There has been a lot of fuss lately about health care reforms in the United States over the last several weeks – and rightly so. Finding a way to cover most of the nation’s 40 million to 50 million uninsured citizens is indeed a big deal, and worthy of a lot of attention on Wall Street. After all, those insured folks are now new customers for the American health care system and providers are clamoring for the opportunity to serve these patients.
But if you think this is the biggest opportunity for health care ompanies in 2010, think again. The fact is that America’s new insurance boon is small potatoes compared to the breakneck growth of Western medicine in China. With a rapidly improving quality of life that has resulted in not just bigger paychecks but also a more sophisticated understanding of health and wellness, Asia is experiencing a biotech boom unrivaled by any other market in the world right now.
So don’t go chasing companies based on American health care reform – the bottom line is that the biggest profit and sales growth is going to healthcare companies in China right now!
Hot China Biotech Stock to Buy – WuXi PharmaTech WX
WuXi PharmaTech (WX) has grown into one of the largest and most successful outsourcing powerhouses in China since its founding in 2000. What impresses me the most about this company is its impressive leadership. In fact, WuXi PharmaTech was actually started by Dr. Ge Li, a top Chinese research scientist who was educated and trained in America. After Li received his Ph.D. in organic chemistry from Columbia University, he co-founded the drug development company Pharmacopeia, where he worked for eight years and co-invented several patents involving medicinal and combinatorial chemistry.
Along with Li, WuXI PharmaTech also has a very experienced management team that includes Western-trained Ph.D.s and MBAs with experience in drug R&D procedures and Western-style business practices. This training and knowledge allows the company to better serve its customers, who are mainly U.S.- and Western Europe-based multinational pharmaceutical companies.
WuXi PharmaTech is now a leading provider of laboratory and manufacturing services to pharmaceutical, biotechnology, and medical device companies. It currently employs more than 3,000 scientific staff members, providing a vast portfolio of laboratory and manufacturing services throughout the drug R&D process. As a result, the company is able to shorten the R&D cycle and lower costs for drug discovery and development for its global partners. Currently, WuXi has about 250 key customers, including all of the world’s top 10 pharmaceutical companies. In fact, Pfizer and Merck are two of the company’s largest customers, with each accounting for more than 10% of its revenues.
WuXi PharmaTech announced fourth quarter and full year 2009 earnings in March that showed just how great this China biotech stock is right now. In the fourth quarter, net revenues for the company grew 15% year-on-year to $73.9 million. In addition, earnings per share came in at 16 cents — a sharp pop from the negative earnings per share in the same period in 2008. For the full year 2009, net revenues grew 7% to $270 million year-on-year. Earnings per share came in at 72 cents, giving WX a nice increase from the loss in earnings in 2008. The company expects its net revenue to grow 15% to 19% in 2010 surpassing the 7% growth rate in 2009. This accelerated growth is expected to continue through 2011, driven by strong revenue growth and improving margins.
Hot China Biotech Stock to Buy – Mindray Medical MR
Mindray Medical (MR) is a red hot China biotech stock that stock any investor who wants to profit from the China Miracle should own now. Mindray is the #1 medical device company in China, so it’s benefiting from China’s historic growth. But it’s also growing swiftly in the global medical device and laboratory instrument industry, which already rakes in $80 billion a year.
This stock has it all: great earnings growth, high profit margins, a large and rapidly growing end market, favorable government relations, fast-growing penetration into a giant global market, top-tier institutional sponsorship, reasonable valuation, tremendous international growth and a dominant industry position within China itself.
As China has transitioned to more of a market economy in recent years, its healthcare system shifted away from government sponsorship to more of the pay-for-service model we’re used to here in the U.S. From 1978 to 2003, personal healthcare spending in the country increased dramatically by a factor of 40, rocketing up from $1.35 to $55 per person.
Healthcare costs continue to grow 12% to 15% per year in China and are growing faster than its economy as a whole. The government has tried to keep these costs in check by imposing price controls on routine services and standard surgeries at publicly owned hospitals. However — and this is where it gets interesting — the government allows medical facilities to earn profits from high-technology diagnoses, such as ultrasound imaging.
So guess what? In order to make a profit, Chinese hospitals routinely prescribe these premium diagnostic tests. As China’s leading maker and marketer of high-tech medical instruments, Mindray is far and away the biggest beneficiary.
Also playing into Mindray’s strength is the aging of the world’s population, particularly the Baby Boomers, which are the biggest demographic group in the United States and in Europe. The oldest of them turn 60 this year, and as this huge group ages, demand will increase for better and cheaper medical devices.
Mindray is the world’s leading low-cost producer of high-quality medical devices, charging 30% less for its products than its international competitors. Its products are sold in over 120 countries, and the company’s international business has tripled in the last three years. I believe 50%+ annual growth in international sales is sustainable given current trends.
Hot China Biotech Stock to Buy – China-Biotics CHBT
Established in 2002, China Biologic Products, Inc. (CBPO) is a fully integrated plasma-based biopharmaceutical company that provides plasma collection, production and manufacturing, research and development, and commercial operations. And it’s also the largest non-state-owned biologic products company that’s approved by the Chinese government.
Its main products include human albumin and intravenous immunoglobulin G (IVIG), but the company also sells many other plasma-based products that are used to treat various medical conditions. And the majority of these products are sold to hospitals and other healthcare facilities in China.
With China Biologic Products’ plasma-based products approved by the Chinese government and sold throughout China, the company holds a dominant position in the plasma marketplace. In fact, through organic growth — as well as through strategic acquisitions — China Biologic Products has significantly increased its production capacity and market share to 18% in the Chinese plasma products market. And it also expanded its geographic presence to reach a total population of nearly 200 million people in China.
The company currently owns three of the 32 certified plasma-based biopharmaceutical companies in China, after its recent acquisitions of rivals Xi’an Huitian and Chongqing Dalin. And the company has secured its plasma supply with ownerships in 16 of about 100 total plasma collection stations in China. The company collects approximately 580 tons of plasma per year.
In recent years, China Biologic Products has performed consistently well. From 2005 to 2008, the company achieved a compounded annual growth rate of 53% for revenues, and 110% for net income. Gross profit margins have remained approximately 70% from 2007 through their most recent quarter.
For the first nine months of 2009, total revenue grew 142% to $81.4 million year over year, and adjusted net income doubled to $20 million or 92 cents per share. These growth rates are very impressive, and they far exceed the overwhelming majority of Chinese pharmaceutical companies.
With a market capitalization of $224 million, the stock is trading at a P/E ratio of around 10, which I think makes China Biologic Products significantly undervalued. Shares were recently up listed to the NASDAQ, and they have moved slightly higher since.
China Biologic Products was recently recognized as one of Shandong’s National Centers of Excellence for New Drug and Technology Development by the Department of Science and Technology of Shandong Province. The award is given based on a number of criteria including annual sales exceeding 500 million RMB and a strong track record of pharmaceutical R&D. This award makes CBPO eligible for government funding and other support programs for new drug development, and it’s a good sign of confidence in the company.
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