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China Medicine Corporation (OTCPK:CHME), which develops and distributes medical products in China, reported Q4 earnings of $2.8 million on revenues of $16.2 million. Revenues were 89% higher than the year earlier quarter, while profits were up 15%. The company explained that margins were hurt by two initiatives: expansion into the rural areas of Guangdong Province, where it operates, and a greater emphasis on OTC and traditional Chinese medicines.

China Medicine Corp. distributes prescription and OTC pharmaceuticals, traditional Chinese medicines, nutritional and dietary supplements, medical devices, and medical formulations. Although the company also develops some products, it currently out-sources all manufacturing. It is looking at buying a manufacturing facility.

In 2006, the company reported a portfolio of some 2,200 pharmaceutical and medical products. In Q4 of 2007, sales of prescription products accounted for 59% of revenues, while OTC medicines were responsible for 31% and medical formula sales contributed 9% of total revenues.

For all of 2007, China Medicine’s revenues climbed 75% to $42.1 million, while its net earnings increased 43% to $6.9 million, which works out to 50 cents per share, fully diluted.

Because of its coverage of Guangdong Province, China Medicine was able to bid on distribution rights for medical products there. It was awarded rights for an additional 774 products in 2008.

Guangdong Province also awarded China Medicines an 800,000 RMB ($109,600) grant to develop aflatoxin detoxifizyme [ADTZ], an enzyme that can eliminate the carcinogen aflatoxin from food and animal feed. China Medicines is developing the product in a joint venture, in which it owns a 70% stake. In Q4, the company also recorded $214,541 in research and development expenses for a pre-clinical study of Yutian Capsule, a TCM being studied as a treatment for lung cancer. The company owns patents for five medical products, and is awaiting patents for seven others.

At year end, China Medicine reported a cash balance of $5.8 million and working capital of $28.5 million.

The company expects to move ADTZ into commercialization in 2008. It also projects a 30% increase in revenue and 21% growth in net income over the course of this year.

China Medicines is currently trading at $2.30 per share. At that number, it has a PE ratio of 4.6 and a market capitalization of $41 million.

Disclosure: none.

Source: China Medicine Q4 Report: 75% Growth in 2007