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Updating Coverage: Tibet Pharmaceuticals, Inc.
August 22, 2011 Equity Research
Executive Summary Tibet Pharmaceuticals, Inc. - Corporate Description: Based in Shangri-La County, Yunnan Province, China, Tibet Pharmaceuticals, Inc. (NASDAQ: TBET) is a rapidly growing specialty pharmaceutical company engaged in the research, development, manufacturing and marketing of modernized traditional Tibetan medicines in China. With over 190 employees and nationwide distribution, the company develops both prescription and over-the-counter traditional Tibetan medicines that promote health in human respiratory, digestive, urinary and reproductive systems. Tibet Pharmaceuticals' products are sold throughout China, with a majority of sales concentrated in the southern provinces, most notably Yunnan Province, where the company's 52,000 sq. ft. GMP-certified manufacturing facilities are located. The Company’s access to key raw materials, not generally available outside the province, provides a significant advantage for Tibet Pharmaceuticals. TBET Market and Corporate Highlights: Rapidly growing market: A recent forecast from Citi projects that China’s pharmaceutical market will reach $100 billion by 2015, and $200 billion by 2020, up from $40 billion currently as retail pharmacy distribution is expected to grow several fold by 2012. Highly fragmented market: While the general Chinese pharmaceutical market is growing rapidly, it remains highly fragmented, presumably providing opportunity for well capitalized and positioned operators to grow both organically and through acquisition. TBET market cap lower than cash and equivalents and price / cash valuation is significantly lower than its peers: As of 6/30/11, TBET reports $29.5 million in cash and equivalents, with working capital of $38.2 million and a current ratio of 8.75 times. TBET reports $45 million in shareholders’ equity, a book value of
TBET Recent Price
$1.79
Outstanding Share Estimate
14.9 million
TBET - Market Cap Estimate
$26.7 million
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$3.00 per share. At a recent market cap of $26.7 million, TBET is trading at less than the $29.5 in cash and cash equivalents reported as of 6/30/11. On average, the sampling of Chinese pharmaceuticals presented later in the report is trading at 6.3x cash on hand while some of the leading global pharmaceuticals trade at even higher multiples relative to cash. TBET Price / Earnings Multiple is a fraction of the multiple for relevant indices and comparables: As presented later in this report, the various benchmark indices with varying degrees of relevance for TBET operations are trading at price / earnings multiples ranging from 12.6x to 20.5x. A smaller sampling of publicly traded stocks generally operating in the Chinese healthcare / pharmaceutical sector is trading at an average P/E multiple of 5.3x, while TBET is trading at less than half the multiple for this sampling and generally in line with peers that are struggling rather than reporting earnings and revenue growth like TBET. Outlook for TBET: The shares of many companies with operations in China in general and in China’s pharmaceutical sector in particular are trading at significant discounts to some of their U.S. and international peers. Among a sampling of Chinese pharmaceutical stocks, TBET is trading at an especially steep discount in light of the company’s recently reported revenue and earnings and a cash position that exceeds the Company’s market capitalization. Over the coming quarters, Murphy Analytics (MA) expects TBET will continue to report strong revenue and earnings growth as the Company grows organically and through complementary acquisitions. In light of the magnitude of the market opportunity for pharmaceuticals and traditional Tibetan medicine in China, TBET has the potential for a significant increase in price as its valuation comes into line with the Company’s pharmaceutical comparables and relevant sector benchmarks.
Please review the risk factors outlined later in this report and the important disclosures and disclaimers at the end of this report.
MA Initiation Report on Tibet Pharmaceuticals, Inc: http://www.murphyanalytics.com/uploads/TBET_Initiation.pdf
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‖ http://www.tibetpharmaceuticals.com
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Updating Coverage: Tibet Pharmaceuticals, Inc.
August 22, 2011 Equity Research
TBET Initiation Report – Table of Contents Chinese Pharmaceutical Market Update
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TBET Valuation Relative to Comparables
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Discussion of TBET Financials
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PowerShares Dynamic Biotechnology & Genome Portfolio (Fund) and Dynamic Pharmaceuticals Portfolio (Fund)
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PowerShares Golden Dragon Halter USX China Portfolio (Fund) and PowerShares Zacks Micro Cap Portfolio (Fund)
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TBET Risks
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TBET and Comparable ETF Performance Chart from quotemedia.com
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Murphy Analytics Disclosures and Disclaimers
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Company Contact Information: Financial Communications Contact: Trilogy Capital Partners - Asia Darren Minton, President Toll-free: 800-592-6067 [email protected]
www.murphyanalytics.com
‖ http://www.tibetpharmaceuticals.com
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Updating Coverage: Tibet Pharmaceuticals, Inc.
August 22, 2011 Equity Research
Chinese Pharmaceutical Market Update Following are comments regarding trends and analysis related to China’s pharmaceutical market. SINOPHARM 1 Targets Sales of 100 billion Yuan in 2012: SINOPHARM is the largest pharmaceutical and healthcare group under State-Owned Assets Supervision and Administration Commission of the State Council (SASAC) in China, with core businesses of pharmaceutical distribution, scientific research and manufacture of medical and biotech products. With 2009 revenue of 65 billion yuan, SINOPHARM is expecting 15% compound annual growth through 2012 will make it a top 500 global corporation. SINOPHARM’s TCM subsidiary, China National Group Corporation of Traditional and Herbal Medicine 2, reported sales of 2.35 billion Yuan in 2007.
