As Greg Scott, our Executive Editor, wrote last week, the 4th ChinaBio Investor Forum showed activity in China biopharma remains high (see story). At the forum, young biopharmas showed off their innovation and VCs were interested. Still, it is true that the worldwide economic troubles are having an effect: IPOs are currently moribund and VC investments are trending lower. Nevertheless, at least at the Investment Forum, the general mood remained upbeat.
For one thing, in China, a growth rate of a mere 8% is considered hard times, implying that some perspective is necessary. Plus, China's government has committed itself to stimulating the economy, with healthcare a prominent target. There is an additional very interesting factor. If times are tough, and worldwide pharma has to watch its spending, doesn't it make sense to turn to the country where talent is abundant and costs are low? Won't the economic slowdown be good for China's CRO industry and the in-house China R&D centers? And, it doesn't hurt that China has one of the fastest growing healthcare markets, making the country even more attractive to global pharma. Perhaps the economic slowdown will accelerate the growth of China biopharma instead of slowing it down. As Scott says, it may be "China's time" to leapfrog ahead of less well positioned countries.
The impression that China biopharma remains vibrant is borne out by reports of deal activity so far in 2008. According to data developed by our sister organization, ChinaBio Consulting, there were more M&A deals in China biopharma during the first 10 months of 2008 than in all of 2007 (see story). The dollar value is also higher this year. However, the average deal size has dropped from $41.7 million last year to $25 million in 2008. And the economic climate is having its effect. Fully half of the deals were announced in the first quarter of the year. Q2 fell sharply, before the full extent of problems was manifest, and activity rebounded in Q3, though it remained below the hectic pace of the first quarter. With two months left before the year closes out, 48 deals have been made with a total value of $1.2 billion. Q1 witnessed two large transactions including the WuXi PharmaTech (WX) acquisition of AppTec for $151 million, and the Mindray Medical (MR) $202 million purchase of Datascope's (DSCP) patient monitoring business.
In new deals announced this week, China Medical Technologies, Inc. (CMED) said it will sell its High Intensity Focused Ultrasound tumor therapy system business to Mr. Xiaodong Wu, China Medical's Chairman and CEO, for $53.5 million in cash (see story). The sale will complete the transformation of China Medical from its legacy HIFU business into a company built around IVD products, with two major product lines, FISH and ECLIA diagnostics. These product lines are growing more quickly than the HIFU machines subsidiary, and the products deliver much higher margins. The selling price seemed low, however, at just one time revenues.
China Biologic Products, Inc. (CBPO) announced changes in its acquisition of a 90% controlling interest in Chongqing Dalin Biologic Technologies Co. (see story). Dalin currently owns a 54% stake in Qianfeng Biological Products Co., Ltd., which for China Biologic is the object of the acquisition. Like China Biologic, Qianfeng is a plasma-based biopharmaceutical company. While performing its due diligence, China Biologic found that Dalin owns only a 43.3% interest in Qianfeng instead of the 54% stake that China Biologic originally bargained for. Legal wrangling prevented Qianfeng from officially registering new shares it sold, which caused China Biologic's misapprehension. Despite the news, China Biologic intends to go ahead with the acquisition without any significant changes in the terms.
As another indicator of positive activity, BMP Sunstone Corporation (BJGP) increased its non-GAAP net income guidance slightly for full year 2008, raising the range by $1 million to between $5 million and $6 million (see story). At the same time, the company reiterated its forecast that revenues will total between $110 million and $120 million this year. BMP Sunstone has been very effective in using acquisitions to build its business.
In new products news, China Aoxing Pharmaceutical Company (OTC:CAXG) was given a production license by the SFDA for Ligustrazine Phosphate Injection to treat ischemic cerebrovascular disease or ischemic stroke (see story). Ligustrazine is a TCM substance that promotes blood circulation by dilating blood vessels and slowing coagulation. China Aoxing said that 2 million people in China are newly diagnosed each year with ischemic cerebrovascular disease.
China Sky One Medical, Inc. (OTCPK:CSKI) is having a strong year-end finish in its year-long new-product onslaught. Sunday, the company announced SFDA production approval for two additional drugs, after receiving approval for two other new products last week (see story). The most recent approvals are for Sodium Cromoglicate Eye Drops, a treatment of allergic conjunctivitis, and Ftibamzone Liniment, a treatment for herpes and fungal skin infection. The new products will be launched early in 2009.
And finally, a reminder came last week that bird flu is still with us. Health officials in Hong Kong are examining samples from a supposed outbreak of bird flu to see whether they represent a new strain of the virus (see story). The tests are being carried out in laboratories in Hong Kong and on the China mainland. The samples were taken from a group of approximately 60 chickens who died suddenly last week. The cause is surmised to be some version of the H5 flu virus, because other versions are not so deadly. The government is concerned that the virus may have mutated, requiring a change in the vaccine given to farm animals.