Tongjitang Chinese Medicines Company (NYSE:
TCM) announced its shareholders approved a $20 million share
buyback program at the company’s general meeting. The resolution calls for the
company to complete a purchase of “up to” $20 million worth of its ADSs within
the next 18 months. The program had been announced previously.
Tongjitang has 134.6 million shares outstanding, fully diluted. Each
ADS, which trades on the New York Stock Exchange, is equivalent to four ordinary
shares. Approximately one-third are controlled by Tongjitang’s Chairman and CEO,
Mr. Xiaochun Wang.
Tongjitang’s share price responded positively to the
announcement, climbing 33 cents (13%) to $2.81. At a price of $3 per ADS, a $20
million buyback could retire 6.7 million ADSs or almost 27 million ordinary
shares. The company’s IPO, conducted early in 2007, floated only 10 million
ADSs.
As we have reported, Tongjitang’s share price is under pressure
because the company’s revenues are not growing. Sales of its most important
product, the osteoporosis treatment Xianling Gubao, are in decline. Competitors
are eating into the profits of Xianling Gubao by selling counterfeit versions of
the product. Tongjitang has made two small acquisitions with the $100 million it
gathered by staging an IPO. And the company has eleven products in development,
though none have been approved thus far. As a result, Tongjitang remains
dependent on the flagging fortunes of Xianling Gubao.
CEO Wang offered
to take Tongjitang private this spring at $10.20 per ADS. But the deal was
scuttled, and the price of an ADS fell below the $2 level.
Tongjitang
ended the second quarter with $106.6 million in cash, which is roughly equal to
its market capitalization.
