With China's healthcare reform plans, there's one sub-sector of this industry that is set to soar -- China's already rapidly expanding pharmaceutical industry.
China is expected to become the world's fifth-largest pharmaceutical market by 2010, third-largest by 2011 and by 2020 its market value is projected to reach about $120 billion -- seven times its current value. And considering the Chinese government's goal for a basic universal healthcare system by 2020, I believe these projections are likely.
That's some robust growth that we just can't afford to miss out on! That's why I recommended the leading supplier of traditional Chinese medicine to my Asia Edgereaders back in early August. This small-cap company is a pure play on China's pharmaceutical sector, and is poised to see some enormous growth in the next few years.
Here's why:
Many Chinese would rather use age-old traditional Chinese medicine than Western medicine for their illnesses because there is a general perception in China that Western medicine merely focuses on eliminating symptoms -- while Chinese medicine focuses on curing the root cause of the illness. In addition, and equally important to the rural population of China, Chinese medicines are generally much cheaper on average than Western drugs, also making them a cost-effective solution to China's desire to provide universal healthcare for its entire population.
So, hundreds of millions of Chinese consumers use these traditional remedies on a regular basis. As a result, traditional Chinese medicines represent about one-third of total pharmaceutical sales in China. And as the leading manufacturer and supplier of traditional Chinese medicine, I believe this company is right in line to benefit from the country's healthcare plan and government funding.
The company has a diverse product portfolio of about 35 drugs -- 22 of which are listed in the highly selective National Medicine Catalog of the National Medical Insurance program, and four listed in China's Essential Drug List. Also, the company received 10 new drug approvals from the Chinese State Food & Drug Administration (SFDA) in fiscal 2009, and there are still 17 other drugs in the pipeline awaiting approval.
Though the company is small -- $84 million market cap -- it's growing much faster than its peers in the industry. In fact, it posted revenue growth of 64% last year, and management is confident that the company will exceed its 2010 guidance for $59 million in revenues.
This type of growth is highly likely, especially when you consider that the company is planning to expand its already-extensive distribution network into several more Chinese provinces. And with healthy finances ($12.4 million in cash), the company is also studying several potential acquisition deals -- which as you well know, often contribute significantly to a company's future profit growth.
Looking forward, I have high expectations for this company. I spoke with the company's management just three weeks ago, and was very impressed with their future development strategies and the company's fantastic growth potential. Shares are already up more than 30% in just 12 weeks, and I think this is just the beginning.
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