Biostar Pharmaceuticals (NASDAQ:BSPM)

Rodman and Renshaw on BSPM                              7/25/2011

Termination of Coverage

Effective immediately, we are terminating coverage on Biostar Pharmaceuticals, Inc. (BSPM) to better allocate resources within our coverage universe. Our last rating on Biostar was Market Outperform/Speculative Risk with a Target Price of $7.00. Investors should not rely on our previously published financial projections.

INVESTMENT THESIS

Biostar is a Chinese pharmaceutical company that is focused on developing, manufacturing and marketing pharmaceutical products and health products in China. The company has a portfolio of ten marketed products. Biostar’s flagship product Xin Aoxing Oleanolic Acid Capsule targets the largest hepatitis B market in the world. Xin Aoxing is one of the few SFDA approved over the counter (OTC) drugs in China to treat hepatitis B. In 2010, the company recorded $53MM in sales, representing 66% of total revenue. With continuous aggressive marketing effort, sales of Xin Aoxing are estimated to reach $64MM in 2011, a 20% growth YoY. The company reported $80MM in total revenues in 2010, and we estimate $98MM in sales in 2011, representing a 23% growth over 2010.

Additionally, Biostar has established an extensive marketing network with 21 distributors and over 270 sales people. Through direct-to-consumer advertising, Biostar has established a regional brand name and has penetrated 22 provinces. By the end of 2010, Biostar reported a total of 10,000 rural clinics that are included in the network. The company is expected reach 13,000 rural clinics in 2011.

Valuation

We derive our valuation for Biostar based on an analysis of P/E multiples of comparable companies. Companies with similar growth opportunities are currently trading at approximately a ~11X P/E multiple. By applying a 11X P/E multiple to our 2011 EPS estimates of $0.60, the estimated value of Biostar would be $7/share.

INVESTMENT RISKS

Biostar faces risks similar to other Chinese companies in the pharmaceutical industry, including changes in regulatory and health policies, delays in regulatory approval, clinical trial failure, and insufficient funds for long-term sustainability.

Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member SIPC.
Member FINRA.

Rodman & Renshaw on BSPM

Rodman & Renshaw on BSPM                              12/13/2010

On Track to Achieve 4Q10 & Full Year Guidance 

Key Points: 

• Biostar reported unaudited updates on sales and rural distribution network. 
• The company reported combined revenue of $18.3MM in October and November 2010, a 68% increase YoY. 
• Sales of the flagship product Xin Aoxing were $12.4MM, representing a 67% growth YoY. 
• Rural distribution network surpassed 9,500 clinics, on track to reach 10,000 by YE10. 
• We reiterate our Market Outperform Rate with a 12-month target price of $7 per share.   

Maintains Strong Revenue Growth in the World’s Largest Hepatitis B Market 

Biostar’s flagship product Xin Aoxing targets the largest hepatitis B market in the world. The market for hepatitis B drugs could potentially grow multiple fold from current $700MM in China. Xin Aoxing is one of the few SFDA approved OTC drugs for the treatment of hepatitis B. The OTC classification allows Biostar to conduct direct-to-consumer (DTC) advertisement campaigns and to build regional brand name. Sales of Xin Aoxing reached $12.4MM in October and November. We previously projected $50MM in Xin Aoxing sales in 2010. Given reported sales of $47.2MM in the first 11 months, we believe Biostar is likely to beat our estimates on Xin Aoxing sales in 2010.

2010 Revenue Guidance Achievable 

The company guided to $80MM in sales for 2010. Since sales of $70MM were recorded in the first 11 months, the company is expected to achieve $10MM in sales in December. Historically, the fourth quarter is the strongest and December is the strongest sales month. We believe the company is on track to meet its 2010 guidance.

Marketing Efforts Fuel Growth 

Biostar has established an extensive marketing network with 21 distributors and over 280 sales people. Through DTC advertising, Biostar has established a regional brand name and has penetrated 22 provinces. In 3Q10, Biostar reported a total of 8,500 rural clinics that are included in the network. In October and November, Biostar added an additional 1,000 rural clinics. We believe the company is on schedule to reach 10,000 by YE10, as guided.

Valuation 

We derive our valuation for Biostar based on an analysis of P/E multiples of comparable companies. Companies with similar growth opportunities are currently trading at approximately a ~9X P/E multiple. By applying a 9X P/E multiple to our 2011 EPS estimates, the estimated value of Biostar would be $7/share.


Notice Regarding Privacy and Confidentiality: 

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

Rodman & Renshaw on BSPM

Investment Opinion 

We are initiating coverage of Biostar Pharmaceuticals with a Market Outperform / Speculative Risk rating and a 12-month target price of $7/share. Biostar has established strong historical revenue growth with its flagship product Xin Aoxing targeting the world’s largest hepatitis B market. The company’s future growth could be driven by increasing market penetration of Xin Aoxing in addition to a pipeline of smaller marketed products.

Intend to Dominate the World’s Largest Hepatitis B Market 

Biostar’s flagship product Xin Aoxing targets the largest hepatitis B market in the world. One third of the world’s hepatitis B patients reside in China. The market for hepatitis B drugs could potentially grow multiple fold from current $700MM in China. Xin Aoxing is one of the few SFDA approved OTC drugs for the treatment of hepatitis B. In addition, the OTC classification allows Biostar to conduct direct-to-consumer (DTC) advertisement campaigns and to build regional brand name. Sales of Xin Aoxing reached $35MM in 1-3Q10, contributing 67% of total revenue. In our opinion, Xin Aoxing could reach $50MM in sales in 2010 and $80MM in 2013.

Marketing Efforts Fuel Growth, Survey Supports Strong Potential 

Biostar has established an extensive marketing network with 21 distributors and over 280 sales people. Through DTC advertising, Biostar has established a regional brand name and has penetrated 22 provinces and over 8,500 rural clinics. Our survey on 16 out of 21 distributors suggests strong growth potential for the key product based on brand name recognition and customer loyalty. The company plans to increase market penetration by expanding its sales network to 10,000 rural clinics by YE10, and to 26 provinces by YE11.

China’s Healthcare Initiative to Drive Demand 

China’s economic growth is predicted to outpace the rest of the world in 2010 and 2011. Chinese pharmaceutical industry is a key contributor to overall growth. Based on the announced $124B healthcare budget for 2009-2011, we believe the potential demand for pharmaceutical products could increase by six-fold in 2010.

Valuation 

We derive our valuation for Biostar based on an analysis of P/E multiples of comparable companies. Companies with similar growth opportunities are currently trading at approximately a ~9X P/E multiple. By applying a 9X P/E multiple to our 2011 EPS estimates, the estimated value of Biostar would be $7/share.

Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.