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Two China Pharma Plays

With $15 million in cash, about $12 million in annual operating cash flow and the potential for $25 million from warrants conversions, Tianyin has the war chest to pursue accretive acquisitions that may give upside to guidance. Bullish commentary from a recent press release elaborates on the Company's view which emphasizes that

"commercializing and broadening our product line coupled with the expansion of our production facility and capacity should continue to yield significant increases in revenue in 2010 and beyond."

While short-term investors may still approach TPI with trepidation, astute long-term investors may be begin to notice the opportunity, especially given the company's overall strong fundamental story. The stock is trading at a forward P/E of 8 on our implied EPS guidance of 50 cents per share.

Biostar Pharmaceuticals (BSPM - Get Report) is another pharmaceutical company whose stock we own. In our interview with management, BSPM demonstrated that it has a coherent understanding of its markets and the steps necessary to accelerate growth.

Biostar manufactures and distributes 15 nonprescription, prescription and nutraceutical products.

Three aspects of Biostar's story are worth considering. First, its Hepatitis flagship drug is the only one offered over the counter in Chinese drug stores. Through our communication with Biostar CEO Ronghua Wang, we learned that two other companies have the licenses for such a drug, but failed to compete due to management's lack of market awareness.

He elaborated that one of the companies, instead of choosing to market capsules as Biostar had done, marketed cheaper and underperforming tablets which ultimately led to failure.

He also stressed that the Chinese government is not issuing anymore over-the-counter Hepatitis drug licenses and has chosen to limit advertising campaigns for prescription only Hepatitis manufacturers. This provides a significant barrier to entry. At an average cost of $2 day, this treatment is the most cost effective on the market.
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