This is from an article recently posted on Seeking Alpha by Edward Stevenson:
Lotus Pharmaceuticals: The Big Little Chinese Drug Manufacturer
While speculative opportunities in small cap biotech continue to entertain investors, halfway across the world a big little drug manufacturer, Lotus Pharmaceuticals, Inc. (LTUS.OB), is operating to the tune of explosive growth - and out of its own pocket, too.
In addition to manufacturing their own branded drugs and pharmaceuticals products, Lotus Pharmaceuticals distributes over 5000 western drugs, Traditional Chinese Medicines (TCMs) and medical equipment items through wholesale and retail channels such as ten of their owned and operated pharmacies in Beijing.
For the first three quarters of 2010, revenues totaled $52.5M or 31% higher than the comparable period in 2009. Wholesale revenue saw 18% growth while retail sales growth, at 83%, was the driving force behind top-line growth. This falls in line with the company's recent announcement to forgo construction of a new facility outside of China and instead focus more on core business in Beijing.
We have decided not to move forward with the construction of our planned facility in Inner Mongolia in order to focus our efforts and resources on expanding our core business in Beijing. We believe that selling or transferring this property will be a more effective use of our capital.
In December of 2008 the company had acquired the property in Chahaer Industrial Park, Inner Mongolia for $26.3M. Assuming the property is sold on a timely schedule and at or near cost, proceeds from the sale will in part, if not wholly, finance growth and expansion plans in the upcoming period. Cash inflows from operating activities, which brought in $19M in the first three quarters of 2010, have helped balance outflows in investing activities.
As a growing entity it is expected that the company will continue to invest in property and equipment. The beauty of the situation lies in that in case of a draught, the company always has the option of turning to shareholders or a low interest bank loan for quick access to capital resources.
Based on diluted EPS of $0.39, Lotus Pharmaceuticals currently trades at a trailing P/E ratio of 3.07. In contrast, companies in the healthcare sector boast double-digit P/E ratios. And while, in general, the recent fright over legitimacy of small-cap Chinese companies may continue to daunt investors, there are reasons beyond the scope of growth that deem Lotus Pharmaceuticals undervalued at its current price.
For instance, the market hasn't taken into consideration Lotus Pharmaceuticals' pipeline of drugs awaiting approval from China’s State Food and Drug Administration (SFDA).
Laevo-Bambutero, Lotus' asthma drug, is anticipating SFDA approval by 2012. While that seems like light-years away it's this type of inherent value that attracts large industry players to hostile takeovers.
Elsewhere, most recently being the PHARMCHINA 64th National Drug Fair Conference, the company continues to build its list of product distributors, which now totals 200. In the CEO's own words,
Our participation in the PHARMCHINA conference was very fruitful, as we came away with six new contracts upstream and five downstream. We believe we are well-positioned to reach our goal of 25% top-line growth in 2011.
And whether you like it or not, Lotus' management is taking strides towards qualifying for a higher-exchange listing. More on this another time.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in LTUS.OB over the next 72 hours.
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