Citi Projects a Market of $200 Billion by 2020: A recent forecast 3 from Citi projects that China’s pharmaceutical market will reach $100 billion by 2015, and $200 billion by 2020, up from $40 billion currently as retail pharmacy distribution is expected to grow from 36,000 to 170,000 by 2012. KPMG Study 4, “China’s pharmaceutical industry - Poised for the giant leap” anticipates that China will surpass Japan as the world’s 2nd largest market by 2015: While highlighting expected growth for the pharmaceutical sector, the KPMG report also illustrates the highly fragmented nature of China’s market. KPMG estimates that the U.S. had 70 pharmaceutical companies in 2007, while Japan had 130 and China had 13,000. Similarly, KPMG estimates that the top 3 U.S. pharmaceutical companies enjoyed a 96% market share while in China, the top companies commanded only a 21% market share. The following graphic from the KPMG report shows the growth of approved Traditional Chinese Medicines from 2004 – 2009 as well as their importance relative to Western drugs.
Source: KPMG Study, “China’s pharmaceutical industry - Poised for the giant leap”
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http://finance.yahoo.com/news/CITI-Good-News-For-Drugsiliconalley-3951447589.html?x=0 1
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http://www.sinopharm.com/p391.aspx 2 http://www.sino-tcm.com/english/info.asp
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http://www.kpmg.com/cn/en/IssuesAndInsights/ArticlesPublicatio ns/Documents/China-pharmaceutical-201106-2.pdf
‖ http://www.tibetpharmaceuticals.com
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August 22, 2011 Equity Research
Updating Coverage: Tibet Pharmaceuticals, Inc.
TBET Valuation Relative to Comparables
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‖ http://www.tibetpharmaceuticals.com
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Updating Coverage: Tibet Pharmaceuticals, Inc.
August 22, 2011 Equity Research
The preceding tables set forth revenue, net income, cash and valuation data for a sampling of publicly traded companies that have operations with varying degrees of comparability to those of TBET, but each of which is participating in the Chinese healthcare / pharmaceutical industry. As reference, the tables also present the same sets of data and calculations for three leading global pharmaceutical companies – Pfizer, Merck, and Johnson & Johnson. The revenue and net income estimates generally represent trailing twelve months (TTM) results. Following are comments on some of this data: Price / Revenue Multiple Valuation: While TBET’s price / revenue multiple is roughly in-line with the average multiple of this sampling, it should be noted that TBET is reporting a net income margin nearly 2x that of the average of this sampling, which would seem to justify a higher valuation. As reference, the small sampling of global pharmaceutical companies is trading at 2.05 – 2.80 times trailing revenue. Price / Net Income Multiple Valuation: The average price / net multiple for this sampling is 5.3x TTM net income. TBET is trading at approximately 1.95 TTM net income, a discount of over 60%. Adjusting for taxes that TBET will not incur until 2013, Murphy Analytics estimates that TBET’s nonGAAP comprehensive income / share for the 6month period ended 6/30/11 was $5.4 million, or $0.38 per share. Annualizing this estimate implies that TBET may be trading at perhaps 2.35x net income, which ignores the Company’s reported earnings and revenue growth as well as any benefit from the tax shield through 2012. It should be noted that while Biostar Pharmaceuticals is trading at a P/E multiple comparable to that of TBET, the company recently reported 5 a 26% decrease in net income. Similarly, China Sky One recently reported 6 a 40% decrease in
operating income on falling revenues. Like TBET, China Botanic 7 also recently reported strong results despite valuation multiples that do not seem to reflect that performance. As reference, the global pharmaceuticals are trading at multiples closer to those of the sector indices, with the exception of Merck, whose higher P/E multiple likely reflects an expectation that lower net income margin results will be reversed. Price / Cash Multiple Valuation: In general, as a percentage of market cap, the Chinese pharmaceuticals maintain a significantly higher level of cash on hand relative to the global pharmaceuticals. However, even among the sampling of Chinese pharmaceuticals, TBET is a significant outlier, trading at 0.86 cash and equivalents while, on the other extreme, China Pharma Holdings is trading at 18.5x cash on hand. The only other stock with a market cap less than its cash on hand is China Sky One, which, as noted previously, is reporting significantly declining operating income on falling revenues. P/E Valuation Multiples for TBET Comparable Indices: As presented later in this report, following are the recent P/E Multiples for four funds based on indices with relevance to TBET operations: - PowerShares Dynamic Biotechnology & Genome Portfolio (Fund): 20.5x - Dynamic Pharmaceuticals Portfolio (Fund): 12.6x - PowerShares Golden Dragon Halter USX China Portfolio (Fund): 14.7x - PowerShares Zacks Micro Cap Portfolio (Fund): 14.6x
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http://finance.yahoo.com/news/BiostarPharmaceuticals-Inc-prnews2458195527.html?x=0&.v=1 6 http://finance.yahoo.com/news/China-Sky-OneMedical-prnews-3019798207.html?x=0&.v=1
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http://finance.yahoo.com/news/China-BotanicPharmaceutical-prnews-3107590002.html?x=0&.v=1
‖ http://www.tibetpharmaceuticals.com
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August 22, 2011 Equity Research
Updating Coverage: Tibet Pharmaceuticals, Inc.
