Biotech in Review: Investment Capital for China Biopharma

Zero2IPO published its quarterly figures on venture capital in China, showing that investment in the Biotech/Healthcare sector jumped 33% in the first quarter (year-over-year) to $67 million (see story). Further, the average deal size climbed to over $11 million, up from $7.4 million a year ago and the highest of any sector. That’s all good news. However, the 33% rise was less than the 125% overall increase in VC investment, showing that Biotech/Healthcare was not keeping up. Because there is a lot of lumpiness in these numbers (there were only eight investments in the sector in Q1), it is difficult to define trends with assurance from an analysis of a single quarter.

Zero2IPO makes the point that an increasing amount of money is being raised by VC funds, implying that an increasing amount of investments will be made in the future. Biotech investing climbed during the quarter and, most likely, it will grow even more in the future as it catches up with other sectors and as the entire pool of VC investments continues to increase.

One specific investment came to light when Frontage Laboratories of Philadelphia announced it received $10 million from a syndicate led by Baird Capital Partners Asia to expand its China operations (see story). Frontage opened a CRO lab in Beijing in late 2007 with the purpose of offering cost-effective CRO services to its clients. Baird called its investment “growth” capital, which is justified because Frontage, with its two Philadelphia facilities, is not a start-up operation. The investment is the first for the new Baird investment group, which focuses on businesses in China. With the money, Frontage expects to exploit the growing interest in US-China CROs.

Another CRO development was the continued growth of the CRO Service Alliance of Shanghai (see story). Tigermed, which claims to be “the clear leader” in conducting China clinical trials in innovative New Chemical Entities, joins the original members of CROSA: Sundia Meditech, United PharmaTech, and HD BioSciences. NovaSecta, the European CRO sourcing agent, joined the alliance in February 2008. Tigermed previously established an alliance with Crown Bioscience, a CRO with labs in Beijing and Carmel, IN.

In M&A news, the vaccine company Bio-Bridge [BGES.OB] extended its presence in the sector by buying a 51% stake in Xinheng Baide Biotechnology Co. Ltd., a manufacturer of bovine serum located in Inner Mongolia (see story). Bovine serum, which is used in the production of vaccines and in scientific research, is also the business focus of a China JV that Bio-Bridge and JV Scientific announced three weeks ago. The purchase price of the Xinheng Baide stake is 6 million RMB ($865,000). Bio-Bridge is developing an HIV vaccine it licensed from Loyola University of Chicago.

China Biologic Products, Inc. (CBPO.OB) received two critical SFDA approvals during the last week (see story). The first ruling allows China Biologic to start production of Cryoprecipitate, a frozen blood product prepared from plasma. Because Cryoprecipitate is extracted from plasma that would otherwise be discarded, China Biologic expects the new product will increase its plasma unit yield. China Biologic has signed a contract to supply Cryoprecipitate to the Green Cross. The second SFDA approval was to begin a clinical trial of Human Prothrombin Complex, which, like Cryoprecipitate, is a coagulant. China Biologic already markets human albumin products to increase blood volume and immunoglobulin products to treat and prevent diseases.

Novo Nordisk (NVO) decided that, rather than attempting to sell the small-molecule compound library it has developed over decades of research, it would donate a license for the library to the National Center for Drug Screening [NCDS] (see story). The NCDS is affiliated with the Shanghai Institute of Materia Medica, Chinese Academy of Sciences. The compound library contains an estimated 325,000 chemical structures. Novo Nordisk is moving its focus from small-molecule drugs to protein-based compounds, so the library was no longer central to its research. Novo Nordisk feels that NCDS will be able to take advantage of the compounds to discover drugs that treat unmet needs in tropical infectious diseases.

After promising that revenues and earnings would be up 60% in the first quarter, China Pharma Holdings (CPHI.OB) reported that revenue climbed 62% to $11.7 million, gross profits jumped 76% to $5.8 million, and net income rose 77% to $4.2 million (see story). Earnings per share were up commensurately: they were 72% higher at 11 cps. Although the income report was uniformly positive, there was one item on the balance sheet that caused alarm among investors: Accounts Receivable, which grew from $18.6 million to $24.8 million over the three months. Some commentators pointed out that the Receivables growth was less than the increase in income. Still, the net change in Receivables, $6.2 million, was more than 50% of the total revenues reported by China Pharma for the quarter. That takes its toll on cash, which declined by 61% to $700,000, despite the $4.2 million in net earnings -- not a situation that can continue indefinitely.

Disclosure: none.

Comments

[intelligence]

here you go again missing the good news on china pharma receivables
1. reduced old receivables by more than 50%
2. sales up 60% while receivables up ONLY half that amount
3. bad debts not as bad as reservesd for originally

all good news--and WHY IS THIS A BIOTECH STOCK-NEXT MAYBE INCLUDED IN JUST TECH