China Biotech Week in Review: Earnings Turn Negative

 |  Includes: CKUN, SNN
by: ChinaBio Today

Earnings reports for China biomedical companies continued to be released during the past five days, though their pace dropped markedly from the week earlier. And the tone changed as well, turning more negative.

In all, three companies reported, and Lotus Pharma [LTUS.OB] produced the most positive results of the three (see story). The company said that its revenues climbed an admirable 51% to $19.4 million in Q2. Unfortunately, net income did not equal those gains, a trend we also noted last week in many companies. However, for Lotus, the shortfall was worse than most because net income actually dropped 27% from the year earlier period to $2.2 million. Lotus put the blame for the disappointment on its sales costs, which totaled $5.9 million or 85% of the company’s operating costs. To reduce its accounts receivable, Lotus offered special incentives to its sales force. The account receivables, as a result, were almost flat on the quarter, despite the rise in sales, but profitability clearly suffered. Even though Lotus has booked just $3.2 million in net income in the first six months of the year, the company believes it will hit its full-year “make good” number (a promise to investors of its 2008 profits) of $13.1 million. That would represent a remarkable turnaround.

For Sinobiomed [SOBM.OB], the Q2 financial report could be described in a single word: dismal (see story). In fact, Sinobiomed did not issue a press release for its quarter, choosing instead to make several upbeat announcements about progress in its R&D program. In a way, that is appropriate, because Sinobiomed’s legacy products, chiefly the Wanferon/Wanferin drugs, are seeing their revenues dwindle down to almost nothing. Sinobiomed says that market for its current products competes on price, and clearly its products are not flourishing in that environment. The company’s only hope is that one of its current projects will succeed and bring the company respectable revenues and profitability. Sinobiomed is working on rhK1, an anti-coagulant based on recombinant kallikrein-1, a recombinant multivalent tuberculosis vaccine, a recombinant malaria candidate vaccine, and an anti-bleeding agent, recombinant Batroxobin (rBAT). A new line of cosmetic products is the company’s single financial bright spot: Sinobiomed projects they will produce $3 million of sales in the next 12 months.

The earnings release for China Shenghuo Pharmaceutical Holdings (KUN) was a backward step (see story). The company revealed that it has uncovered reporting irregularities that prevent it from delivering its second quarter results, and the same problems will cause the company to restate the results from the past twelve months as well. The problems derive from errors in sales commission advances and trade receivables. Within two months, Shenghuo’s Audit Committee and an independent counsel will review the company’s internal controls and the personnel involved. Shenghuo produces pharmaceutical, nutritional supplement and cosmetic products derived from the Sanchi root (panax notoginseng). Most of the company’s revenues come from a prescription product that promotes blood circulation, Xuesaitong Soft Capsules. In the last year, according to the numbers that are now revoked, Shenghuo reported net income of $2.2 million on revenues of $21 million. 

Smith & Nephew (NYSE:SNN), an international medical device maker, announced that it is expanding its China manufacturing facilities (see story). The company gave the usual two reasons for the initiatives: the cost savings of Asia and the growing importance of the China medical market. Smith & Nephew is building a wound care manufacturing facility in Suzhou and a plant to manufacture joint replacement parts in Beijing. The Suzhou facility will largely replace a factory in Largo, FL, while the Beijing plant will add capacity to satisfy the needs of a growing joint replacement market. The company did not disclose any details of how it intends to increase its Asia revenues. 

The Beijing CRO Venturepharm Laboratories [HKEX: 8225] purchased 44% of the US CRO, Commonwealth Biotechnologies (CBTE), and the two will establish a JV (see story). The two companies also disclosed their China building plans: CBI will increase its China drug discovery space to 20,000 square meters. Venturepharma will build one of the largest preclinical labs in Asia, with the space of about 40,000 square meters. By completing the purchase, Venturepharm follows a recent pattern in which China-based CROs make deals with complementary companies located in the US.

MicuRx Pharmaceuticals, Inc., a privately held company based in the US and Shanghai, China, named its first preclinical development candidate, a next-generation antibiotic aimed at multi-drug resistant gram-positive bacteria (see story). The company also has moved into a new 10,000 square foot laboratory in ZhangJiang HighTech Park in Shanghai. At the 2007 ChinaBio Investor Forum, held in Shanghai last December, MicuRx detailed a two-country business plan whose goal is “to capitalize on the global opportunities emerging through the combination of biotech pharma innovation in the USA and the enterprise friendly infrastructure and scientific resources of China. This approach affords MicuRx with utmost efficiency in the drug discovery and development process,” according to the CEO of the company, Zhengyu Yuan, Ph.D.

Disclosure: none.