SHANGHAI - UK-listed Chinese healthcare company Chi-Med is expected to double its current revenues of $111 million in the next five years, backed by rapid growth in traditional Chinese medicine and consumer products, U.S. investment banking firm Piper Jaffray said in an Aug. 4 research note.

Chi-Med has grown its top line 31 percent over the last five years. Its Chinese healthcare division, which accounts for 92 percent of total revenue in 2009, is expected to double its current sales of $102 million by 2015, according to the note.

Revenue from its consumer products division is predicted to jump to $30 million by 2015 from $4.2 million in 2009, driven by a joint venture with U.S.-based natural and organic consumer products company Hain Celestial Group in 2009.

The joint venture expands Chi-Med's consumer product portfolio from one brand to more than 40 brands. The portfolio includes infant and toddler nutritional products that Chi-Med already sells, plus selected Hain Celestial brands in China and other markets. The company saw $2.7 million sales from the JV since sales began in March, while the total sales of consumer products in the first half was $4.2 million.

TCMs Likely To Outperform Western Medicines

China is quickly becoming a major market for Western pharma companies. However, it will be much easier for a company with affordable TCMs to benefit from this growth than Western companies, according to Piper Jaffray analysts.

Chi-Med's leading products are all TCMs: OTC products include antiviral Banlangen and angina medicine Fu Fang Dan Shen andRx drug She Xiang Bao Xin for long-term treatment of heart disease and for rapid control and prevention of acute angina.

"These are all highly relevant indications in China, given the changes in demographics, diet, and increasing co-morbidity such as the obesity/diabetes epidemic. Banlangen is a very established TCM remedy for treating outbreaks of respiratory viral infections in the country," the analysts said.

She Xiang Bao Xin is expected to see sales increases from its listing as an essential drug. The essential drug list, issued by China's Ministry of Health, includes 307 Western drugs and TCMs (Also see "China Releases First Part Of Essential Drug List For Community Health Clinics And Rural Hospitals" - Scrip, 19 August, 2009.). The EDL drugs are granted 100 percent reimbursement by China's insurance system, although drug makers may see a 20-25 percent price reduction to have their products on the list.

However, the She Xiang Bao Xin pill's status as a mature TCM means it will not see any price reduction after its inclusion. The price for 42 pills - seven days of treatment - remains RMB 25.4.

However, it may suffer some price reduction during the provincial bidding system. "In any event, we expect any price reductions to be partially offset by expected market volume gain from the inclusion on the list," said the analysts.

Spinning Off Hutchison MediPharma Unlocks Potential Value

The market is completely ignoring Chi-Med's drug R&D business, which is run by Hutchison MediPharma, the analysts noted.

"We believe that the value here will likely be unlocked once Chi-Med signs a development partnership for the drug or takes on further collaborative research work. The ultimate and longer term way of unlocking the value, however, is by spinning off the R&D business through an IPO," they said.

The head of Hutchison confirmed recently that with a series of milestones recently met, the firm is considering whether to become independent via a spin-off (Also see "Shanghai's Hutchison MediPharma Could Close Licensing Deal On Innovative New Crohn's Disease Treatment; Spin-off Likely" - Scrip, 28 July, 2010.).

Its leading candidate HMPL-004 for autoimmune diseases including inflammatory bowel diseases, ulcerative colitis and Crohn's disease has completed Phase IIb and Phase II, respectively (Also see "China's Hutchison MediPharma Phase IIb Trials In Ulcerative Colitis Meet Primary, Secondary Endpoints" - Scrip, 13 November, 2009.).

The company has also initiated Phase I clinical trials in China for its anti-cancer drug candidate, HMPL-012 (sulfatinib), which was the first oncology project to enter China's State FDA fast-track approval channel last year (Also see "Hutchison Medipharma Initiates Phase I Trials Of Cancer-fighting Candidate Sulfatinib In China" - Scrip, 7 May, 2010.).

-Dai Jialing (j.dai@elsevier.com)

Chi-Med Expected To Double Revenue By 2015, Backed By Urbanization, Healthcare Reform And TCM Performance in China

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