Lotus Pharmaceuticals Inc (LTUS)

[bradford86]

Lotus Is So Cheap

http://seekingalpha.com/article/121651-lotus-pharma-looks-greatly-underpriced#comment-397943



Lotus Pharmaceuticals, Inc. (LTUS.OB) has bought the rights to Yipubishan, an octreotide acetate injection solution, that treats the symptoms of gastric ulcers and hemorrhages of the upper digestive tract.

Lotus paid 54 million RMB ($7.9 million) for the drug. That was less than its 2008 revenues, which were 67 million RMB ($9.8 million) with a 75% gross profit margin. Lotus projects 75 million RMB of revenue from Yipubishan in 2009 and a 25% per year growth rate through 2011.

Lotus is buying Yipubishan through its “contractually controlled” affiliate, Beijing Liang Fang Pharmaceutical Co., Ltd. Liang Fang already is responsible for distributing Yipubishan in the provinces of Anhui and Inner Mongolia. Along with the rights to Yipubishan, the deal will transfer to Lotus the sales force for the drug in Jiangxi province, Xi'an and Shanghai. Lotus may decide to use that sales force to distribute its own products.

Yipubishan has been on the market since 2004. Its development was supported in part by grants from the Innovation Fund for Small-Medium Technology Based Firms, which is administered by the Ministry of Science and Technology. Yipubishan was the first prescription drug of its kind developed in China to be included in the National Torch Project, which recognizes and promotes commercialization of high-tech discoveries.

Yipuan is currently manufactured by Beijing Si Huan pharmaceutical Co., Ltd., a practice that Lotus will continue.

Lotus says that it has the cash on hand to complete the purchase, which is being paid for in installments over six months. At its most recent accounting (September 30, 2008), Lotus had just $2.6 million in cash. Lotus has also announced a large investment in new facilities located in Inner Mongolia, an investment that includes an industrial park for pharmaceutical companies.

Lotus positioned the purchase as part of its plan to in-license established, successful drugs. The company manufactures its own portfolio of pharmaceuticals, and it also markets drugs for other companies. As part of its distribution network, it owns 10 pharmacies in Beijing.

With 48 million shares outstanding (fully diluted) and a current stock price of $.21, Lotus has a market capitalization of only $10 million. Its 52-week range is $.16 to $1.30. In the first nine months of 2008, the company reported $40.8 million in revenue and $6.4 million of net income. Those numbers suggest that Lotus is greatly underpriced at the moment.

Disclosure: none.
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o balabanovj
o 5 Comments
o
Lotus is trading at less than 1/4 of book value as well. They have already paid 17m for the land rights and in addition to their already profitable pipeline of drugs which is giving them a P/E approaching 1, when their plant in Inner Mongolia is completed in 3 or so years, they are going to build a plant to produce IV solutions and medical grade corn starch for those fluids. At present, China is only able to domestically produce 8% of it's IV fluid needs. The rest is imported, so if domestic production is available, where do you think Chinese hospitals are going to produce their fluids from? This plant will be run at full capacity from the moment it opens. If Lotus is able to get this plant up and running, just imagine what their bottom line is going to be or more importantly, what the stock price might be 5 years from now! Additionally, as an incentive to make this move into inner Mongolia, they pay no taxes whatsoever for the first 8 years and a reduced rate for the next 8 years, in addition to reduced VAT. Lotus is also only going to be using 1/10th of the land. The rest is going to be sold/leased to other pharmaceutical companies who wish to take advantage of the Inner Mongolia tax break. This, along with other funding means will help assure Lotus' financial success in getting this project off the ground.

James B. Balaban, M.D.
Feb 20 03:28 AM |Report abuse | Link | Reply
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o balabanovj
o 5 Comments
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Below is the same comment as above, but without the errors and assumptions!

