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ShanghaiBio to Seek US IPO 12/2/2007
by Life Science: China
ShanghaiBio Corp., a Shanghai-based biopharma contract research organization (CRO), will seek an initial public offering on the US markets in 2008. As reported in Investor’s Business Daily, the public listing is “a key opportunity for us to link and bridge the two countries,” said Dr. Jason (Gang) Jin, President & CEO of ShanghaiBio’s US subsidiary MaxyBio Corp.
Founded in August 2001, ShanghaiBio (aka Shanghai Biochip Co. Ltd.) boasts a strong pedigree. The company serves as the NationalEngineeringCenter for Biochips, and is supported by prominent scientific institutes including the Shanghai Institutes for Biological Sciences (SIBS), Shanghai Institute of Microsystem and Information Technology, both affiliated with ChineseAcademy of Sciences (CAS), and the ChineseNationalHumanGenomeCenter. Along with CRO services, the company also designs and manufactures biochips, diagnostic test kits, reagents and pharmaceutical ingredients.
Located in Shanghai’s Zhangjiang Hi-Tech Park, ShanghaiBio boasts over 200,000 square feet of research space. The company reports having received investments totaling US$45 million from government grants and shareholders including universities, research institutes, hospitals, and venture capital groups. With a client list including several multinational drug companies, Dr. Jin reports that the company is doubling or tripling revenues annually. Reported CRO revenues for 2007 to date are US$3.5 million, with revenues expected to grow to US$10 million next year.
Chinese CROs have been riding a wave of strong demand driven by the need for big pharmas to boost their pipelines. With drug development costs estimated by some to exceed US$1 billion per approved drug, pharma companies have been lured to China by its growing pool of Western-trained researchers and costs that can be 10% to 20% of similar services elsewhere.
Investors are paying attention to this growing trend, particularly since the successful IPO of Shanghai-based Wuxi Pharmatech (NYSE: WX). Priced at US$14, shares in Wuxi rose to over US$42 before pulling back in general market weakness. With shares now at US$28.26, Wuxi carries a P/E ratio of 64 and a price to sales for 2007 of approximately 13.
Other CROs have drawn attention including Hutchison China MediTech Ltd. (LSE: HCM) and privately held ShangPharma. ShangPharma recently became the center of increased IPO speculation after receiving an investment US$30 million from private equity firm TPG. Looking forward, other CROs of interest include ShangPharma affiliate Shanghai Bioexplorer, Shanghai Medicilon, ChinaBio Therapeutics, and Beijing based Bioduro.
Position: None
HIV & AIDS Cases Continue to Climb in China 11/29/2007
by Life Science: China
The number of persons infected with the HIV virus in China has risen to an estimated 550,000 to 850,000 with approximately 50,000 new cases this year, according to the “Chinese AIDS Joint Assessment Report 2007”. The total number of AIDS patients is estimated at 85,000 with over 22,000 deaths in 2007. Issued jointly by the Chinese Ministry of Health (MOH), UNAIDS, and the World Health Organization (WHO), the report was released today in Beijing.
The HIV estimates were based on the work of experts from the MOH, several Chinese universities, WHO, UNAIDS and the US Centers for Disease Control and Prevention. Overall, the prevalence of HIV/AIDS is relatively low, with an estimate of 0.04%-0.07% of the country’s population infected with the virus. However, certain geographical areas and subpopulations have significantly higher rates of infection, with the greatest number of persons living with HIV found in the provinces of Henan, Guangdong, Guangxi, Xinjiang and Yunnan.
The MOH reports that 42% of all HIV cases in China were caused by the use of injected drugs using equipment contaminated by infected blood. Former paid plasma donors, mostly found in central China, have prevalence rates as high as 65%. Sexually transmitted cases of HIV are increasing in prevalence, particularly involving unsafe sex between men. Studies have found the prevalence of HIV among men who have sex with men ranges from 1.5% in Shanghai to as high as 4.6% in Beijing.
There is evidence that the HIV epidemic is moving from these specific subpopulations into the general population. The prevalence of HIV in women is increasing, as is mother-to-child transmission. This is partly attributed to the increasing use of injected drugs among female sex workers, and unsafe sex practices between sex workers and their customers. Heterosexual transmission now accounts for 47% of China’s HIV cases. The WHO reports that major risk factors in China contributing to the spread of HIV include low awareness of HIV/AIDS, low rates of condom use, pervasive stigma and discrimination, high rates of mobility and migration and the availability and affordability of commercial sex.
Efforts by the Chinese government to control HIV/AIDS include increased infection testing and monitoring, public awareness campaigns, and international cooperation efforts. In addition, the government has initiated efforts to increase the availability of anti-retroviral agents including the National Free Antiretroviral Therapy Program which provides free antiretroviral drugs to low-income people.
As reported by the MOH, the National Free Antiretroviral Therapy Program covers 1,198 districts in China with a total of 39,298 persons with AIDS receiving free anti-viral therapy. The program provides zidovudine (Retrovir) or stavudine (Zerit) + lamivudine (Epivir)+ nevirapine (Virammune) free of charge. Zidovudine + limivudine (Combivir) and efavirenz (Sustiva) are also available on a limited basis.
China’s central government spending to fight HIV/AIDS has risen substantially over the past few years, from US$12.5 million in 2002 to over US$150 million in 2007. In addition, international NGOs have committed significant amounts in assistance. For example, the Global Fund to Fight AIDS, Tuberculosis, and Malaria has committed approximately $180 million to China for HIV prevention and treatment programs. Also, the Gates Foundation recently committed US$50 million to increase access to HIV prevention programs to China’s most vulnerable populations.
Like many countries China continues to struggle with HIV/AIDS. However, in contrast to past years it seems to making significant progress in its efforts to combat the epidemic. More progress is needed however, particularly in areas such as rural central China where the toll of the disease has been greater than elsewhere. The central governments efforts combined with an increased openness to direct assistance from international NGOs gives reason for a guarded optimism in the fight to curb HIV/AIDS in China.
Position: None
China’s TCM Makers Face Opportunities & Risks 11/28/2007
by Life Science: China
The traditional Chinese medicine (TCM) industry is at a major crossroads, and its makers face a number of opportunities and risks going forward. According to presentations made on Nov. 25th to the World Federation of Chinese Medicine’s “Chinese Medicine 2007 International Innovation Forum” in Shenzhen, China, the TCM industry faces “3 Major Opportunities” and “4 Major Risks.”
3 Major Opportunities
First, makers of TCM products are experiencing increasing demand for their products worldwide. According to the World Health Organization, 4 billion people use herbal medicine products to promote health and prevent or treat disease. The market for botanical products has reached US$300 billion, with demand for products growing 10-20% annually. Global demand for natural nutritional products is reported to be growing at a 70% annual rate.
Second, the TCM industry in China is receiving renewed governmental support. The industry has been designated a “national strategic industry” by the Chinese government and the development of traditional Chinese medicine industry has been included in the national economic and social development "11th Five-Year" plan. Such favorable treatment is expected to promote investment and further innovation in the industry.
Third, the industry’s strong growth is attracting increasing numbers of foreign joint ventures and increased foreign capital investment. The ability of domestic TCM companies to list publicly has increased investment, allowing these companies to restructure and expand their operations. This trend is expected to continue as international pharmaceutical industry investment capital chases the industry “hot spot”.
4 Major Risks
First, the theoretical basis of Chinese medicine in treating diseases has been increasingly challenged. In China, only 27% of hospitalized patients are willing to use TCM treatments. Established scientists in China have become more critical regarding the scientific basis of TCM, to the point where some recognized scientists have advocated the abolition of TCM.
Second, there is a worsening shortage of raw materials. Over-exploitation of wildlife resources considered to be valuable in medicine have pushed many species to the brink of exhaustion. Bulk production of medicine resources has been hurt by low yield, poor quality, and confusion over the naming of plant varieties. This has result in instability in the quality of TCM products and has eroded the sustainability of the supply of quality raw materials to the industry.
Third, TCM product innovation is lagging the consumer market. Presenters referred to the lack of innovation as “eating our ancestors savings”. Relying on traditional production technologies has resulted in multiple formulations for the same drug, dosing forms that are difficult to take compared to modern tablets, capsules, injections etc., and dosing schedules that require multiple doses per day which is inconvenient for modern consumers.
Fourth, international competition is intensifying. Chinese TCM makers are currently reported to hold only 3-5% of the global market for traditional medicine. Japanese manufacturers are said to account for 80% of the market, with South Korean makers at 10%. Also, manufacturers in developed countries are investing large amounts to increase their research into TCM.
3 Prescriptions
Speakers at the forum declared that the TCM industry had the potential to develop into China’s premier knowledge-based industry, and had important competitive advantages. They presented three prescriptions to advance Chinese medicine:
First, the industry needs to work with government and academia to strengthen the theoretical basis of Chinese medicine. This requires an increased emphasis on the educational background of TCM practitioners, and increased investment in research and development of TCM products. This also includes strengthening the protection of intellectual property rights to protect Chinese interests.
Second, Chinese medicines must become standardized in order to ensure their safety, effectiveness and quality. The theories of TCM should be integrated with modern science and technology to meet international standards in the mainstream modern Chinese medicine market. This indicates that it is necessary for TCM to conform to international standards in areas of pharmacology, safety evaluation and quality control. This should result in products with decreased toxicity and side effects, and with improved efficiency and convenience.

