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Sinobiopharma Inc. (OTCBB: SNBP)

Sinobiopharma Inc. (SNBP) is an emerging, fully integrated and highly innovative biotechnology company engaged in the research and development, manufacture and marketing of biopharmaceutical products in China, the world’s fastest growing pharmaceutical market. Known as Dong Ying (Jiangsu) Pharmaceutical Co. Ltd. in China, the Company’s current therapeutic focus is on anesthesia-assisted agents and cardiovascular drugs. SNBP’s flagship – drug Cisatracurium besylate – captured 65% of the Chinese market within 14 months of launch. GlaxoSmithKline sells its version of the drug globally for $22 per injection. The Company profitably sells its formulation in China for under $5. The Company will be applying for a U.S. and international patent and intends to market its API and new formulation worldwide and in the U.S. when the patent on GSK’s version expires there in 2010.

Founded in 2004, SNBP employs more than 80 people at its corporate office and production facility in Nantong, China. The Company’s Chinese headquarters and its 30,000 sq. meter SFDA GMP-certified production facilities are located in the Nantong Economic and Technology Development Zone on the Yangtze River about a one-hour drive east of Shanghai. The location in the zone qualifies SNBP for extensive tax benefits.

Share Statistics (17-Nov-09)			FY 2008	FY 2009	% Chg	Q1 2009	Q1 2010	% Chg
Symbol	SNBP	Revenue, $Mn	1.8	3.9	116.2%	0.9	1.3	38.9%
Current price	$0.25	Gross marg.	32.1%	65.9%	3,380 b.p.	65.8%	74.4%	860 b.p.
52wk Range:	$0.15-1.50	Oper. margin	-41.8%	-57.9%	n/m	42.3%	51.8%	950 b.p.
Avg Vol (3m):	265,951	Net margin	-26.3%	-55.6%	n/m	15.0%	19.6%	460 b.p.
Market Cap.	20.0M
Dil. Shares Outst.	80.02M	EPS, $	-0.01	-0.03	n/m	0.00	0.00	n/m

Source: Reuters.com, SEC Filings, Fiscal year ending – May, 31.

Financial Summary

The Company’s revenue increased to $1,293,764 for the three months ended August 31, 2009, from $931,203 in the corresponding period ended August 31, 2008, an increase of 39%. Gross profit increased 57% to $962,923, reflecting a 74% gross margin for the three months ended August 31, 2009. This compares to $612,428, and a 66% gross margin, reported for the corresponding period ended August 31, 2008.

Net profit of the Company’s wholly owned operating subsidiary, Dong Ying (Jiangsu) Pharmaceutical Co., Ltd., increased to $561,292, representing 43% of sales revenue, for the three months ended August 31, 2009, from $218,031 in the corresponding period ended August 31, 2008, a year-over-year increase of more than 154%. With a net profit overall of $237,167 for the three months ended August31, 2009, the quarter marks the first time SNBP has moved from loss to net profitability.

The Company had $771,970 in cash and equivalents and working capital deficiency of $2,621,382 at August 31, 2009. According to the Company, it has insufficient cash available to sustain operations. The management has arranged a line of credit of RMB 10,000,000 (approximately $1,464,000) with a Chinese bank and is involved in negotiations for a possible extension of the due date of the interest-free loan.

Analyst Consensus

No consensus analysis data available.

Investment Highlights

SNBP’s key product is a patented version of Cisatracurium besylate, a pre-surgical skeletal muscle relaxant marketed as Kutai in China, and is the world’s first that can be stored at room temperature.  The Company launched its drug in May 2006. By May 2009, it had captured 65% of the Chinese market and was in use in more than 700 hospitals. In March 2009, the Company announced that its patented version of Cisatracurium besylate has successfully concluded its phase IV Clinical Study. The year-long clinical research project showed no significant differences between Kutai and imported Cisatracurium besylate, and no significant differences for Kutai safety and effectiveness when stored at either room temperature or a lower temperature. The Company estimates that the value of Chinese market is US$120 million and the global market at US$1 billion.

SNBP is one of a few pharmaceutical companies in the world that offers a high dose of 0.9 g of injectable clindamycin, an antibiotic for penicillin-allergic patients. The Company sells an average of 1 million clindamycin injections per year in China. In addition, the Company is one of the world’s few L-alanyl-L-glutamine producers that offers lyophilized, or freeze-dried, injectables that make it easier to deliver parenteral nutrition where and when needed. The Company also has a robust product pipeline pending Chinese Food and Drug Administration (SFDA) approval. It includes: Rocuronium Bromide, a skeletal muscle relaxant; Perindropil, an anti-hypertensive, the world’s first capsule formulation and latest generation of the drug; Eplerenone, an antihypertensive, which has been approved for concurrent phase II and III Clinical Trials.

