China Biotech Week in Review: FDA, Deals & Earnings

In a world dominated by worldwide trade, standards eventually become more uniform. In the late 19th century, as railroads shattered the isolation of the small towns in the American west, uniform time zones replaced the practice of allowing each locality to set its major clock to high noon, a practice that meant time in one town could be three or fifteen minutes different from the next one. A similar standardization is underway in China biopharma.

Last week, in ChinaBio Today, we covered a webinar in which speakers discussed the implications of the new China offices established by the US FDA (see story). Nicholas Buhay, an FDA Deputy Director, promised that the number of inspections would grow until the job gets done. The FDA will try very hard to prevent the use of unauthorized ingredients in drugs and food, the kind of problem that has led to many of the safety problems in China over the past two years. The FDA will also target companies that pose the greatest risk, meaning the manufacturers with procedures that are difficult to control, particularly if the manufacturer is bringing a new product to market.

Raymond A. Bonner, an attorney active in FDA regulatory work at Sidley Austin LLP, looked at the promise of FDA inspections from the point of view of a company seeking a China outsourcing partner. “Go back to basics,” he said. “Think like you would when you do any due diligence. Examine organizational structure and the organization of quality control." Each company should have written procedures for quality control, and written powers to stop manufacturing when a problem arises. Basic sanitation is a prerequisite, as is clear documentation. Bonner urged companies to prepare so they can impress regulators on the first inspection, because credibility, once lost, is hard to regain.

Showing that inspection programs are important,, a China pharmaceutical product last week has once again caused deadly side effects. Three people died after being injected with a TCM product based on the Ciwujia herb (see story). The drug is administered to treat thrombosis and heart disease. The SFDA reacted by pulling two batches of the drug from the shelves. The drug, which is manufactured by Wandashan Pharmaceutical, is one of about ten Ciwusia products manufactured by the company. Reports said that the contaminated batches had an unusual color and contained toxins. However, it is not yet known how the batches became contaminated.

The worldwide economic crisis made itself felt in China biopharma again last week. WuXi PharmaTech (WX) released weaker-than-expected financial Q3 results (unaudited) and, at the same time, lowered guidance for its full year (see story). The company shaved its forecast for 2009 revenue by $20 to $35 million. The new revenue range is expected to be between $260 and $265 million, which still represents a growth rate of 95%. WuXi said the troubled economy was forcing some smaller biotechs to delay or cancel work on biologic manufacturing projects. The company’s newly acquired US-based AppTec division was one of the reasons for WuXi’s increased revenues. However, AppTec is also the division responsible for biologic manufacturing, the major cause given for the shortfall.

On the positive side of things, WuXi PharmaTech announced that is has expanded its collaboration with Johnson & Johnson (JNJ) (see story). WuXi will provide Janssen Pharmaceutica, a division of J&J Pharmaceutical Research & Development, with integrated research services in the area of discovery chemistry, discovery biology, chemical and analytical development services, formulation, and preclinical and bio-analytical services. Previously, WuXi was supplying only discovery chemistry services to J&J.

China Aoxing Pharmaceutical Company (CAXG.OB) also released a financial report last week. In its 2008 fiscal year, ended June 30, 2008, the company’s revenues climbed 264% to $7 million, helped by a $2.7 million contribution from a new acquisition (see story). Revenue growth from its own products was 123%. Gross profit totaled $2.3 million, representing a rise of 259%. However, net income was still a loss of $3.6 million on a non-GAAP basis. China Aoxing, which operates in China’s highly regulated world of narcotic pain drug development, has been active in the last year on the deal front. It also has a number of drug candidates in development that, if approved, will give the company’s financial fortunes a boost.

China Biologic Products (CBPO.OB) announced another acquisition, saying it will purchase a 35% stake in Xi'an Huitian Blood Products Co. (see story). Both companies manufacture plasma-based pharmaceuticals. China Biologic will pay 44 million RMB ($6.4 million) to buy Huitian. Two weeks ago, China Biologic announced a $28.5 million deal to acquire a 50% controlling interest in Qianfeng Biological Products of Guizhou Province, also a plasma-based pharma. With the two new affiliates, China Biologic says it expects 2009 revenues will double this year’s expected revenues of $49 million.

Pioneer Surgical Technology, a Michigan company that manufactures a portfolio of spinal medical devices, has signed up Bonovo Orthopedics, Inc. to distribute its products in China (see story). Bonova, which is based in Arizona, is a China manufacturer and distributor of orthopedic products. Bonovo plans to introduce Pioneer’s spine products in November at the Chinese Orthopedic Association meeting in SuZhou, China. Pioneer began marketing its first product, surgical wire, in 1992. It has gone on to develop a wide range of orthopedic and spinal devices, which it sells in Europe. Its products are being evaluated for use in the US. Financial details of the agreement were not disclosed.

On the CRO front, Charles River Laboratories (CRL) formally opened its 60,000 square foot preclinical facility in Shanghai (see story). The international CRO and Shanghai BioExplorer formed a JV called Charles River Preclinical Services Greater China, which owns and runs the facility, with Charles River being the majority partner. Dr. Kewin Jin, who is a co-founder of Shanghai BioExplorer, will serve as General Manager of Charles River Shanghai. Charles River positioned the new venture as a way to provide China-based preclinical CRO services to Charles River clients. However, in earlier comments, management has said the new venture would also seek business from domestic China biopharmas.

China Sky One Medical (CSKI.OB) also announced a landmark event at a new facility. The company said production started at the Peng Lai Jin Chuang Company (see story). China Sky One finalized the acquisition of Jin Chuang last month, paying $7.1 million in cash and stock to gain control of the company. Jin Chuang represents an unusual situation because it boasted a portfolio of twenty approved drugs and was building a manufacturing plant, but the company had not yet begun to market its drugs at the time of the acquisition. China Sky One expects Jin Chuang to contribute $3-$5 million in revenues during fiscal 2008, and to add between $1 million and $1.5 million in net income.

http://seekingalpha.com/article/100549-china-biotech-week-in-review-fda-deals-earnings