Third, the establishment of a global culture in Chinese medicine should be promoted. This includes encouraging the establishment of integrated Chinese pharmaceutical companies and industry technical standards. This also requires international exchanges to support the publication of TCM books, journals, papers etc. In addition, medical exchange including consulting and networking should be used to enhance the quality of Chinese medical services.

 

Source: Guangming Daily (in Chinese)
Position: None
Sanofi Aventis to Build Vaccine Plant in China 11/27/2007
by Life Science: China
Sanofi-Aventis Group (NYSE: SNY) has committed RMB700 million yuan (US$95.5 million) to construct a new influenza vaccine plant in the southern Chinese city of Shenzhen. As reported today in China Daily, the investment is the largest biopharmaceutical investment ever by a foreign drug maker in China.
Construction on the plant is expected to begin in early 2008, with completion anticipated in 2012. It is anticipated that the plant will be capable of producing 25 million doses of flu vaccine annually. The plant will be managed by Sanofi Pasteur, the vaccines division of the European pharmaceuticals giant which is said to be the largest company in the world devoted entirely to human vaccines.
The investment will build on Sanofi Aventis’ presence in China. With total annual sales of approximately RMB2 billion (US$273 million) the company is the sixth largest in China. The company’s current vaccine production base in China, located also in Shenzhen, delivered 5 million doses annually. Vaccine sales for Sanofi Pasteur in China have shown significant growth, rising 20% this year to RMB600 million (US$82 million).
The Chinese vaccine market is large and getting larger. China Daily reports that in 2006 the Chinese market was the largest in the world, totaling 850 million doses. With only about 5% of Chinese children receiving flu vaccination, there is significant room for growth. With an estimated 12 million doses of flu vaccine administered in 2003, this number is expected to grow by approximately 14% annually to 108 million doses by 2020.
"The time is right for Sanofi Pasteur to further invest in China as China is joining a growing number of countries focusing on the prevention of diseases," said Gerard Le Fur, chief executive officer of Sanofi-Aventis. “Products from the Shenzhen plant will satisfy the demand of Chinese market...If the market continues growing rapidly, we plan to double our capacity within 10 to 15 years.”
Position: None
China Medical Technologies Acquires Beijing Bio-Ekon 11/26/2007
by Life Science: China
China Medical Technologies, Inc. (Nasdaq: CMED), the Beijing, China-based medical device company that develops, manufactures and markets advanced in-vitro diagnostic (IVD) products and high intensity focused ultrasound tumor therapy system, announced today that it has agreed to purchase the entire equity interest in Beijing Bio-Ekon Biotechnology Co., Ltd. in a cash deal valued at US$28.8 million. The Company expects the acquisition to be accretive from the quarter ending March 31, 2008.
Founded in 1999, Beijing Bio-Ekon specializes in the development and sale of enzyme-linked immunosorbent assay (ELISA) analyzers and related reagents. Used in the diagnosis of diseases including parasitic and viral infections, the company’s fully automated ECLIA analyzer has a processing capacity of 120 tests per hour. China’s Ministry of Science and Technology has selected the company for its “863” Program for developing ECLIA reagents for HIV and hepatitis C tests.
Currently, the company offers 18 ECLIA reagents and has over 40 reagents in the pipeline, some of which are expected to help expand the reagent portfolio of China Medical Technologies. Beijing Bio-Ekon has also developed food safety reagents to test for contaminants including aflatoxin in cereal products and clenbuterol in pork. BBE applies Magnetic Antibody Immunoassay (MAIA) separation technology to develop its fully automatic ECLIA analyzer. MAIA is a technology suitable for high volume and fully automatic ECLIA analyzers and can enhance test results. BBE holds the Chinese patents for the MAIA minute magnetic beads which are important for the production of its fully automatic ECLIA analyzer.
''The acquisition is in line with our strategy to expand in the advanced IVD segment and increase our ECLIA products' penetration in hospitals across China. BBE has a solid customer base of over 800 hospitals and certain of its reagents and MAIA-based fully automatic ECLIA analyzer can expand our product portfolio and provide us with new business opportunities in the testing of parasitic infections and food safety. BBE's direct sales experience will also be beneficial to us in formulating our sales strategies.'' Said Xiaodong Wu, Chairman and Chief Executive Officer of China Medical Technologies.
China Medical generates revenues from three product lines, ECLIA diagnostic systems, fluorescent in-situ hybridization (FISH) diagnostic systems and high frequency ultrasound (HIFU) tumor therapy systems. ECLIA and FISH system sales include the sales of equipment and reagent kits. ECLIA accounted for over 43% of sales in the most recent quarter, rising 80% to US$12.4 million due to increasing utilization of ECLIA analyzers by hospitals and increasing demand for reagent kits.

