China Biologic Buys Another Plasma-Based Pharma

| About: China Biologic (CBPO)

China Biologic Products, Inc. (NASDAQ:CBPO) continued its acquisitive path by announcing its intention to purchase a 35% stake in Xi'an Huitian Blood Products Co., Ltd. Both company manufacture plasma-based pharmaceuticals. China Biologic will pay 44 million RMB ($6.4 million) for the purchase of Huitian, the only biopharmaceutical manufacturer in Shaanxi Province, which has a population of 37 million.

Two weeks ago, China Biologic announced a $28.5 million deal under which it will acquire a 50% controlling interest in Qianfeng Biological Products of Guizhou Province, also a plasma-based pharma.

China Biologic said the two acquisitions will allow the company to increase its 2009 financial targets by 100%. This year, the company expects revenues of approximately $49 million and net income to range between $9 and $10 million. The two acquisitions will contribute to only a portion of the Q4 results. Assuming full consolidation of the acquisitions, China Biologic predicts revenues in 2009 will reach between $90 and $100 million, while net income will total from $18 million to $22 million.

Huitian, the newest purchase, claims a 1.2% market share of China’s plasma-based products. The company has 200 tons of annual production capacity, though it currently produces only about 80 tons of plasma-based products per year. Together with its acquisition of Qianfeng, the Huitian deal gives China Biologic a combined market share of approximately 17%. China Biologic says it is now the largest non-state owned enterprise in the sector. China’s plasma-based pharmas are highly fragmented: the top 6 producers have a combined market share of only 50%.

China Biologic will upgrade Haitian’s facilities, build its R&D program and provide management help to the company. Its goal is to increase the supply of plasma and boost utilization rates at the company. Huitian has three plasma stations in Shaanxi Province, all of which meet government standards. At one time, Shaanxi had ten plasma stations, but that number has fallen to four, following the government crackdown on non-compliant plasma collection. To China Biologic, the situation means Shaanxi has great production potential.

China Biologic expects to fund the purchase with bank loans. The remaining 65% interest in Huitian is owned by Shaanxi Power Construction Group Corporation. Both China Biologic and Shaanxi Power Construction have agreed not to sell their equity interests in Huitian to a third party within the next five years. Each party gave the other the right of first refusal thereafter. Given the opportunity, China Biologic would like to acquire the remaining interest from Shaanxi Power.

Disclosure: none.