China Biopharma Week in Review: Deals and Drugs

by: ChinaBio Today

Deals continued to make news last week in China biopharma, but one long-standing acquisition seemed to be heading in the other direction, teetering on the edge of falling apart.

After raising $25 million in new equity in early February, China Sky One Medical (OTCPK:CSKI) wasted no time in putting some of the cash to work. The company announced that it has struck a deal to buy Heilongjiang Tianlong Pharmaceutical for $8.3 million (see story). Both companies are focused on external-use drugs for diseases such as dermatitis and eczema. In 2007, Tianlong produced profits of $676,000 on $5.2 million of revenues. At that rate, CSKI is paying 1.6 times 2007 revenues and 12 times 2007 net earnings, though CSKI thinks synergies, particularly in sales and distribution, will make the acquisition even more attractive in years to come. Besides its manufacturing and R&D facilities, Tianlong brings with it a portfolio of 69 approved drugs (in 98 forms). An additional 38 new drugs are currently awaiting approval from the SFDA.

Lotus Pharmaceuticals [LTUS.OB] was another company that got into cash raising mode. The company garnered $5 million by selling 5,747,118 series A convertible redeemable preferred shares in a private placement at a price of 80 cents per share (see story). The most unusual part of the financing was a “make good” clause in which Lotus founders promised a base level of financial performance. Those Lotus founders put 7.5 million of their personal shares into an escrow account. If the company meets specified financial goals in 2007-2009, the shares will be released back to the founders. Lotus founders also promised that the company will seek a listing on the NASDAQ exchange. At the end of Q3 of 2007, Lotus had $6.2 million in cash and $15.5 million in working capital. The company is very profitable, so it was not in dire need of cash, but probably, like other China biopharmas, expects to grow through acquisitions as well as internally.

Meanwhile, another acquisition, announced well over a year ago, seems to be on the verge of collapsing. Topsun Technology (SHA: 600771) said the time limit has expired on a $146 million agreement to sell its OTC drug business to Bayer AG of Germany (XE: 575200) (see story). In October 2006, Bayer struck a deal with Topsun to purchase the White and Black Brand of OTC drugs, which includes three OTC cold remedies. The transaction is not definitively off, as Topsun said it is continuing to discuss with Bayer a renegotiation of the termination date. But, keeping the pressure on Bayer, Topsun also revealed it has received calls from several China-based companies about purchasing the OTC business.

And, as a bridge between investment and individual companies, Novartis (NYSE:NVS) revealed that its $400 million investment in China gave Novartis-China the financial muscle to generate 2.5 billion RMB ($342 million) of revenue during 2007, an increase of 20% over 2006 (see story). In its major markets in the West, Novartis is watching revenues decline as blockbuster drugs lose their patent protection, making new markets especially important to the company. China’s contribution to overall Novartis revenues remains fairly small, but Novartis expects that China will be one of its top 10 markets by 2010. A big contributor to growth in China will be Sebivo, (telbivudine), a treatment for chronic hepatitis B, which is a major disease and cause of death in China. Sebiro received SFDA approval in March 2007.

Moving on to specific drugs and individual companies, China Pharma Holdings (NYSEMKT:CPHI) highlighted the contribution of Pusen OK, a generic version of cold medication Aleve-D, to its overall revenues (see story). In 2007, Pusen OK generated a respectable $4.1 million in revenues in 2007, which helped drive the total revenues of China Pharma Holdings to “more than” $33 million. Already in 2008, Pusen Ok has received $5.6 million in orders in just two months from a single distributor. The heavy snowstorms and generally cold weather have evidently heated up sales of cold remedies.

BMP Sunstone Corporation (BJGP) (formerly Beijing Med-Pharm) announced that Propess was recommended as a first-line treatment for labor induction in late-stage pregnancy (see story). The recommendation came from the Obstetrics Group at the Obstetrics and Gynecology Branch of the Chinese Medical Association. BMP Sunstone is in the business of winning approval for Western drugs, then promoting and distributing them, which it has done for Propess. BMP Sunstone licensed the drug from its manufacturer, Cytokine PharmaSciences of Pennsylvania, and then launched the drug in China in 2005.

Provectus Pharmaceuticals (NYSEMKT:PVCT) was granted patents in China and Europe for an imaging agent intended to be used in CT and MRI scans to diagnose cancer (see story). Provectus calls the drug PV-10, though it is commonly known as Rose Bengal. Provectus is also investigating the use of PV-10 as a treatment for cancer and dermatological conditions, with Phase II clinical trials currently underway.

And finally, broadening out the scope of our coverage of China biopharma, the Executive Editor of ChinaBio Today, Greg Scott, took questions from CCTV in Beijing and Windover Information in the US on the state of the industry in China (see story). He discusses the size of China biopharma, its growth and relative position compared to the West, changes over the past few years in the industry, new policy initiatives, the importance of outsourcing, and he predicts the trends China biopharma will see in the future.

Disclosure: none.