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Skystar Bio-Pharmaceutical Co., Ltd. (NASDAQ:SKBI) has opened an R&D center in Shanghai that will expand the company’s veterinary vaccine, medicine and microorganism business. Known as Shanghai Siqiang Biotechnology Co., Ltd., the 200 square meter facility is filled with modern equipment, also housing six chief researchers, four of whom are from the Chinese Academy of Agricultural Sciences.

Skystar’s products are all natural, and they are built around a core of advanced micro ecological probiotic and antibiotic products. The entire line includes more than 100 products for animals, with another 50 products in development. So far in 2007, Skystar has received approval for 69 products, and it expects to receive OKs for another 40 by year end. Recently, the company has also built a GMP bio-pharmaceutical facility that covers an area of almost eight acres. A continuing upgrade of the facility, due to be completed in Q2 of next year, will increase its output by another 200%.

In the first nine months of 2007, Skystar’s revenues climbed 39% to $10.2 million. Operating income was a healthy $3.6 million (a 35% margin), but GAAP net income was just $850,000. The net was hurt by a non-cash charge of $1.5 million, representing the conversion of convertible debentures and warrants into stock. Without that charge, Skystar would have earned $2.3 million. At the end of Q3, Skystar had just $335,000 in cash, though its working capital totaled $5.7 million.

Because agriculture in China consists of millions of small farms, the distribution network for Skystar is highly fragmented, using 400 independent distribution agents. The company has also opened 240 Skystar franchise stores with the goal of having 300 stores operating by the end of 2007.

Over the past 52 weeks, shares in Skystar have traded between $1.95 and $0.95. It is currently priced at $1.75. The company has 12.8 million shares outstanding, giving it a market capitalization of just $22.4 million.

Skystar is also working on avian flu products for both animals and humans. It is developing an inactivated vaccine for all types of flu that uses a multi-surface cell propagating system. This system allows the vaccine to be adapted quickly to the yearly mutations of the virus. Skystar also expects to have an herbal avian flu treatment ready for production by the end of 2007 and an avian flu vaccine ready by the end of 2008.

Skystar points out that China is one of the biggest producers of livestock in the world. It leads in production of pork and sheep/goat meat. The country is also big in chicken and fourth on the list of beef producers. As its large population becomes more wealthy, the demands for meat increase. For these reasons, Skystar says the demand for veterinary medicines in China is outpacing the current supply.

Disclosure: none.