SHANGHAI – China Biologic Inc., of Beijing, has topped up its controlling equity interest by 20 percent in Guizhou Taibang Biological Products Co. Ltd., in a deal valued at $87.1 million.

China Biologic is a leading biopharmaceutical company in China focusing on blood plasma products, while Guizhou Taibang is a supplier of human albumin. The deal will be conducted by China Biologic's wholly owned subsidiary, Guiyang Dalin Biotechnology Co. Ltd.

China Biologic (NASDAQ:CBPO) is one of the largest fully integrated plasma-based companies in China not under state ownership and one of the few Chinese biopharma companies trading on Nasdaq.

China's need for blood products outstrips supply, and though the sector is heavily regulated, China Biologic has been able to ride a wave of market demand to post strong revenues and growth. (See BioWorld Asia, Aug. 20, 2014.)

In the second quarter, sales and net income were in the double-digits, with $60 million in total sales, a 12 percent increase from the same quarter last year. The company expects to post annual total sales of $230 million to $240 million this year.

The latest deal will increase China Biologic's stake of the Guizhou subsidiary that it first bought into in 2008. The company's 56.39 percent controlling interest in Guizhou Taibang will grow to 76.23 percent when the transaction is expected to be complete in September.

"Increasing our ownership position in Guizhou Taibang is a significant development for China Biologic," said David Gao, chairman and CEO of China Biologic.

The company has said that it intends to become a first-class pharmaceutical company in China, and it will pursue an M&A strategy to achieve that objective.

It recently completed a follow-on stock offering raising $33.2 million, and, according to Gao, the deal with Guizhou Taibang was financed from proceeds of that offering as well as with internal resources.

The acquisition is expected to give China Biologic increased control of Guizhou Taibang's long-term strategy and development. China Biologic already has been enhancing its product portfolio and production capacity in Guizhou.

Founded in 1996, Guizhou Taibang is located in Guiyang, the capital city of Guizhou province, considered one of China's poorer provinces. It is a fully integrated biologic products company with plasma collection, production, manufacturing, R&D and commercial operations. The facility has the capacity to process 300 to 400 tones of plasma annually.

In March, Guizhou Taibang received good manufacturing practice (GMP) certification, but the upgrades caused delays in production and a depletion of inventory stocks. It took nine months to fully achieve full GMP compliance. That caused a 9.4 percent sales decrease in human albumin products for China Biologic in the second quarter.

At the time of the GMP announcement, Gao said, "We expect higher growth with more products available for sales starting in the third quarter this year, due to lag effects from long production cycles and CFDA approval procedures for each batch of products."

However, it would appear the CFDA approvals are still pending. In the company's earnings call, Senior Vice President Ming Yin said, "As new batches of products are approved, we expect sales of Guizhou to pick up in the following quarters to previous levels."

Out of its 12 plasma collection stations across the country, China Biologic has two in Guizhou. The company has said that securing a safe and stable supply of plasma is critical to their entire operation. The fact that Guizhou is one of the least economically developed regions in China was not viewed as problematic, but rather considered a favorable condition to ensuring supply, in comments made by Yin.

DEMAND OUTSTRIPS SUPPLY

The most abundant protein in human blood plasma, albumin is produced in the liver and constitutes half of the blood serum protein. Often necessary in medical emergencies, it is used for shock caused by blood loss or trauma.

Human albumin products accounted for 34.1 percent, as a percentage of total sales for China Biologic. Most of the 20 products supplied by China Biologic are controlled by price limits set by the powerful National Development and Reform Commission (NDRC). There is a price cap set at ¥378 (US$61.43) per 10 grams of human albumin product. And, as is often the case where demand outstrips supply, there exists a black market for blood products; the rate is often quoted to be ¥500 for 10 grams of albumin.

Human albumin is the only blood product permitted for import into China. The top exporters are CSL Behring Ltd., of King of Prussia, Pa.; Baxter International Inc., of Deerfield, Ill.; Grifols S.A., of Barcelona, Spain; and Octapharma AG, of Lachen, Switzerland.

Along with China Biologic, local companies such as Hualan Biologoical Engineering Inc., of Xinxiang, Henan Province; Beijing Tiantan Biological Products Co., of Shanghai; RAAS Blood Products Co. Ltd.; and Sichuan Yuanda Shuyang Pharmaceutical Co. Ltd., of Chengdu, dominate the market, totaling 60 percent of market share. According to a report by ResearchMov.us Global Pvt, those top four companies saw revenues increase by 13.5 percent in 2013, year over year.

China Biologic has invested 3 percent of revenues into R&D and pipeline products that are considered low-risk investments by investors. In the second quarter, the firm spent $1.8 million on R&D, a $1 million increase compared to the quarter the year prior.

The company has high hopes to receive approval for human prothrombin complex concentrate later this year. Produced at the Shandong Taibang facility, the product is a major treatment for hemophilia B. China Biologic also has market leadership in human coagulation products, such as factor VIII and a product portfolio in human albumin immunoglobulin.