China Biopharma: What’s Not to Like?

by: ChinaBio Today

China-based biopharmas were rolling out their financial reports from Q1 last week, and the results were uniformly positive – revenues and profits were substantially higher than the comparable period a year ago. That good news, however, is not reflected in the price of most companies’ shares, which is in most cases lower than it was last year at this time. In general, stock buyers are more wary these days, of course. It also seems as though investors are not paying attention to the reality of the situation, which is that China biopharmas are turning in strong performances but not being recognized for their accomplishments. Look at these three examples:

American Oriental Bioengineering (NYSE: AOB) was one such China biopharma reporting last week, and it recorded greatly improved financial results in its first quarter (see story). Revenues climbed 51% and net income climbed 46%. Earnings per share, increasing just 20%, were not as positive. They lagged because of an increase in number of outstanding shares. American Oriental was helped by two adroit acquisitions, transactions that were so successful the company promised to continue seeking targets. For all of 2008, American Oriental currently anticipates that revenues will reach $245 million, a rise of 50%, on which it expects net income to attain a level of $62 million.

Mindray Medical International (NYSE: MR) reported it made a profit of $25.6 million (up 47%) on revenues of $89.3 million (higher by 48%) (see story). Like American Oriental, Mindray, which makes imaging equipment, in-vitro diagnostics, and patient monitoring equipment, is expanding through acquisitions, paying $202 million to buy the patient monitoring business of Datascope (NYSE: DSCP). Assuming the deal closes on May 1, Mindray projects full-year 2008 net revenues of $560 million and non-GAAP net income to approach $135 million. Unlike most China biopharma companies, Mindray remains close to its 52-week highs.

Simcere Pharmaceutical Group (NYSE: SCR) rounds out this group of reporting companies. Its Q1 report shows a more modest increase in revenues, rising just 26% to $56.3 million, though profits climbed 68% to $16 million (see story). Simcere is breaking away from its history of producing branded generic products with a number of first-to-market offerings: treatments for cancer and stroke. Its current acquisitions are taking the company further in this direction, including a second cancer drug.

Moving from news about earnings to news about the regulatory environment in China, the SFDA announced it would introduce rules to shorten the wait for IND rulings – but only if the drug is innovative (see story). The SFDA did not promise to hire more drug evaluators or to change their standards. However, if a drug meets the criteria designating it as an innovative product (criteria that are as yet unpublished), the SFDA would put the product at the head of the line for a more expeditious examination. How long would that take? Also unknown at this time. At present, companies can wait nine months or longer for review of an IND, even though the same sort of review takes just one month in Western countries.

Individual companies were also in the news last week, adjusting their strategies to take advantage of China’s huge and growing market for drugs and medical devices. Venturepharm Asia, a joint venture between Commonwealth Biotechnologies (NSDQ: CBTE) and Beijing-based Venturepharm (HK: 8225), revealed plans to build two state-of-the-art chemistry facilities in Jiangsu province (see story). Capital will be provided by Venturepharm and grants awarded by the federal government of China. The JV has ambitious plans for the labs. It expects to employ 200 chemists by the end of 2008 and 1000 scientists in 2010. It is equally optimistic about revenues. Without disclosing specific numbers, the JV is on record as saying it projects “strong” revenues in the first twelve months of operation, and that revenues will expand five-fold by 2010. The joint venture was initially announced one month ago after Venturepharm bought an existing block of stock that constituted 33% of Commonwealth’s outstanding shares.

WuXi PharmaTech (NYSE: WX), the Shanghai CRO whose very successful IPO made US investors aware of the China CRO industry, decided to postpone a secondary stock offering, citing market conditions and the trading price of its ADSs (see story). WuXi closed the week just under $19 a share, more than 50% off its 52-week high.

GlaxoSmithKline (NYSE: GSK) reorganized its corporate structure, creating a new division called Emerging Markets, to increase its focus on areas of the world where the drug demand is growing the most (see story). The emerging markets consist of China, Russia, Brazil, India and the Middle East. Even though these countries spread across the globe, GSK believes their pharmaceutical markets are so similar that a single overall strategy will suit each area.

BMP Sunstone Corporation (NSDQ: BJGP) received SFDA acceptance of its Clinical Trial Application for Enablex (see story). Enablex is a Novartis (NYSE: NVS) drug, approved for overactive bladder in the West two years ago. Novartis picked BMP Sunstone to conduct registration activities for the drug in China. Enablex could be approved as early as 2011. Once the drug is approved, BMP will have the right to market it for ten years.

And finally, Takara Bio Inc. of Japan (TSE: 4974) has begun testing a cancer immunotherapy in China, through a collaboration with Tianjin Cancer Institute & Hospital, Tianjin Medical University (see story). The new immunotherapy uses RetroNectin, Takara’s proprietary recombinant human fibronectin, to expand T-cells, with yields of approximately 250-fold after 10 days of culturing. According to Takara, a feature of its process is that the resulting product contains high numbers of cells with the phenotype of naive T-cells, which are more potent in mediating tumor regression.

Disclosure: none.