Incorporated: 1994 as Harbin Three Happiness Bioengineering Co., Ltd.; 2002 as American Oriental Bioengineering Inc.
NAIC: 325412 Pharmaceutical Preparation Manufacturing
SIC: 2834 Pharmaceutical Preparations
Despite its name, American Oriental Bioengineering Inc. (AOBO) is neither American nor a bioengineering company. Rather, the Harbin, China-based company is focused on developing and marketing plant-based nutritional supplements, over-the-counter pharmaceuticals, and related nutraceuticals. The company produces more than 20 products, developed according to traditional Chinese medicine methods. These include its Cease Eurenesis Soft Gel tablets, used for the treatment of bedwetting and incontinence; ginseng and other tablets; Shuanghuanglian injection powders used for the long-term treatment of respiratory and related ailments; and over-the-counter (OTC) Jinji preparations for the treatment of endometriosis and menopause symptoms. The company's nutraceuticals line focuses on development of soybean peptide-based preparations, and includes beverages, capsules, powders, and other nutritional supplements.
Established in 1994 as Harbin Three Happiness Bioengineering Ltd., AOBO has combined organic growth with a strong acquisition program. Since 2003, the company has completed six major acquisitions, each of which has served to extend the company's product families, as well as expand its manufacturing base. The company operates two factories in Harbin and a third in Hezhou. AOBO has also developed a strong distribution base, with a network of 30 sales offices providing direct sales to more than 100,000 points of sale, including pharmacies, hospitals, retail shops, and other resellers. AOBO is led by founder Shujun (Tony) Liu, a former commander of the People's Liberation Army, with ongoing ties to the Chinese government, including the country's FDA equivalent. AOBO is listed on the New York Stock Exchange under the symbol AOB.
Murky Beginnings in 1994
If American Oriental Bioengineering Inc. (AOBO) appeared to be a legitimate company with a viable product line by 2007, the company's origins remained quite murky. Although the company traced its operations back to 1970, its actual beginnings occurred only in 1994. In that year, Shujun (Tony) Liu founded Harbin Three Happiness Bioengineering Ltd., in Harbin, in China's Heilongjiang Province. Liu was joined by Jun Min, Yanchun Li, Binsheng Li, and others. Many of the company's cofounders had been members of the Heilongjiang Province government, and remained in executive positions within the company into the 2000s.
Despite calling itself a bioengineering company, Harbin Three Happiness's product line appeared to consist primarily of a beverage product, composed of honey, marine plants, and herbs. That beverage was launched as a nutritional beverage in 1995, and was granted recognition as a health product in 1996. By the beginning of the 2000s, the company had also begun to market its Cease Enuresis Soft Gel formulation, a herbal formulation marketed as a means of alleviating bedwetting and incontinence.
In the meantime, Liu himself had been conducting a side project in conjunction with Harbin Medical University. That project investigated the development of commercially viable products based on soybean protein peptides. The project included a team of more than 20 scientists, and developed its own manufacturing facilities with a production capacity of 1,000 tons per year. By 2002, AOBO had launched its first products based on protein peptides, marketed as nutritional supplements. These and its earlier products were modest successes for the company. By 2001, the company posted revenues of nearly $6 million.
Reverse Takeover in 2001
Into the beginning of the 2000s, Harbin Three Happiness remained a clearly China-based and China-focused company. In 2001, however, Harbin Three Happiness performed a reverse takeover of a U.S.-based shell company, a publicly listed penny stock known as Internet Golf Company. That company, ostensibly involved in the development and promotion of online golf tournaments, had itself been founded only in 1999. Yet in May of that year, Internet Golf completed its own reverse takeover of a publicly listed company, Champion Ventures.
Champion Ventures' origins reached back to its founding in Nevada in 1970. Over the next two decades, Champion had been involved in a number of industries including mining. At the time of its merger with Internet Golf, however, Champion had been dormant for several years. Champion and Internet Golf both had connections to Paul Metzinger, a businessman who had already faced scrutiny from the Securities and Exchange Commission (SEC).
Among other things, Metzinger had been accused of conducting so-called pump and dump strategies. This consisted of creating publicly listed companies that seized on up-and-coming business trends. These companies then paid, often with shares, third-party and Internet-based analysts and publicists to tout up the company's stock to the investment community. As the company's stock rose, its founders were then able to sell their shares at a profit.
A key feature of many of these companies was the absence of any product or revenue-generating operations. Internet Golf appeared to be such a company. An earlier company founded by Metzinger, Intercell, never launched a marketable product, despite having raised significant venture capital. Another Metzinger company, Nanopierce Technologies, purported to be developing a fixing technology for semiconductors which, despite the company's name, had nothing to do with the highly trendy nanotechnology. Into the middle of the first decade of the 2000s, this Metzinger company remained without a truly viable product.
Following its merger with Internet Golf, Harbin Three Happiness became the main subsidiary of a newly formed holding company, American Oriental Bioengineering Inc. (AOBO), which maintained its listing on the New York Stock Exchange. Certain features of the company raised concerns from the outset. For one, the company remained associated with Metzinger, through its agreement to maintain Patricia Johnston, involved in a number of Metzinger vehicles, as a consultant for the company for a three-year period.
For another, AOBO, despite its name, appeared neither to be involved in bioengineering nor to have any operations in the United States. Finally, AOBO continued to associate with questionable partners, such as Mid-Continental Securities and CEOcast. Both companies had been controlled and/or operated by people convicted of fraud by the SEC.
