lineup. Other drugs have been market failures, notably the inhaled insulin Exubera for which the company recently took a US$2.8 billion charge after discontinuing the drug due to weak sales.
This past week, an important aspect of Pfizer’s response to these challenges became clear. In its first investor meeting to be held in Asia, the company announced its plans to cut 10,000 jobs and close 2 manufacturing plants in the US along with several research sites. Along with these cuts, Pfizer will outsource up to 30% of its manufacturing, predominantly to Asia.
The reasons cited by the company for its shift are familiar to readers of Life Science: China. At present Pfizer estimates that there are 2.5 billion lower-middle income patients underserved in Asia. The company forecasts that by 2017, 3 of the 5 largest economies in the world will be in Asia. Led by China, Japan, and India, the Asian pharma market will reach approximately US$200 billion. It is clear that much of the worldwide growth in the pharmaceutical market will occur in Asia.
Pfizer’s plans are a continuation of the company’s previous efforts. With an investment of more than US$500 million, Pfizer is one of the largest foreign pharmaceutical enterprises in China. Its China Research and DevelopmentCenter, located in Zhangjiang Hi-Tech Park, is playing an increasingly important role in clinical trial design and analysis for global drug trials. The company also operates three plants in Dalian, Suzhou and Wuxi.
In Singapore, Pfizer has invested over US$45 million in a clinical research unit in conjunction with RafflesHospital. With over 1000 volunteers, 54 beds and a staff of 70, the unit currently participates in 20 phase I clinical trials with plans to double that number in the next year. While the company has announced plans to scale back its presence in Japan, it has also committed US$300 million over the next 5 years into research and development in South Korea.
With similar challenges, other multinational pharmaceutical manufacturers are making similar moves:
- AstraZenenca (NYSE: AZN) has announced plans to eventually outsource all manufacturing, with the aim to become a pure research, development and marketing organisation. The company has announced a three year, US$100 million plan to build the AstraZeneca Innovation Centre China (ICC). Located in the Shanghai Zhangjiang Hi-Tech Park, the center will focus on translational medicine in oncology through the development of knowledge about Chinese patients, biomarkers and genetics. The company will also utilize the center to help it to identify low-cost producers and to manage the transition from in-house to outsourced production.
- Roche Pharmaceuticals (ADS OTC: RHHBY), the Swiss multinational drug company opened its new pharmaceutical development center in Shanghai in October. As reported in Shanghai Daily, the center is designed to carry out all the stages of drug development from discovery to clinical development, trials and approvals. The budget for the center is US$100 million and it will target cancer and metabolic diseases. The company operates 2 manufacturing facilities near Shanghai. In July of 2006 the company reported that it expects China sales to grow 15-16% through 2010, led by sales of its cancer drugs.
- GlaxoSmithKline (NYSE: GSK) has established five subsidiaries including four manufacturing facilities in China, with a total registered capital of over US$230 million. The company has also established a Shanghai-based R&D center. With an initial focus on neurodegenerative disorders, the center initiated 16 clinical trials in 2006 with another 18 anticipated by year-end 2007.
- Novartis (NYSE: NVS) has committed at least US$100 million to build its own R&D center, also in Shanghai. The center is to employ an estimated 400 scientists and focus on infectious diseases including hepatitis, as well as cancer research. The center will also collaborate with the Shanghai Institute of Materia Medica to evaluate Chinese medicines for therapeutic use in Western medicine.
- Eli Lilly (NYSE: LLY) has established a manufacturing plant in Suzhou near Shanghai, and employs over 1000 people in China. In addition the company has established research partnerships with contract research organizations including Hutchison China MediTech (LSE: HCM) and Shanghai ChemExplorer. In June, Lilly established Lilly Asian Ventures to make strategic venture investments in Asian life science companies. The company recently announced that it intends to invest US$100 million on research and development in China in the next five years.
The news just keeps coming. Potential stumbling blocks remain including intellectual property protection, concerns regarding the quality of Chinese products, and the supply of Chinese research scientists to meet this growing demand. Regardless, big pharma clearly sees Asia, and particularly China, as the solution to its problems. |
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| Earnings Quality Key for China Pharma Investors |
12/6/2007 |
| by
Life Science: China |
Tongjitang Chinese Medicines (NYSE: TCM) has had a rough November. Following its earnings report on Nov. 7, investors hammered the stock. From a high of US$12.39 in late October, shares fell over 30% to a low of US$8.60. With revenues up 29% and net profits rising, why did investors show such a foul mood? One reason was:
For the third quarter of 2007 the company reported a “disposal gain on listed shares” of US$536 thousand, accounting for 8% of total net income. The company’s balance sheet showed that “Deposits for acquisition of trading securities” reached US$5.5 million for the quarter, up from zero in December 2006 and roughly 10 times the amount spent by the company for R&D in the quarter. Company management reiterated their intention to continue investing in shares of public companies in the mainland and Hong Kong. The non-recurring nature and increased risks of putting trading securities on the balance sheet did not sit well with analysts or investors.