CMED recently reported strong earnings for the September 2007 quarter, with net revenues growing 63.5% to US$28.7 million. Net income rose 8% to US$10.3 million, with net margins of 35.9%. Non-GAAP adjusted diluted earnings per American Depository Share increased by 37.5% year-over-year to US$0.50. The company raised revenue guidance for FY 2007 from US$114.8 million to US$118.1 million, and upped EPS guidance to US$1.98 to US$2.02.
Position: None
Beijing Med-Pharm to Distribute Novartis’ Enablex 11/26/2007
by Life Science: China
Beijing Med-Pharm Corporation (NASDAQ:BJGP), the Plymouth Meeting, PA based distributor of pharmaceuticals in China, announced today an exclusive agreement with Shanghai Novartis Trading Limited, a wholly owned subsidiary of Novartis AG (NYSE: NVS), to register, market and distribute Enablex in the People's Republic of China.
Enablex, the extended release version of the compound darifenacin, is in a class of prescription drugs known as muscarinic receptor antagonists and is used in the treatment of urinary problems due to an overactive bladder (OAB). Overactive bladder can result in urinary urgency, increased frequency of urination, and urinary incontinence.
Global sales of treatment for overactive bladder are estimated to be US$2.25 billion annually. The company reports that the condition afflicts an estimated 24-29% of the population in China over the age of 24, or over 200 million people, and treatment rates are historically low, with less than 15% of OAB sufferers seeking treatment. Under the terms of the agreement, Beijing Med-Pharm is responsible for attaining SFDA approval of Enablex, a process that is expected to last through 2010. Once approved, Beijing Med-Pharm will have the exclusive rights to sell, market and distribute Enablex in China for ten years.
"Today's announcement is a vote of confidence in Beijing Med-Pharm and speaks to our proven ability to navigate China's complex healthcare environment, from managing the approval process to ultimately optimizing sales and profitability. We believe this is one step in a successful, long-term relationship with Novartis," said David Gao, Chief Executive Officer of Beijing Med-Pharm.
"The potential sales opportunity for Enablex is extremely compelling in China. There are currently few medications available to combat OAB and, concurrently, millions of Chinese have not yet accessed treatment. While we are seeking SFDA approval, we plan to educate doctors and patients on OAB."
Position: None
US Food Protection Plan Will Impact Chinese Companies 11/21/2007
by Life Science: China
Earlier this month, the US Dept. of Health and Human Services (HHS) along with the Food & Drug Administration (FDA) announced the Food Protection Plan, a comprehensive initiative by the Food and Drug Administration designed to bolster efforts to better protect the nation's food supply. The proposal is likely to have a significant impact on Chinese producers of raw materials for the food, nutritional supplement, and pharmaceutical markets.
Conceived in response to well publicized episodes of contamination involving imported food and personal hygiene products, as well as recurring outbreaks of food-borne illnesses, the Food Protection Plan is an attempt by the US government to improve food safety. As stated by the FDA, the plan is composed of three elements – Prevention, Invervention & Response:
  • The prevention element means promoting increased corporate responsibility so that food problems do not occur in the first place. By comprehensively reviewing food supply vulnerabilities and developing and implementing risk reduction measures with industry and other stakeholders, FDA can best address critical weaknesses.
  • The intervention element focuses on risk-based inspections, sampling, and surveillance at high risk points in the food supply chain. These interventions must verify that the preventive measures are in fact being implemented, and done so correctly.
  • The response element bolsters FDA's emergency response efforts by allowing for increased speed and efficiency. It also includes the idea of better communication with other federal, state, and local government agencies and industry during and after emergencies.
The Plan follows on earlier efforts by the FDA and others to upgrade the Good Manufacturing Practice certification guidelines (cGMP) for food production. The new guidelines place stricter standards on the training of workers, materials handling procedures, and documentation involved in manufacturing both raw materials and finished food products. Additionally there is increasing emphasis being placed on inspections along the entire supply chain.
Food products play an important role in the production not only of nutritional supplements but also pharmaceutical products. This includes filler and binding compounds, coatings, coloring and flavoring agents. In the US, the quality of these products is overseen by the United States Pharmacopeia (USP), the official public standards-setting authority for all prescription and over-the-counter medicines, dietary supplements, and other healthcare products manufactured and sold in the United States. Similar agencies exist in Europe and other countries to oversee product safety.
The US is a major market for Chinese food products. Since 2002, imports of Chinese agricultural, fish and forestry products have grown nearly 70% to US$7 billion in 2006.
 The new regulatory proposals are sparking concerns in China. An analysis of the proposals by the China Health Care Association indicates that while many large manufacturers will be able to comply, a substantial number of small and mid-sized manufacturers are unlikely to meet the higher standards. As stated by association spokesmand Cheng Qin, “We believe that the new regulations on the small and medium-sized health care products manufacturing enterprises will give rise to huge economic pressure and will eventually force 50% of the enterprises to withdraw from the health field.”
Longer term, the new US regulations will likely prompt further consolidation along the pharma value chain in China. Domestic producers of lower margin raw materials will be squeezed as production shifts from supplying the export market to the domestic market. Larger producers capable of meeting the new export standards may be able to grab market share in the US and other markets as more marginal players get thinned out. Investors will need to pay close attention to factors such as capital sufficiency and the quality of management as these changes take effect. The best companies will likely find fertile ground for growth in the years ahead.
Position: None
China Medical Technologies Gains on Earnings, Guidance 11/21/2007
by Life Science: China
China Medical Technologies, Inc. (NASDAQ:CMED) , a China-based medical device company, reported its unaudited financial results for the second quarter ended September 30, 2007. Shares rose in a tough market on the strong report.
The company reported net revenues of US$28.7 million for the quarter, a 63.5% gain from the corresponding period last year. Gross profits were US$17.6 million or 61.5%, declining from the the 71.9% for Q3 2006. The company attributed the decline in gross margins to amortization costs associated with sales of its FISH diagnostic system equipment. Net income rose 8% to US$10.3 million, with net margins of 35.9%. Non-GAAP adjusted diluted earnings per American Depository Share increased by 37.5% year-over-year to US$0.50.
China Medical generates revenues from three product lines, ECLIA diagnostic systems, FISH diagnostic systems and HIFU tumor therapy systems. ECLIA and FISH system sales include the sales of equipment and reagent kits.
ECLIA accounted for over 43% of sales, which rose 80% to US$12.4 million due to increasing utilization of ECLIA analyzers by hospitals and increasing demand for reagent kits. HIFU sales grew 14.4% to US$12.2 million supported by increased volumes and higher sales prices. FISH systems, representing 14.3% of sales. Launched in June of 2007, FISH revenues for the quarter represented lower margin equipment placement sales, with higher margin reagent sales expected going forward.
On the expense side, SGA (sales, general and administrative) costs were US$3.7 million, an increase of 67% from last year’s third quarter. R&D expenses declined slightly to US$1.1 million or 3.8% of net revenues.
''We are pleased to report another strong quarter. 'Our FISH equipment has been placed with over 100 leading hospitals and has generated recurring reagent revenue in September quarter. We expect the FISH reagent revenue to increase rapidly in the following quarters. We are also encouraged by the approval of the Korean FDA on our HIFU system after receipt of the conditional approval from the US FDA for our IDE application. We believe the benefits of HIFU treatment for cancer patients will be gradually recognized by the global medical community over time,” ,'' said Mr. Xiaodong Wu, Chairman and CEO.
Looking forward, the company raised guidance. The Company has revised the current targets for FY2007 based on better than expected ECLIA reagent business. The Company has revised the current targets for FY2007 based on better than expected ECLIA reagent business. The revised targeted net revenues for FY2007 range from RMB860 million (US$114.8 million) to RMB885 million (US$118.1 million) from the previous range of RMB830 million to RMB870 million. The revised targeted net revenues represent a year-over-year increase of 57.2% - 61.8%.
The revised targeted adjusted net income excluding stock compensation expense and amortization of acquired intangible assets (non-GAAP) for FY2007 ranges from RMB410 million (US$54.7 million) to RMB420 million (US$56.1 million) from the previous range of RMB390 million to RMB410 million. The revised targeted adjusted net income represents a year-over-year increase of 32.3% - 35.5%.
The revised targeted adjusted diluted earnings per ADS excluding stock compensation expense and amortization of acquired intangible assets (non-GAAP) for FY2007 ranges from RMB14.80 (US$1.98) to RMB15.10 (US$2.02) from the previous range of RMB14.15 to RMB14.80 assuming a diluted number of ADS of 31,000,000 and excluding interest for convertible notes and amortization of convertible notes issuance cost.
The strong report and raised guidance was cheered by investors. On a difficult pre-Thanksgiving session, shares rose over 1% or US$0.42 to close at US$40.94.
Position: None
New Regulations May Squeeze Chinese Pharmas 11/18/2007
by Life Science: China
For China watchers it is a familiar ritual. Every five years, the Communist Party of China (CPC) meets to amend the constitution, select new leadership, and determine a philosophical, political, fiscal and regulatory direction in which to take the country for the next five years. The directives from the center then filter out to the ministries, provinces and municipalities to be put in force. As a result, the weeks following the meeting are filled with a flood of new regulations. This year is no different, and the regulatory direction taken by the central government will likely put a squeeze on China’s pharmaceutical industry.
Recent events in China practically mandated that the pharma industry would receive special attention. The corruption scandal at the State Food and Drug Administration (SFDA), resulting in the execution of the SFDA’s head and the jailing of numerous government officials, received worldwide attention. That the scandal also involved deaths due to substandard medications created greater furor, which was heightened by the subsequent global outcry over substandard Chinese products. The government signaled its intention to get tough with the industry when it appointed the “Iron Lady”, Vice Premier Wu Yi, to take charge of reform efforts.
The pharmaceutical industry is also considered critically important to the country’s future development. The government understands that an adequate healthcare system is vital to political stability, particularly in rural regions where the social safety net has become frayed. The industry also will play a central role in the government’s plans to develop a more balanced, higher value-added economy anchored by scientific and technological innovation.
Three significant types of reform have been or will be implemented this year:
1.      As of Oct.1 the government has begun enforcing its “Drug Packaging and Labeling Regulations” (药品说明书和标签管理规定). These regulation affect:
a.      Naming of Drugs – the regulations specify what generic name may be used on a drug, how the name is used and where it is displayed on explanatory inserts and packaging. Only trade names or marks that are approved by the SFDA are allowed.
b.      Labeling – specifications were set for the size of labels and the fonts used on external packaging. Restrictions were placed on the content of external labels, including claims made regarding the drug, and require the use of both English and Chinese on the label.
c.      Inserts – drug package inserts must contain information on the safety and effectiveness of the drug. This includes active ingredients for pharmaceuticals, all ingredients for TCM compounds, and potential side effects and precautions. The drugs approval dates must also be disclosed.
These regulations are designed to reduce excessive promotion, and decrease consumer confusion regarding generic versus brand name drugs. Along with increased costs associated with new packaging, there is concern among producers that labeling changes will erode the value of long-established labeling practices and brand names.
Along with stricter packaging regulations, the government is preparing new regulations covering advertising claims. Companies wishing to advertise their products must be licensed, allowing the government to restrict and monitor ad content. The SFDA reports that in the past year it has banned over 26,000 illegal drug ads and stripped advertising licenses from 11 companies for violating ad restrictions. The new restrictions, to take force Jan. 1, are reported to ban celebrity endorsements of a drug’s effectiveness.
2.      In response to the SFDA scandal, the regulations covering drug registration and the licensing and inspection of pharma manufacturers have been tightened. This includes restricting New Drug applications to include only those drugs that have not appeared on the Chinese market. For generic drugs, generics must be identical to the originals in safety, efficacy and quality. Drug evaluators are required to make spot inspections to ensure that samples and data submitted by applicants are consistent with the drugs submitted in the application. The government is also attempting to increase inspections of manufacturers of approved drugs, including the use of specially equipped mobile laboratories to allow for on-site testing of pharmaceutical ingredients and finished products.
The government is also increasing the requirements for obtaining the Good Manufacturing Practices (GMP) certification required to be licensed as a drug manufacturer. Previously the process allowed for GMP certification if less than three "severe defects" as defined in the standards were discovered in the entire drug making process, if the problem was corrected within a prescribed time limit. The new standards, effective Jan.1, 2008, allow no "severe defects". Further, companies falsifying application documents shall be regarded as having a "severe defect,” preventing the company from receiving certification.
3.      There will be increased regulation of waste discharge from pharmaceutical plants. The draft standards, released last week, cover practically all aspects of the production of pharmaceuticals and TCM products.
The draft regulations would establish stricter standards than those currently in force. For example, maximum chemical oxygen demand for waste water passing from active pharmaceutical ingredient manufacturers into municipal treatment plants will be tightened from 300 mg per liter to 200 mg/L. Newly established manufacturers will face an even stricter COD standard for waste water of 150 mg/L.
For investors in Chinese pharmaceutical companies, these increased regulations bear close observation. Regulations last year capping the price of many drugs hit pharma companies hard on the top line. The margins of Chinese drug producers this year have been under pressure due to rising costs of raw materials, including active pharmaceutical ingredients, and increased energy costs. Some herbal medicine components have also been in short supply.
Short term, the stricter regulatory environment will squeeze pharma company margins. With over 4000 licensed manufacturers in China, the government clearly wants to spur consolidation in the industry and is pursuing these regulations as a way to force more marginal performers to be acquired or go under. Stronger companies with diversified product lines and markets will be better able to adapt, and in the longer term will benefit from the consolidation. Innovation and new product development will be also be critical.

