Seeking Alpha
Profile| Send Message|
( followers)  

Recently, Cabeza Howe, who openly discloses that he is shorting China Sky One Medical, Inc. (OTCPK:CSKI), has made significant efforts to paint a dramatically negative picture when it comes to China Sky One Medical. His strongly negative bias is clearly demonstrated by even his choice of words such as “rips off,” “shoddy,” “fraudsters,” and “sadly.” Words like these are not normally used when trying to write an objective analysis. Instead, they indicate the presence of a clear agenda by the author to drive the price down, and profit from his short position. Although this alone is not a reason to disregard his points, it certainly calls into question his credibility.

As an investor who is long CSKI, I was concerned with Cabeza Howe’s article, and I took it upon myself to contact China Sky One Medical and do some personal due diligence. In order to narrow the focus, I decided to concentrate on the Sumei Slim Patch, which Cabeza Howe criticizes heavily while emphasizing that it represented “24.3% of CSKI’s total revenue in the first nine months of 2008.” Here are the results of my findings. I believe it will represent another point of view that will be valuable to investors who are holding and watching CSKI.
A) Sumei Slim Patch – Part 1
First, here is a direct response from the company with translation in English:

Q: Regarding to some consumers complained the inefficacy of slim patch and its advertisements were banned from TV.

件事的起因是假冒害消者,于是消者投到北京消协会动与费协会沟品的品、用户进调查之后,消协会非常理解撤消了任追西药业与们厂家至今未受到任何处罚,我的广告在正常刊详见陕西药业明!

A: This incident is attributed to counterfeit products. Consumers bought fake products and became upset about their efficacy. They filed complaints to Beijing Consumers’ Association. China Sky One and Shaanxi Xintai Pharmaceutical Co., Ltd., the exclusive distributor of the Sumei Slim Patch in China, provided full cooperation in the association’s investigation. We provided sample products manufactured by China Sky One that were compared to the fake products and we joined the on-site investigation to visit customers. At the end of the investigation, the association uncovered the truth and the complaints were withdrawn. Neither China Sky One nor Shaanxi Xintai has received a single penalty notice. Our advertisements are still published in the media. We have also provided the statement from Shaanxi Xintai here for your reference.

B) Sumei Slim Patch – Part 2
Below is a response from Shaanxi Xintai Pharmaceutical Inc., the distributor of the Sumei Slim Patch:

Explanation of Sumei Slim Patch marketing approaches from Shaanxi Xintai Pharmaceuticals Co. Ltd.

Dear Mr. Liu

I received concerns from U.S. investors and you regarding the marketing methods for the Sumei Slim Patch. Our marketing experts and after-sales service staff had a meeting to summarize the information related to this. As the distributor of Sumei Slim Patch, we have the answers to investors’ questions and concerns. Please the explanation below:

1. Our main marketing approach is through television commercials. We included the contact information and mailing address in the TV commercial. This approach is called ‘non-store’ marketing, rather than ‘TV shopping.’ As a distributor for one and a half years, we have never received any notices from related government offices questioning the approach and have received no penalties. We are a qualified distributor with legitimate business qualifications and legal marketing approaches. As a result, we were very surprised over the U.S investors’ questions. Since they never discussed our marketing approaches with us, how could they raise these questions?

2. Regarding the effectiveness of the product, we’ve never claimed 100 percent effectiveness in the advertisements. Thus, there is no over promotion or exaggerated information that was given. According to the online posts, questioning the effectiveness of the product, we conducted market research and found that the majority of ineffective products are fake and are shoddy goods. We have contacted CCTV and Beijing Consumers Association to follow up with the consumers who posted messages online. We found they were all victims of fake products. We took several actions to fight against fake goods and the counterfeit products have mostly disappeared.

3. Since we became the distributor of this product, we have not received any consumer complaints or any punishments from the government. If necessary, we can provide evidence from the industrial and commercial administrative department.

4. Sales volumes for the Sumei Slim Patch are huge. In 2008, sales reached 4 million boxes and at least 1 million customers are using the product. Considering the large number of consumers, it is normal for there to be some consumers who are not satisfied with the product. However, this product is the top external-use weight loss product brand in China. There is no doubt that the product is effective and reliable.

5. There are no laws or regulations in China specifying that weight loss products are not allowed to do TV commercials. But according to the requirements of The State Administration of Radio, Film and Television (SARFT), weight loss products may not run TV commercials on China Central Television during prime times.

Shaanxi Xintai Pharmaceutical Co., Ltd.

April 23rd, 2009

C) Sumei Slim Patch – Part 3
Finally, I was also provided with a “Medical Clinical Trials Report” conducted by Heilongjiang Province Hospital for the Sumei Slim Patch dated 6/3/05. The hospital’s stamp was included on the document but could not be transferred to this post.

Medical Devices Clinical Trials Report

Product NameSumei Slim Patch

Model/Specification8*8cm±0.5 cm /piece 28 pieces/box ...

CompanyChina Sky One Medical Inc.

Medical Institution conducting the clinical trials:

Heilongjiang Province Hospital

Type: Clinical trials

Signature:

June 3rd, 2005

I. General information for the clinical trials: (Disease, the total number of cases and case selection)

1. Disease: Mainly used for people who are obese or overweight.

2. Case selection: Patients were outpatients. They were randomly divided into two groups when they sought medical treatment. The two groups were the experimental group and the control group.

3. Total number of cases: 54. 50 complete cases, including 13 male cases and 41 female cases. The age range is from 20 to 52 years old.

