China Sky One Reports 140 Percent Increase In Revenue, Lists on American Stock Exchange

BEIJING - China Sky One Medical reported first quarter revenue of $12.4 million, marking a 140 percent increase year on year, the company told a May 15 earnings call.

Product sales increased 174 percent year over year to $9.5 million, or 76.2 percent of total revenue. Nine days later, on May 23, it got the green light to list on the American Stock Exchange.

CEO Liu Yanqing contributed to the record Q1 financial performance by extending the company's distribution network through hiring direct territory managers and sales agents.

"We have strongholds in China's major provincial capitals; the sales network is expanding in China's second- or third-tier cities this year," Liu Bing, Investor Relations Spokesperson told PharmAsia News.

The company manufactures and distributes over-the-counter pharmaceutical products as its primary revenue source. Its top-selling branded products in the first quarter were Slim Patch for weight loss, Compound Camphor Cream, Anti-Hypertension Patch for high blood pressure and Hemorrhoids Ointment.

"In 2008, we expect our highly successful slim patch [to make] the largest contributions to the strong growth," said Liu. The weight loss patch has exported to more than 10 countries, including the U.S., Australia , Singapore and Malaysia.

The Nevada company was founded in 2005 with headquarters in Los Angeles. It operates through its wholly-owned subsidiaries in Harbin, the capital city of Heilongjiang province in northeast of China: Harbin Tian Di Ren Medical Science Technology Company and Harbin First Bio-Engineering Company Limited.

TDR is focused on traditional Chinese medicine herbal patches and sprays. Besides its top-selling weight loss patch, the company also makes a male energy patch, a sleep enhancement patch and a pain patch.

2008 Year Of Acquisitions

To broaden its product lines, the company paid $8 million in cash and $300,000 worth of common stock to acquire Heilongjiang Tianlong Pharmaceutical in April (Also see "U.S. TCM Company Acquires Chinese Firm’s Product Line" - Scrip, 12 Mar, 2008.).

Tianlong's lead products include externally applied treatments for dermatitis and eczema with distribution networks in northeast and northwest China.

The company said the acquisition enhances its product portfolio by adding 69 approved drugs and 38 new drugs awaiting approval from China's State FDA.

"We expect Tianlong will contribute approximately $7.5 million in revenue and one-third of net profits in 2008," Investor Relations Spokesperson Crocker Coulson told investors during the May 15 earnings call.

Sky One Medical also paid more than $400,000 to acquire 100 percent of the issued and outstanding capital stock of Heilongjiang Haina Pharmaceutical in April to obtain Haina's primary asset, a "Good Supply Practice" license issued by SFDA. The agency recently started issuing such licenses to resellers of medicines in order to maintain certain quality controls.

The GSP license enables China Sky One Medical to expand its sales of medicinal products without having to go through a lengthy license application process. "By obtaining the GSP license, we now have the ability to further develop our sales channels in a timely manner," said Liu.

"One of the important legs of our growth strategy is acquisitions," Coulson said. "We plan to continue to expand our product portfolio through acquisitions that will continue to provide additional high-margin products in China."

"We anticipate [spending] $20 million for acquisitions in 2008," CFO Liao Xiaoqing, told investors.

The company's sound cash flow guarantees its buying spree. It generated $5.2 million in net cash flow from operating activities during the first quarter, up from $561,677 for the same period in 2007. It also completed a $25 million private placement in February to finance acquisitions.

As of March 31, the company possessed $38.2 million in cash, roughly $43.6 million in working capital with no debt. Stockholders' equity at the end of the first quarter was $62 million, a 92.3 percent increase over the $32.2 million recorded at March 31, 2007.

The company announced its common shares have been approved for listing on the American Stock Exchange on May 23 under the symbol "CSY."

China Sky One is also shedding its image as an herbal health care and beauty producer. "The sales of bio products is 14.7 percent of the total revenue in the first quarter; it may near 20 percent [at] the end of this year," Liu Bing told PharmAsia News.

Harbin subsidiary First Bioengineering played a vital role in the transformation. Established in 2003, First Bioengineering, aims to add more biochemical products to its product portfolio.

Coulson said the company's R&D focuses on five areas: development of an enzyme-linked immune technique used in extraneous diagnostic kits, an enzyme-linked gold colloid technique to prepare extraneous rapid diagnostic test strips, a gene recombination technique for gene therapy, protein chips for various tumor-testing applications and a cord-blood stem-cell bank.

Half Of R&D To Go To Stem-Cell Research

Among those projects half of the R&D budget will go to stem-cell research. Cord-blood stem cells have been shown to be effective in treating a number of diseases such as blood disorders, metabolic defects and immunodeficiency diseases. The company is in the process of establishing a new cord-blood stem-cell and tissue bank at its new facility outside Harbin. The project is expected to complete late 2008 or early 2009.

Sky One China spent $0.7 million on R&D in the first quarter, compared with $15,210 in the same quarter last year. It will spend $11 million in 2008 related to R&D.

Other biological products under development include an HIV detection kit; diagnostic kits targeting various cancers such as uterus, breast, liver, rectum and gastric cancers; a gene recombination drug; and a multi-tumor marker protein chip detection kit. The company expects these new kits to begin to make contributions to revenue in 2008.

China Sky One is applying for approval to begin clinical trials on Endothelin-1, a potential drug candidate for the treatment of cancer, expected to complete clinical trials in 2013.

The company said it also achieved a number of major milestones on developing a series of diagnostic kits which improve accuracy of early cancer detection. Its AMI Diagnostic Kit, Human Urinary Albumin Elisa Kit and Early Pregnancy Diagnostic Kit will market in Vietnam, Indonesia, Philippines and eventually in Africa.

- Ma Yi ([email protected])