The news is not all bad however. The industry-wide data for the year through August show that healthcare sales are up 24.3% from the same period year for a total of RMB399.4 billion (US$53.3 billion). Total profits in China’s pharma industry are a reported RMB58.2 billion (US$7.8 billion), up 36.1%. Sales and profits were particularly strong in the chemical preparations and traditional Chinese medicine segments of the industry. The pharma industry in China is clearly full of potential and interesting investment opportunities. Careful investors that temper their expectations are likely to be richly rewarded in the years ahead.
Position: None
Pain Continues for Tiens Biotech 11/15/2007
by Life Science: China
Tiens Biotech Group (USA), Inc. (Amex: TBV),  a Tianjin, China based company engaged in the research, development, manufacturing, and marketing of nutrition supplement products, including wellness products and dietary nutrition supplement products, and personal care products. announced financial results for the third quarter ended September 30, 2007. The news reflected continued pain for the company and investors.
Revenue for Q3 2007 was US$11 million, a decline of 57% from the US$19.2 million reported for the same quarter last year. Revenues in China fell over 47% to US$3.4 million. International revenue was US$7.6 million compared to US$11.9 million for the third quarter of 2006, reflecting a nearly 64% year over year decline.
The company attributed the revenue shortfall to increased Chinese government regulatory efforts. In August of 2007, the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) announced an ongoing national campaign in China against unsafe food and substandard products. As a result of this campaign by the AQSIQ, there has been a general slow-down and backlog of export clearances for Chinese food products.
The company reports that these enforcement efforts have resulted in Tiens experiencing significant delays in obtaining export clearance for its products, which are sold to its international affiliates. These delays have resulted in decreases in international revenues and several of Tiens' international affiliates being unable to receive sufficient quantities of products to meet their demand. The company reports that to date, no deficiencies have been identified with any of Tiens' products.
Previously, the company reported that domestic Chinese sales were negatively impacted by regulatory changes regarding companies such as Tiens that engage in direct selling to Chinese customers. Among the regulations is a requirement that firms engaging in direct selling receive government approval. The resulting “increased government and media scrutiny on the direct selling industry” was reported to result in consumer uncertainty and a sales decline in Q2 2007.
The company’s direct selling is done through a related party, Tianjin Tianshi Biological Engineering Co., Ltd (Tianshi Engineering). Management reports that Tianshi Engineering has found that it is taking more time than anticipated to work through the approval process with the Chinese authorities. If Tianshi Engineering does not receive a direct selling license in China, then its ability to compete against its competitors who have received such a license may be hurt. As a result, Tianshi Engineering may lose distributors who find a competitor’s direct selling business and compensation model more attractive. This could materially decrease the revenues that we receive from sales by Tianshi Engineering in China. In 2006 Tianshi Engineering generated over US$27 million in revenues to the company, accounting for over 40% of total revenues.
Also of note in the quarter, on September 26, 2007, Tiens received notice from its principal independent accountant, Moore Stephens Wurth Frazer & Torbet, that it was resigning as the Company’s accountant effective immediately. At that time the company reports that there was no dispute between its accountants and the company, and that no adverse audit findings had been made.
September 27th the company announced that it was extending the terms of a loan made by a Tiens subsidiary to its related party Tianshi Engineering for the third time. The loan in the amount of RMB200 million (US$26.6 million) was made in January 2006 and originally due December 31, 2006. The loan was subsequently extended to June 30, 2007 then to September 30, 2007. On September 27, 2007, this loan was extended again to December 31,2007. The company has made no further comment regarding the resignation of its principal accountant, and subsequently announced the appointment of Grobstein, Horwath & Company, LLP as principal accountant.
The corporate structure of Tiens remains an issue for investors. As reported by the company, Tiens Biotech Group (USA), Inc. is owned 4.91% by public stockholders, 2.8% by officers and 92.29% by Mr. Jinyuan Li. Tiens is the sole owner of Tianshi International Holdings Group, Ltd., a holding company based in the British Virgin Islands. Tianshi International owns 80% and 99.4%, respectively, of Tianjin Tianshi Biological Development Co., Ltd. and Tiens Yihai Co., Ltd.
These two firms are the company’s operating subsidiaries in the People’s Republic of China. These subsidiaries in turn conduct many of their operations through related parties in China, including Tianshi Engineering, Tianjin Tianshi Group Co. Ltd (Tianshi Group), and Tianjin Tianshi Pharmaceuticals Co. Ltd. (Tianshi Pharmaceuticals).
Tianshi Group in turn is owned 90% by Mr. Jinyuan Li and 10% by his daughter, Ms. Baolan Li. Tianshi Group owns 87.66% of Tianshi Pharmaceuticals and 51% of Tianshi Engineering. Tianshi Pharmaceuticals owns 20% of Biological. Ms. Baolan Li owns 49% of Tianshi Engineering and 7.29% of Tianshi Pharmaceuticals. Tianjin Feishi Transportation Co., Ltd. owns 5.05% of Tianshi Pharmaceuticals.

