China Biotech in Review: Effective Collaboration Between US-Asian Companies and US Investors

It was another significant week for investments in China biopharma. The week was headlined by the acquisition of a US-Korean medical device company, N Spine, which is not exactly a China biophama, but shows how effective a collaboration between a US-Asian company and US investors can be (see story).

N Spine, which makes and markets dynamicstabilization devices for the spine, was bought by Synthes (VRX: SYNT), a major Swiss medical device company, for $35 million upfront, $45 million in milestones and other significant earnout provisions. Supported by Life Science Angels of the San Francisco area, N Spine is headquartered in the US, though much of the development and manufacturing of its products takes place in Korea. The international nature of the company did not slow down the process, however, because N Spine was able to go from investment to liquidity event in a short two years.

Our own Executive Editor, Greg Scott, was interviewed by Interfax China on the subject of the current climate for biopharma investment in China (see story). While noting that several problems still exist, Scott declared that the momentum is undeniably positive. Scott said biopharma investors simply can no longer ignore the improvements in both intellectual property protection and the quality of early stage clinical trials being conducted in China.

Close on the heels of its recent reverse merger, Genesis Pharmaceuticals (OTCBB: GTEC) completed a $5 million private placement (see story ). Genesis will use the money to buy a patent on a new cerebral vascular medicine, currently in testing in China. The drug, Ligustrazine Ferulic Acid Acetate [LFAA], reduces blood clotting. Pope Investments of Memphis made the investment, extracting favorable terms from Genesis. On October 1, 2007, or about six week ago, Laiyang Jiangbo Pharmaceuticals of Shandong completed a reverse merger with Genesis, taking 75% of the reconstituted company’s shares.

LEAD Therapeutics, a recently formed and funded pharma located in San Bruno, CA, announced a strategic relationship with ShangPharma, a CRO located in Shanghai (see story ). ShangPharma will make an investment in LEAD, and LEAD will sign a contract for the exclusive use of between 20 and 30 professionals from ShangPharma’s staff for LEAD projects. From the start, LEAD intended to perform much of its preclinical and clinical work in China for its drug development program. ShangPharma added funds to LEAD’s A round, which had previously raised $17 million.

The rest of the news last week in China biopharma was about earnings. Although earnings in all cases showed significant increases from year-earlier numbers, shares of the reporting companies did not always trade well in the aftermath. For example, WuXi PharmaTech (WX), the premier China CRO for western biophamas, reported revenues that jumped 78% while profits that increased more than 200% over the year earlier figures (see story). Nevertheless, it was a big ho-hum for investors, who sold the stock down about $2 to the $28-and-change range. Although the report was very solid, it did not provide any kind of surprise to put a fire under the stock price.

China Biologic Products (OTCBB: CBPO) found itself in the unusual situation of reporting lower unit sales but higher revenues (see story). The company’s blood-based products are in such short supply that prices are up sharply. The price increases were enough for China Biologic to report 49% higher revenues and earnings that increased 226%. The price of one product shot up 425%. China Biologic opines that the shortage will not end soon.

Dragon Pharmaceuticals (OTCBB: DRUG) reported that its antibiotics business produced revenues in the first nine months of 2007 that are running 60% ahead of the year earlier numbers (see story ). Dragon sold its EPO division, a comparatively small business, to concentrate on its more successful antibiotic products. But a year ago, Dragon completed a PIPE investment, and now the shares have completed the lockup period and are free to trade. The selling depressed the price of the stock, a recurrent theme last week. Dragon ended the week down 17 cents at $0.74 per share on heavy volume.

To end this report on a somewhat more positive note, one China biotech, 3SBio (SSRX) was able to please investors with its Q3 report (see story). The company reported revenues that moved up 57%, pushing earnings up an impressive 151%. Mirroring the upward movement in the financial report, the shares of 3SBio climbed 16% in the first post-report session, moving up $2.28 to $16.68. By the end of the week, 3SBio had given up some – though not all – of those gains. But at least 3SBio showed it was still possible to deliver an upside surprise at earnings time.

Disclosure: The management of ChinaBio Today holds an equity position in N Spine and serves on the board of the company.