China Biotech Week in Review: Earnings

by: ChinaBio Today

Earnings week hit China biotech last week with a full-force onslaught, drowning out most of the normal newsflow. Two of the biggest US listed China biotech players, and several smaller companies, announced their first quarter results. Whether it was the economic crisis or just the unsettling winds of change in China medical delivery, the reports did not give evidence of triumphant achievement: overall, the results fell into the category of “decidedly mixed.”

On the face of it, the first quarter of 2009 for WuXi PharmaTech (NYSE: WX) (药明康德) was not particularly impressive: revenues were up a modest 5% while net income fell 15% and earnings per share dropped an even-greater 22% (see story).

Still, it seems that WuXi has done a good job of preparing Wall Street for even worse results, because the company’s shares moved sharply higher following the earnings announcement. They rose 43%, climbing $2.39 to $7.98. WuXi said its core business, China CRO laboratory services, rose a healthy 33%. The problem was in contract manufacturing, where revenues sank by 81% and largely offset the gains in laboratory services.

Mindray Medical International (NYSE: MR) (迈瑞医疗国际有限公司), the Shenzhen maker of medical devices, announced its Q1 revenues jumped 54% to $134.2 million, a much bigger increase than WuXi (see story). Net income, however, failed to keep pace with revenues, rising just 10% to $30.5 million on a non-GAAP basis and $25.3 million following GAAP rules. The numbers were a bit of a disappointment as analysts expected the company’s revenues to be close to $145 million. Earnings, on the other hand, came in slightly ahead of forecasts. Mindray dropped 11% to $22.75 in the session following the announcement.

China Sky One Medical (NSDQ: CSKI) (中国天字一号医药公司) reported Q1 revenues hit $24.8 million this year, an exact 100% increase from the year earlier (see story). Net income jumped 87% to $9.1 million, a big rise and a stunning 37% margin on sales. The company attributed its success to its sales force as well as contributions from acquisitions made during 2008. China Sky One provided full-year 2009 guidance, saying it expects revenues to increase 40% to $128-$130 million and net income of $38-$39 million, a rise of 30%.

American Oriental Bioengineering (NYSE: AOB) (广西博科药业) reported mixed results for its first quarter. Revenue increased 19% from the year-earlier quarter to $46.1 million, but net income fell 16% to $7.9 million (see story). American Oriental commented that $1.7 million in interest expense for newly issued convertible bonds was the major difference. Increased interest expense changed the comparison with 2008’s Q1 from flat to lower. Revenues from its prescription pharmaceuticals were up 14.5% at $16.2 million, due to good results from its Jinji and CCXA acquisitions. Their improvements offset declines in Shuanghuanglian Injection Powder, which declined 30%.

There wasn’t much positive about the Q1 report from Sinovac Biotech (NYSE Amex: SVA) (北京科兴生物制品有限公司), which reported a substantial 26% decline in Q1 sales (see story). Revenues fell from $8.9 million in 2008 to only $6.6 million this year. The revenue drop left net income at a barely positive level of just $25,000, down from $1.6 million in last year’s first quarter. Nevertheless, despite the weakening in its revenue trend, Sinovac courageously called for full-year 2009 revenues of $55-$60 million, a 20% increase. It’s a long way from a $6.6 million first quarter to a $60 million year.

China Medicine Corporation (OTCPK:CHME) said Q1 revenues rose 43% to $10.1 million while net income rose a more modest 11% to $1.3 million (non-GAAP) or 9 cents per share, fully diluted (see story). A charge related to the fair value of warrants took GAAP earnings down to $.55 million, an eps of 4 cents. The company attributed its growth to an increase in pharmaceutical sales from the Guangdong Sunshine Medicine Public Internet Bidding System. However, investors were not impressed. Shares of China Medicine fell 17% after the announcement, slipping 35 cents lower to $1.75. At this price, the company has a market capitalization of just $27 million.

Moving away from earnings, China’s central government announced it will allocate 62.8 billion RMB ($9.2 billion), half this year and the other half in 2010, to new technology, including biotech, in an effort to counteract the economic slowdown and stimulate growth (see story). The State Council announced the funding on its website following a meeting on Wednesday. The grants were the first authorizations from the 4 trillion RMB ($586 billion) “Mega Program” announced last November to stimulate innovative technology.

And, despite the earnings announcement onslaught, there were some new product developments. NeoStem, Inc. (NYSE Amex: NBS) in-licensed the Asia rights for Regenrexx™ (see story), a process that uses a patient’s own mesenchymal stem cells to regenerate joints and bones as an alternative to surgery. Regenerexx was the second mesenchymal stem cell in-licensing deal for NeoStem in as many weeks. Last week, NeoStem announced it had acquired worldwide rights for Primcel, a product that aids wound healing. NeoStem intends to expand from its cell-banking focus into medical tourism.

China Aoxing Pharmaceutical Company (OTC:CAXG) (中国奥星药业) purchased the rights to a novel drug in Phase II trials that targets primary dysmenorrhea (PD), or menstrual pain (see story). The drug, TJSL, is a capsule formulation of selected herbal medicines developed by Professor X. Tian, a well-known China gynecologist. Terms were not disclosed. With the initiative, China Aoxing will seek to extend its pain medication franchise into a new field.

Also in the news, Jiangbo Pharmaceuticals (江波制药) officially changed its ticker symbol from JGBO.OB to OTCPK:JGBO, shedding the last vestiges of its post-reverse-merger identity, when it was known as Genesis Pharmaceuticals and traded under the symbol GNPH (see story).

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