Consolidation and Growth in China Biotech

The wheels kept turning last week in China biotech, as companies jockeyed to increase their presence in the growing China market for pharmaceuticals. Aida Pharmaceuticals (AIDA.OB) signed an agreement to acquire a controlling interest in Jiangsu Institute of Microbiology Co. [JSIM], a company that already offers several products to the China market and has several additional potential products in clinical trials (see story). The transaction will be done on a stock-for-stock basis, though specific details were not disclosed. In fact, Aida was reluctant to be specific about any details of the transaction. It did not discuss the nature of JSIM’s products, its research focus or its revenues. However, Aida did say that JSIM has a 30-year research history as well as 30 researchers and engineers on staff. In its present form, Aida is very dependent on its antibiotic products, which are various formulations of a China-developed antibiotic called Etimicin, and which provided almost 70% of the company’s revenues during the first nine months of 2007.

Tongjitang Chinese Medicines (TCM) announced that the independent members of its Board selected Morgan Stanley Asia Limited to advise them on the $10.20 per ADS offer to take Tongjitang private (see story). The offer, which seems a case of seller’s regret, comes just one year after Tongjitang completed its IPO. It is made by the Chairman and CEO of Tongjitang, Mr. Xiaochun Wang, and a director, Mr. Yongcun Chen. Before the IPO, Mr. Wang owned 55% of the outstanding shares. After the transaction, he held 40% of them, reflecting both the dilution of the offering and the 3.4% of the total outstanding shares Mr. Wang sold in the IPO. Mr. Chen held 6% of the post-IPO shares. The IPO and the present take-private offer are just about equal value -- $10 and $10.20 respectively. Investors have considerable skepticism that the deal will go through, as shown by the stock price, which languishes at $8.30. The company has $114 million in cash. The buyout would require in the neighborhood of $185 million to acquire the 54% of Tongjitang that the two acquirers do not already own.

CytoPharm of Taiwan will begin a second license and supply agreement with Amarillo Biosciences [AMAR.OB] that covers the use in Asia of Amarillo Biosciences’ low-dose interferon (see story). CytoPharm will be responsible for conducting tests to support approval of the drug as a means of preventing diseases in farm animals. CytoPharm already has a Phase II test underway to prove that the low-dose interferon product can prevent relapse in patients with hepatitis C. CytoPharma will have rights to the product in both Taiwan and China.

In terms of growth, China Medicine Corporation (CHME.OB) reported its 2007 revenues were higher by a full 75%. Unfortunately, earnings were up by only 43%, coming in at $6.9 million, as margins were hurt by the company’s move to cover more of the rural areas of its home base, Guangdong Province (see story). The initiative increased costs, and it also resulted in a greater emphasis on OTC and TCM drugs. In urban areas, prescription drugs are bigger sellers. The good news is that its all-Guangdong coverage means China Medicine could bid on distributing more products in the province and will add 774 products to its present portfolio of 2200 products. The company also develops medical products and would like to add manufacturing to solidify its vertical integration.

And finally, China Medical Technologies (CMED) announced it won the CE mark that will allow the company to market two semi-automatic ECLIA analyzers and 15 reagents in Europe (see story). The products were acquired when China Med bought Beijing Bio-Ekon Biotechnology Co. Ltd. in January. China Med is building its diagnostic products business (it also offers FISH diagnostic systems) as growth slows for its High-Intensity Focused Ultrasound [HIFU] division. The HIFU machine is used like radiation to kill tumors in some forms of cancer.

Disclosure: none.