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Tongjitang Chinese Medicines Company (NYSE:TCM) announced its shareholders approved a $20 million share buyback program at the company’s general meeting. The resolution calls for the company to complete a purchase of “up to” $20 million worth of its ADSs within the next 18 months. The program had been announced previously.

Tongjitang has 134.6 million shares outstanding, fully diluted. Each ADS, which trades on the New York Stock Exchange, is equivalent to four ordinary shares. Approximately one-third are controlled by Tongjitang’s Chairman and CEO, Mr. Xiaochun Wang.

Tongjitang’s share price responded positively to the announcement, climbing 33 cents (13%) to $2.81. At a price of $3 per ADS, a $20 million buyback could retire 6.7 million ADSs or almost 27 million ordinary shares. The company’s IPO, conducted early in 2007, floated only 10 million ADSs.

As we have reported, Tongjitang’s share price is under pressure because the company’s revenues are not growing. Sales of its most important product, the osteoporosis treatment Xianling Gubao, are in decline. Competitors are eating into the profits of Xianling Gubao by selling counterfeit versions of the product. Tongjitang has made two small acquisitions with the $100 million it gathered by staging an IPO. And the company has eleven products in development, though none have been approved thus far. As a result, Tongjitang remains dependent on the flagging fortunes of Xianling Gubao.

CEO Wang offered to take Tongjitang private this spring at $10.20 per ADS. But the deal was scuttled, and the price of an ADS fell below the $2 level.

Tongjitang ended the second quarter with $106.6 million in cash, which is roughly equal to its market capitalization.

Disclosure: none.

Source: Tongjitang Shares React Well to Buyback News