In February 2007, the IPO from 3SBio (NSDQ: SSRX) made a big splash on Nasdaq. It was the first of the major China biopharma IPOs, and it was well-received – at a time when the IPOs from US-based biopharmas were being met with investors’ reactions that varied somewhere between lukewarm and downright hostile.

In that IPO, 3SBio initially announced a range of $12 to $14, then priced its 7.7 million ADSs at $16 and saw the first open-market print at $17.50. That gave the company a market cap of $370 million. Not bad.

Now, just about 17 months later, 3SBio’s ADSs are priced under $9 and the company has a market cap of $192 million, even though it has $115 million in cash. The ongoing business is worth, apparently, just $77 million.

Are things that bad? Has 3SBio’s business gone completely sour?

Not really. In fact, the company’s 2007 fortunes were very positive. Revenues climbed 41% to $25 million and the company remains almost ridiculously profitable: it reported $11.2 million in net income, a margin of 45%.

There are negatives, of course. The company remains dependent upon its flagship product, EPAIO, an anemia-treating EPO product for which it does not have a patent. Its TPIAO product, a protein-based TPO for chemotherapy-induced thrombocytopenia, has seen its revenues ramp up nicely in the first two years of availability. But we are talking about a company with $25 million in annual revenues, so it has not exactly taken over the world.

In Q4 of 2007, net revenues drooped slightly as 3SBio spent more money on its sales and marketing efforts. Margins remain high, though not as high. 3SBio has in-licensed the marketing of a new product for dialysis patients that it did not develop, so the now-higher marketing costs will eventually be spread over a larger revenue base. Nevertheless, investors were disappointed.

And the EPO-TPO markets have been roiled by cardiovascular side effects, a problem that has negatively affected companies like Amgen (NSDQ: AMGN). The gist of the issue is that kidney dialysis patients do just as well on lower doses of EPO, and the lower dose causes fewer cardiovascular problems. Of course, in the US, each individual dialysis center problem sells almost $25 million of EPO (the revenues that 3SBio derives from all of China). That is probably an exaggeration, but the point remains that the problem is not that 3SBio is over-supplying the China market for EPO. The problem is that the company is not getting it to the patients who need it.

As a list of negatives, that’s not particularly overwhelming. 3SBio did project 2008 revenues of just above $30 million, about a 20% improvement. That represents a slowing of its previous momentum, but still a decent growth – and the company’s ADSs are currently priced at just 16 times trailing 12 months earnings. Doesn’t a company with this sterling a set of financials deserve better, even if growth is only 20%?

Perhaps 3SBio is just too conservative. With its IPO windfall, the company paid off its modest $4 million in debt and upgraded some facilities. Now the remainder of the money sits in an account, earning interest, which is helpful to the bottom line, but not highly supportive. Isn’t there something 3SBio can do to improve its fortunes?

In March 2008, when its stock hit a low point of around $7.30, 3SBio announced it would spend up to $20 million to buy back its own shares. That initiative lit a temporary fire under the share price, but the effect did not last long, and now the stock seems eager to re-test its earlier lows. Frankly, given the conservative nature of the company, it would be surprising if they spent the whole $20 million – after all, they promised only that the effort would be “up to” $20 million.

In the works, 3SBio has three Phase III trials underway, though one is a new indication for a current drug and the second is a higher dosage of a current drug. Not very exciting.

However, the third product is a bigger advance. NuLeusin, 3SBio’s second generation IL-2 drug, would essentially be a new market for 3SBio (the company does have a legacy IL-2 product, but its sales are negligible). NuLeusin is also close to commercialization; it was expected to have concluded its Phase III trial in Q2 of 2008.

Further out in the future, 3SBio has partnered development of its first humanized monoclonal antibody (mAb), an anti-TNF mAb (SSS07). This remains in pre-clinical development, where it has shown greater potency than currently available anti-TNF mABs. Still, it is a long way from commercialization.

In late May, 3SBio announced it had agreed to seek approval for, and then market, ferumoxytol, an intravenous iron replacement developed by AMAG Pharma (NSDQ: AMAG). 3SBio will buy the product from AMAG and pay royalties up to 25%. Although the product fits nicely with 3SBio’s existing portfolio, it will diminish the high margins of the company, and its revenue contribution is off in the future.

In terms of a program that will excite investors, 3SBio does not have a lot to offer. Absent from their conversation is a discussion of making acquisitions. It has the cash. It has an extremely stable portfolio of profitable products. There are companies out there that would be compatible. But the issue does not seem to come up with 3SBio, and no acquisitions have happened in the 17 months since the IPO.

Is 3SBio willing to take a chance to increase its potential for growth?

Disclosure: none.

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