Discussion of TBET Financials Unaudited Consolidated Balance Sheets as of 6/30/11: Current Assets
$43.2 million in current assets, including $29.5 million in cash and equivalents. Current assets as of 12/31/10 were $21.1 million.
Current Liabilities
$4.9 million, up from $4.7 million as of 12/31/10.
Working Capital
$38.2 million, a current ratio of 8.75 times. Working capital as of 12/31/10 was $16.4 million.
Total Assets
$49.9 million, including $5.9 million in net property / plant / equipment.
Total Liabilities
With no long-term liabilities, total liabilities are $4.9 million.
Stockholder Equity
$45 million as of 6/30/11, a book value of approximately $3.00 per share. As of 8/15/11, there were 14,845,834 outstanding common TBET shares. As of 6/30/11, additional paid in capital was $23.1 million, with retained earnings of $15.6 million.
Unaudited Consolidated Statements of Income and Comprehensive Income as of 6/30/11:
Sales, net
Gross Profit
$8.7 million for Q2 2011 and $17 million for the 6 months ended 6/30/11. Quarterly sales increased 11.7% over Q2 2010. Revenue growth is attributable primarily to continuous growth in TBET’s five commercialized products. For the 6 month period ended 6/30/11, sales of TBET’s largest revenue producer, the 25 Ingredients Mandrake Pill, increased 31.3% to $8.1 million. Expansion of the Company’s distributor network also contributed to the revenue increase and TBET CEO and Chairman Hong Yu also cited price increases as a contributing factor for the increase. $3.9 million for Q2 2011 and $7.3 million of the 6 months ended 6/30/11. Gross margin of approximately 44% for Q2 2011 was down from 52% in Q2 2010., due primarily to an increase in the price of raw materials.
S/G/A Expenses
Selling, general, administrative (S/G/A) expense fell by 46% to $363,000 in Q2 2011. The decrease was driven in part by a selling expense decrease resulting from a decrease in accruals for quality warranty. For the 6 months ended 6/30/11, S/G/A expenses were $1.3 million, down approximately 2.7% over the preceding period in 2010.
Income Taxes
TBET is entitled to exemption from PRC income tax from 2008 – 2012.
Comprehensive Income
$4.2 million for Q2 2011, an increase of 22% over Q2 2010. Comprehensive income for the 6 months ended 6/30/11 was $6.9 million, up 9.6% over the prior year. Other comprehensive income, driven by $466,000 in currency translation adjustment, was $700,000 for Q2 2011 and $826,000 for the 6 months ended 6/30/11.
EPS
Earnings per share for Q2 2011 was $0.25 and $0.43 for the 6 months ended 6/30/11, representing decreases of 14% and 19% as TBET’s common share account increased after its IPO. Adjusted as if TBET had incurred a 25% tax rate, Murphy Analytics estimates that non-GAAP EPS would have been $0.23 for Q2 2011 and $0.38 for the 6 months ended 6/30/11.
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‖ http://www.tibetpharmaceuticals.com
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Updating Coverage: Tibet Pharmaceuticals, Inc.
August 22, 2011 Equity Research
PowerShares Dynamic Biotechnology & Genome Portfolio (Fund) and Dynamic Pharmaceuticals Portfolio (Fund) PowerShares Dynamic Biotechnology & Genome Portfolio (Fund) 8
PowerShares Dynamic Pharmaceuticals Portfolio (Fund) 9
Recent 52 Week Performance:
Recent 52 Week Performance:
Recent Top Holdings:
Recent Top Holdings:
Alexion Pharmaceuticals Inc. 6.72% Biogen Idec Inc. 5.78% Gilead Sciences Inc. 5.58% Sigma-Aldrich Corp. 5.42% Amgen Inc. 5.11% Waters Corp. 4.71% Life Technologies Corp. 4.44% Illumina Inc. 4.30% Luminex Corp. 3.63% BioMarin Pharmaceutical Inc. 3.17%
Bristol-Myers Squibb Co. 5.35% Abbott Laboratories 5.21% Johnson & Johnson 5.17% Eli Lilly & Co. 5.06% Baxter International Inc. 4.87% Merck & Co Inc 4.76% Pfizer Inc. 4.70% Amgen Inc. 4.64% Jazz Pharmaceuticals Inc. 4.04% Questcor Pharmaceuticals Inc. 3.99%
Recent Select Metrics:
Recent Select Metrics:
Price/Earnings Multiple: 20.5x Average Market Cap: $9 billion Price/Book Multiple: 4x Return on Equity: 16.9% 1 Year Performance: 29.9% Ticker: PBE
Price/Earnings Multiple: 12.6x Average Market Cap: $40 billion Price / Book: 3x Return on Equity: 20.2% 1 Year Performance: 47.5% Ticker: PJP
Methodology: The underlying index is comprised of stocks of 30 U.S. biotechnology and genome companies. These are companies that are principally engaged in the research, development, manufacture, marketing and distribution of various biotechnological products, services and process, and also includes companies that benefit significantly from scientific and technological advances in biotechnology and genetic engineering and research.
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Methodology:
The PowerShares Dynamic Pharmaceuticals Portfolio (Fund) is based on the Dynamic Pharmaceuticals Intellidex Index (Index). The underlying index is comprised of stocks of 30 U.S. pharmaceuticals companies engaged in the research, development, manufacture, sale or distribution of pharmaceuticals and drugs of all types.
http://www.invescopowershares.com/products/overview.aspx?ticker=pbe http://www.invescopowershares.com/products/overview.aspx?ticker=pjp
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‖ http://www.tibetpharmaceuticals.com
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Updating Coverage: Tibet Pharmaceuticals, Inc.