Declining revenues and operational difficulties have soured investors on Tiens. After hitting a high of US$6.99 on Jan. 29th, shares have fallen nearly 60%. Thursday was particularly harsh, with investors hammering shares down nearly 20% to close at US$2.86. The current report gives shareholders little reason for encouragement.

Position: None
China Shenghuo Shares Hit on Revenue Shortfall 11/14/2007
by Life Science: China
China Shenghuo Pharmaceutical Holdings, Inc. (AMEX: KUN), a Kunming, China based company involved in the research, development, manufacture, and marketing of pharmaceutical, nutritional supplement and cosmetic announced its unaudited financial results for the third quarter ended September 30, 2007. Revenues were short, and investors were not happy.
For the third quarter, the company reported net sales of US$4.2 million, a decline of 17.6% from the same quarter last year. Gross profit for the second quarter was $3.2 million with gross margins of 75.3%, up from 74.4% the prior. The increased gross margin was attributed to an increase in sales prices. Net income during the quarter was $0.9 million, or $0.04 per diluted share.
The company attributed the sales shortfall to a tightening of credit policy, reporting that an adoption of more stringent credit policies caused a shift in its customer base and led to a decline in sales volume.
"The tighter credit policies posed a short-term challenge for China Shenghuo, but we have since replaced these customers with larger, more established buyers, which should help to bolster sales during the typically strong fourth quarter," stated Lan Guihua, Chairman and Chief Executive Officer of China Shenghuo.
In addition to the revenue shortfall, management also revised guidance downward. In the second quarter the company was anticipating revenues of between $24.0 million and $26.0 million and earnings of between $5.0 million and $6.0 million for the year. The company now expects full-year revenues of between $20.0 million and $22.0 million and net earnings of between $4.0 million and $5.0 million. The Company forecasts earnings per share of between $0.20 and $0.25 for the full fiscal year.
Investors were clearly displeased with the results. After reaching an all-time high of US$16.35 on Oct. 4th, shares had declined over 38% to US$6.24 as of Nov. 13th. In front of the earnings report, shares rose 17.3% to close at US$7.32. The surprise revenue shortfall and negative guidance were met with brisk selling in the afterhours, with shares falling nearly 25% to a recent US$5.50. With investors lacking visibility as to the revenue picture, shares of China Shenghuo will likely remain under pressure in a difficult market.
Position: None
3SBio Gains in After Hours on Earnings 11/13/2007
by Life Science: China
3SBio (Nasdaq: SSRX) a leading China-based biotechnology company focused on researching, developing, manufacturing and marketing biopharmaceutical products, reported its unaudited results for the third quarter ended September 30, 2007. Investors in the after-hours market bid up shares on the report.
For the third quarter the company reports that revenues rose to US$7.5 million, a gain of 57.3% over the same period last year. Operating income grew 61.5% to US$2.3 million, with operating margins of 30.7%. Net income jumped 151.4% to US$3.2 million, with net margins of nearly 43%. Net income per American Depository Share (ADS) was US$0.15, up 65.7% over the same period in 2006.
Revenue growth was driven by solid sales of the company’s EPIAO (recombinant human erythropoietin or EPO). EPO sales were US$4.8 million or 64% of sales. This represents sales growth of 30.7% over the third quarter of 2006. Sales growth was also seen in TPIAO (recombinant human thrombopoetin), which rose 171.6% to US$1.9 million.
“Our EPIAO products continued to maintain market leadership in the second quarter of 2007 in terms of revenues and sales volume in China, with market shares of approximately 36.8% and 30.8%, respectively,” said 3SBio CEO Dr. Jing Lou.
“In addition, sales of EPIAO have been bolstered by our newly created oncology sales force, which has been instrumental in allowing us to further penetrate the growing oncology market in China. We also witnessed continued market acceptance of our newest proprietary TPO product, TPIAO, which increased 171.6% over the third quarter 2006, representing 25.3% of our total revenues for the third quarter 2007."
Sales, general and administrative expenses rose 53% over the year, to US$4 million. Most of this rise in expenses was attributable to previously announced efforts to increase sales of its primary products in the oncology market. The company reports that it is expanding its hospital presence, targeting 121 addition hospitals in 14 provinces. Management also reports that it has received an exclusive access agreement to 19 hospitals run by the People’s Liberation Army. Export sales remain small at US$382 thousand, but the company reports new cGMP certificates from Pakistan and Colombia for its China facility. In addition, their EPIAO products are currently in the process of entering into Thailand's national insurance reimbursement list.
Research expenses were US$515 thousand or roughly 7% of revenues. 3SBio’s plans to complete Phase III clinical trials for Nuleusin, a high dosage (36,000 IU) EPIAO, and TPIAO for the treatment of idiopathic thrombocytopenic purpura at the end of this year are reported to be progressing in line with expectations. The company also reported favorable research findings on the use of its intravenous iron sucrose solution in patients with kidney disease.
Sources of “other income” have become an issue with other Chinese companies reporting this season, particularly income derived from gains in publicly traded equities. The company reports US$1.27 million of interest income for the quarter, derived from interest income on cash gained from its IPO. As of Sept. 30 2007 3SBio reported over US$120 million in current assets, primarily cash. This represents 10 times the amount held at the end of 2006.

