Dr. James Tong of Tianyin Pharmaceuticals Discusses New Manufacturing Facility and Promising Future Milestones

Headquartered at Chengdu, China, TPI is a pharmaceutical company that specializes in the development, manufacturing, marketing and sales of patented modernized traditional Chinese medicines and branded generics. TPI currently manufactures a comprehensive portfolio of 58 products, 24 of which are listed in the highly selective national medicine reimbursement list, 7 are included in the essential drug list of China. TPI’s pipeline targets various high incidence healthcare indications. Below, Director and CFO, Dr. James Tong, discusses the company’s new manufacturing facility and Chinese healthcare reform.

Click below to hear the full audio interview and see transcript that follows.

 

Matthew Margolis:    Greetings from OneMedRadio, I’m Matt Margolis. Today, we’re joined by Dr. James Tong, director and CFO of Tianyin Pharmaceutical Company, a leading pharmaceutical manufacturer and supplier developing modernized traditional Chinese medicines and branded generics. Tianyin is based in the Sichuan Province in China and trades on the AMEX under the symbol TPI. Dr. Tong, thank you for joining us.

Dr. James Tong:          Thank you, Matt, for the opportunity of a radio interview.

MM:    Of course. So maybe we can start with the biggest news in your company lately, the construction of a new manufacturing facility in Qionglai.

JT:    We have started the construction of the new facility at Qionglai County of Chengdu pretty much the beginning of this year. We have communicated with our investors that the reason for the construction is, one, that reassignment of different regions to be different industrial zone and our previous facility is located in Longchang County and then that was designated to the automotive center. One of the reasons for relocation is that Qionglai County is going to be designated as a biological, biotechnology center and we are moving there. Second of all is that we are combining our pre-extraction plant with our current formulation plant all together into one bigger facility at Qionglai County and it will be certified for a new GMP standard. So there are multiple purposes for this construction and we look forward to the final completion of phase 1, which is estimated to be at the end of 2012.

MM:    And when do you believe it will be fully operational?

JT:      We believe the pre-extraction plant should be fully operational by the end of this year 2012, it depends on the scale of expansion. Our formulation plant, we expect that the formulation plant will be fully operational in 2013. Expectedly, there will be no interruption of the production because we are working with the government which gave us the time to finish the new plant and at the same time keep the original formulation plant operational until the whole relocation is completed.

MM:    How have investors responded to this announcement

JT:   I think the investors originally had expressed concern regarding the relocation because it will cost some of the capital expenditure, which we estimated to be $20M. There is some concern about interruption of the production, but as I have mentioned, before that these are under control. The $20M will be spent from our working capital and cash reserve, which is currently around $35M. There will be no interruption of the production. So when we have communicated with the investors since last year and early this year and then during our annual meeting, we found that investors understand and certainly support this relocation project.

MM:  So maybe you can talk a little bit about TPI’s product portfolio and the related pipeline?

JT:   We currently have 58 products, which includes Gingko Mihuan, which the short form is GMOL, which is Gingko Mihuan Oral Liquid, our lead product. We actually have some news out  actually a few hours ago that Gingko Mihuan has been listed as provincial essential drug. Essential drug list includes about 300 products, which are fully reimbursed by the national insurance program by China. And listed in the essential drugs in two provinces in Henan province as well as Shandong province, is likely to support the sales expansion in these provinces. We are really excited about this progress and we’re certainly making our effort to further expand the sales should there be more provinces list Gingko Mihuan or GMOL as their essential drugs. Again, these provincial supplementary lists are in addition to the national EDL list.

We have other products, I’ll mention a few. We have Xuelian Chongcao (XLCC), which is you can say a nutraceutical-pharmaceutical, which is very special for China. That it’s listed as a drug, approved as a pharmaceutical license, but it’s actually a nutraceutical when it was first formulated and it’s for immunity enhancement. Also, we have another product is western generic, it’s Benorylate Granules. In Chinese it’s called Apu Shuangxin and the sales has been increasing. We have another product that’s called azithromycin tablet, which in China, its generic antibiotics and we have a raw material plant support the raw material supply for this azithromycin tablet. The last product I would like to mention is Qingre Jiedu, which is an antiviral cold medicine formulated with herbal extracts, which is one of our legacy product, that is selling fairly well especially during the winter. In addition to these five products portfolio, we have over 50 products, which is our generics, modernized Chinese medicine. We also distribute some other pharmaceutical’s products, which will bring the whole portfolio over 70 products.

MM:  It’s very impressive. And in light of this GMOL news, I think I’d like to talk about the current Chinese healthcare reform. You know, it created some price restrictions. So under this dynamic competitive environment, what type of company do you think will be favored?