August 22, 2011 Equity Research
PowerShares Golden Dragon Halter USX China Portfolio (Fund) and PowerShares Zacks Micro Cap Portfolio (Fund) PowerShares Golden Dragon Halter USX China Portfolio (Fund) 10
PowerShares Zacks Micro Cap Portfolio (Fund) 11
Recent 52 Week Performance:
Recent 52 Week Performance:
Recent Top Holdings:
Recent Top Holdings:
Baidu Inc. ADS 6.56% PetroChina Co. Ltd. ADS 5.59% China Mobile Ltd. ADS 5.21% China Unicom (Hong Kong) Ltd. ADS 4.68% China Telecom Corp. Ltd. ADS 4.61% China Petroleum & Chemical Corp. ADS 4.30% China Life Insurance Co. Ltd. ADS 4.29% CNOOC Ltd. ADS 4.10% Aluminum Corp. of China Ltd. ADS 4.10% Yanzhou Coal Mining Co. Ltd. ADS 4.10%
Richmont Mines Inc. 0.41% S1 Corp. 0.36% Global Traffic Network Inc. 0.36% Mistras Group Inc. 0.36% Advance America Cash Advance Centers Inc. 0.36% Walter Investment Management Corp. 0.35% Susser Holdings Corp. 0.35% Merge Healthcare Inc. 0.35% Marchex Inc. (Cl B) 0.35% Akorn Inc. 0.34%
Recent Select Metrics:
Recent Select Metrics:
Price/Earnings Multiple: 14.7 Average Market Cap: $24 billion Price/Book Multiple: 0.4x Return on Equity: 19% 1 Year Performance: 16.9% Ticker: PGJ
Price/Earnings Multiple: 14.6x Average Market Cap: $388 million Price / Book: 1.2x Return on Equity: 6.5% 1 Year Performance: 30.3% Ticker: PZI
Methodology: The PowerShares Golden Dragon Halter USX China Portfolio (Fund) is based on the Halter USX China Index (Index). The Index is composed of U.S. listed securities of companies that derive a majority of their revenue from the People’s Republic of China. The Index is designed to provide insight and access to the unique economic opportunities taking place in China.
Methodology: The PowerShares Zacks Micro Cap Portfolio (Fund) is based on the Zacks Micro Cap Index (Index). The Index is designed to identify a group of micro cap stocks with the greatest potential to outperform passive benchmark micro cap indexes and other actively managed U.S. micro cap strategies. Due to their low correlation to large, medium and small sized companies, micro caps may complement existing blended portfolios by improving risk-adjusted performance.
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http://www.invescopowershares.com/products/overview.aspx?ticker=pgj http://www.invescopowershares.com/products/overview.aspx?ticker=pzi
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‖ http://www.tibetpharmaceuticals.com
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Updating Coverage: Tibet Pharmaceuticals, Inc.
August 22, 2011 Equity Research
TBET Risks TBET operations and share performance is subject to a number of risks and uncertainties, outlined in detail in Company filings with the SEC. Murphy Analytics recommends that these filings be read in conjunction with this report. Risks include: TBET recent operating history makes it difficult to evaluate future prospects and results of operations. TBET and its operating entity in China, YSTP, are subject to a variety of risks inherent in the business of developing, manufacturing and marketing pharmaceutical products, and more particularly traditional Tibetan medicines, in China. YSTP’s ability to develop new Tibetan pharmaceutical products is uncertain. YSTP’s operations are capital-intensive, and its business could be adversely affected if it fails to maintain sufficient levels of working capital. TBET’s future capital needs are uncertain and the Company may need to raise additional funds in the future. TBET presently has a limited number of commercialized products and is dependent on two products for the vast majority of sales revenue. YSTP is dependent on access to raw materials, the availability and quality of which may vary. TBET may be unable to consistently purchase needed raw materials of high quality. TBET depends on the skill and expertise of YSTP’s and internal research and development and executive personnel. If TBET is unable to attract, train, retain and motivate salespeople, sales of products may be materially and adversely affected. YSTP operates in a highly competitive marketplace, which could adversely affect sales and financial condition. TBET may not be able to manage the expansion of operations effectively. If TBET does not keep pace with rapid technological change, the Company will be unable to capture and sustain a strong market position. YSTP’s products may prove to have side effects. If side effects associated with its current or future products, or with traditional Tibetan medicines generally, are significant, TBET may face regulatory, legal and commercial difficulties that could materially adversely affect revenues and operating results. The retail prices of YSTP’s principal products could, in the future, be subject to government price controls. YSTP may not be able to obtain manufacturing or marketing approval from SFDA (State Food and Drug Administration) for YSTP’s future products, and failure to obtain approvals for YSTP’s future products could materially harm business prospects. Adverse publicity associated with the Company or YSTP’s products could have a material adverse effect on results of operations.
