China Biotech News: Eye on ShangPharma and Aoxing

Includes: AXN, NVS, SHP
by: ChinaBio Today

ShangPharma Corporation (NYSE: SHP) reported Q3 revenues climbed 17% to $23.1 million and net income rose 33% to $2.7 million or 22 cents per share (see story). These were respectable gains, but they didn’t create any excitement in the investor community, which prefers big upside surprises. Since completing its IPO in October at $15 per share, ShangPharma has watched its shares drift lower. ShangPharma Corporation closed Friday at $11.68, a 22% loss for IPO participants.

In the near future, ShangPharma expects two projects to drive further revenue gains: biological drug services, which are already in place, and research manufacturing, which will come online when a cGMP facility in Fengxian, Shanghai opens in Q1 of 2011.

For the full year, ShangPharma said revenues will hit about $90 million, a 25% jump over 2009. Gross profit will be in the $31 million range. The company did not disclose its expectations for net income. The company pointed out that it works with most of the top 20 multinational pharma companies.

Kevin Chen, COO and CFO of the company, said ShangPharma completed several high margin projects in September, but could not book the revenues in Q3 because the customers delayed delivery of the projects. The projects will push Q4 revenues to a gain of approximately 30%.

At the end of Q3, ShangPharma held $8.5 million in cash. That was before the October IPO, which raised $44 million for the company.

The total IPO was much bigger than that, but selling investors pocketed almost half the total IPO proceeds. Michael Xin Hui, CEO and one of ShangPharma’s founders, sold 778,000 ADSs, and TPG, a private equity firm that made a $30 million investment into the company in 2007, recouped most of its investment by offering half of its stake, 1.8 million ADSs. After the sale, Hui still owns 55.7% of ShangPharma, and TPG holds 11.8%.

Aoxing Pharmaceutical

Aoxing Pharmaceutical (AMEX: AXN) announced the SFDA granted a Manufacturing License to its joint venture, Hebei Aoxing API Pharmaceutical Company (see story). Aoxing expects to begin commercial production at the JV next year. The JV’s first product will be the API for naloxone hydrochloride, an opioid antagonist administered to counteract the effects of narcotic drug overdose.

Other IPO, M&A China biotech news:

Beijing Pharmaceutical, a subsidiary of China Resources Medications Group, plans to list on the Hong Kong Stock Exchange (see story), one more piece of evidence that Hong Kong is the exchange of choice for large China pharma IPOs. As yet, the size of the offering is not known. However, Beijing Pharma’s revenues are expected to hit 16 billion RMB ($2.4 billion) in 2010, up from 10 billion ($1.5 billion) in 2009.

Two China biopharmas, Xiangxue Pharmaceutical (SHEZ: 300147) and Guangdong By-Health Biotechnology (SHEZ: 300146), have released prospectuses for their IPOs on the ChiNext exchange (see story). Xiangxue Pharma, a TCM drugmaker, plans to raise $56 million, and By-Health Biotechnology, a company making nutritional supplements, is seeking $42 million in new capital.

Sihuan Pharma (HKEX: 0460) will pay 2.4 billion RMB ($371 million) to acquire Dupromise Holdings, a fellow maker of cardio-cerebral vascular drugs (see story). The price, to be paid in installments, is fixed as 12 times the net income of Dupromise’s 2011 net income, with 2.4 billion RMB set as the maximum. The transaction will give Sihuan, already a major player in its market, even more clout.

On November 3, 2009, Novartis (NYSE: NVS) announced it would pay $125 million for an 85% stake in vaccine maker Zhejiang Tianyuan Bio. One year later, the transaction has still not been approved, casting some doubt on whether it will ever be closed (see story). Although the deal stipulated just one year for completion, it also locked up Zhejiang Tianyuan for 18 months, implying that the acquisition is not completely dead.

Jiangsu Wuzhong Industrial (SHA: 600200) announced it has been awarded a subsidy of 12 million RMB ($1.8 million) to develop a cancer drug (see story). Wuzhong owns the IP for the drug, whose mechanism of action was not disclosed.

Disclosure: None

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