Beijing Med-Pharm Achieves Retail Dimension with Sunstone Acquisition

Feb.20.08 | About: BMP Sunstone (BJGP)

Beijing Med-Pharm (BJGP) has completed its acquisition of Sunstone Pharmaceutical Corporation and will change the name of the company to BMP Sunstone Corporation to reflect the composition of the new corporation. Sunstone adds a retail/OTC dimension to Beijing Med-Pharm’s distribution network, which was previously focused on prescription drugs dispensed through hospital pharmacies.

The acquisition was accomplished in two steps. In October 2007, Beijing Med-Pharm bought a 49% interest in Sunstone for $32 million in cash. Monday, it closed a purchase for the remaining 51% in exchange for 8 million shares of BJGP stock. At the time step two was announced, the 8 million shares were worth $94.7 million. Since then, the price of BJGP’s shares has fallen to $8.70, making the value of the second transaction worth $70 million.

Although the two entities had approximately the same level of revenues in the first nine months of 2007, Sunstone was by far the more profitable company. For Beijing Med-Pharm, the cost of goods was almost equal to its revenues. After SG&A was added in, Beijing Med-Pharm reported a loss of $5 million on $21.8 million of sales. Sunstone was a quite different story, because its cost of goods was just 27%. It produced a profit of $4.7 million on $29.5 million of revenue.

In a statement, David Gao, Chief Executive Officer of BMP Sunstone, remarked that Sunstone sells to almost 40% of the retail pharmacies in China. Their well-known OTC products include Hao Wawa (Good Baby) for children's healthcare and Kang Fu Te (Comfort) for women's healthcare.

BMP Sunstone expects the revenues of the new company to grow more quickly than the 18% general rise expected for healthcare spending in China.

Long-term, BMP Sunstone is positioning itself as an attractive partner for Western biopharmas that want to market their products in China. BMP Sunstone will perform market analysis, clinical trial management, product registration with the SFDA, and marketing and distribution.

To make the marketing and distribution initiative viable, the company signed deals for China biopharma distribution companies in 2007. Besides the Sunstone acquisition, BMP Sunstone bulked up its distribution network by buying a stake in Shanghai Rongheng Pharmaceutical Co, and also entered a joint venture with the UK’s Alliance Boots to buy a 50% piece of Guangzhou Pharma, the third largest drug distributor in China.

Disclosure: none.