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TBET may not be able to sufficiently and promptly respond to rapid changes in government regulation, treatment of diseases and customer preferences in the Chinese pharmaceutical industry, which may adversely affect business, financial condition and results of operations. TBET may incur additional environmental protection costs. The Chinese government could cancel its preferential tax policy, and subject TBET to income tax. The loss of any of YSTP’s significant customers could reduce revenues and profitability. YSTP’s products are not included in national and provincial medicine catalogs of the NMIP (National Medical Insurance Program). Failure to obtain approval from the SFDA to convert a provisional national production standard of YSTP’s principal products to a national final production standard would require YSTP to suspend or cease the production of these products. TBET does not have business interruption, litigation, product liability or other insurance. TBET may not pay dividends YSTP’s failure to protect its intellectual property rights may undermine its competitive position, and litigation to protect its intellectual property rights or defend against third-party allegations of infringement may be costly and ineffective. TBET may be exposed to infringement or misappropriation claims by third parties, which, if adversely determined against the Company, could cause the Company to pay significant damage awards. Customers may confuse YSTP’s products with products of other traditional Tibetan or Chinese medicine companies that use the Chinese characters of “Tibet” or “Shangri-La” in their company names even where such use is not intended to infringe Company trademarks. TBET’s future success depends in part on the ability to make strategic acquisitions and investments. The Company’s failure to consummate or handle the risks associated with these acquisitions and investments could have a material adverse effect on market penetration and revenue growth. Since most of TBET officers reside outside the United States, shareholders may find it difficult to enforce their rights under U.S. federal securities laws. The PRC government may determine that the Control Agreements are not in compliance with applicable PRC laws, rules and regulations. TBET’s ability to manage and operate YSTP under the Control Agreements may not be as effective as direct ownership. Affiliates of TBET and YSTP may be able to terminate the contractual relationships between WFOE and YSTP.
‖ http://www.tibetpharmaceuticals.com
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Updating Coverage: Tibet Pharmaceuticals, Inc.
August 22, 2011 Equity Research
TBET and Comparable ETF Performance Chart from quotemedia.com TBET: Tibet Pharmaceuticals, Inc.
^Compx: Nasdaq Composite
PBE: PowerShares Dynamic Biotechnology & Genome Portfolio
PJP: PowerShares Dynamic Pharmaceuticals Portfolio
PGJ: PowerShares Golden Dragon Halter USX China Portfolio
PZI: PowerShares Zacks Micro Cap Portfolio
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‖ http://www.tibetpharmaceuticals.com
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Updating Coverage: Tibet Pharmaceuticals, Inc.
August 22, 2011 Equity Research
Murphy Analytics Disclaimers
Disclosures
and
This report by Murphy Analytics LLC and the Analyst (together referred to as “MA”) on TBET (the “Company”) is to be used for informational purposes only. Nothing in this report should be construed as investment advice or as an offer to buy or sell any securities. This report is based on information assumed to be reliable and accurate, but MA does not guarantee or make any representation with regard to its reliability, accuracy or completeness. MA made no attempt to independently verify the reliability, accuracy or completeness of this information utilized in the writing of this report. The opinions expressed in this report are subject to change without notice. MA accepts no liability with regard to any loss arising from any use of this report. Past performance of the Company should not be taken as an indication or guarantee of future performance, and no representation or warranty, expressed or implied, is made by MA regarding future performance. Any security discussed in this report may be deemed speculative and therefore not appropriate or suitable for all investors. This report contains statements that are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on estimates and projections made by the Company and/or by MA. These estimates and projections are derived in part on assumptions, and are not guarantees of future performance. Because future performance is quite difficult to predict, actual outcomes and results may differ materially from what is expressed or forecasted in forward-looking statements due to numerous factors. Such factors include, but are not limited to, the Company's ability to execute effectively its business plan and acquisition strategy, failure by the Company to retain key personnel, changes in the markets in which the Company operates, the development of new products and services that compete with those offered by the Company, competitive pressures, economic and political conditions, changes in consumer behavior, the
introduction of competing products having technological and/or other advantages, and other risks not contemplated by the Company or by MA. These and other risks are described in the Company's filings with the Securities and Exchange Commission. These filings should be read in conjunction with the MA report. MA was paid $3,000 by TBET through Trilogy Capital Partners in advance of the publication of this Update Report and $8,500 in advance of the publication of an Initiation Report dated 4/19/11. MA, in its sole discretion, reserves the right to make any statement of opinion regarding the risks related to an investment in TBET. MA, in its sole discretion, reserves the right to determine an appropriate TBET price target or rating, to withhold a price target or rating, or to change a price target or rating. MA assumes no responsibility to update information concerning the Company. MA owns no shares in the Company. No part of the compensation to MA is tied to any content contained in this report or any view expressed in this report. The Analyst for this report Patrick J. Murphy, CFA, has over 15 years of investment and transaction analysis across a range of asset classes including microcap equities, commercial real estate debt and equity, municipal derivatives and public finance, venture capital, fixed income, commercial MBS and mortgage REIT's. In addition to his work with Murphy Analytics, Mr. Murphy also serves as a consultant to a municipal derivates advisory firm. Additionally, Murphy Analytics sometimes provides analytical services to various venture capital firms, privately held companies, non-profits and investor relations firms, including Trilogy Capital Partners or its affiliates. Mr. Murphy is an alumnus of the University of Notre Dame (1991), with an undergraduate degree in Economics, and earned a Masters Degree in Finance from St. Louis University in 1997. Mr. Murphy is a CFA Charterholder and a member of the CFA Society of St. Louis. I, Patrick J. Murphy, hereby certify that all views expressed in this report accurately reflect my personal views about the Company, and that no part of my compensation was or will be related to the views expressed in this report.