Twenty-three (23) generic drugs for which the Company has production rights are listed in China’s National Essential Drugs List, which covers pharmaceuticals used to treat up to 80% of the most common diseases in China. According to the Chinese government’s healthcare reform plan, 90% of China’s citizens will be covered by a universal healthcare system by the year 2010. Under the plan, drugs on the National Essential Drugs List will be purchased by various levels of government first, then distributed to medical facilities. All drugs on the List will be covered by the basic insurance plan supported by the government. The plan also calls for medical facilities to be upgraded, which includes the construction of 30,000 new hospitals, clinics and care centers across China.

SNBP conducts research and development through Nanjing Su Ji Biotech Research Development Center and in cooperation with the Medicinal Chemistry Research Institute, Nanjing University. Both are located at Nanjing University in Nanjing. The city has emerged as one of China major biotech research and development centers. The Company’s R&D team of 18 specialists is highly experienced research personnel and medical professionals. They have given the Company a strong intellectual property base with six patents, primarily in the area of new methods for synthesizing compounds at lower cost, more rapidly and/or with greater ease of use.

The Company has an established a nationwide sales and marketing network that distributes its products in 30 provinces and key major cities throughout China. SNBP intends to expand its sales and marketing infrastructure to meet China’s rapidly growing demand for safer, lower-cost, higher-efficacy drugs. China has around 3,000 to 6,000 domestic pharmaceutical manufacturers and around 14,000 domestic pharmaceutical distributors.

With 1.3 billion citizens and a $4,607 billion GDP, China is the world’s most populous country and fastest growing major economy. The Chinese pharmaceutical market is among the world’s largest. From 2001 to 2005 the Chinese pharmaceutical industry’s compound annual growth rate was 21%, almost triple the 8% global average. The current $24.5 billion market is expected to swell to $68 billion to $78 billion by 2013, leaving it behind only the United States and Japan. In 2009, the Chinese government committed 850 billion yuan (US$124 billion) to develop the country’s healthcare system over a three-year period. The plan is to create a solid platform for universal healthcare access for all by 2020.

Technical Analysis

Source: http://stockcharts.com/h-sc/ui?s=SNBP

SNBP trades above its 13-day moving average. This is generally considered to be an indication of a bullish trend.

The Company’s MACD is currently indicating a weak bullish signal. Although the MACD is trending above the signal line, the indicator is still below 0, which suggests that the underlying moving averages are bearish.

SNBP’s recent volatility has been greater than normal. This is evidenced by the increased distance between the upper and lower Bollinger Bands. These bands measure volatility using standard deviation and a large width is due to high volatility. Additionally, SNBP is trading near its upper Bollinger Band. This suggests that the stock price is high relative to its recent price action.

Comparative Analysis

The Company has reported impressive financial results in the last three years with more than 2000% growth. SNBP has reached two important milestones: first, its wholly owned operating subsidiary, Dong Ying (Jiangsu) has recorded more than one half million USD net income in a quarter; and second, the Company has reported profitability for the first time since the second quarter of 2008. However, the last quarterly report raised doubts about the Company’s ability to continue operations, due to insufficient cash to sustain the operations.

Company Name	Ticker	Price per	Mrkt. Cap.	P/E		P/S
Nov-17-2009	symbol	Share, $	$ Mn	2009	2010	2009	2010
Sunesis Pharmaceuticals, Inc.	SNSS	0.36	12.2	n/m	n/m	2.56	3.19
Prestige Brands Holdings, Inc.	PBH	6.96	347.6	9.28	8.39	1.13	1.10
Synta Pharmaceuticals Corp.	SNTA	3.87	131.5	1.70	n/m	0.92	8.95
GlaxoSmithKline plc	GSK	41.90	108,710	0.35	0.34	3.87	3.86
Tongjitang Chinese Medicines Co.	TCM	4.11	138.9	58.71	51.38	1.95	1.77
Median				5.49	8.39	1.95	3.19
SINOBIOPHRMA INC.	SNBP	0.25	20.0	n/m	n/m	n/m	n/m

Source: Thomson Financial

Insider Trading Activity

NET SHARES PURCHSE ACTIVITY Inside Purchases – Last 6 Months
	Shares	Transaction
Purchases	n/a	n/a
Sales	n/a	n/a
Net Shares Purchased (Sold)	n/a	n/a
Total Insider Shares Held	n/a	n/a
% Net Shares Purchased (Sold)	n/a	n/a

Net Institutional Purchases — Prior Qtr to Latest Qtr
	Shares
Net Shares Purchased (Sold)	n/a
% Change in Institutional Shares Held	n/a

Source: Yahoo Finance

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