JT: We think that if we look at before this reform, the companies making generics or copycats are competing with any other companies in the market that make the same products. With the pricing restriction and at the same time with the increased, more stringent GMP certification, we see lesser companies. “Lesser” means that they’re less capitalized and their products are not standing out, also these companies are small and less capitalized, various reasons cause these companies are on their way out.

Currently, China has about over 3,000 pharmaceuticals and we believe in five years, we might see a third of them are gone. “Gone” means that they could be absorbed into bigger pharmaceuticals or through various market mechanism or M&A mechanism that we will end up with bigger companies with better products, larger product portfolios. Another group of companies that are favored are those with certain product portfolios that are not duplicates of others. Our GMOL product, which is a proprietary prescription medicine and has a patent protection. We’re looking into building more products, the type of proprietary portfolio, that certainly will cause time and effort and especially capital. But I think that in five years or even a decade, we see the companies are bigger with all around portfolio will favor and also the company with unique products, good margin and also innovative medicine or in combination will be favored after this round of reform.

MM:     So let’s shift gears to the capital market. Now you’re a case study sorts on how a Chinese company can build a presence in the West. So how has TPI separated itself as an ideal supplier and developer in China of international pharmaceuticals?

JT:      We think that most people look at China stocks or US listed Chinese stocks as one way that US investor or international investors participate in the growth of China. We see this as the opportunity for international investors, but at the same time, we see that the listing in the US market will likely provide a great platform for a Chinese company to go to the world.

Currently, we do not have any international sale, but we are looking forward to and we are actually developing some of the raw materials sale in Bangladesh with our Azithromycin raw material plant. In addition , we are also looking for distributors to develop sales in the US because we sellthe modernized tradition Chinese medicine. You know, some of the products may not be approved as a pharmaceutical in the US, but very likely can be sold as a nutraceuticals or dietary supplements. These are all various ways that with listing in the US that we open the doors both ways.

MM:  Now some talking heads maintain that the disclosure and balance fraud in China is increasing to a point that is difficult to manage. You’ve previously discussed the current transitional period of weeding out that fraud. Can you go into some detail about that?

JT:    For the past two years that we have seen the decrease or shrinkage of China US-listed companies market cap. Some of the companies have lost their market cap by 50% to 80% and some of the companies due to various reasons there was litigations, there were the trading halt and delisting and you also see some of the companies went private. I think that we are certainly in a trial of confidence that this is what we hear from various investors who have lost money, have indeed experienced the risks of investing in foreign issues, which has always been the case, but the past two years have been a fairly dramatic experience for them.

I think that for us and particularly companies and certainly to other Chinese companies who are listed in the US, that we are making the best effort to bridge the communication with our investors and also working with various professionals, our legal counsel, auditors, IR and great public relations company like [OneMedPlace] to reach out to our investors and tell our stories and just you mentioned before the developing substantial business presence in the US through various export and import. I think that by doing this, we’ve not only really grown the company and we’re growing the company visibly. We attend lots of the investor’s conference meetings. We hope that we can, you know, attend more meetings in addition to investor conference that was more like pharmaceutical companies, collaboration, or various ways we can develop our business in the US or internationally.

I think that this period will pass. You know, we do not have an estimate how long will it last, but we believe that by working day by day and communicating with our investors that we will sooner or later really see the light at the end of the tunnel.

MM:  In that light, what is the short-term future and long-term future of TPI?

JT:  For the short term, we are still looking into various ways to develop a growth strategy under the current healthcare reform. Let me have a quick summary of the healthcare reform policy here. If you look at across the board of the China healthcare companies that they have more or less experienced the price reduction and various stringency tests of their product under this healthcare reform. And the government believe that by limiting the tender prices that they could weed out a lot of siphoned profit which were collected by various distributors. But at the same time, we might have quality issues if you really push the margin to be very low. Because some of the companies are not compliant to certain GMP standard and that’s how they can offer a very low tender price or bidding price. So at the same time, we’ll keep our quality standards and also cope with this as a dynamic market/competitive environment.

I think the short term, we are going for several quarters of, one, developing the sales, maintaining the sales, and developing our core product portfolio like GMOL and the drugs that I have mentioned above. And also developing proprietary products like innovative medicine, which if there is any substantial progress will be communicated with our investors readily. Third of all is the relocation project, which we will do our best to finish on time or earlier and remove any uncertainties during these capital expenditure projects.

For the long term, we see hope and promise that various growth strategies might take certain incubation times to take effect. But we have grown from 1994, a very small company to the current size under  the big picture of the growth of China. We think that our current trends of healthcare reform or the pricing was periodic. We look forward to a greater and brighter future for TPI in the several decades down the line.

MM:  That was a company snapshot with Dr. James Tong of Tianyin Pharmaceuticals trading on the AMEX under the symbol TPI.

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