Investor’s cheered the news from 3SBio. In the regular session shares closed at US$15.68, off over 30% from its recent high of US$22.75 in a tough market for stocks. Following the release in the after hours shares have rallied over 17% to a recent US$16.90.

Position: None
Wuxi Shares Jump in Front of Earnings 11/12/2007
by Life Science: China
 

Wuxi Pharmatech (NYSE: WX), a leading Shanghai-based pharmaceutical and biotechnology R&D outsourcing company., reported  selected unaudited financial results for the third quarter ended September 30, 2007. The company reported impressive growth.

The company reported total net revenues of US$34 million, an increase of 77% from the same period last year. Net income grew over 205% to US$8.6 million, making net margins 25.3%. Diluted earnings per American Depositary Share ("ADS") for the third quarter of 2007 were $0.12. Diluted earnings per ADS excluding share-based compensation expenses (non-GAAP) for the third quarter of 2007 were $0.15.

Research manufacturing was particularly strong, with gross margins up from 12.2% of the third quarter 2006 to 42.4% of the third quarter of 2007 due to larger projects and improved economies of scale.  Net revenues rose 212% to US$7.3 million.
Laboratory service gross margin was 48.2% in the third quarter of 2007, decreased by 4.1% comparing to the same period of 2006, primarily due to an increase in depreciation as a result of expanded laboratory facilities to support future business growth and the appreciation of Chinese Yuan. Net revenue from laboratory services increased to $26.7 million, rising 59.1% from Q3 2006.
Company management confirmed the opening of a new formulation development laboratory and its interim animal research facility in Suzhou, as well as breaking ground on a new drug safety evaluation center. They reiterated plans to continue to develop capabilities and capacity to offer fully integrated drug discovery and development services.
Based on the strong results, the company raised their full-year 2007 revenue target to the range of $131 million to $135 million, representing 87% to 93% increase over full year of 2006.
Overall, there was much for investors to like in the report. Prior to the report, Wuxi shares rose 8.4% to close at US$30.91. Shares slipped slightly in the aftermarket, down US$0.31.
Position: None
China Nepstar Rises on IPO 11/9/2007
by Life Science: China

China Nepstar Chain Drugstore (NYSE: NPD), the largest retail drugstore chain in China based on the number of directly operated stores, rose on its first day of NYSE trading. Nepstar offered 20,625,000 American depositary shares (ADSs) during its initial public offering at US$16.20 each, higher than its earlier expected range of US$11.50 to $13.50 per share. The much anticipated IPO was eagerly greeted by investors.

Nepstar has 1,791 directly operated drugstores located in 62 cities in China. The company reports that it had the highest revenue among all directly operated retail drugstore chains in China in 2004, 2005 and 2006. With FY 2006 revenues of US$227.6 million, the company states its revenue CAGR from 2004 to 2006 was 43.4%. For the six months ending June 30, 2007 the company had revenues of US$124.3 million, an 18.4% increase over the same period last year.

The company plans to use proceeds from the IPO to fuel its continuing growth and will spend:

  • approximately US$52.0 million to open new stores; 
  • approximately US$11.0 million to upgrade our information management and inventory control system;
  • approximately US$27.0 million to set up two new distribution centers;

the remaining portion for other general corporate purposes and for potential acquisitions of retail drugstore chains or independently operated drugstores. Nepstar specifically plans to grow in cities such as Beijing and Shanghai through acquisitions.

Goldman Sachs has reportedly invested as much as US$40 million in Nepstar, and holds 50 million ordinary shares, with 2 shares of common in each ADS. At today’s offering price these shares are worth in excess of US$400 million. Investors were also looking for green – at midday Nepstar was up over 17% to US$19.15.
Position: None
Chindex Gains on Strong Earnings 11/8/2007
by Life Science: China
Chindex International Inc. (NYSE: CHDX), a US-based healthcare company that provides healthcare services and supplies medical capital equipment, instrumentation and products to the Chinese marketplace, reported earnings after the close yesterday. The company beat expectations on both the top and bottom lines.
For the quarter ending Sept. 30 2007, revenues were US$32.7 million, up 23% over the same quarter last year. Net income rose over 45% to US$1.6 million, and earnings per basic share were US$0.22. With analyst consensus expectations for revenues of US$32.3 million and EPS of US$0.13, the company’s results represent a significant positive earnings surprise.
“Our continuing bottom line performance on a consolidated basis this quarter was again led by an increase in the profitability of our Healthcare Services division. This was fueled by continued growth in inpatient and outpatient results in both the Beijing and Shanghai markets,” said Chindex CEO Roberta Lipson.
"The Medical Products division reported profitable results for the quarter due to strong performance in imaging and surgical product categories. The market issues which have been impacting us over the past several quarters have not abated completely, however the pent up demand for imported medical devices which has been accumulating over the past two years is driving sales throughout the country now. Our outlook for the Medical Products division continues to be optimistic. We believe the conditions are aligned for continuing good performance in this division in the future."
Management confirmed that the company is moving ahead with its long-planned entry in the Guangzhou market, commencing with construction on an outpatient facility prior to developing inpatient services. Chindex is also planning a second Beijing facility and is expanding programs in preparation for the 2008 Beijing Olympics.
On a six month basis, healthcare service revenues accounted for US$30.7 million or 52% of total revenues. Operating margins for the quarter were 8%, with healthcare service margins of 13.5% and medical products margins of 1.7%.
Chindex also announced the investment of US$50 million in the company by JPMorgan Chase & Co. (NYSE: JPM). The investment, in the form of US$10 million in cash and US$40 million in convertible notes, is to fund the company facility expansion plans in China.

Shares were buoyed on the news, rising over 2% at midday to US$31.67. Shares are trading near their all time high of US$35.63, having risen over 770% in the past 2 years.