Analyst Contact Information: Patrick J. Murphy, CFA - Analyst Murphy Analytics - Phone 636-273-9440 www.murphyanalytics.com - [email protected]
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‖ http://www.tibetpharmaceuticals.com
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August 22, 2011 Equity Research
Executive Summary Tibet Pharmaceuticals, Inc. - Corporate Description: Based in Shangri-La County, Yunnan Province, China, Tibet Pharmaceuticals, Inc. (NASDAQ: TBET) is a rapidly growing specialty pharmaceutical company engaged in the research, development, manufacturing and marketing of modernized traditional Tibetan medicines in China. With over 190 employees and nationwide distribution, the company develops both prescription and over-the-counter traditional Tibetan medicines that promote health in human respiratory, digestive, urinary and reproductive systems. Tibet Pharmaceuticals' products are sold throughout China, with a majority of sales concentrated in the southern provinces, most notably Yunnan Province, where the company's 52,000 sq. ft. GMP-certified manufacturing facilities are located. The Company’s access to key raw materials, not generally available outside the province, provides a significant advantage for Tibet Pharmaceuticals. TBET Market and Corporate Highlights: Rapidly growing market: A recent forecast from Citi projects that China’s pharmaceutical market will reach $100 billion by 2015, and $200 billion by 2020, up from $40 billion currently as retail pharmacy distribution is expected to grow several fold by 2012. Highly fragmented market: While the general Chinese pharmaceutical market is growing rapidly, it remains highly fragmented, presumably providing opportunity for well capitalized and positioned operators to grow both organically and through acquisition. TBET market cap lower than cash and equivalents and price / cash valuation is significantly lower than its peers: As of 6/30/11, TBET reports $29.5 million in cash and equivalents, with working capital of $38.2 million and a current ratio of 8.75 times. TBET reports $45 million in shareholders’ equity, a book value of
TBET Recent Price
$1.79
Outstanding Share Estimate
14.9 million
TBET - Market Cap Estimate
$26.7 million
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$3.00 per share. At a recent market cap of $26.7 million, TBET is trading at less than the $29.5 in cash and cash equivalents reported as of 6/30/11. On average, the sampling of Chinese pharmaceuticals presented later in the report is trading at 6.3x cash on hand while some of the leading global pharmaceuticals trade at even higher multiples relative to cash. TBET Price / Earnings Multiple is a fraction of the multiple for relevant indices and comparables: As presented later in this report, the various benchmark indices with varying degrees of relevance for TBET operations are trading at price / earnings multiples ranging from 12.6x to 20.5x. A smaller sampling of publicly traded stocks generally operating in the Chinese healthcare / pharmaceutical sector is trading at an average P/E multiple of 5.3x, while TBET is trading at less than half the multiple for this sampling and generally in line with peers that are struggling rather than reporting earnings and revenue growth like TBET. Outlook for TBET: The shares of many companies with operations in China in general and in China’s pharmaceutical sector in particular are trading at significant discounts to some of their U.S. and international peers. Among a sampling of Chinese pharmaceutical stocks, TBET is trading at an especially steep discount in light of the company’s recently reported revenue and earnings and a cash position that exceeds the Company’s market capitalization. Over the coming quarters, Murphy Analytics (MA) expects TBET will continue to report strong revenue and earnings growth as the Company grows organically and through complementary acquisitions. In light of the magnitude of the market opportunity for pharmaceuticals and traditional Tibetan medicine in China, TBET has the potential for a significant increase in price as its valuation comes into line with the Company’s pharmaceutical comparables and relevant sector benchmarks.
Please review the risk factors outlined later in this report and the important disclosures and disclaimers at the end of this report.
MA Initiation Report on Tibet Pharmaceuticals, Inc: http://www.murphyanalytics.com/uploads/TBET_Initiation.pdf
www.murphyanalytics.com
‖ http://www.tibetpharmaceuticals.com
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Updating Coverage: Tibet Pharmaceuticals, Inc.
August 22, 2011 Equity Research
TBET Initiation Report – Table of Contents Chinese Pharmaceutical Market Update
Page 3
TBET Valuation Relative to Comparables
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Discussion of TBET Financials
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PowerShares Dynamic Biotechnology & Genome Portfolio (Fund) and Dynamic Pharmaceuticals Portfolio (Fund)
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PowerShares Golden Dragon Halter USX China Portfolio (Fund) and PowerShares Zacks Micro Cap Portfolio (Fund)
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TBET Risks
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TBET and Comparable ETF Performance Chart from quotemedia.com
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Murphy Analytics Disclosures and Disclaimers
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Company Contact Information: Financial Communications Contact: Trilogy Capital Partners - Asia Darren Minton, President Toll-free: 800-592-6067 [email protected]
www.murphyanalytics.com
‖ http://www.tibetpharmaceuticals.com
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Updating Coverage: Tibet Pharmaceuticals, Inc.
