China Sky's Weight-Loss Patch Has a Questionable Future

China Sky One Medical, Inc. (CSKI) states in its 10-K that its weight-loss patch product, the Sumei Slim Patch, is "believed to foster weight loss and prevent weight gain." The Sumei Slim Patch comprised 22% of China Sky's total sales in 2008, according to the company's fourth quarter earnings conference call.

There have been many reports of customers buying China Sky's Slim Patch complaining that the product was ineffective and even caused adverse reactions such as a skin rash. China Sky's operating company has also been cited for violations of advertising rules related to its promotions of the Slim Patch and other products. See this report. Research on the substances in the Slim Patch and similar products likewise raises questions about the patch's safety and efficacy. These questions only add to doubts about the company's reported sales and 76% overall gross margin.

The only description China Sky provides of the Slim Patch's active ingredient is as follows: "The Sumei Slim Patch uses Saponin, believed to regulate and restrain the excessive secretion of certain hormones, while promoting others." A chemical analysis of the patch reveals only that a potential component of a saponin may be found in the patch.

Saponins are a class of chemical compounds found in various plant species. The potential saponin component in the China Sky patch is mixed in a gel with other chemicals to enhance penetration of the skin. If the potential saponin component is able to actually reach cells inside the body, the other chemicals in the patch would also be getting into cells.

The U.S. Federal Trade Commission (FTC) banned a company from selling weight-loss patches in the U.S. in 2007, stating "Products worn or rubbed on the skin do not cause weight loss." (See FTC press release, complaint, and court order). The company, censured by the FTC, Transdermal Products International Marketing Corporation, sold a transdermal patch for weight-loss with a purported main ingredient of sea kelp.

Again, the FTC stated firmly, "Products worn or rubbed on the skin do not cause weight loss." There are unproven suggestions that orally-ingested saponins may be able to cause some effect on digestion by stopping the intestinal absorption of dietary fat through inhibiting pancreatic lipase activity. Pancreatic lipase is an enzyme that breaks down fat molecules for digestion. Inhibiting pancreatic lipase activity means preventing a person's digestive system from breaking down fat.

If you want an FDA-approved method for inhibiting pancreatic lipase activity, there are prescription and over-the-counter drugs currently available in the US and China that are clinically tested. The prescription drug Xenical, also available in OTC form under the brand name Alli, is a lipase inhibitor and has been FDA-approved and marketed in the US since 1999. Xenical has been available in China since 2001.

Despite China Sky's promotion of the Slim Patch, and claims of expanding sales of the patch into other countries (even, quizzically, the famine-prone African nation of Sudan), the future of China Sky's key product looks questionable.

Disclosure: Short CSKI.

Comments

[Keep it Pos...:]

Non-sensio spin is back!!!

Jun 17 07:45 AM

[stocklad:]

This is a rehash of an old “article” posted 22 April 2009 on Seeking Alpha by a short seller named Cabeza Howe.

The counter argument was provided on Seeking Alpha on 30 April 2009. Here’s the link.

seekingalpha.com/artic...

The important thing here is not the stale article itself, but the timing, which coincides with a drop in price yesterday. Obviously, the shorts need to put out something to try to start a momentum change.

That’s ok by me. If they succeed to drive the price down a bit and they make a few dollars, so be it. The long term trend in company fundamentals is well established. Revenue and earnings are growing at a very strong rate, the portfolio of drugs now stands at about 100 (with new approvals coming weekly), the pipeline of new drugs is robust, cash and working capital are solid and debt is non-existent. The company is expanding internationally and will be entering the field of stem cell storage soon.

To bet against that is just foolhardy, in my opinion.

There is something amusing here, nonetheless. Asensio has claimed in the past that he doesn’t trust company information, but then he uses it as the basis of his argument. Odd, perhaps?

Jun 17 10:47 AM

[eastcoaster46:]

Why does Seeking Alpha allow this short seller to pound CSKI whenever he feels like it? If Asensio wanted to run a CSKI-bashing commentary every day, would Seeking Alpha allow that? Enough of this guy's self-serving attacks, already!

Jun 17 11:15 AM

[Truth Finder:]

the facts are the facts. nobody is disputing what is in the report. love him or hate him Asensio does very good work and you can not really argue with his track record.

I don't agree with all of his work but most is very good an we generate some good short ideas from him. He is right on this one.
Good job Asensio.

Jun 17 05:08 PM

[Daryan:]

Ascensio may make some arguements based on facts, but if history is any guide, he is clearly talking his own book and embellishing on the facts, making anything he says seem very baseless at best.

Jun 18 09:53 AM

[Karl Francis:]

CSKI has received all the required approvals from Chinese regulators to sell the Slim Patch in China, its main market. That's what counts, not what the US FDA or the US FTC opines. Somehow, Asensio forgot to mention that.

Jun 18 10:39 AM

[stocklad:]

Asensio also, while commenting on the potential size of the Sudanese market, failed to mention the possible size of the South Korean market. It's this kind of oversight which works against his credibility as a writer of "articles".

Jun 21 12:46 PM

[stocklad:]

Great news! China Sky One just received a renewal of its license for the production of its proprietary Sumei Slim Patch from Heilongjiang Provincial FDA, which will be effective through April of 2013.

And...the company announced that over 7,000,000 slim patches have been sold since the beginning of 2008.

That equates to sales of approximately 13,000 slim patches on average each day, 7 days a week, since January 2008.

That's pretty impressive. Kudos to CSKI managment, staff and distributors!

Jun 24 06:49 PM

[daytrader11...:]

I'm glad I didn't read his article until after I bought and sold 500 shares of this stuff today. Just got out with a $1.02 per share profit today.

Jul 23 03:00 PM