Position: None
Simcere Reports Q3 2007 Results 11/5/2007
by Life Science: China
Simcere Pharmaceutical Group (NYSE: SCR) reported unaudited financial results for the quarter ended September 30, 2007 before the bell today. Overall, the company’s results were solid. Total revenue increased to US$43.2 million, up 44.5 % from the same period last year. Gross margins improved from 79.0% to 81.7%, and net income increased to US$9.8 million for a 72.9% gain. Overall results were in-line with expectations.
The company’s revenue growth was driven by its 2 main products, Endu and Bicun. Endu, recombinant human endostatin used in the treatment of advanced lung cancer, had sales of US$7.1 million in the quarter, up 377.3% over the year but down slightly from quarter 2. Sales of Bicun (endaravone), used in the management of acute stroke, rose 83.8% to US$14.2 million. Generic products revenues rose 5.4% to US$21.8 million for the quarter.
The company reported R&D expenses of US$2.6 million or 6% of revenues. Ongoing phase IV clinical studies for Endu accounted for much of these expenses. In addition management attributed the slight drop in Endu sales to enrollment of some patients into the clinical trials. The company intends to continue clinical trials on Endu in combination therapy as well as on extended indications.
Simcere management also reported the completion of the company’s acquisition of Jilin Boda Pharmaceutical Co. Ltd. The acquisition, valued at US$14.8 million, adds the injectable edaravone Yidasheng to Simcere’s portfolio. The company plans to position Yidasheng in the low to mid end of the market, with Bicun at the high end. The company reports it now controls 100% of the injectable edaravone market in China.
The company’s results are in-line with current expectations. Net income for the first 9 months of 2007 is US$29.8 million, on track to meet analyst’s expectations of US$37.9 million for the year. The company continues to execute on its business model of building out its innovative drug portfolio while maintaining a solid foundation in the generics.

