Osteoporosis is becoming a significant problem in China, according to a recent survey performed by Shanghai Huadong University.
The survey, the largest ever done in Asia on osteoporosis evaluated 7,000 ethnic Han Chinese in nine provinces. It found that over 11% of Chinese above the age of 20 have evidence of the bone disorder. The rate of incidence among females is 18.7%, among males it is 4.3%.
"There are about 35 million to 40 million osteoporotic patients nationwide" stated Zhu Hanmin, lead researcher on the project, "Among the urban residents surveyed, only 60 percent are aware that they suffer from osteoporosis, and among those who know they have the disease, only 18 percent consult doctors."
Osteoporosis is a disorder of bone mineralization that results in reduced bone density. It is most common in women after menopause, but may also occur in premenopausal women and men due to hormonal disorders, chronic diseases, and medications including corticosteroids. The major consequence of osteoporosis is an increased risk for fractures, particularly of the spine, hip and wrist. While prevention efforts including exercise and increased Vitamin D and calcium intake are important, medications play an important role in treating the disorder.
Tongjitang Chinese Medicine Company (NYSE: TCM) is benefiting from the increased awareness of osteoporosis in China. The company's main product, Xianling Gubao, has been approved by China's State Food and Drug Agency [SFDA] in both prescription and over the counter versions for the treatment of osteoporosis. The company reports that a May 2006 market survey showed Xianling Gubao to be the leading traditional Chinese medicine treatment for osteoporosis in China by sales. TCM has shown rapid sales growth. The company reports sales from 2004 to 2006 grew at a CAGR of 43.8% to US$62.1 million with net margins of nearly 28%. For the quarter ending June 30, 2007 revenues were US$18.5 million, up 12% year over year. Xianling Gubao accounted for over 78% of sales. Margins remained high, with gross margins of 65.9%. Despite concerns over rising raw material costs for its products, in August the company reported continued stabilization in raw materials costs for Xianling Gubao. The company has plans for continued growth through acquisitions.
"[The] Traditional Chinese Medicine [TCM] industry is a highly fragmented sector in China, with over 1,500 manufacturers but an average annual sales of less than RMB100 million each." stated Wang Xiaochun, TCM's Chairman and CEO in July. "We expect consolidation to occur in the coming three to five years, and we consider Tongjitang to be uniquely positioned to be a leading consolidator in this sector. Our publicly traded shares, traded on the NYSE, could be an effective M&A currency."
TCM is due to report third quarter 2007 results after the market closes on Nov. 6. Investors will be looking for continued sales growth in Xianling Gubao, and for expanded sales of the company's other product lines. Profit margins will also be key given reports of continued price increases in the herbal raw materials of the Chinese medicine industry. There will also be attention paid to the company's growth plans, including possibile acquisitions. As with other China stocks, shorter term expectations for TCM are high. However, the company seems well positioned to benefit from favorable market trends over the long haul.
Disclosure: none
