Terra Sigillata

I sometimes get grief from my colleagues about subscribing to the Wall Street Journal, but it is worth every penny. Some of the best stories on health and drug development appear in the WSJ. Beyond its outstanding health reporting, even basic news articles will appear in the WSJ and get picked up, literally, three or four days later by CNN as though they were news. Contrary to other opinions, the WSJ is not a shill for the neoconservative movement – only its editorial page wields a heavy conservative hand which, I find, is fun to read just the same.

I pay the extra $39 a year and have my homepage linked to their Health Industry Edition so I can actually learn something and appear to be cutting-edge/productive when either a scientist or businessperson bursts into my office.

I tell you all of this because when something of financial interest makes it to the WSJ, it worth one’s attention. So, imagine my excitement this morning when I saw the title of Nicholas Zamiska’s Street Sleuth feature entitled:

Alternative Elixir for Your Portfolio: In China, Firms That Make Traditional Medicines Have Solid ‘Long-Term Prospects’

HONG KONG — For an offbeat long-term play in the health sector, investors here can add a little dried larvae to their portfolios.

(Apologies that it’s subscription-only, but e-mail me and I can send a link that’ll be good for seven days. Nevertheless, I shall quote heavily below)

Yes, so even as multinational US firms try to tap into China’s 1+ billion consumers, traditional Chinese medicine is big business there domestically, especially Tong Ren Chan:

The brand is a household name in most of China, not unlike Tylenol in the U.S. Chinese medicine is traditionally sold by a specialist at a local shop that concocts mixtures of dried plants and animal products from wooden boxes behind the counter. One Tong Ren Tang store in Hong Kong sells everything from the thinly sliced horn of a young deer, which doctors say helps kidney problems, to an 85-year-old wild ginseng root that can be ground into a powder and used for heart failure — selling for 1.08 million Hong Kong dollars, or about US$138,700. There are dried larvae for asthma as well. [boldface is my emphasis]

And now appears the opportunity to buy low:

“The overall expenditure on drugs will increase tremendously in the long term,” says Gideon Lo, an analyst who follows Tong Ren Tang at DBS Vickers in Hong Kong. “Tong Ren Tang is the leader. … If you are bullish on the long term, you must buy the market leader.”

The company’s stock price has slipped recently and is well off its 52-week high of HK$17.90. The shares, which trade in Hong Kong, closed up 2.6% to HK$13.40 on Friday.

Just as herbal medicines in the United States have begun to look more and more like regular over-the-counter drugs, the trend in China is away from traditional loose herbs:

The company is focused on marketing and packaging centuries-old formulations as pills in boxes and bottles, and has been able to leverage its brand name to sell those products, most of which sell in China for a dollar or two each.

One of its blockbusters is a general health formulation called Liu Wei Di Huang, a combination of six ingredients that sells in Hong Kong for HK$60 for a bottle of pills. The product had sales of 369 million yuan in 2005.

People like the pills because they are more convenient than the loose ingredients. “It’s easier to take,” says Liu Wen Bao, a medicine consultant for Tong Ren Tang. “Life is very busy. So these are very popular.”

Again, China also appears to have another trend in common with the US, as evidenced by the continued popularity of the unproven Airborne remedy: a movement away from conventional medicine for minor illnesses:

Chinese people also are increasingly turning away from hospitals and doctors to pharmacies for minor coughs and colds, fueling a booming market in over-the-counter medicines. The market for those drugs grew 11% in 2005 to around 50 billion yuan, according to the London market-research firm Euromonitor International. Nearly 80% of Tong Ren Tang’s products are sold directly to consumers at pharmacies across China.

“The growth prospects for the company are sound, as we believe domestic consumption will become the key economic driver for China over the next few years,” says Martin Lau, director of greater China equities at First State Investments in Hong Kong. Mr. Lau’s company manages a shareholding in Tong Ren Tang. First State is part of the international investment arm of the Commonwealth Bank of Australia.

It did not escape my attention, however, that nowhere in the article is there mention of whether the remedies sold are actually effective for anything.

And that is the financial lesson: if the regulatory environment permits, large sums of cash can be made by selling products without evidence of safety or efficacy.


  1. #1 csrster
    October 10, 2006

    Ben Goldacre in his blog/column (http://www.badscience.net/) often points out how alternative practitioners / providers act in ways very similar to the worst stereotypes of conventional doctors / drug companies ie patrician, authoritarian, money grubbing etc.
    e.g. http://www.badscience.net/?p=304#more-304
    and http://www.badscience.net/?p=303#more-303

    He is also very funny. Highly recommended.

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