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Sinopharm, Biostar, Lilly Rise on Medical Modernization in China

BEIJING (TheStreet) -- It's still popular in China to soak one's weary feet in warm ginger tea, but western-style pharmaceuticals are increasingly the remedies of choice in a country that's getting older and more urbanized.

That shift to modern medicine is accelerating, based on second-quarter and first-half financial reports released over the past week by Chinese drug companies.

Investing in this trend via U.S.-listed stocks in Chinese and non-Chinese drug companies can be tricky. Consider, for example, the legal challenges confronting GlaxoSmithKline (GSK) as Chinese authorities pursue bribery charges against the drugmaker, one of several multinationals on the mainland.

Read More: Warren Buffett's Top 10 Dividend Stocks

Moreover, shares in three among the handful of Chinese drug companies listed in New York -- Biostar Pharmaceuticals (BSPM) , China Pharma Holdings (CPHI) and Sinovac Biotech (SVA) -- have a habit of falling off cliffs. Biostar's price started sliding after hitting $15 a share in early 2010. Things looked better in March when shares rose sharply to $3, but since then the stock has returned to its November 2013 level of around $1.50.

China Pharma's performance has been dismal. The stock declined from an early 2010 peak of around $4 to just 30 cents a share today. Sinovac's stock price has fallen about 30% since hitting an all-time peak of $8 a share in mid-March.

But the second quarter may have marked a turnaround for Biostar, also called Aoxing in Chinese, thanks to its new over-the-counter drug for chronic hepatitis B, which afflicts 10% of China's 1.3 billion people. The company's net income increased to $1.6 million compared to a $730,000 loss in the second quarter last year.

Another standout is Hong Kong-listed and over-the-counter accessible Sinopharm (SHTDF) , whose shares have risen 26% over the past year. State-controlled Sinopharm, the country's biggest drugmaker, reported Monday first-half net profits climbed 25% from the same period 2013 to nearly $53 million. The company also reported revenues at its Shenzhen-listed subsidiary China National Accord Medicines jumped 14% to $1.8 billion.

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Underscoring the rapid changes for health care in China is Sinopharm's rise. The company is only 11 years old but already has a network of 300 subsidiaries. Some of that growth can be linked to its mainland partnerships with global concerns including Baxter (BAX) , Pfizer (PFE) , Bayer (BAYRY) and Ipsen (IPSEF) .

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