I'm a buyer of AIDA in the $.60s
I really like the risk/reward on this one. The stock has been battered the past two weeks because the company guaranteed $7M in debt of an affiliate; affiliate couldn't pay and AIDA had to shell out the $7M. Obviously not good. It appears that AIDA will recover some of the money through the assumption of some of the affiliates assets (a building, land use rights, and an unrelated investment). It's in the courts already.
What's to like? A buy of AIDA at current prices gets you a company trading at a P/E of less than 7, with the kicker of a cancer drug entering Phase III trials in China. More immediately, the Q1 comp could be dramatically favorable for the company. Check out revenues for 2007: Q1 $5.3M, Q2 $6.4M, Q3 $7.4M, Q4 $10.1M. Pre-tax income for 2007: Q1 ($177K), Q2 $349K, Q3 $929K, Q4 $2.6M (before a $1M extra credit). I look for the greatly-improved second-half 2007 results to continue into 2008, suggesting that AIDA could post Q1 EPS of $.07+ vs nil. Management says:
There are several reasons why the latter part of 2007 was so much stronger than the previous quarters. First, the rules for tendering of pharmaceutical purchases are more widely carried out in the PRC than before, and these rules are beneficial for patented drugs such as ours as they help build strong distribution channels. Next, after several years continuous marketing, more and more clients in China are inclined and ready to accept patented drugs. By having a stronger and more reputable name brand due to etimicin sulfate's status as a patented drug, we are better able to have our drug in hospitals instead of non-patented drugs from competitors."
AIDA's Chairman Biao continued, "We have also intensified our marketing program and have made significant strides in penetrating new geographic markets such as Fujian, Sichuan and Chongqing. We used to have minimal sales in those markets but are now showing increased sales and revenue there. We expect to begin penetrating rural areas in the PRC especially with the implementation of the PRC's "Overall National Medical Insurance" policy. We've also made concerted efforts to maintain and grow sales in major areas that presently account for large percentages of our sales, such as Zhejiang, Beijing and Guangdong. Lastly, we have taken strong patent infringement legal actions against manufacturers who have been counterfeiting our products. We believe that, for these reasons, we are able to maintain our healthy growth rate through 2008."
The cancer drug kicker is Rh-Apo2L, which testing results have shown strong efficacy in treating non-small cell lung cancer, non-Hodgkins lymphoma, stomach cancer, pancreatic cancer and kidney cancer. Management estimates that this drug has the potential to eventually help 8 million Chinese. Phase 2 results are expected to be finalized this month, and AIDA "anticipates that the Chinese government will then allow for the commencement of Phase 3 testing within two to three months after the Phase 2 results are published. Phase 3 testing will entail large-volume tests on over 300 patients and is the last step before it may be commercially sold in the People's Republic of China."
A final positive in the AIDA story is the company's recent acquisition of a "controlling interest in Jiangsu Institute of Microbiology Co., Ltd. ("JSIM"), one of the leading microbiology research institutes in the People's Republic of China. JSIM has several drugs currently undergoing clinical testing and has new products in its development pipeline. This acquisition is expected to add several new products to Aida Pharmaceutical Inc.'s existing line of products, thus diversifying its product mix and enabling the Company to increase its market share in the PRC pharmaceutical market." JSIM has been in existence for 30 years.
Summing up, I believe the debt-guarantee fiasco has unfairly served to put this Chinese biotech in the discount rack. I see the stock at least doubling in 2008...
When it comes to P/Es, 7 is the new 14...
AI
