China Medical Wrestles with Daunting $345 Million Acquisition

China Medical Technologies (CMED) told investors it would release a preliminary Q2 (ended September 30, 2008) financial report on November 18, but a full announcement, complete with answering questions from analysts, will wait another month until December 18. As reason for the delay, the company said it must determine the value of tangible and intangible assets involved in its eye popping $345 million acquisition of the HPV-DNA Chip and SPR-based Analysis System.

China Medical issued its release in part to address questions from investors about its balance sheet. The company said it has no interest in any financial derivatives and has no bank borrowings. Its only indebtedness consists of two convertible note offerings: $150 million of 3.5% notes due November 15, 2011, and $276 million of 4% notes due August 15, 2013. Neither offering can be redeemed before their maturity dates, the company pointed out.

As we noted in early October, when China Medical announced its HPV-DNA chip acquisition, the company has grown by making adroit purchases of advanced in-vitro diagnostic devices. The majority of its revenues now derive from its ECLIA and FISH diagnostic platforms. Meanwhile, sales of its High Intensity Focused Radiation (HIFU) Ultrasound anti-tumor systems have become less central to China Medical’s financial well-being as the diagnostic side of its business has prospered.

The size of the purchase is, nonetheless, daunting. China Medical said the potential market for cervical cancer (HPV) testing in China is $700 million. However, the acquisition is expected to add just $25 million in revenue during the 2009 fiscal year (ends March 30, 2010). Sales will begin in the first quarter of its 2009 fiscal year.

Disclosure: none.