HONG KONG – Biotech stocks have generally avoided the lackluster performance that has characterized stocks in China and Hong Kong in the last quarter. A spate of acquisitions and greater investments in research and development have helped push forward an ongoing consolidation of the market and supported share prices.

"The [Chinese biopharmaceutical] sector has been doing very well for the past two years, the growth prospects are very attractive," said Jessica Li, equity analyst at Jefferies & Co. "Acquisition is the key theme of the sector because it's going through consolidation."

"It has been a trend and the pace of the acquisition is accelerating," she added.

Several biopharmaceutical companies have released new quarterly financial results over the past couple of weeks including Walvax Biotechnology Co. Ltd. (SZ:300142), Tianjin Chasesun Pharmaceutical Co Ltd. (SZ:300026) and Sihuan Pharmaceutical Holdings Group Ltd. (SZ:000518, HK:0460).

Walvax reported unaudited losses of up to ¥150 million (US$24 million) for the past three quarters of 2014. In a note, the company attributed the losses to administration costs brought by higher R&D expenses and numerous acquisitions. The most recent acquisition was that of Chongqing Beining Pharmaceuticals Co. Ltd. (See BioWorld Today, Oct. 14, 2014.)

Chasesun expected unaudited profits of between ¥291 million (US$48 million) and ¥341 million (US$56 million) for the year to date, representing a 15 percent to 35 percent growth.

Sihuan reported unaudited profit of ¥27 million, a ninefold increase from last year's ¥3 million.

"Generally speaking the Chinese pharmaceutical stocks are doing very well," Jonathan Hsu, director of equity research for China health care at China Merchants Securities (HK), told BioWorld Asia.

"Some of the IPOs this year have enriched the health care sector in China, including higher-end R&D, hospitals and early diagnoses," he added. "The market wasn't this diversified 10 or 20 years ago."

Luye Pharma Group Ltd. (HK:2186), for example, successfully launched its $764 million initial public offering in Hong Kong in July. (See BioWorld Today, June 25, 2014.)

The stock is up from HKD6.50 (US$0.84) to HKD10.05 (US$1.30) on Oct. 17.

"This sector in China is becoming more diversified and the investors are becoming more and more familiar and with the industry," said Hsu.

"Mergers and acquisitions are ongoing trends in the industry," Hsu said. "The driving force behind this is the health care reform that the Chinese government has been pushing forward."

Hsu contended acquisitions will result in the further development of established and competitive pharmaceutical companies and eliminate smaller and less competitive ones.

"Another trend is investing more into the research and development of novel drugs," said Hsu. "Some of the earlier investments have paid off and we may see some results soon in the next three to five years."

Clinical research results and investment supplement each other; so many investors that have benefited from launched products are looking for other pharmaceutical companies that have drug candidates under development.

"To some extent, the investment methods and valuation of Chinese pharmaceutical companies are moving closer and closer to the big pharma level," he added.

EBOLA CRISIS MAY INFLUENCE SHARE PRICES

The Ebola outbreak may also be supporting prices of some Chinese biotech companies as it is attracting attention from government, research institutes and drugmakers around the world.

Some industry insiders are looking at Chinese biotech companies such as Sihuan and China Biological Products Inc. to come up with the Chinese version of an Ebola treatment or vaccine.

Earlier this month, Beijing Sihuan Pharmaceutical Co. Ltd., a subsidiary of Sihuan Pharmaceutical Holdings, signed a collaborative deal with the Institute of Microbiology and Epidemiology of the Academy of Military Medical Sciences for JK-05, a small-molecule chemical entity, that has been under study for five years and tested in mice. (See BioWorld Today, Oct. 6, 2014.)

"Sihuan recently announced a collaboration with a research institute for the study of the Ebola treatment," said Li. "It's possible that some other Chinese pharmaceutical companies will join the game. Basically any drug manufacturer can do the same."

The company posted an announcement last week regarding recent consecutive leaps in its stock price on Oct. 15-16, saying that the products Sihuan now produces are irrelevant to either the prevention or the treatment of Ebola.

"I don't think any Chinese pharmaceutical companies will benefit from Ebola outburst in Asia, if there's ever going to be one," said Hsu. "First, there're existing competitors from countries like Japan. Second, the overall economy will decline and the stock market would not be looking good as well."

Because of the nature of biological drug development, the amount of the investment and payoff cycle is much bigger and longer than that of chemical drugs. And investors often take that into consideration when they're making investment decisions.

"In terms of size, the investment going into biopharmaceutical Chinese companies is not as big as those of the chemical ones," said Hsu. "Although it is growing fast, it's still not big enough to have impressive earnings per share. Private equity investors and primary investor would look at this market."

"The Chinese biotech industry is constantly developing with the support of the government," said Hsu. "But it would still be a long way, 20 years if you may, to catch up with the U.S. and completely close the gap between the two markets."