China Biopharma Seeks Mission and Money

China Biopharma (CHBO.OB) announced recently that it was getting out of the vaccine business, because the vaccine market in China has too many players, making the business too competitive and causing the margins to thin to unacceptable levels. Instead, the company will seek specialty pharmaceutical products as a long-term project. Meanwhile, in the short term, it will build up its distribution business and increase its ownership in its subsidiary companies.

In particular, China Biopharma intends to acquire 100% of its joint venture, currently called Zhejiang Tianyuan Biotech Co., Ltd. Once that happens, China Biopharma will change its name to Zhejiang Baicon Pharmaceutical Co., Ltd. China Biopharma said it can make the acquisition with “internally available resources,” even though it is strapped for cash.

For the past 10 months, China Biopharma has been distributing OTC products for the Takeda Pharmaceutical Company of Japan. China Biopharma says that both sides have been pleased with the results, so it will put more resources into this business.

Also, China Biopharma recently announced its agreement with Soonfast Pharmaceutical Science & Technology Co to market Soonfast’s herbal remedy for human papillomavirus [HPV] and herpes simplex virus [HSV] inside specific regions of China as well as outside the country. In tests, the product reduced infections from HPV and HSV by 90% in just two to three days. The expected ex-China markets for the product include the US.

Both of these initiatives were announced previously, as was a deal to import a product from the US that would bring a treatment for drug-resistant staph infection to China. The latter product will require a clinical trial for SFDA approval, which will, in turn, require financial outlays. At the moment, China Biopharma does not have that kind of cash.

Financial Condition

The financial situation at China Biopharma is dire. The company has little cash, a low level of revenue on which it makes almost no profit, and it is furiously issuing more shares to stay afloat. It’s not pretty. Little wonder, therefore, that the company is attempting to define a new business plan.

In the first nine months of 2007, China Biopharma produced $410,390 in revenue, which cost the company $383,195 to produce. That was a gross margin of just over $27,000. But SG&A expenses of $1,446,402 took the company far into the red, and left it with just $678,275 in cash at the end of the quarter and a working capital deficit of $574,237.

China Biopharma came into being in late 2006 through a reverse merger. It is using stock to pay for services to hold on to cash. In the third quarter of 2007, China Biopharma was converting a $3 million two-year convertible note into stock at a price of $0.032 per share. It issued 27 million shares to unnamed investors in Q3, even though it was not clear what China Biopharma received in return. The same investors received another 27 million shares in October, just after the quarter ended. In addition, the company owes its officers a total of $1,017,016, a combination of loans and deferred compensation (totals for each were not disclosed).

At the end of Q3, China Biopharma said it had 132 million shares issued and outstanding. Not surprisingly, it also said the company was seeking outside financing. Also in the not surprising category, the 10Q for the third quarter of 2007 contained the obligatory warning that the continuing operations of the company over the next twelve months is in doubt.

Disclosure: none.