The key to the company’s growth is clearly its ability to innovate, so the results of Endu’s clinical trials over the next 2-3 quarters will have significant impact on the company’s top and bottom lines. Investors weren’t impressed with Simcere’s results, with shares down over 8% at midday. This likely reflect the in-line results, some limitation to the company’s upside potential until more clinical results are in, as well as general weakness in the Asian markets.
Position: None
AOB Reports Earnings for Third Quarter 2007 11/5/2007
by Life Science: China
American Oriental Bioengineering (AOBO) (NYSE: AOB) a Shenzhen-based manufacturer and distributor of plant-based pharmaceutical and nutraceutical products, reported its earnings for Q3 2007 after the bell today. The company reported revenues of US$43.5 million for the third quarter, up 60.7% from the same quarter last year. Gross profits rose 73.3% to US$30.7 million for a gross margin of 70.5%. Net income for the third quarter was US$11.9 million for a net margin of 27.4% or US$0.16 per diluted share.
The company reported that revenues rose due to growth in sales of its plant-based pharmaceutical (PBP) products, which grew 78.4% to US$35.5 million. The company also reported strong sales of its prescription drug lines, led by prescription products Shuanghuanlian and the Cease Enuresis Gel. Within the PBP lines, prescription products accounted for 44% of sales, with the remainder as OTC sales. On the conference call the company reiterated the importance of increased sales and higher margins of its OTC products.
Plant-based nutraceuticals brought in US$8 million in revenues or 18.4% of the total, representing an increase of 11.7%. The increased sales were a reflection of improving demand for the company’s soy peptide supplements. Operating margin decreased to 32.1%, from 34.5% in the prior year's third quarter, due to additional costs including a larger salesforce and higher advertising budget.
The company also reported completing two previously announced acquisitions, those of Changchun Xinan Pharmaceutical Group and Guangxi Boke Pharmaceutical Co. Tony Liu, Chairman and CEO, stated “"Our overall results for the third quarter demonstrate the achievement made through the execution of our two pronged strategy, which is to expand our business performance through organic growth and acquisitions. We expect this strategy will continue to bring us further opportunities down the road.”
For the full year 2007, AOBO anticipates revenue of approximately $160.0 million, a 45.2% increase compared to prior year revenue of $110.2 million. This guidance includes approximately $8.0 million in revenue from CCXA and Boke. For the full year, the Company anticipates diluted earnings per share of approximately $0.60, based on an estimated weighted average diluted share count of 72.0 million for the full year.
On the top line, revenue growth was above the 54.2% growth reflected in the analyst consensus. Earnings growth rate of 27.4% was slightly shy of the YOY analyst estimate of 29.3%, but EPS beat third quarter expectations of US$0.15. Full year EPS guidance of US$0.60 is in line with current expectations.Overall , the company seems to be executing on its plan of diversifying its product portfolio further in both the prescription and OTC market, and growing through targeted acquisitions that will be quickly accretive to earnings.
Investors will be watching margins closely, due both to materials cost increases that have occurred across the Chinese pharma industry as well as costs incurred in consolidating recent and future acquisitions. The company will need to demonstrate an ability to squeeze greater operating efficiencies and margins out of its acquisitions in order to keep moving forward on its business plan. Also, new quality-related regulations from the Chinese government have the potential to increase operating costs for all Chinese pharma manufacturers.
AOB shares had risen as much as 91% since the August low, reflecting a high level of investor expectations. Prior to the release, AOB shares rose US$0.30 or 2.26% to US$13.58 in a down market for Chinese stocks. In the aftermarket shares fell as much as 7% before recovering to US$13.25.
Position: None
Beijing Med-Pharm Completes Acquisition of Sunstone Pharmaceutical 11/1/2007
by Life Science: China
Beijing Med-Pharm Corporation (NASDAQ:BJGP) announced yesterday that it had completed its acquisition of 49% of Sunstone Pharmaceutical Co., Ltd. The acquisition was achieved through the purchase of a similar stake in Hong Kong Fly International Health Care Ltd., the holding company which owns 100% of Sunstone. The purchase price for this transaction was reported to be approximately USD $32.0 million and the acquisition is said to be accretive in 2007.
The minority stake acquisition was announced in April of this year. In September, Beijing Med-Pharm signed an agreement to purchase the remaining 51% of Hong Kong Fly International Health Care Ltd. The purchase price was set at 8 million unregistered shares of Beijing Med-Pharm’s common stock. Following this transaction the company has announced that it will undergo a name change to BMP Sunstone Corp.
"This acquisition will be a transformative event for Beijing Med-Pharm and provides many immediate and long-term benefits to our business,” David Gao, CEO of Beijing Med-Pharm, said earlier. “Sunstone will allow us to expand into the increasingly important channel for over-the-counter medicines in China, leverage the promotional reach of both OTC and hospital sales forces to attract more western products and partners, and enhance the strength and breadth of our management team."
Beijing Med-Pharm has been on an acquisition streak in 2007:
·         In January the company allied with British pharmacy giant Alliance Boots to acquire a 50 percent interest in Guangzhou Pharmaceuticals Corporation, the third largest pharmaceutical wholesaler in China with US$900 million in revenues in 2006. The deal, valued at US$72 million in cash, was approved by the Chinese Ministry of Commerce in August. It will give Beijing Med-Pharm and Alliance Boots access to more than 12,000 hospitals, pharmacies, and other wholesalers from eight distribution facilities located throughout GuangdongProvince and southeast China.
·         In March, Beijing Med-Pharm agreed to to purchase a majority interest in the Shanghai Rongheng Pharmaceutical Co., Ltd. Under the deal, the company will acquire a 63.3% stake in Rongheng. The US$12 million (revenues) Rongheng distributes over 400 pharmaceutical products to more than 250 hospitals in Shanghai. The acquisition is still awaiting Chinese government approval.
·         Also in March, the company signed a letter of intent to acquire a 49% interest in a joint venture with Guangzhou Biodian Medical Information Co., Ltd. (PICO). A healthcare information company, PICO is a subsidiary of the State Food and Drug Administration’s (SFDA) South Economic Research Institute. The deal is anticipated to give the company access to an extensive database of healthcare market information.
Originally founded in China in 1994 as Beijing Med-Pharm Market Calculating Co. Ltd., Beijing Med-Pharm is a pharmaceutical marketing and product registration company. The company has specialized in market analysis, market entry and distribution of domestic and foreign pharmaceutical products and devices for the Chinese market. The company listed in the US on the Pink Sheets in 2004 via reverse merger, and has subsequently moved to the OTC BB then onto the Nasdaq in 2006.
Acquisitions have fueled Beijing Med-Pharm’s growth. The company started by acquiring pharmaceutical distributor Beijing Wanwei Pharmaceutical Co., Ltd. in 2005. The company has leveraged its distribution by obtaining China market rights Western pharmaceuticals, predominantly in the women’s health space. This includes Cytokine Pharmasciences Propess and Misopress, KV Pharmaceutical Co.’s Clindess, and Taiwan Biotech Co.’s Anpo intravaginal medications. The company has also obtained rights to Lotus Healthcare, Inc.’s Galake, Shanghai Ethypharm’s Ondansetron, and Cephalon Inc.’s Fentora.
The company’s growth efforts are pushing revenues, with revenues for the six months ending June 30 2007 at US$12.9 million, up 27% from the same period last year. The company posted a net loss of US$3.25 million for the period. Due to the company’s ongoing growth, sales, general and administrative expenses (SGA) have kept pace with revenues, keeping the company in the red.
An investment in Beijing Med-Pharma is clearly a bet on the company executing its business model. Build-out of its marketing and distribution network should allow it to expand product lines and volumes, fostering further revenue growth. Until critical mass is reached, the company will continue to issue shares to fund its acquisitions. These share issuances will serve as an overhang on the stock.
Shares in the company fell 9% today on word that the company plans to sell US$23.1 million in 10% senior secured promissory notes due on May 1, 2009. The offering includes warrants with a five year term to purchase an aggregate of 575,000 shares of common stock of the Company and warrants with an eighteen month term to purchase an aggregate of 462,580 shares of common stock of the Company.
The net proceeds from the offering are expected to be approximately $21.9 million, which Beijing Med-Pharm will utilize in the previously announced Guangzhou Pharmaceutical Corporation acquisition, as well as for certain interest payments and the acquisition of rights to sell certain drugs in China. So long as the company is in a building and acquisition, positive revenue news will surely be accompanied by negative response to dilutive share issuance.
Position: None
Simcere Acquires Cancer Drug Maker 11/27/2006
by Life Science: China
Simcere Pharmaceutical Group (NYSE: SCR), a Nanjing, China-based manufacturer and supplier of branded generic and patent pharmaceuticals announced Monday that it has acquired 100% of Master Luck Corporation Limited, which holds 85.7% of Nanjing Tung Chit Pharmaceutical Co., Ltd. (Tung Chit), for a total cash consideration of RMB32.6 million (US$4.4 million).
Tung Chit is a manufacturer and supplier of drugs used in the treatment of cancer in China. Its anti-cancer product portfolio includes nedaplatin, injectable sodium demethylcantharidate and injectable mitoxantrone hydrochloride. Tung Chit's leading product, nedaplatin (trademarked as Jiebaisu) is a platinum-based chemotherapeutic drug approved for treatment of head-and-neck cancers, small cell and non-small cell lung cancers, and esophageal cancer.
Nedaplatin is a second-generation platinum compound that has a different activity and toxicity profile compared to its predecessor cisplatin (Platinol). In Japanese clinical studies it has shown superior antitumor activity and less renal or gastrointestinal toxicity when compared to cisplatin in which the drug was used to treat head and neck, lung, and cervical cancers.
Simcere management reports that Tung Chit’s Jiebaisu holds 80% of the Chinese market for nedaplatin. The acquisition is intended to expand the company’s portfolio of oncologic drugs. The company also expects to benefit from Tung Chit’s specialized and high GMP standard chemotherapy production facility and its’ anti-cancer chemotherapeutic R&D capabilities with In addition, Simcere expects to leverage its existing marketing resources and network to increase Jiebaisu's hospital penetration, market share and sales revenue.
The incidence of cancer in China is growing due to a number of factors including an aging population, high rates of tobacco use and environmental conditions. China’s Ministry of Health reports that between 2000 and 2005 the number of new cancer cases in China rose 14.6% to an estimated 2.4 million cases. Particularly large increases were seen in lung cancer (up 26.9% in men and 38.4% in women) and in female breast cancers (up 38.5%).
The oncology market is important to Simcere. The company’s Endu (recombinant human endostatin injection) had sales for the first nine months of 2007 of US$20.3 million, accounting for approximately 16% of the company’s total sales. Endu, approved in China for treatment of non-small cell cancer of the lung (NSCLC), showed sales growth of nearly 380% for the third quarter of this year.
Position: None
Agria Corp. Falls on IPO 11/7/2006
by Life Science: China
Agria Corp. (NYSE: GRO) a Beijing-based provider of agricultural products, fell over 26% on its NYSE debut today. Agria shares priced at US$16.50 last night. After hitting a high of US$17, shares fell steadily throughout the session to close near their low at US$12.06, down nearly 27% on the day.
Agria’s. primary products are corn seed, seedlings, and sheep breeding. The company’s corn seed products are grown in seven provinces in China through contractual arrangements with village collectives and seed production companies. The sheep breeding products including sheep semen, sheep embryos, and live sheep are developed in five breeding bases located in Shanxi province. The seedlings business consists of a variety of seedlings including raspberry, blackberry, date and white bark pine sold to various customers including municipal governments and commercial nurseries.
The company’s initial filing highlighted some red flags. The company reported that for the six months ending June 30, 2007, revenues were US$36.7 million, up less than 4% from the same period last year. Despite characterizing itself as firm specializing in agricultural research and development, Agria spent less than 1% of revenues on R&D in 2006.
The company’s ownership structure was also troublesome in regards to its “effective control” of Primalights III Agriculture Development Co. Ltd. or P3A, its primary Chinese subsidiary. The company reports that “P3A has four record shareholders, consisting of Ms. Juan Li who is the wife of Mr. Guanglin Lai, our chairman of the board of directors, our co-chief executive officer and a beneficial owner of our ordinary shares, Mr. Zhaohua Qian who is our director and a beneficial owner of our ordinary shares, Mr. Zhixin Xue who is our chief operating officer and director, and Mr. Mingshe Zhang who has been involved in the management of P3A.”
P3A is the primary source of revenue for Agria Corp.. Due to the restrictions on foreign ownership of seed development and production businesses, the company is dependent on P3A to operate in the PRC. Should the contractual relationship between Agria and P3A sour, the revenue flows of the company could be impaired. In the event of a contract dispute, experience has shown that in Chinese courts the rights of domestic owners can take precedence over those of foreign investors.
Position: None
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