To OTC Journal Members: 
 

A Global Plague- Prevalent in China

Hepatitis B- everyone's heard of it.

It kills about 1.2 million people world wide each and every year. Hepatitis B is a virus, and most individuals who become infected with the virus eventually fight it off with their immune system. Once you've recovered from the virus, you have immunity for life.

The dark green areas on this map show where Hep B effects more than 8% of the population. In China, about 10% of the population is infected with the HepB virus, which equates to 130 million candidates for treatment.

Once infected, patients start showing symptoms in 1 to 6 months. Early on the disease virus induces nausea and vomiting, loss of appetite, fatigue, and muscle and joint aches. 50% of children and 5% of adults who have the virus develop chronic HepB.

If you're body is unable to mount an effective immune response, HepB does significant damage to the liver, which in extreme cases will lead to death.
 

The Only Affordable Treatment in China: Biostar Pharma (BSPM)

There are two ways to treat patients infected with HepB in China. Interferon, a common treatment in the US, is very expensive. Without nationwide health care, Interferon is far too expensive for the average Chinese citizen.

Enter Biostar Pharmaceuticals Inc (OTC BB: BSPM)- Biostar is the only Chinese company with an SFDA (Chinese version of our FDA) approval to market an over-the-counter treatment for HepB.

It runs just over $1 per day, and has been proven highly effective in clinical trials. BSPM's Xin Aoxing Oleanolic Acid Capsule is the only product on the market that treats chronic hepatitis B disease at a price most Chinese can afford.

It's a natural herbal remedy that stops the virus from replicating, thereby preventing any major liver damage while the body recruits its own immune system. In a trial conducted at Shaanxi People's Hospital Clinical, the researchers found the Xin Aoxing Oleanolic therapy to be 93.1% effective vs the more common Ganfukang tablet manufactured by Zili Pharma- hence, the growing demand and recognition.

Of the $36.2 million in revs BSPM delivered in the first 3 quarters of '09, 55% or about $20 million of the revenues were derived from Xin Aoxing- the HepB treatment. The rest of BSPM revenues come from a diversified product mix two prescription medications and two otc formulas.

Currently, BSPM has the only OTC treatment for HepB, and the least expensive one available in China. The size of the market is estimated at about $7 billion annually.
 

Vertically Integrated

BSPM is located in Xianyang in the Shaanxi Province. It is a vertically integrated company with an entire campus.

425 employees work on the manufacturing lines in these buildings along with 38 technicians and 40 office staff. BSPM has 80 acres of planted raw materials and 1500 acres of indigenous raw materials located in close proximity to their campus.

Only 25% of the harvested production is used for their own compounds- the other 75% is sold into the market- yielding about $7 million in annual revenues. A new production plant is coming online in the first half of this year, increasing their harvesting capacity to 500 tons per year.

The efficiency of their operations allows the company to have and maintain outstanding margins. Through 9 months of '09, BSPM was able to deliver $36.2 million in revenues and $8.8 million in net profits. More on the numbers- my favorite part- below.
 

The Great News: Your Upside

Since Spring Training has started in major league baseball, I'll take the liberty of using a baseball metaphor- numbers wise BPSM is simply ripping the cover off the ball on both the top and bottom line.

Here's the breakdown. Fully diluted, there are 27.2 million I&O, including all warrants, conversions, etc. At the $4 closing price from Friday, the market is placing a value on this company of about $110 million.

Here's some information on the growth side:

• In Q3, BSPM delivered $15,556,345 in revs, up from $7,541,534 in Q3 '08- up 106%
• For first 9 months of '09, revs were $36,249,051, up from $23,772,567 the first 9 months of '08- up 52%
• Profits in Q3 '09 were $3,126,146, up from $559,183 in Q3 '08- up 459%
• Profits for first 9 months of '09 were $8,810,355, up from $4,138,279 firs 9 months '09- up 112%
• EPS though 9 Months of '09 was $.37 per share

The company grew 17% from Q2 '09 to Q3 '09. If they can repeat the performance for Q4, the top line would be about $18.1 million, and the bottom line about $.17 in EPS.

So, making the assumption the company can deliver $.17 in EPS in Q4, your CY'09 EPS is $.54 per share with a top line growth of about 55% and 100% profit growth. 

In case you haven't followed all this math, here's the double bottom line. Earnings per share should come in around $.54 for 2009 once reported in the next few weeks. Their EPS in 2008 was $.22- that's 145% improvement year over year.

Now, I don't know where you might have learned about valuation, but from the old school, companies with 50% top line growth, 100% bottom line growth, and $.54 in EPS don't trade at $4.

In fact, a US based company on the NASDAQ delivering these kinds of numbers would likely trade at about $15 per share. Since it's a China based company and still on the bulletin board, it will they trade less efficiently. One can surmise it might be likely to garner half the valuation- that's still $7.50 per share. Then, when the company gets its inevitable NASDAQ listing- look out. The institutions that can't buy the stock on the BB will have to buy your shares at a much higher price. Therein lies the opportunity.

Based on Friday's closing price of $4- $7.50 would represent a return of 87.5% on your money. Worth mentioning- we're not talking about a year to see the 2009 EPS- it's due out within a few weeks- then we have 2010 growth to look forward to.

A repeat of '09 growth would put this stock well north of $10 along with an upgrade to a higher listing- most likely NASDAQ.

Technically, the stock is really gaining momentum. This chart is a bit busy, and I'll try to walk you through it. BPSM could be ready to break out. The January pull back took the stock from just under $5 to about $3.50- a 38.2% retracement off the Fall breakout point.

The stock has spent a fair amount of time torturing the $3.60 level, preparing for it's breakout. $4 has served as resistance since early February. The stock has butted up against that level numerous times.

Friday, the stock closed at $4.05, a ridiculously cheap price for a company likely to earn $.54 in EPS last year with 50% top line growth and 100% bottom line growth. Those final numbers will be out any day now.

A solid break above $4 will likely bring the previous high of about $4.75 into the picture. A break above that level, and this one will be long gone.

I believe this stock is headed for $7 to $9. If you like you it, you need to own it before their year end numbers come out- pretty much immediately. Accumulating right up to $4.50 is fine in my book.

A competing OTC product at the same price point is about the only corporate risk factor I can see. My due diligence suggests nothing is imminent, and any expected competing products will be sometime down the road, and far more expensive.

Myself and my associates started accumulating this a week ago. As a group, we own about 17,000 shares, purchased in the open market, from $3.50 to nearly $4. We'll buy and sell them anytime we want, and you might view this as a conflict of interest. You also might view it as an endorsement of the idea. Your choice. I love it for much higher levels, and didn't pick it up for my own account to scalp a quick trade. I'll be buying more in the near future as long as it trades below $5.

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