Lotus is trading at less than 1/4 of book value as well. One very crucial point that you neglected to mention is that they have paid for land usage rights at an industrial park in Inner Mongolia and are just waiting for the final central government permit to begin construction of a new plant. They have already paid 17m for these land rights and in addition to their already profitable pipeline of drugs which is giving them a P/E approaching 1, when their plant in Inner Mongolia is completed in 3 or so years, it will produce IV solutions and medical grade corn starch for those fluids. At present, China is only able to domestically produce 8% of it's IV fluid needs. The rest is imported, so if domestic production is available, where do you think Chinese hospitals are going to get their fluids from? This plant will be run at full capacity from the moment it opens. If Lotus is able to get this plant up and running, just imagine what their bottom line is going to be or more importantly, what the stock price might be 5 years from now! Additionally, as an incentive to make this move into inner Mongolia, they pay no taxes whatsoever for the first 8 years and a reduced rate for the next 8 years, in addition to reduced VAT. Lotus is also only going to be using 1/10th of the land. The rest is going to be sold/leased to other pharmaceutical companies who wish to take advantage of the Inner Mongolia tax break. This, along with other funding means will help assure Lotus' financial success in getting this project off the ground.

James B. Balaban, M.D.
Feb 20 03:46 AM |Report abuse | Link | Reply
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o balabanovj
o 5 Comments
o
At $0.20/share, this is one stock that most of us could afford to pick up 10,000 shares or so and forget about 'em for the next 4-5 years. That's my plan anyway. I should have picked up more the other day when the shares retreated to their previous 52 week low. I won't let the opportunity pass again.

JBB
Feb 20 04:32 AM |Report abuse | Link | Reply
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o arnolds 134
o 3 Comments
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looks like a winner
Feb 20 10:58 AM |Report abuse | Link | Reply
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o Alanthill
o 1 Comment
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First they have to achieve their "make-good" target in Q-4...equal to the first three quarters net profit. They will have to ramp up their collection of receivables and delay expenses into Q-1 to make the target. If they fail in this effort expect to see the stock trading at new lows in short order.
Feb 21 11:49 AM |Report abuse | Link | Reply
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o Marcap
o 116 Comments
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Website
I would not be too hasty. More often than not, when a stock is trading at or near its 52 week low, despite what the "published" numbers may otherwise suggest, there is a real good reason for it trading as low as it is. But unfortunately quite often that reason is known only to those privy to such unpublished information, and once made public, it is far too late for the average investor to do anything about it.

Take Friday's trading for example...over 2.5 times the average daily volume, yet the stock still dropped in price almost 10%. In my opinion, that suggests something is very seriously wrong.

On Feb 20 04:32 AM balabanovj wrote:

> At $0.20/share, this is one stock that most of us could afford to
> pick up 10,000 shares or so and forget about 'em for the next 4-5
> years. That's my plan anyway. I should have picked up more the other
> day when the shares retreated to their previous 52 week low. I won't
> let the opportunity pass again.
>
> JBB
Feb 21 12:48 PM |Report abuse | Link | Reply
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o Glen Bradford
o 95 Comments
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Website
I've been covering LTUS, I have a comment for the writer of this article. Adam Wasserman is the CFO of multiple chinese companies. In fact, I'll quote him: "Hi Glen:

Me and my team manages

GHII – Gold Horse International, Inc.
LTUS – Lotus Pharmaceuticals, Inc.
CWSI – China Wind Systems, Inc.

We also are involved with

GNPH – Genesis Pharmaceuticals Enterprises, Inc.

And several US public entities and on a limited basis another Chinese companies with the symbol CAAH.

I leave for China on the 10th to go to LTUS and CWSI.

Adam Wasserman
"

Anyway, the issue most people are going to overlook with LTUS is that they signed into a contractual agreement that they will have problems funding through their working capital. Furthermore, if they are unable to raise additional funding, they lose the whole she-bang. To the author: Look into GHII as well. Write one about that. If you need more companies in china that kick butt, shoot me an e-mail. I'm just glad that this article got published. I've been sending seekingalpha articles on some of these microcaps and they overlook them probably because I don't come from the name. If you would like, I could write a synopsis on several companies and you could send it to them for me.

Thoughts?

Anyway, I talk with Adam frequently... and am knee deep in chinese companies in general.
Feb 21 03:10 PM |Report abuse | Link | Reply
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o Glen Bradford
o 95 Comments
o
Website
Furthermore, if you're aware that LTUS is on sale, why don't you own it?

Where is your credibility? If you're going to say that it's on sale.. Buy it.

I don't let life pass me by.
Glen