Earnings and More in China Biotech Weekly Review

Earnings – the inescapable reality that underlies a company’s hopes and dreams – made an impression in China biotech last week. For WuXi PharmaTech (WX), the year-end financials had a positive effect, while the report from Tongjitang Chinese Medicine (TCM) was more in the definitely mixed category.

WuXi PharmaTech managed to achieve the goal of all reporting companies by handily beating the year-earlier number and, just as importantly, coming in higher than analysts’ expectations (see story). The company reported 2007 revenues that were 93% higher at $135 million. Net income jumped 283% to $33.9 million [GAAP]. Better yet, WuXi called for 2008 revenues of $300 million, which sounds like a huge increase, though the expectations include revenues from its recent AppTec acquisition. AppTec will be responsible for as much as $100 million of the bump-up, which means that WuXi is continuing to grow at a very healthy rate. WuXi has been under considerable selling pressure in 2008, so the good news was welcome. WuXi closed on Friday at $23.99, which was an increase of $3.99 or 20% for the week.

Tongjitang Chinese Medicine, on the other hand, reported revenues that were 18% higher at $24.6 million, but various charges took its Q4 net operating income down to zero. The report would have had a very negative effect on TCM’s stock price, except that, earlier in the day, the Chairman and CEO of TCM, Mr. Xiaochun Wang, offered $10.20 for every outstanding share of the company (see story). That was a 55% premium to the previous day’s closing price, but it was only a small premium to the amount of cash in the company. Investors remain skeptical about the bid, because the stock closed the week at $8.41, a 17.5% discount to the $10.20 offer.

The Tongjitang stories provide a convenient segue into deals, which is, as always, a theme in China biotech. Most prominently, China Aoxing Pharma (CAXG.OB) offered $19.6 million to buy Shijiazhuang Lerentang Pharmaceutical Company Ltd. [LRT] (see story). Both companies specialize in pain drugs – China Aoxing on generic forms of highly regulated narcotics, and LRT on traditional Chinese pain medicines. China Aoxing’s offer is comprised of $10.8 million in cash and 8 million shares of stock.

Completing a reverse merger that took place in January, Tianyin Pharmaceutical (TYNP.OB) became the new name of a company formerly known as VisCorp, reflecting the new operating entity (see story). Tianyin is in the traditional Chinese medicines business, offering 34 TCMs currently, with 51 more products awaiting approval.

And one transaction, a private equity deal to take AsiaPharm Group [SI: ASPH] private, is in serious trouble (see story). AsiaPharm, a Singapore-listed biopharma with operations in China, will submit a $257 million offer to shareholders. Trouble is, it needs a 90% approval to pass, and institutional shareholders with more than 10% of the outstanding shares have said they consider the offer too low.

Another CRO organization, Maryland-based Global Research Services, LLC, will up its investment in China (see story). The company’s Shanghai division, Global Medical Consulting Services, will begin offering full-service clinical trial management to its clients in China.

The world of traditional Chinese medicines received some highly visible recognition in the West when the respected Proceedings of the National Academic of Sciences published a research article showing the effectiveness of a traditional Chinese medicine [TCM] against leukemia (see story). Huangdai Tablets is a mixture of plants and minerals, containing realgar (an ore containing arsenic), indigo and red sage root. The ingredients were found to be effective only when combined; by themselves, they did not produce a positive effect on the disease. The test was conducted on the molecular level against promyelocythe leukemia.

During the last week, we also took a look at CapitalBio, a Beijing-based company that produces biochips. The company was listed as one of China’s research facilities that bought a MassARRAY system from Sequenom (see story). CapitalBio will use the machine to expand its whole genome association study business into the fine mapping market. Besides making biochips, CapitalBio has also participated in the venture capital funding of AVIVA Biosciences in San Diego and Shenzhen-based Chipscreen Biosciences.

And finally, as we predicted last week, the State Council of China moved the SFDA under the administrative control of an enlarged Ministry of Health [MOH] (see story). For the past five years, the SFDA has been operating as an independent agency. The goal of the reorganization was to establish clear lines of responsibility for food and drug surveillance.

Disclosure: none.