Many investors have shunned companies operating in China, since the reverse-takeover ("RTO") scandal back in 2011 and 2012. But recently, strong performance and stronger controls in the sector have made it a much more desirable place to commit capital. For instance, Phoenix New Media Ltd. (NYSE: FENG) has surged more than 103% over the past three months and Perfect World Co., Ltd. (NASDAQ: PWRD) is trading up more than 80% over the past year.
The best opportunities may be in the biotech space, however, given China's speedy regulatory process and potentially enormous patient populations. Clinical data from these trials can also be used in foreign approval processes, including FDA approval in the United States or EMA approval in the European Union. In this article, we'll take a look at Cellular Biomedicine Group Inc. (OTC Markets: CBMG) and why the stock may be poised to move higher.
China' Growing Healthcare Market
China's healthcare market is expected to become the largest foreign market in the world, given its aging population and government efforts to broaden insurance coverage. According to McKinsey & Co
., increased spending on drugs, medical devices and hospital treatments could lead healthcare spending to triple to $1 trillion by 2020. The move would make China the second biggest market by 2020 after the U.S., which spent $2.5 trillion on healthcare in 2009.
Global drugmakers like Pfizer Inc. (NYSE: PFE) and GlaxoSmithKline plc (NYSE: GSK) have already been hiring additional sales representatives and expanding their product lines in the country in order to offset slower growth being seen in their domestic markets. These trends should also lead to some consolidation in the space, as larger foreign drug companies rush in to partner with Chinese producers that can help expedite the regulatory approval processes.
These trends are very favorable for companies like Cellular Biomedicine Group, which is the first cellular medicine company in China accredited with ISO 9001:2008 certification by internationally recognized quality management system (SGS). The company’s GMP-certified manufacturing facilities in China are designed to international and U.S. FDA standards and the two clinical trials already in progress could generate significant upside for investors.Large Target Market Demographics
Cellular Biomedicine Group is primarily focused on treating knee osteoarthritis, spinal muscular atrophy, amyotrophic lateral sclerosis, and stroke, using cells derived from adults, children, embryos, third party donors or patients. And currently, the company has two clinical trials in progress for knee osteoarthritis and liver cancer. Its Tumor Cell Targeted Dendritic Cell (TC-DC) has also completed U.S. FDA Phase II clinical trials for the treatment of metastatic melanoma.
Knee osteoarthritis is a degenerative disease that affects millions of patients each year. As drug-based treatments become ineffective, about 1.5 million patients will degenerate to the point of requiring artificial joint replacement surgery every year, although only 40,000 will actually be able to undergo the surgery. Meanwhile, the market for these surgeries and related cell therapies is expected to reach $5.5 billion by next year, creating a big market opportunity.
The company's HCC liver cancer treatment also targets an enormous market. According to the World Cancer Research Foundation, Mongolia has the highest rate of liver cancer, followed by the Gambia and Chinese Taipei, with rates of 94.4, 36.1 and 35.7 per 100,000 citizens. In a recent Phase II clinical trial on metastatic melanoma - using the same TC-DC technology - five-year survival reached 54% in the treatment group with reduced recurrence and metastasis.
Combined, these two end markets could drive significant demand for Cellular Biomedicine Group's treatments, while the firm can also target additional opportunities abroad.
Slower IND, Faster Time to Market
China's SFDA may be known for taking nine months or more to approve initial Investigational New Drug ("IND") submissions, compared to 30 days in the U.S. and E.U., but its final marketing decision tends to be much faster than the FDA. The result is an overall drug approval process that can be slightly faster than the U.S. FDA's process, with greater flexibility when it comes to new medicines and approaches like cell therapies and regenerative medicine.
These timetables could improve in the near future, as companies like Wyeth Ltd. (NSE: WYETH) have pushed for additional personnel to be hired in China to speed up the IND approval process from nine months to closer to U.S. and E.U. standards. The link below provides some insights into where the holdups have traditionally occurred within the process, and shows that the majority of the holdup is related to personnel delays rather than regulatory structure.
When it comes to Cellular Biomedicine Group, the company has already received IND's for its two initial drugs, putting it past the slowest part of the SFDA's regulatory process. The expedited remaining marketing approvals could mean a drug hits the market sooner than it would in the U.S. and ultimately reach China’s large patient population. And again, the same data could be used to support approvals in the U.S. and E.U. regulatory frameworks.
Potential Investment Opportunity
Cellular Biomedicine Group represents an attractive investment opportunity, with a market capitalization of just $34.5 million. With two clinical trials already underway, investors may want to take a closer look at this micro-cap biotech stock sooner than later, as China's speedy regulatory approvals and enormous end markets yield significant opportunity. Moreover, large pharmaceutical giants may also be interested in the firm given its expertise.
To learn more, visit the company's website at http://www.cellbiomedgroup.com/.
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