American Oriental Acquires Rival Plant-based Drug Firm

Jun.13.07 | About: American Oriental (AOBI)

American Oriental Bioengineering (AOB) signed a letter of intent to acquire privately held Changchun Xinan Pharmaceutical Group Company Limited [CCXA].

Like American Oriental, CCXA is engaged in the business of providing plant-based drugs and nutritional aids in China. American Oriental will pay an amount not to exceed $30 million to purchase CCXA.

American Oriental expects to pay cash for the acquisition. Earlier this month, American Oriental issued new stock to raise its already-healthy levels of cash, just to make this sort of purchase.

On June 4, American Oriental announced that it would offer 15 million additional shares, and that the founder/CEO would offer another 2 million of his own shares. Previously, there were 65 million shares outstanding. The offering will bring in almost $150 million, which will be added to the $90 million already sitting in the corporate coffers.
CCXA is located in the Jilin province, located in the far northeast of China, adjacent to both North Korea and Russia. CCAX owns a portfolio of plant based products, including both prescription and over-the-counter pharmaceutical products, including women's health products that fit in with American Oriental’s offerings. CCXA also owns GMP certified manufacturing facilities that produce different product formulations including capsules and injectables. CCXA was reported to be profitable in 2006, though the size of its revenues and earnings were not disclosed.

American Oriental is headquartered in Harbin, China, also in the northeast section of the country.

American Oriental subjects its acquisitions to the criteria of being accretive within one year, and it believes CCXA will meet this condition.

The acquisition strategy has helped American Oriental to grow quickly. Its revenues have increased 11 fold from $10 million in 2001 to $110 million in 2006. Operating cash flow was $29 million last year.

In the most recent 12 months, American Oriental had net earnings of $31 million on revenues of $117 million. The company has a market capitalization of $626 million.

The biggest seller in American Oriental’s portfolio is a respiratory injection powder, which contributed 25% of the company’s revenues last year. Sales of the powder were up 69% year-over-year. Earlier this year, the Chinese government actually increased the price ceiling on the drug, while it lowered prices on some of the other drugs in American Oriental’s portfolio. However, because American Oriental’s respiratory injection powder faces competition in China, it was not clear that the company would be able to make the higher prices stick in the marketplace.

American Oriental Bioengineering produces plant-based pharmaceutical and nutraceutical products. Its pharmaceutical products include Cease enuresis soft gel, for bed-wetting and urination disorders; double ginseng yishen grain for neurosis, vegetative nerve functional disturbance, and hypo-immunity; root of red-rooted salvia tablet to improve blood circulation; and urinstopper patch, which reduces frequent urination, urinal incontinence and bed wetting.

Disclosure: none.