3SBio Finally Pleases Investors

3SBio Inc. (SSRX) announced that it would begin a $20 million stock buyback. In February 2007, 3SBio made its IPO at a price of $16 per ADS, offering a total of 7.7 million ADSs to raise $123 million in gross proceeds. The main driver to 3SBio’s revenues is a biosimilar drug to Amgen’s (AMGN) erythropoietin or EPO.

At the time of the buyback announcement, 3SBio’s closing quote was $7.60, a decrease of over 50% from the IPO price. Thursday, in mid-session, investors showed that they were pleased with the bit of good news about the company and provided enough buying pressure to send 3SBio up 86 cents (11%) to $8.46.

In the year since its IPO, 3SBio has not reported any significant adverse news, but it hasn’t excited investors, either. The company has been very good about increasing its revenues and earnings. Unfortunately, it has not increased those numbers as fast as Wall Street expected, and the stock has suffered as a result.

Most recently, in Q4 of 2007, 3SBio reported earnings of $2.4 million (11 cents per ADS) on revenues of $6.3 million. That’s a remarkable profit margin, though 3SBio remains a very small company. More serious was the fact that analysts expected the company to earn 13 cents per ADS. When trading resumed, the stock responded by selling off 25%, dropping $2.90 to $8.80.

Because of the IPO, the company sits on a cash hoard of $115 million, which works out to $5.27 per ADS. The company has not made any large investments over the past year.

For all of 2007, 3SBio earned $11.2 million on $24.7 million of revenue. Profits were 167% higher while revenues increased 41%.

3SBio is also suffering because the entire field of anemia drugs has come into newfound disrepute, after it was discovered that dialysis centers and makers of EPO drugs, like Amgen, were profiting when patients were getting higher-than-needed doses of the drugs. Instead of making patients healthier, the high doses of the EPO drugs were causing a greater incidence of side effects.

At a theoretical price of 8.50 per ADS, a $20 million share buyback would purchase 1.17 million shares. 3SBio has almost 22 million shares outstanding. However, 3SBio did not commit itself to buying the full $20 million worth of stock; its announcement stated that the company would purchase “up to” $20 million of shares over the next year.

Disclosure: none.