TCM’s securities investments are neither unusual nor abnormally large according to a report from Zhejiang PharmNet. As reported by Wei Wang Jia, Chinese pharma companies have become increasingly dependent on investment income to boost their bottom lines.
Based on research from market data provider WIND Information (WIND资讯), 40% of the net profit of publicly listed mainland Chinese pharma companies through the third quarter of 2007 was derived from investment income. The research shows that for 74 companies in China’s pharmaceutical and biological products industry, realized investment income was RMB4.2 billion (US$570 million) for 2007’s first nine months, up more than 570% from the same period in 2006. For the companies studied, investment income accounted for 36% of total profits and grew substantially faster than the 13.2% growth rate of operating profits.
The increased investment activity of Chinese pharma companies is not merely due to shortsightedness or speculation, according to Li Lei of the Chinese Medicine Competitive Research Center. “In recent years pharmaceutical industry profits were declining, innovation was expensive, and the main business income was not growing…[The investments] reflect a lack of confidence and lack of direction in the industry.”
“Pharmaceutical companies that over-rely on investment income have almost lost the essence of "medicine", becoming investment-oriented companies. Although presently the investment behavior of pharmaceutical enterprises helps earnings, from the mid-term and even long-term perspective this investment behavior is full of uncertainty. Development of Chinese medicine industry competitiveness will not be dependent on sideline investments.”
Pharmaceutical companies in China are certainly not alone in their willingness to speculate in the public markets. The multi-year bull market in Chinese stocks has lured in managers from many companies. For investors in these companies, due diligence is clearly required. While the bottom line EPS is important, investors need to keep a close eye on factors such as operating earnings, cash flow and the balance sheet. “Caveat Emptor” remains the theme for investors.
Source: Zhejiang Pharmnet |
| Position:
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| DuPont Boosts China AgBio Efforts |
12/3/2007 |
| by
Life Science: China |
| Global conglomerate giant Dupont (NYSE: DD) announced today that it has formed a joint venture in China to advance its genetic research involving major food crops. The joint venture with Beijing Weiming Kaituo Agriculture Biotechnology Co., Ltd. (BWK) is intended to accelerate the discovery of genes for high value agronomic traits such as stress tolerance and efficient nutrient utilization. The financial terms of the joint venture were not disclosed.
"This new joint venture brings together industry- leading biotechnology researchers to develop enabling technologies and discover new genes for important agronomic traits that can further improve farmer productivity and profitability globally,” said Bill Niebur, DuPont vice president, Crop Genetics Research and Development. “BWK's strengths in functional genomics and molecular breeding will make a major impact across our entire product pipeline."
BWK is owned by PekingUniversity and its affiliate, Peking University Weiming Biotech Group Co. Ltd. and is designated as a NationalCenter for Molecular Crop Design. The research firm, established in 2000, has capabilities in functional genomics, trait gene and promoter discovery and molecular breeding technologies for hybrid seeds intended to boost crop productivity in Chinese markets. Weiming Biotech Group, also known as China Bioway, was formed in 1992 by PekingUniversity with a focus on biological engineering and pharmaceutical development. It has played a role in the development of several biotech companies in China including US-listed Sinovac Biotech (AMEX: SVA).
DuPont’s global seed subsidiary Pioneer Hi-Bred was established in China in 1997. The company established a research center in Liaoning province and began developing corn hybrids for the Chinese market the next year. Pioneer previously established two joint ventures in China: Shandong Denghai-Pioneer Seed Co. and Dunhuang Seed Pioneer Hi-Bred Co. The company’s first commercial sales were in 2004.
DuPont first came to China in 1984 and has grown steadily. They have a total of 21 wholly-owned/joint venture operations in China and 18 research institutes and production facilities, with a total investment of more than US$700 million and over 3,500 employees. In 2006 the company reported over US$1.4 billion in sales to China and Hong Kong. |
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