Medical companies stand to gain from focus on artemisinin

Artemisinin makers from China are set to make more money after Tu Youyou, the inventor of the anti-malaria drug, won the Nobel Prize for medicine for her findings, triggering sharp buying interest among investors.

Makers of the anti-malaria drug, which is based on Chinese herbal medicine, are expected to see sharp upswings in their share prices in the short term, analysts say. However, the real test for the companies in the long run will be their ability to attract international orders on their own, as most of these companies are raw material suppliers to multinational drugmakers such as Novartis AG.

Most of the overseas drugmakers hold the intellectual property rights for effective therapies against malaria. Demand for artemisinin is limited in the domestic market, as malaria has been kept under check in China for several years now, analysts say.

China's anti-malaria medicine suppliers must boost their research and development capacities to grasp the upper stream of the industrial chain, widen their profit margin and win more international orders, they say.

"China's anti-malaria drug suppliers are mainly producing bulk drugs, which have limited profit margin, while international pharmaceutical players with strength in research, development and patents are taking most of the market share," said a recent report published by China Pharmaceutical News.

The report said that the global demand for anti-malaria drugs could be estimated at about $1.5 billion.

Shares of domestic artemisinin companies are expected to see a flurry of activity among retail investors, who are bullish on artemisinin and its significance. However, domestic anti-malaria drug suppliers will need a lot of effort to gain global orders, said a research report from Haitong Securities Co Ltd.

Five A-share listed pharmaceutical firms, including Shanghai Fosun Pharmaceutical (Group) Co Ltd, KPC Pharmaceuticals Inc, Guangzhou Baiyunshan Pharmaceutical Holdings Co Ltd and CR Double-Crane Pharmaceuticals Co Ltd, are certified artemisinin suppliers.

Among these public companies that supply anti-malaria drugs, Fosun's subsidiary Guilin Pharmaceutical Co Ltd's products have been given the WHO-PQ certification, or the Pre-Qualification certification of the World Health Organization, to supply drugs directly to WHO programs, the only domestic supplier that is on the list.

The ranking is a vital tool used by the United Nations agencies to guide their procurement decisions and bulk purchasing of medicines at country and international levels, according to WHO's official website. KPC Pharmaceuticals is applying for WHO-PQ certification for its anti-malaria drug varieties, according to company officials.

Share prices of both Hong Kong-listed Fosun Phama and Baiyunshan jumped more than 5 percent on Oct 6 after the news.

Fosun's share price closed at HK$25.7 ($3.32), a 1 percent gain, while Baiyunshan closed at HK$22.1, a 2.79 percent gain, on Oct 7.