China Medical Climbs On Solid Profits From Medical Devices

China Medical Technologies (CMED) has enjoyed a very positive two-day run after announcing its fiscal year 2006 revenues and earnings. The stock moved up $4.39 to $31.64 over the first two sessions of the week, a 16% climb.

The company reported that its revenues shot up 47.1% to $71 million and profits were 46% higher at $38 million. Both numbers beat analysts’ predictions as well as the company’s own forecast. Earnings came in at an astonishing 53% of revenues.

Beijing-based CMT is a medical device maker with two separate divisions. Its High-Intensity Focused Ultrasound [HIFU] machines treat solid tumor cancers by raising the temperature in tumors to 70 degrees Celsius, killing tumor cells instantly. The Enhanced Chemiluminescence Immunoassay [ECLIA] line of products, including gene analysis reagents and single photon counters, is an in-vitro diagnostics system that outperforms radio and enzymatic immunoassays at lower cost.

In March of 2007, the company paid $136 million to add a third business line: Fluorescent in situ Hybridization [FISH] products that are being launched this month (June 2007). China Med expects the new line to compliment its existing ECLIA products and make the company a leading producer of advanced in-vitro diagnostics products in China.

The HIFU machines produced 60% of the revenue during 2006. Sam Tsang, CFO of China Medical, said the company expects solid growth in this area, but ECLIA and FISH products will probably be more than 50% of revenue in 2007, partly because of the FISH acquisition and partly because of increased sales of reagents.

R&D expenses climbed to $1 million in the fourth quarter of the year. The company is putting its HIFU tumor therapy system through pre-clinical trials in the U.S. for FDA approval. China Medical is also working the Chinese Ministry of Health on a medical study of HIFU. The company has ongoing research collaborations with the Chinese Academy of Sciences Institute of Acoustics and the Biomed-X Centre of Peking University.

China Medical expects that it will qualify in coming years for the preferential 15% tax rate that is available for high tech companies.

China Medical had $152 million in cash on March 31, 2007. It will pay a dividend of 40 cents per ADS (4 cents per ordinary share) in August.

In April, China Medical signed a deal with EDAP TMS S.A. of France, which will be the sole distributor of China Medical’s HIFU machines in Europe and Russia. China Medical has begun the process of seeking CE Mark for the product there.

China Medical has a market capitalization of $866 million. It made its IPO in August of 2005 at $15 per share.

Disclosure: none.