Buying a Product Line in 2002
If AOBO's choice of associates remained questionable, the company nonetheless set out to develop its product line in earnest starting from 2002. Acquisitions formed the heart of this effort. The first of these was of the soybean peptide project developed by Jiu in partnership with Harbin Medical University. AOBO agreed to pay $3.3 million to acquire the project and its manufacturing facilities in August 2002. The company then began marketing an expanded line of protein peptide supplements.
Jiu's connection with the Heilongjiang government provided the company with its next acquisition opportunities. In 2004, the company purchased Heilongjiang Sonhuajiang Pharmaceutical Ltd. (HSPL), paying $7.2 million. The acquisition of government-owned HSPL gave the company a new line of injectable Shuanghuanglian Lyophilized Powder. Developed in 1997, the HSPL product had captured a 50 percent share of the Chinese market for injectable Shuanghuanglian-based powders. This product represented AOBO's first true extension from the sphere of plant-based nutritional supplements to that of plant-based pharmaceutical products. The injectable powder product, used for the treatment of respiratory illnesses, also provided a strong boost to the company's revenues. By the end of that year, the company's sales had jumped to nearly $32 million.
Although the Cease Enuresis Soft Gel had been counted as part of the company's product portfolio in its 2002 prospectus, the company counted 2004 as the product's official launch. As part of that launch, the company gained Chinese FDA approval to market the bedwetting product as a first-grade medicine. By 2005, the company had developed a skin patch variant of the Cease Enuresis formulation. In that year, AOBO shifted its stock listing to the American Stock Exchange.
New Acquisitions in 2006
The Heilongjiang government provided the company with a new acquisition in 2006. In July of that year, AOBO agreed to pay $4 million to acquire Heilongjiang Qitai Pharmaceutical Company Ltd. (HQPL). That company held a pharmaceutical distribution license, and also operated a wholesale exchange for Chinese herbal medicines and products. The addition of HQPL boosted AOBO's reach to more than 100,000 points-of-sale across China.
The HQPL purchase came on the heels of another significant acquisition--Guangxi Lingfeng Pharmaceutical Company Ltd. (GLP). That company marketed the highly popular Jinji line of traditional gynecological medicines, adding a total of 70 products and sales of $10 million to AOBO's operations and strong operations in southern China. The company paid a total of $24 million in cash and shares for GLP.
By the end of 2006, AOBO's total sales had soared to $110 million. At the same time, its plant-based pharmaceutical line had become its largest revenue generator, accounting for nearly 70 percent of sales. By then, the company's total product line numbered more than 100 products that had been approved by the Chinese FDA for OTC sales.
AOBO's fast-growing operations enabled the company to shift its stock listing to the New York Stock Exchange's main board in 2006. By then, too, the company appeared to have shed most of the more dubious associations of its past.
The company continued seeking new acquisitions through 2007. In September of that year, the company paid $28.5 million to buy the Changchun Xinan Pharmaceutical Group Company (CCXA). That acquisition added another 100 products to the group's portfolio, including the popular Nubao premenstrual syndrome formulation and Nanboa, a sexual stimulant for men.
The CCXA acquisition was followed just one month later by the purchase of Guangxi Boke Pharmaceutical Company Limited (Boke). At $36.5 million, the purchase represented the company's largest to date. The addition of Boke further broadened the group's range of OTC medicines, adding such specialties as nasal congestion treatments, sore throat lozenges, and dandruff treatments. Boke also brought the company its own national distribution network. By the end of that year, AOBO counted 30 sales and distribution offices throughout China. With revenues expected to top $160 million at the end of 2007, AOBO appeared to have come into its own as a viable contender for China's booming traditional medicines market.
Principal Subsidiaries
American Oriental Bioengineering (H.K.) Limited; Bestkey International Limited; Goware Holding Limited; Guangxi Ling Feng Pharmaceutical Company Limited; Harbin Three Happiness Bioengineering Co. Ltd.; Heilongjiang Qitai Pharmaceutical Limited; Heilongjiang Songhuajiang Pharmaceutical Limited; Yield Chance Limited.
Principal Competitors
Shandong Huaxin Pharmaceutical Company Ltd.; Shandong Sanzhu Pham. Group Imp. and Exp. Co.; Zhejiang Hengdian Imp and Exp Company Ltd.; Henan Pharmaceutical Company Ltd.; Hebei Jiheng Chemical Company Ltd.; AstraZeneca China Ltd.; Bayer (China) Ltd.; Guangdong Zhaoqing Star Lake Biotechnology Company Ltd.; Shanxi Jinxin Double Crane Pharmaceutical Company Ltd.; Hunan Guhan Group Company Ltd.
Further Reading
"AOBO Acquires Soybean Protein Peptide Operation," Manufacturing Chemist, December 2002, p. 30.
"AOBO Completes Soy Protein Project Buy," Nutraceuticals International, February 2003.
"AOBO: Deal to Supply Soy Products to Japan," Nutraceuticals International, May 2003.
"Chinese Biotech Firm Acquires Heilongjiang Songhuajiang Pharmaceutical," Biotech Week, December 1, 2004, p. 54.
"Double-Digit Revenue, Income Growth Expected by Chinese Biotech Firm," Biotech Week, June 9, 2004, p. 40.
"Fifteen Soft Gel Clinics to Begin Operations in 2003," Biotech Week, February 19, 2003, p. 15.
Norton, Leslie P., "Chinese Medicine Show," Barron's, June 25, 2007.
— M. L. Cohen
