It's earnings season, and almost every day for the past few weeks, one to three China life science companies listed in the U.S. have released their quarterly financial reports. Taken as a whole, companies from this sector have almost uniformly reported higher revenues. Net income has also risen, though usually though usually by a lower percentage. Companies blame rising raw materials costs or investments in sales networks or some other increase in costs that keeps a lid on profits. But the usual expectation that rising revenues allows greater efficiency is seldom seen is this group.
Sixteen companies have made their financial reports so far this month, with revenues ranging from a high of $181 million for Mindray Medical, the medical device maker, down to a low of $4.7 million for Sinovac Biotech, a vaccine company.
The average company reported $42.3 million of revenue and $6.2 million of net income. The average Price/Earnings ratio is 9.9.
Three years ago, investors wanted to buy any company based in China, and company valuations were correspondingly high. That time is long since passed. Now, the highest P/E is 31, for 3SBio. Meanwhile, many of the companies in the sector are selling for less than their cash levels, with P/Es in the low single digits. After several quarters of declining revenues, Lotus Pharma has the unhappy honor of receiving a 1.4 P/E, the lowest in the list. But, if it is any consolation, even very strong companies with good revenues are priced with moderate P/Es in the high teens or low twenties.
The following are snapshots of the sixteen companies, arranged in order of revenues, from highest to lowest.
Mindray Medical (MR), the giant global medical device company, reported revenues of $180.9 million, up 24%. Net income totaled $37.7 million, a 4.2% increase. Excluding tax subsidies, net income would have been 9.9% higher this year, though that still trails the growth in revenues. The company has a near-staggering $442.6 million in cash, a $3.4 billion market capitalization, and a P/E ratio of 22.
WuXi PharmaTech (WX), the very successful preclinical CRO, said revenues continued to move higher, rising 16% to $93.6 million. Net income climbed 17% to $18.2 million. Although all of the company's operations seem to be doing well, manufacturing services are providing the highest rate of growth at present (see story). Results from that segment are expected to grow at least 50% in 2011. WuXi has cash of $162 million, a market valuation of $1.3 billion and a P/E ratio of 15.6.
Simcere Pharma (SCR) said revenues were up 5% at $73.6 million for its portfolio of branded pharmaceuticals. Net income climbed 36% to $4.3 million, a fairly low margin for a pharma with revenues of this size. Its operating costs are high because gross margin was 84%. The company reported $36 million of cash at the end of the quarter. It has a market cap of $614 million and a P/E ratio of 23.
China BCT Pharmacy Group (CNBI.OB) a company that makes and distributes pharmaceutical products in Guangxi Province, reported Q1 revenues of $58.6 million, a 72% increase. Net income climbed 47% to $6.2 million. The company said it plans to use its $63 million of cash to expand its retail pharmacy within its home Guangxi Province and build a new logistics center. China BCT has $20 million of cash, a market valuation of $95 million and a low P/E ratio of 3.7.
American Oriental Bioengineering (AOB) announced revenues fell slightly to $52 million, a 3% drop. Net income was only $.9 million. The company said its TCM business was hurt by the rising cost of raw materials. As ChinaBio Today pointed out recently, the American Oriental has a strong framework, but no clear pathway for future growth (see story). The company has $111 million of cash, slightly above its $104 million market cap, and a P/E ratio of 7.
Global Pharm Holdings Group (GPHG.OB), which distributes pharmaceutical products and processes herbs for TCM drugs, announced its Q1 revenues climbed 46% to $42.1 million. Net income rose 52% to $3.5 million. Global Pharma attributed its success to more products and an enlarged customer base. The company ended the quarter with $8.9 million in cash, a market cap of $129 million and a P/E ratio of 9.7.
China Biologic Products (CBPO), a plasma-based biopharma, reported sales rose 27% to $34.5 million, but profits were lower by 41% to $6.3 million. However, non-GAAP income rose 5% to $8 million. Supplies of the company's blood-based products remain restricted in China, leading to price increases. The company's operating costs moved 50% higher and selling expenses increased by 160%. The company recorded a gain of $1 million from a change in derivative liabilities pricing, but that was less than the $3.8 million gain last year. China Biologic ended the quarter with $56.3 million in cash, a market cap of $363 million and a P/E ratio of 11.9.
