NEWSpublisher 2007 :: AngloChinese Investments
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COMPANY NEWS » Industry news » TOP China Pharmas » Simcere Pharmaceutical Group back to previous page show list
Simcere Pharmaceutical Group »03/06/2007 [Industry news]
Simcere Pharmaceutical Group is looking to build its future on research

Flush with cash from its US IPO, Simcere Pharmaceutical Group is looking to build its future on research. Late last month, Simcere weighed in with the largest IPO on the New York Stock Exchange for an Asian pharmaceutical company, raising 261 mln usd. Now it plans to put some of that money to work. 'We need to consider both the long-term and the short-term,' said Jinsheng Ren, chairman and CEO. 'Pharmaceutical technology can really set companies apart in China and that is why we say R & D is our focus.' "THIS HIGHLY RESPECTED COMPANY COULD BE A GOOD PARTNER FOR HLS"


With a campus of modern white buildings dotting a brand-new technology park in this city in eastern China, Simcere Pharmaceutical Group's headquarters evoke a sense of Silicon Valley. The similarity is not accidental.

Ren may have been inspired by another Silicon Valley success story, biotechnology giant Genentech -- a company he visited early in his career and a visit that left a deep impression.

Ren is hoping that research and development will help grow the company into a pharmaceutical powerhouse like Genentech in an industry that is fragmented into thousands of players in China.

Ren told government officials and university research chiefs invited to celebrate the listing that the company will spend 52 mln usd on research and development in the near future.

The company's shares have risen to 16.03 usd per share from the initial price of 14.50 usd, and the company now has a market capitalization of 1 bln usd.

Simcere, founded by Ren in 1995 as a distributor, now manufactures and sells 35 pharmaceutical products and is the exclusive distributor of three other drugs marketed under the company's brand name. Its products are used to treat ailments that range from cancer, cerebrovascular and cardiovascular diseases, respiratory conditions as well as other ailments such as arthritis, allergies and urinary problems.

Ren said the company wants to be the market leader by being first-to-market with new branded generic drugs.

Simcere is expecting net profits of 270 mln to 280 mln yuan on revenues of 1.33 bln yuan to 1.4 bln yuan this year.

The company's anticipated main revenue drivers for the near future are the generic anti-stroke medication under the brand name Bicun and an anti-cancer medication named Endu, also marketed under the name of Endostar.

Simcere plans to spend 13 mln usd of the R&D funds on follow-up research on Endu. The company will also spend 35 mln usd to fund joint pre-clinical studies and clinical trials in China with international pharmaceutical and biotechnology companies to develop drugs for the domestic market.

The company may try to export Endu to the US though the company would need to overcome substantial hurdles, mainly gaining regulatory approval by the US Food and Drug Administration. That would take time and money.

Simcere also plans to spend another 13 mln usd to help penetrate tough regional markets with its branded drugs. Many of the drugs the company produces are generic and can be reproduced by competitors, but Simcere is hoping to strengthen market share through strong distribution channels and branding.

Several of the company's drugs were acquired through acquisitions, and Ren said this is still part of the company's future strategy.

He said the company is 'actively looking' for opportunities, and is in discussions with a number of universities and other smaller firms on research and development prospects.

'We will be very proactive, M & A is a very important strategy for us,' Ren said.

Despite the crowded market, Goldman Sachs, the company's lead underwriter, bet that Simcere will be able to push past competitors in a market displaying considerable potential.

'In China, there are no leading companies emerging in this sector,' said Jin-Yong Cai, managing director of Goldman Sachs Gao Hua Securities Co Ltd.

'We saw (Simcere) as one of the better companies in the sector and positioned well for the future.'

He said the pharmaceutical sector overall will see strong growth and that Simcere has drawn new attention to the sector.

'Simcere is a milestone for the Chinese pharmaceutical industry,' Cai said.

Pharmaceutical demand in China reached 198 bln yuan in 2005, a growth of 12.1 pct annually since 2000, according to the Freedonia Group, an international industry study group.

Simcere sees increasing disposable income, an aging population, government support and the relatively low cost of drug development, supporting growth of the drug industry in China in the future.

Cai said that challenges remain, noting that the total revenue of some 4,000 pharmaceutical companies in China falls short of the 48.4 bln usd in revenues of industry giant Pfizer Inc last year.

Other barriers include weak intellectual property protection, frequent changes in government regulations as well as price controls, including government-mandated price cuts.

But there are lots of bright spots as well.

'The regulatory environment has been improving for drug makers, as the government is gradually loosening control over pricing. Price cuts will no longer be as significant as before,' Nie Xin, a pharmaceutical analyst at Soochow Fund Management.

'Over the past year, the NDRC (National Development and Reform Commission) has lowered the prices of almost all drugs by an average of 20 pct, but in the future, it will give more freedom to drug makers and let them price drugs themselves.'

The NDRC, a powerful government body, controls prices of many of the drugs that are on the domestic market.

Nie said Simcere has top-notch manufacturing facilities and development platforms and its antibiotic drug product line is probably the most complete in China.

'Sales of its top brand Bicun, which is an injection drug used against acute cerebral infarction, is expected to reach 300 mln yuan for this year, compared with about 80 mln yuan last year,' said Nie.

'This is expected to bring robust profits to the company.'

Simcere also has a licensing deal with GlaxoSmithKline Plc to manufacture and sell a cheaper version of an antiviral medication that helps fight influenza.

Ren said the company will manufacture and distribute the drug though he did not give further details.

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