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Herbal Drug Firm May Raise $300m
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China Shenghuo Pharmaceutical Holdings Inc, the first traditional Chinese medicine (TCM) maker on the American Stock Exchange, plans to raise as much as $300 million in the coming years to build a large, modern pharmaceutical company producing traditional herbal medicine.

The company specializes in panax notoginseng, the Latin name for a root that is used to treat wounds, bleeding and even internal blood disorders

Shenghuo aims to raise $10-20 million from additional share sales later this quarter to fund growth for the medium-sized company based in Kunming, Southwest China's Yunnan Province, an area that boasts rich herbal medicine resources.

As the Chinese pharmaceutical industry is expected to consolidate and companies realize the importance of innovation and brand-building, private firms with plans for expansion have turned to overseas investors for funds.

"This is such a huge industry, we could not be successful without more investment," said Lan Guihua, chairman and CEO of Shenghuo.

Shenghuo floated its stock in June through a backdoor listing using a share exchange program with a United States firm by selling 2.6486 million shares priced at $3.5.

In March, Tongjitang Technology, a company in neighboring Guizhou, became the first TCM maker to list on the New York Stock Exchange, when it raised $120 million.

Guo Yunpei, deputy chief editor of China Medicine News, said the situation in China is similar to the pharmaceutical industry in the US at one time, when there were over 3,000 drugmakers - yet after intense consolidation, there are now only about 500.

He added new regulations and those to come will favor of innovative and large companies, so pharmaceutical companies must grow in size and put greater effort into product development.

For Shenghuo, the funds raised thus far from its share sales are too little for the ambitious goals of its 64-year-old founder and chairman Lan, who wants to grow the company into the largest panax notoginseng business in China and even the world.

"If we extract substances and develop them into medicines, each one costs at least 20 million yuan, so the total cost for all of them will be a huge amount of money," said Lan.

The largest known source of the root, which grows in a few areas of the world, is in Yunnan Province. Its known medicinal use dates back more than 400 years.

Lan said his company has detected over 30 different substances in the root, including saponin and amino acids, that have medical benefits including healing wounds, dissolving blood clots and improving other blood disorders.

The company's Xusaitong soft capsules, which are intended to help in cardiovascular and cerebrovascular diseases, accounted for over 80 percent of Shenghuo's $19.96 million sales in 2006.

Lan said the medicine has showed good performance in preventing blood clots and his company will apply for approval from the US Federal Drug Administration.

Shenghuo is developing another drug using an amino acid extracted from the root that Lan says is especially effective in healing wounds.

The company is also making a large investment to produce beauty care products. It has developed over 160 products, including whitening cream, facial masks and eye cream.

Shenghuo has now opened a flagship beauty product shop in Hangzhou and plans to expand to 15 cities this year. It has plans to develop a sales network of 4,000 outlets over the next three years.

"In China, most medicines are not allowed to advertise, so the process of brand building is very slow, but a beauty product sales network can be a good platform to spread our brand," said Lan.

(China Daily July 19 2007)

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