August 22, 2011 Equity Research
Chinese Pharmaceutical Market Update Following are comments regarding trends and analysis related to China’s pharmaceutical market. SINOPHARM 1 Targets Sales of 100 billion Yuan in 2012: SINOPHARM is the largest pharmaceutical and healthcare group under State-Owned Assets Supervision and Administration Commission of the State Council (SASAC) in China, with core businesses of pharmaceutical distribution, scientific research and manufacture of medical and biotech products. With 2009 revenue of 65 billion yuan, SINOPHARM is expecting 15% compound annual growth through 2012 will make it a top 500 global corporation. SINOPHARM’s TCM subsidiary, China National Group Corporation of Traditional and Herbal Medicine 2, reported sales of 2.35 billion Yuan in 2007.
Citi Projects a Market of $200 Billion by 2020: A recent forecast 3 from Citi projects that China’s pharmaceutical market will reach $100 billion by 2015, and $200 billion by 2020, up from $40 billion currently as retail pharmacy distribution is expected to grow from 36,000 to 170,000 by 2012. KPMG Study 4, “China’s pharmaceutical industry - Poised for the giant leap” anticipates that China will surpass Japan as the world’s 2nd largest market by 2015: While highlighting expected growth for the pharmaceutical sector, the KPMG report also illustrates the highly fragmented nature of China’s market. KPMG estimates that the U.S. had 70 pharmaceutical companies in 2007, while Japan had 130 and China had 13,000. Similarly, KPMG estimates that the top 3 U.S. pharmaceutical companies enjoyed a 96% market share while in China, the top companies commanded only a 21% market share. The following graphic from the KPMG report shows the growth of approved Traditional Chinese Medicines from 2004 – 2009 as well as their importance relative to Western drugs.
Source: KPMG Study, “China’s pharmaceutical industry - Poised for the giant leap”
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http://finance.yahoo.com/news/CITI-Good-News-For-Drugsiliconalley-3951447589.html?x=0 1
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http://www.sinopharm.com/p391.aspx 2 http://www.sino-tcm.com/english/info.asp
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http://www.kpmg.com/cn/en/IssuesAndInsights/ArticlesPublicatio ns/Documents/China-pharmaceutical-201106-2.pdf
‖ http://www.tibetpharmaceuticals.com
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August 22, 2011 Equity Research
Updating Coverage: Tibet Pharmaceuticals, Inc.
TBET Valuation Relative to Comparables
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‖ http://www.tibetpharmaceuticals.com
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Updating Coverage: Tibet Pharmaceuticals, Inc.
August 22, 2011 Equity Research
The preceding tables set forth revenue, net income, cash and valuation data for a sampling of publicly traded companies that have operations with varying degrees of comparability to those of TBET, but each of which is participating in the Chinese healthcare / pharmaceutical industry. As reference, the tables also present the same sets of data and calculations for three leading global pharmaceutical companies – Pfizer, Merck, and Johnson & Johnson. The revenue and net income estimates generally represent trailing twelve months (TTM) results. Following are comments on some of this data: Price / Revenue Multiple Valuation: While TBET’s price / revenue multiple is roughly in-line with the average multiple of this sampling, it should be noted that TBET is reporting a net income margin nearly 2x that of the average of this sampling, which would seem to justify a higher valuation. As reference, the small sampling of global pharmaceutical companies is trading at 2.05 – 2.80 times trailing revenue. Price / Net Income Multiple Valuation: The average price / net multiple for this sampling is 5.3x TTM net income. TBET is trading at approximately 1.95 TTM net income, a discount of over 60%. Adjusting for taxes that TBET will not incur until 2013, Murphy Analytics estimates that TBET’s nonGAAP comprehensive income / share for the 6month period ended 6/30/11 was $5.4 million, or $0.38 per share. Annualizing this estimate implies that TBET may be trading at perhaps 2.35x net income, which ignores the Company’s reported earnings and revenue growth as well as any benefit from the tax shield through 2012. It should be noted that while Biostar Pharmaceuticals is trading at a P/E multiple comparable to that of TBET, the company recently reported 5 a 26% decrease in net income. Similarly, China Sky One recently reported 6 a 40% decrease in
operating income on falling revenues. Like TBET, China Botanic 7 also recently reported strong results despite valuation multiples that do not seem to reflect that performance. As reference, the global pharmaceuticals are trading at multiples closer to those of the sector indices, with the exception of Merck, whose higher P/E multiple likely reflects an expectation that lower net income margin results will be reversed. Price / Cash Multiple Valuation: In general, as a percentage of market cap, the Chinese pharmaceuticals maintain a significantly higher level of cash on hand relative to the global pharmaceuticals. However, even among the sampling of Chinese pharmaceuticals, TBET is a significant outlier, trading at 0.86 cash and equivalents while, on the other extreme, China Pharma Holdings is trading at 18.5x cash on hand. The only other stock with a market cap less than its cash on hand is China Sky One, which, as noted previously, is reporting significantly declining operating income on falling revenues. P/E Valuation Multiples for TBET Comparable Indices: As presented later in this report, following are the recent P/E Multiples for four funds based on indices with relevance to TBET operations: - PowerShares Dynamic Biotechnology & Genome Portfolio (Fund): 20.5x - Dynamic Pharmaceuticals Portfolio (Fund): 12.6x - PowerShares Golden Dragon Halter USX China Portfolio (Fund): 14.7x - PowerShares Zacks Micro Cap Portfolio (Fund): 14.6x
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http://finance.yahoo.com/news/BiostarPharmaceuticals-Inc-prnews2458195527.html?x=0&.v=1 6 http://finance.yahoo.com/news/China-Sky-OneMedical-prnews-3019798207.html?x=0&.v=1
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http://finance.yahoo.com/news/China-BotanicPharmaceutical-prnews-3107590002.html?x=0&.v=1
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August 22, 2011 Equity Research
Updating Coverage: Tibet Pharmaceuticals, Inc.