II. Clinical trial methods:

Volunteers were randomly divided into two groups according to the treatment. The first group will paste the Sumei Slim Patch on the Shenque acupuncture point 8 hours every night for 28 days. The other group will use a placebo.

III. Statistical methods:

This report follows the double-blind method, which conducted independent statistics for both the test group and the control group. Based on clinical evaluation criteria, the report will record the weight changes before and after using the patches and transfer the qualitative data into quantitative data.

IV. Clinical evaluation criteria

1. Evaluation criteria:

The evaluation criteria are based on the World Health Organization definition of obesity. The criteria is the body mass index (BMI) values calculated as the weight / height squared (kg / ): BMI <18.5 is too light; normal range is 18.5 BMI <24; obesity overweight: 24 BMI <27; mildly obese: 27 BMI <30; moderately obese: 30 BMI <35; severe obesity: BMI 35

2. Efficacy criteria

Invalid: The experimental group using the Sumei Slim Patch compared to the control group using the placebo shows there is no change in BMI values or even higher in BMI values.

Effective: The experimental group using the Sumei Slim Patch compared to the control group using the placebo shows that there is weight loss within two BMI values.

Significantly Effective: The experimental group using the Sumei Slim Patch compared to the control group using the placebo shows weight loss between 2 to 3 BMI values.

Clinical control: weight loss over 3 BMI after using Sumei Slim Patch

3. Safety evaluation:

Irritation and/or allergic reactions on the pasted skin area after using the Slim Patch. Any abnormal feeling or discomfort on patients’ skin or whole body.

V. Duration of clinical trials

Sumei Slim Patch is based on the meridian theory of traditional Chinese medicine and on bio-magnetism theory. It uses the external magnetic effect to stimulate the Shenque acupuncture point and the far-infrared resonance with the human body effect to activate the pass through the meridian points of the self-adjustment system. The test time is 4 weeks. By using the method to select cases and conduct trials at the same time, the trials lasted for 58 days. Including a 2-day statistical analysis, the total trial duration is 60 days.

VI. Clinical trial results:

Efficiency = (A + B + C) ÷ the total number of cases × 100%

Statistical analysis: test group and control group P = 0.001 <0.01, significant difference; Test results showed that the use of Sumei Slim Patch is effective for the treatment of simple obesity.

VII. Side effects found in clinical trials:

The clinical trials revealed two cases of adhesive plaster allergies (one for each group), in day 9, 11, 15 and 16. The symptoms were swelling, itching, and papules. These allergic patients stopped using the product and were immediately removed from the experiment. No other adverse events were recorded.

VIII. Analysis of clinical trial results:

Obesity seriously endangers the health of human beings. According to medical statistics, instances of heart diseases, hypertension, and diabetes are three times higher among obese patients compared patients of a normal weight. The likelihood of atherosclerosis is 2-3 times higher than in normal weight patients, and the likelihood of cancer is 2 times higher compared to normal weight patients. Obesity is also tied to stroke, high cholesterol, respiratory disease, and skin disease, among other diseases. In addition, obesity has a serious impact on human life expectancy.

The Shenque acupuncture point connects all meridians of the human body. It is related to the cycle of body’s operation and is directly connected to the organs, limbs, other acupuncture points, as well as to skin and body texture. The navel is an area of the body with multi-umbilical skin folds and increases the contact area and enhances absorption while using the slim patch. The Shenque point is connects the internal human body and the outside body. By using the patch, the magnetic effect may penetrate the Shenque point to stimulate the nerve ends and adjust body fluid. It may improve immune function, accelerate the blood circulation, and adjust the metabolism of fat. At the same time, as a result of the far-infrared resonance within the human body, the Slim Patch may heat internal fat and achieve weight loss.

Traditional Chinese medicine believes that the human body has a magnetic field. Chinese medicines combined with acupuncture methods can change the magnetic field and affect the human body’s nerve cells and the endocrine system. A large number of medical practices have proved that changing the external magnetic field will influence the internal nervous system by increasing cell energy, thus accelerating the metabolism. When the external magnetic effect acts on the body at certain points, it is similar to acupuncture. The experimental results show that the efficiency rate of the experimental group was 76.92 percent versus the control group response rate of 17.86 percent. The Slim Patch can achieve certain effects when attached at the right point (the Shenque acupuncture point).

Based on the meridian theory of traditional Chinese medicine theory and biological theory of magnetism, and far-infrared resonance within the human body, the Sumei Slim Patch is a successful product that achieves the balance of “Yin and Yang” in order to treat simple obesity.

IX. Result of clinical trials

An analysis of the clinical data shows that the Sumei Slim Patch is an effective medical device that is safe, effective and reliable. The raw material of the Sumei Slim Patch consists of anti-allergic tapes and medical-use gauze. Adhesives are composed of far-infrared powder, magnet powder, and lanolin. The plastic surface is anti-lined paper on one side, with non-toxic side effects on the skin. The product is applied as a weight lost medical device to treat simple obesity.

X. Indications, scope of application, contraindications:

Indications: simple obesity-induced weight gain

Scope of application: for patients suffering from simple obesity

Contraindications: 

1.Patients seriously allergic to adhesive plaster 2Partial rupture of skin 

Note: maintain peace of mind, no overeating

XXI. Problems and Suggestions for Improvement:

Similar to all medical device products, some individuals are allergic to the product. As a result, it is suggested that the manufacturing process can be improved.

Disclosure: Long CSKI

Source: China Sky One Medical: Response to Cabeza Howe