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China Growth Is No. 1 Goal for Drug Maker SciClone


Small drug company's shares jump by almost a fourth today as strategy for growth in China appears to be working. Despite clinical failures, stock is up 50% this year.

SciClone Pharmaceuticals (SCLN) has done a particularly bad job of developing its own drugs in recent years. And yet many of its investors don't seem to care.

SciClone is building a business on selling drugs in China. Unlike many other small drug companies, its growth isn't reliant on a pipeline of new products in development but rather how it can sell more in the world's most populated country.

Shares of the company are up by almost a quarter today as SciClone says fourth-quarter sales and profit exceeded expectations and this year's results should also be better than expected. Per-share profit should rise to as much as 78 cents (non-GAAP) this year from 50 cents last year, the company says.

By contrast, the shares barely budged when the company said at the beginning of this month that it was ending plans to develop a drug to treat a condition known as oral mucositis in cancer patients.

"We view this announcement as good news for the company and long-term shareholders as the development platform at SciClone comes to a close and all resources focus on the growth potential of the company's stable pipeline of marketed products," Rodman & Renshaw analyst Reni Benjamin said in a note.

SciClone's top product is Zadaxin, which is used as a hepatitis B treatment and vaccine booster in China and a number of other emerging markets countries. Despite being approved in multiple countries, Zadaxin isn't approved for any use in the U.S. Sales of the drug rose 23% last year to about $105 million.

To add to its overseas growth, SciClone bought a Chinese drug company last year, closely held NovaMed Pharmaceuticals, for about $62 million in cash and stock and milestone payments that potentially would bring the deal value to more than $100 million. NovaMed has 18 drugs treating cancer, heart disease, infections and other conditions. NovaMed added almost $29 million from its April acquisition date through the end of the year.

When SciClone dropped development of a hepatitis C drug in late 2010, the company said it would focus more of its resources on China. (See SciClone Junks Experimental Drug; Looks to China Expansion) Analysts say that investing in SciClone is a way to invest in the growing Chinese drug market without actually buying shares of a Chinese company. SciClone is based in Foster City, California.

Since the hepatitis C drug failure, shares of SciClone have jumped more than 70%. The stock rose 24% to $6.48 in early afternoon trading Wednesday. The shares are up more than 50% this year.

It's a good thing that the China strategy is working for SciClone because two clinical failures in a little more than a year is a disaster.

Twitter: @brettchase

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