China Biotech in Review: Investments, Deals and Earnings

Includes: A, CBPO, KURU, TBV, TCM
by: ChinaBio Today

At ChinaBio Today, we kicked off last week with an in-depth look at 2008’s venture capital investments in China’s life science industry (see story). The full-year numbers show a relatively small 16% falloff from 2007's record investment pace, despite the worldwide economic collapse. However, full-year 2008’s numbers are distorted by a very strong Q1, followed by three quarters in which 2008’s activity was substantially below the year earlier. The venture capital review is part of our series “The State of China Biotech.” Earlier we presented research on life science patents since 2000, and we have a review of deals, both partnering and merger, still to come.

Providing an example of one trend we identified in our venture capital review, Zhangjiang Hi-tech Zone announced a 1 billion RMB ($147 million) fund to support young life science companies (see story). Called the Zhangjiang Biopharmaceutical Industry Fund, it will assist companies with biopharmaceutical, medical device, diagnostic reagent and traditional Chinese medicine products. To qualify, the projects must be approved for clinical trials or production/marketing, or be about to enter the clinical investigation stage. We noted that local governments are starting funds as venture capital becomes harder to secure.

Research collaborations were also in the news last week. Agilent Technologies (NYSE: A) and a team from the Shanghai Institutes for Biological Sciences and Tongi University published new insight into stem cells (see story). They showed how adult cells can be coaxed into a pluripotent state where they act like embryonic stem cells (ESC). Pluripotent stem cells have the ability to grow into all types of tissue. The researchers observed a developmental signaling network of 16 signaling pathways, including nine that had not previously been assigned roles. The results were published in the journal Cell Research.

A new partnership has been established that will investigate traditional Chinese medicines for a new, more effective treatment of tuberculosis. The Institute of Microbiology (IMCAS), a member institute of the Chinese Academy of Sciences, will team up with the Global Alliance for TB Drug Development (TB Alliance) to do the work (see story). IMCAS, which is located in Beijing, has completed a pilot screen that identified 24 natural product extracts as having potential anti-tubercular activity. IMCAS and the TB Alliance will collaborate to test these extracts further.

From the deal desk, Tongjitang Chinese Medicines Company (NYSE: TCM) announced it will acquire Anhui Jingfang Pharmaceutical Co., a privately owned company, for 60 million RMB ($8.8 million) (see story). Like Tongjitang, Jingfang is a TCM drug company with products in the orthopedics and geriatrics markets. Jingfang's product portfolio includes more than thirty Western and traditional Chinese medicines. The company is profitable, producing revenue of 56 million RMB in 2007, which fell to 41 million RMB in 2008. It is Tongjitang’s third small acquisition since it made its IPO in 2007.

In a week that saw Q1 become Q2, China biopharmas continued to post earnings from year-end 2008. China Biologic Products (NASDAQ:CBPO), a plasma-based pharmaceutical company, was pleased to announce that 2008 revenues climbed 44% to $46.8 million, a record, and net income increased 47% to $12 million, equivalent to 56 cents per share (see story). The company has been able to prosper in part because supply constraints have caused higher prices. China Biologic forthrightly admits that a beneficial foreign exchange translation was responsible for another 12.5% in the increase. The company continues to gain market share through acquisitions.

Kun Run Biotechnology (OTCPK:KURU), a company that focuses on peptide-based drugs, said 2008 revenues climbed 56% to $11.6 million (see story). Net income nearly tripled from the year earlier, rising to $6 million or 52% of sales on a non-GAAP basis. Earnings per share were 24 cents, fully diluted. The $6 million net income number includes a $2.4 million extraordinary gain from the sale of property, and also reflects a one-time charge for a Make-Good Provision, which reduced earnings by $1.3 million. With just 13 shareholders, anyone wishing to make a trade in Kun Run should first find someone to take the other side.

And finally, Tiens Biotech Group (NYSEMKT:TBV) reported that 2008 revenues rose 41% to $77.2 million (see story). Net income was higher by 54% to $27.7 million or 39 cents per share, up from 25 cents per share in 2007. Tiens said its revenues were helped when Tianshi Engineering, a related company that sells Tiens’ products in China, announced in October that it would raise prices. The announcement caused customers to buy Tiens’ nutritional supplements and personal care products before the price increase.

Disclosure: none.

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