China Sky One Medical (CSKI) saw its revenues decline 2% to $28.4 million while profits dropped 51% to $6.1 million. A non-cash charge in derivative warrant liability hurt net income. China Sky One said it lost two distributors in Q3 of 2010, but now is recovering from the setback according to official comments. The company makes topical products, including patches ointments and sprays. China Sky One declared $48.1 million of cash on March 31. The company's valuation has been hurt by allegations of fraud. As a result, its market cap is fallen to $49.7 million, and its P/E ratio is 1.4.
Tianyin Pharma (TPI) reported a healthy increase in sales: its Q3 revenues were a big 56% higher at $24.9 million. By contrast, the rise in net income was just 28% at $2.9 million. The company expects a big boost from sales of macrolide API from its new joint venture facility: $30 million in the first year. This will offset lower sales from its generic products, which face pricing pressure. Tianyin said it ended Q1 with cash of $31.1 million and working capital totaling $37.2 million. The company makes both TCM and western medical products. It has a market cap of $51 million and a P/E ratio of 3.6.
ShangPharma (SHP), the preclinical CRO that conducted its IPO on the NYSE in October 2010, said revenues climbed 26% to $24.8 million, while GAAP net income increased by 10.2% year-over-year to $3.0 million (see story). The company said its GAAP margins were hurt by share-based compensation costs. Non-GAAP profit outpaced the rise in revenues, climbing 51% to $4.4 million. The company ended its first quarter with $48.5 million in cash. Its market cap is $228 million, and it has a P/E ratio of 17.
3SBio Inc. (SSRX) reported revenues moved up 23% to $18.1 million, but net income declined 15% to $3.4 million. The company's selling costs climbed as it introduced an new indication for TPIAO, 3SBio's recombinant human thrombopoietin product. Cash remains plentiful at $108.6 million. Future expectations for the company are as high as any in the category: the company's market cap is $382 million, and its P/E ratio is 31.
China Pharma Holdings (CPHI) said its revenues were up 20% to $18.1 million, and non-GAAP earnings were up a miniscule 3% at $4.3 million. The coompany's Chairman and CEO, Zhilin Li, said it continues to face “moderate” pricing pressure. It expects to launch two higher-margined products before year end. China Pharma ended the quarter with $3.8 million of cash. Working capital, however, is $84 million. The company has a market cap of $109 million and a P/E ratio of 4.6.
Biostar Pharma (BSPM), which makes a TCM over-the-counter Hepatitis B medicine and a variety of pharmaceutical products, reported Q1 revenue grew 24% to $15.3 million, and net income climbed 20% to $2.7 million. The company is expanding rapidly in rural areas, which are in general poorly covered by drug companies. Biostar has $13 million of cash, a market cap of just $36 million, and a very low P/E ratio of 2.1.
Lotus Pharma (LTUS.OB) said revenues dropped 12% to $12.9 million. That caused net income to plummet 55% to $2.2 million. The company's Chairman and CEO, Zhongyi Liu, said its wholesale operation was off in Q1, but retail sales grew. The company is currently without a manufacturing plant as it builds new facilities in Beijing (see story). Lotus ended the quarter with just $1.3 million of cash, and its current assets are $2.3 million below current liabilities. Expectations for the company's future are abysmal: its market cap is $20 million and its P/E ratio is only 1.4.
China Shenghuo Pharma Holdings (KUN) reported sales increased to $9.4 million, a 19% jump. Net income rose a huge percentage, but was still just barely positive at $100,000. The company, which makes Saichi based TCM products, is particularly dependent on Xuesaitong soft tablets, which is designed to improve circulation. The company has diversified into hotel operations. Shenghuo Pharma has $1.7 million in cash, a market cap of $15.7 million and a P/E ratio of 13.
Sinovac Biotech (SVA), a vaccine manufacturer, posted revenues of $4.7 million, a small 5.3% increase, leading to an unfortunate loss of $3.4 million. Cash levels remain high for Sinovac at $91 million. Sinovac's core vaccine market is lower because of fears in China of vaccine-borne illnesses. Following the flu scare of two years ago, governmental bodies stockpiled vaccine, but that public health initiative has passed, as consumers spurned the vaccines. The company has $103 million in cash and a market cap of $218 million, but lacking 12-month profits, it does not have a P/E ratio.