Another round of Government mandated price reductions is likely. Our estimates reflect an across the board cut of 8%-10%. That's probably a worst case scenario. 3-S Bio will offset some of that with lower unit costs. Volume is poised to expand, as well. Reliable numbers are hard to come by but the company estimates only 10%-20% of the Chinese population receives the kind of drugs the company makes. As the society modernizes and more citizens take advantage of the national health care law the penetration rate could rise materially.
A recent deal with U.S. based Davita validates the company's legitimate status. Davita is the largest provider of independent kidney dialysis centers with more than 1,800 locations in the United States. It established a joint venture with 3-S Bio in March to create a similar operation in China. The initial investment is $20 million, 70% supplied by Davita, 30% by 3-S Bio. Profits will be shared using those percentages, as well. 3-S Bio will earn extra income by supplying the essential drugs to the venture. The initial foray will encompass two provinces comprising 5% of the country's total population. Even that probably will take 2-3 years to really get rolling. But the long term potential is enormous. The deal also should make it easier for 3-S Bio to establish partnerships with other American companies that want to break into the Chinese health care market.
We estimate 2012 sales will advance 16% to $100 million. A stronger performance is possible if the Government slashes prices less than we predict, or unit volume accelerates. Exports totalled 4% of 2011 sales. They could jump, as well. Earnings appear headed to $.90 a share (+17%). At year end cash and equivalents stood at $5.53 a share ($122 million). So 3-S Bio has plenty of flexibility to make investments if the opportunity arises.
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