China Medicine Closes JP Morgan Funding

 |  Includes: CHME, JPM
by: ChinaBio Today

China Medicine (OTCPK:CHME) announced it has closed a previously announced private placement that raised $69.6 million from One Equity Partners, the private equity investment arm of JP Morgan Chase & Co. (NYSE:JPM). The size and structure of the deal have not changed since it was originally announced, one month ago, though China Medicine did add that the net proceeds of the funding will be $66.5 million.

Out of the proceeds, $57.6 million will be put in escrow and released to fund additional capital expenditures and acquisitions. The initial money will fund China Medicine’s acquisition of LifeTech Pharmaceuticals Co., Ltd.

Our report on the deal, taken from the original disclosure, is reprinted below.

China Medicine Raises $69.6 Million in PE from JPMorgan Chase
By Richard Daverman, PhD

January 7, 2010 – China Medicine Corporation signed a deal that raises $69.6 million in new capital from One Equity Partners, the private equity investment subsidiary of JPMorgan Chase & Co. It is the first investment for One Equity Partners in China.

China Medicine will use the first portion of the money to complete its $21.5 million acquisition of Guangzhou LifeTech Pharma, a transaction that helps move China Medicine from a distribution company into an integrated company with its own drugs to sell (see story).

Apparently, China Medicine plans more M&A in the near future. One Equity will release $12 million for the LifeTech transaction and hold the rest of the money in escrow, releasing it only to fund capital expenditures and acquisitions. Also, China Medicine says it expects to report EBITDA (earnings before interest taxes, depreciation and amortization) of $25 million in 2010 if it completes certain transactions, which were not specified and have not been announced. Without the acquisitions, the target is lower.

One Equity will purchase 4,000,000 common shares of China Medicine at $3 each and 1.92 million redeemable convertible preferred shares at $30 apiece. The convertible shares are initially convertible into 10 common shares.

Last night, China Medicine closed at $3.62 per share. When the deal was originally announced last November (One Equity was not identified as the purchaser at the time) (see story), China Medicine was trading at $2.62. The company has done well since then because, following today’s news, the shares soared 43 cents to $4.05, a 12% increase.

Guangzhou LifeTech Pharma has a portfolio of 39 TCM and Western medicine products. At the time of the acquisition, China Medicine said it would add between $10 and $12 million to 2010 revenues with a net profit margin of 40%. Currently, 66% of LifeTech’s revenues come from a single product, Houerhuan Xiaoyan Capsules, a treatment for throat infections and acute laryngitis.

China Medicine paid $8.3 million in cash and assumed an additional $13.2 million in debt to purchase LifeTech. Some of the debt had to be retired immediately, though the cash payments were scheduled in installments, with completion by June 10, 2010.

China Medicine is also developing an additive, recombinant Aflatoxin Detoxifizyme (rADTZ), which has the potential to detoxify aflatoxin, a potential cancer causing agent, in food and animal feed.

One Equity Partners has invested about $8 billion of private equity in 30 companies. Its Asia office is located in Hong Kong. It said the China Medicine investment reflects its desire to help companies with “aspirational” management expand their businesses.

Disclosure: none.