2 Pharmaceutical Companies Trading Below Net Cash - Part IV

by: Markus Aarnio

I wrote part I of "2 Pharmaceutical Companies Trading Below Net Cash" on May 21st, part II on May 30th and part III on June 15th. There was more insider buying in Myrexis (NASDAQ:MYRX), after my first, second and third articles, by Jason Aryeh. Jason Aryeh was appointed a member of the Myrexis Board of Directors on October 19, 2011. Mr. Aryeh is the founder and managing general partner of JALAA Equities, LP, a private hedge fund focused on the biotechnology and specialty pharmaceutical sector. JALAA Equities did buy 5,025 additional shares of Myrexis on June 14th and 3,000 shares on June 18th. JALAA Equities currently holds 545,245 shares of Myrexis.

Targacept (TRGT) also saw some insider buying on June 8th by John Richard. Mr. Richard is managing director of Georgia Venture Partners, non-executive director of Phase 4 Ventures Limited and senior business advisor to Agennix AG. His previous roles include executive vice president, business development of SEQUUS Pharmaceuticals and vice president of corporate development of VIVUS (NASDAQ:VVUS) and head of business development at Genome Therapeutics Corporation. Mr. Richard has been a member of Targacept's board of directors since November 2002 and serves on the Audit Committee.

1. China Botanic Pharmaceutical (NYSEMKT:CBP), formerly known as Renhuang Pharmaceuticals, Inc. was founded in 1996 in Harbin, Heilongjiang province in Northeast China. In September 2006, the company became a US listed public company through a reverse merger and began trading on the Over the Counter Bulletin Board under the ticker symbol "RHGP." On July 2, 2010, the company began trading on NYSE Amex under the current ticker symbol.

The company offers three major product lines including Siberian Ginseng (Acanthopanax) based natural medicinal products, biopharmaceutical products, and over-the-counter Traditional Chinese Medicines , representing roughly 71.3%, 5.1%, and 23.6%,respectively of total revenue. China Botanic's key product line is the Siberian Ginseng (Acanthopanax) based product series, a natural medicine effective in treating depression, melancholy, and other nerve regulating products. With control over an estimated 70% of China's natural raw materials of Siberian Ginseng (Acanthopanax), the company possesses a sustainable competitive edge and, therefore, commands a dominant market position in Siberian Ginseng (Acanthopanax) based products.

The company has $32.1 million in cash and no debt. With 37.2 million shares outstanding this creates net cash of $0.86 per share. Net income was $7.9 million, or $0.21 per diluted share for the quarter ending April 30th. The company has increased net income for three years in row.

Year 2009 2010 2011
Earnings per share $0.31 $0.35 $0.58

Business outlook

For fiscal year 2012, China Botanic's guidance is revenue between $91.6 million and $93.1 million, representing an increase of 26% to 28% over fiscal year 2011 revenue of $72.7 million. Revenue growth is expected to be driven largely by sales volume increases from the existing product portfolio. The company expects net income to be in the range of $32.7 million to $33.2 million, representing an increase of between 26% and 28% over fiscal year 2011 net income of $25.9 million.

2. Weikang Bio-Technology Group (OTC:WKBT) is a leading developer, manufacturer and marketer of Traditional Chinese Medicine, Western prescription pharmaceuticals and other health and nutritional products in the People's Republic of China.

The company has $80.6 million in cash and no debt. With 34.5 million shares this creates net cash of $2.34 per share. The company reported earnings of $0.19 per share for the first quarter.

The company has grown its net income for three years in row.

Year 2009 2010 2011
Earnings per share $0.62 $0.87 $0.90


Here is a table on all eight companies that I have covered in this series. I believe most of these companies will trade at their respective net cash per share levels during the next 12 months.

Company Share price on June 22 Net cash per share
Myrexis $2.43 $3.64
Vanda (NASDAQ:VNDA) $4.40 $5.60
Adventrx (ANX) $0.45 $0.97
Targacept $4.21 $6.59
Biostar (NASDAQ:BSPM) $1.37 $2.23
Pacific (NASDAQ:PACB) $2.06 $2.92
China Botanic $0.63 $0.86
Weikang (OTC:WKBT) $0.21 $2.34

Disclosure: I am long VNDA, MYRX, BSPM, CBP, TRGT, ANX, PACB.