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Look Again: CSKI Appears to Be Deteriorating Fast

|Includes:China Sky One Medical, Inc. (CSKI)

Following a swift decline in sales, China Sky One Medical (Nasdaq: CSKI) is no longer the picture of health that it once seemed to be.

If CSKI’s fourth-quarter results looked weak based on traditional year-over-year comparisons, those numbers look downright painful when examined on a sequential basis.

During the last three months of 2009 – a period when Chinese officials reportedly identified eight CSKI treatments as “counterfeit” drugs and began prohibiting their sale – the company saw revenue decline, often precipitously, in every one of its product categories.

Sales of patches, CSKI’s largest revenue generator, fell 16% sequentially. Sales of ointments, another major source of revenue, dropped by more than half. Sales of sprays, which initially looked solid on a year-over-year basis, actually plunged by more than 40% between the third and fourth quarters of last year.

Sales of diagnostic testing kits, while a smaller revenue driver for the company, plummeted by almost 70% during that same timeframe. Even sales of “other” products – a key source of revenue derived from recent acquisitions – suffered double-digit declines during the final quarter of the year.

Just four months ago, CSKI confidently reaffirmed its full-year financial guidance when reporting “record” third-quarter results for the company. Although CSKI somehow managed to reach its modest revenue target, the company fell well short of Wall Street’s higher top-line estimates while missing its own bottom-line forecast as well.

Notably, an investigative report by longtime bear Manuel Asensio indicates, Chinese officials cracked down on the sale of multiple CSKI products about halfway through the fourth quarter. Specifically, Asenio revealed, the Ministry of Health of the People’s Republic of China published a list of “counterfeit” drugs – including eight CSKI treatments – on Nov. 5 that ordered pharmacies to “immediately stop the sale” of those products.

Just days after Asensio published his Feb. 19 report, CSKI responded by saying that it had revised the product labels for seven of those drugs and secured government permission to begin selling them again. At the time, CSKI insisted that the interruption would have no “material impact” on the company’s overall financial results.

The announcement rescued CSKI’s falling stock, which had plummeted from $17.90 to $14.64 on Asensio’s warning, and helped push the shares back above $17 by the time the company released its dismal fourth-quarter report. CSKI then suffered a similar decline, with its stock spiraling from $17.15 to $14.49, when the company reported its rare earnings miss this week.

One day after that big hit, CSKI came through with good news yet again. This time, CSKI suddenly announced that the Chinese Ministry of Science and Technology had recognized Antroquinonol – an anti-cancer treatment the company is developing – as a “breakthrough drug” that qualifies for speedy regulatory review and government research funds.

Shares of CSKI, under huge selling pressure the previous day, quickly bounced 4.1% to $15.09 on the news.

CSKI has already secured regulatory permission to begin early-stage trials of Antroquinonol, a compound extracted from a rare tree fungus, here in the U.S. Yet despite the drug’s new “breakthrough” status, Factiva’s extensive news database indicates, the mainstream U.S. media – normally eager to cover possible cancer cures – had previously never even mentioned the drug.

* To contact Melissa Davis, the author of this story, please send an email to

Disclosure: No Positions
Stocks: CSKI