Saturday, July 07, 2007
Aida Pharmaceuticals (AIDA)
This company is all about etimicin sulfate, the first and only antibiotic developed in China. They have an exclusive patent until 2013, which isn't very long. But they have other drugs as well, shown here, including one in development to treat immunity diseases (hopefully they'll find a replacement for the $15,000 per year drug that I take for this).
Aida, in operation since March 1999, is headquartered in Hangzhou, China with manufacturing, distribution and sales points throughout mainland China. Aida is GMP and ISO9002 certified for global quality assurance and ISO14000 certified for ecologically-friendly practices.Hangzhou is 180km southwest of Shanghai.
Let's look at their latest 10-K:
Period ending Dec 31, 2006.
Reverse merger in mid 2006.
27 million shares exactly on March 15, 2007.
- Earjoy Group Limited, (“Earjoy”). An investment holding company.
- Hangzhou Aida Pharmaceutical Co., Ltd (“Hangzhou Aida”). fully integrated pharm company. 9 product lines (including Etimicin) sold mainly in hospitals.
- Hangzhou Boda Medical Research and Development Co., Ltd. (“Boda”). A subsidiary of Hangzhou Aida. Does R&D only.
- Hainan Aike Pharmaceutical Co., Ltd. (“Aike”). Was 50% owned by Hangzhou Aida until Aug 2006 increased to 60.61%. Production of the transfusion type of Etimicin.
- Changzhou Fangyuan Pharmaceutical Co., Ltd. (“Fangyuan”). 66% owned by Hangzhou Aida. Sole supplier of a raw material for Etimicin. Also produces liquid type of Etimicin.
- Shanghai Qiaer Bio-technology Co., Ltd (“Qiaer”). 77.5% owned by AIDA. Shanghai. Produces rh-Apo21, "a pioneering potential biopharmaceutical therapy with genetic engineering techniques used for cancers." Applied for 3 Chinese patents: 1 granted so far, none rejected. Phase II clinical trial started.
Other major drugs are in development that look pretty good as far as I can tell.
5-Deoxy-Flourordine. anticancer drug based on 5-fluroruacil but with fewer side effects. In clinical testing since 1998.
Test results showed that it has only nominal side effects, a broad spectrum and is highly effective. The Company will supplement clinical trials according to the instruction from State Food and Drug Administration in the PRC.Apoptotic Factor (rh-Apo21). anticancer drug. In Phase II trial. Phase I finished June 2006. 3 patent applications (see above). Phase II and III should finish in 2H 2007. Production approval expected (hoped) in 1H 2008.
Etimicin is 88% of 2006 revenues. They admit that they need additional financing for the planned expansion: could be equity or debt or both.
Union Zone Management Ltd in Hangzhou (controlled by AIDA insiders) owns 51.9% of the stock.
Let's check the financials now.
Year Ended December 31,
Year Ended December 31,
Cost of goods sold
Research and development
Selling and distribution
General and administrative
Other income (expense)
Gain from discontinued operation
Overall revenues increased 21% in 2006. Hangzhou Aida actually decreased somewhat due to "new implementations of government regulations that imposed an adverse effect on the distribution to some of our distributors" and that reduced orders. Hainan Aike increased 30% due to intense marketing and promotion of the Etimicin transfusion product and new sales offices, but COGS increased 208% due to much lower margin mix. Fangyuan increased 87% due to intense marketing and promotion of the injection Etimicin.
Etimicin price decreased 5%. Margins are dropping.
R&D costs were $324,835 for 2006: this was the cost of the Rh-Apo21 clinical trials.
Selling and distribution costs dropped almost by half mostly due to lower travel expenses. But also other expenses dropped.
G&A increased 45%, but most of this was bad debt provision (does this go in G&A?) and stock based compensation.
2 million shares issued on July 5, 2006 to employees and consultants.
Current ratio is below 1 due to huge short term bank debt due.
Half the assets are current.
AR increased by $4.4 million (the revenue increase was only $5.1 million).
Not much inventory.
$5.7 million in patent assets
$54 million in total assets ($10.4 million equity)
Most of the liabilities are current
Net income is 5.4 cents per share.
Operations generated $2.7 million against a huge headwind of $4.6 million increase in AR. Depreciation, increases in AP, and stock based compensation helped a great deal, also the $1.3 million government grant.
Capex was $712K. Other investments were big and chewed up a lot of cash. They deal in a lot of notes receivable in investment activities.
$21 million in new short term debt to pay off $19 million in old short term debt. $1.9 million in new notes payable.
New accountants on Jan 24, 2006.
Looks like no stock options, just 2 million shares granted.
a 17% single supplier concentration
a 30% single customer concentration (46% of AR)
$1.3 million government grant received in 2006 which will reduce R&D costs in the future.
There was some "badwill" applied in the mergers. Hehe.
Let's look at Q1 2007:
Still 27 million shares on May 8, 2007.
Period ending March 31, 2007.
AR decreased to $9.4 million from $13.8 million.
They own bunch of notes receivable as an investment. Let's go back to the 10-K and see what that's about. There are a lot of these and they've been getting settled.
In 2006, interest-free notes were provided to companies for their assistance in developing distribution channels and new markets for the Company. The Company recorded selling and distribution expense and a discount on the notes receivable of $80,095 based on the present value of the notes receivable using a 6% rate. In 2006, $9,378 of interest income was recognized in the accompanying consolidated statements of income from the amortization of the discount.Needs more investigation. This is interesting to consider (not "good" interesting, just interesting).
Back to the 10-Q.
So these notes receivable increased to $6.1 million from $2.7 million!
Current ratio is still below 1, same reason.
Revenues for Q1 are down slightly from the prior year. Gross margins are nearly the same.
R&D costs are up, but selling and distribution costs are down far more. G&A is up a huge amount.
Net loss of ($160K) vs net income of $15K (Q1 must be seasonably lousy).
Operations generated a lot of cash due to the decrease in AR, but all of that went into a note receivable Sept 15, 2007 under investments. More cycling of short term debt.
69% of revenue was due to Etimicin (vs 47%).
Hangzhou Aida revenues dropped 8% yoy (no real explanation). Aike was essentially flat. Fangyuan was up 12%.
Ok, I'm ready to look at the stock price now. I'd expect the price to be around a dollar. The last sale was $1.04. Over the past year, the price has been over two dollars, but not much below one dollar.
I don't see this as being screamingly cheap.