Published May 20, 2008 (Exract from Business Times)
Sihuan gearing up for forays overseas
By OH BOON PING

SIHUAN Pharmaceutical Holdings hopes to stretch its business tentacles overseas with a newly acquired drug research firm in China. In an interview with BT, executive chairman Che Fengsheng said the new subsidiary - Shandong R&D Company - already has collaborations with partners in the United States and Japan, and this will help the parent penetrate these markets.

Dr Che: Sihuan's building blocks include increasing product range and deepening customer reach
Shandong R&D joined Sihuan's fold recently when the latter paid some 62.5 million yuan (S$12.3 million) for a 60 per cent stake in Shandong R&D.

Like Sihuan Pharmaceutical, Shandong R&D specialises in cardiovascular-related and anti-infection drugs - it screens, designs, matches chemical compounds and analyses drug efficacy. Research at the firm focuses primarily on replicating successful existing drugs by modifying their structure but preserving their efficacy.

'As the original drugs are already widely accepted in the West, the success rate of the 'Me Too' drugs is likely to be high too,' said Dr Che. To date, Shandong R&D has filed more than 300 Chinese or international patents.

Within China, Sihuan Pharmaceutical has launched 19 CV drugs. Of note is its proprietary Kelinao, which is now available in 27 provinces and has a hospital penetration rate of 8 per cent. Between 2004 and 2007, sales of Kelinao grew at a compound annual rate of 89 per cent.

Thanks to Kelinao's strong contribution, Sihuan Pharmaceutical reported a 98 per cent jump in net profit to 179.3 million yuan, while sales jumped 77 per cent for the year ended Dec 31, 2007.
For the first quarter ended March 31, 2008, the company posted a 66 per cent rise in net profit to 53.1 million yuan on a 115 per cent rise in sales.

It has since developed a new derivative of Kelinao called Anjieli, which has a drug lower content and caters to patients that require smaller doses but more regularly. Its other drugs include Chuanqing, which is used for less acute stages of CV diseases, and Naloxone.

Dr Che said the building blocks of his company include increasing product range and deepening customer reach. To achieve these goals, the company is committed to spending 15-20 per cent of annual revenue on research and development, and now has more than over 70 drugs under development.

Management aims to grow its presence in domestic markets such as Liaoning and Hubei - provinces where penetration is low. And to foster greater understanding of its drugs, more seminars may be organised for doctors at hospitals.
Rising incidence of CV diseases

Looking ahead, Dr Che is upbeat, citing 20 per cent annual growth in drug sales in China over the past few years.

Also, the country has seen a rising incidence of CV diseases due to changes in diet, a faster pace of life, greater work pressure and an ageing population. These factors will drive demand for CV-related drugs.

Sihuan Pharmaceutical is also open to growth through acquisition and buying product rights. It said recently that it will acquire 45 per cent of Beijing's largest privately owned pharmaceutical products distribution company for 50.7 million yuan. Beijing Purenhong Pharmaceutical Co distributes various products, in particular specialised medicines, on behalf of major Chinese and international pharmaceutical companies to 130 major hospitals in Beijing.

In a report, DMG & Partners noted that Sihuan recently obtained approval to sell Aogan, a drug used to treat brain cell damage, saying: 'This will broaden and enhance Sihuan's product portfolio and allow it to further establish its presence in China. Aogan can be paired together with its existing products to treat brain cell damage.'

'Management expects sales of this drug to commence in H208, with strong revenue contribution accruing to the group from FY09 onwards,' it added.

The research house also believes Sihuan's stake in Shandong R&D will enhance Sihuan's edge in R&D and 'open up opportunities for Sihuan to break into the international scene'.

DMG noted that the Chinese government is introducing initiatives to transform the country's pharmaceutical industry, and that consolidation among pharmaceutical firms is expected to take place. 'This will result in a competitive operating environment for the industry,' said DMG. 'However, we believe Sihuan is positioned for growth, despite the expected challenges, given its expanding distribution network and R&D capabilities.'