Discussion of TBET Financials Unaudited Consolidated Balance Sheets as of 6/30/11: Current Assets
$43.2 million in current assets, including $29.5 million in cash and equivalents. Current assets as of 12/31/10 were $21.1 million.
Current Liabilities
$4.9 million, up from $4.7 million as of 12/31/10.
Working Capital
$38.2 million, a current ratio of 8.75 times. Working capital as of 12/31/10 was $16.4 million.
Total Assets
$49.9 million, including $5.9 million in net property / plant / equipment.
Total Liabilities
With no long-term liabilities, total liabilities are $4.9 million.
Stockholder Equity
$45 million as of 6/30/11, a book value of approximately $3.00 per share. As of 8/15/11, there were 14,845,834 outstanding common TBET shares. As of 6/30/11, additional paid in capital was $23.1 million, with retained earnings of $15.6 million.
Unaudited Consolidated Statements of Income and Comprehensive Income as of 6/30/11:
Sales, net
Gross Profit
$8.7 million for Q2 2011 and $17 million for the 6 months ended 6/30/11. Quarterly sales increased 11.7% over Q2 2010. Revenue growth is attributable primarily to continuous growth in TBET’s five commercialized products. For the 6 month period ended 6/30/11, sales of TBET’s largest revenue producer, the 25 Ingredients Mandrake Pill, increased 31.3% to $8.1 million. Expansion of the Company’s distributor network also contributed to the revenue increase and TBET CEO and Chairman Hong Yu also cited price increases as a contributing factor for the increase. $3.9 million for Q2 2011 and $7.3 million of the 6 months ended 6/30/11. Gross margin of approximately 44% for Q2 2011 was down from 52% in Q2 2010., due primarily to an increase in the price of raw materials.
S/G/A Expenses
Selling, general, administrative (S/G/A) expense fell by 46% to $363,000 in Q2 2011. The decrease was driven in part by a selling expense decrease resulting from a decrease in accruals for quality warranty. For the 6 months ended 6/30/11, S/G/A expenses were $1.3 million, down approximately 2.7% over the preceding period in 2010.
Income Taxes
TBET is entitled to exemption from PRC income tax from 2008 – 2012.
Comprehensive Income
$4.2 million for Q2 2011, an increase of 22% over Q2 2010. Comprehensive income for the 6 months ended 6/30/11 was $6.9 million, up 9.6% over the prior year. Other comprehensive income, driven by $466,000 in currency translation adjustment, was $700,000 for Q2 2011 and $826,000 for the 6 months ended 6/30/11.
EPS
Earnings per share for Q2 2011 was $0.25 and $0.43 for the 6 months ended 6/30/11, representing decreases of 14% and 19% as TBET’s common share account increased after its IPO. Adjusted as if TBET had incurred a 25% tax rate, Murphy Analytics estimates that non-GAAP EPS would have been $0.23 for Q2 2011 and $0.38 for the 6 months ended 6/30/11.
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‖ http://www.tibetpharmaceuticals.com
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Updating Coverage: Tibet Pharmaceuticals, Inc.
August 22, 2011 Equity Research
PowerShares Dynamic Biotechnology & Genome Portfolio (Fund) and Dynamic Pharmaceuticals Portfolio (Fund) PowerShares Dynamic Biotechnology & Genome Portfolio (Fund) 8
PowerShares Dynamic Pharmaceuticals Portfolio (Fund) 9
Recent 52 Week Performance:
Recent 52 Week Performance:
Recent Top Holdings:
Recent Top Holdings:
Alexion Pharmaceuticals Inc. 6.72% Biogen Idec Inc. 5.78% Gilead Sciences Inc. 5.58% Sigma-Aldrich Corp. 5.42% Amgen Inc. 5.11% Waters Corp. 4.71% Life Technologies Corp. 4.44% Illumina Inc. 4.30% Luminex Corp. 3.63% BioMarin Pharmaceutical Inc. 3.17%
Bristol-Myers Squibb Co. 5.35% Abbott Laboratories 5.21% Johnson & Johnson 5.17% Eli Lilly & Co. 5.06% Baxter International Inc. 4.87% Merck & Co Inc 4.76% Pfizer Inc. 4.70% Amgen Inc. 4.64% Jazz Pharmaceuticals Inc. 4.04% Questcor Pharmaceuticals Inc. 3.99%
Recent Select Metrics:
Recent Select Metrics:
Price/Earnings Multiple: 20.5x Average Market Cap: $9 billion Price/Book Multiple: 4x Return on Equity: 16.9% 1 Year Performance: 29.9% Ticker: PBE
Price/Earnings Multiple: 12.6x Average Market Cap: $40 billion Price / Book: 3x Return on Equity: 20.2% 1 Year Performance: 47.5% Ticker: PJP
Methodology: The underlying index is comprised of stocks of 30 U.S. biotechnology and genome companies. These are companies that are principally engaged in the research, development, manufacture, marketing and distribution of various biotechnological products, services and process, and also includes companies that benefit significantly from scientific and technological advances in biotechnology and genetic engineering and research.
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Methodology:
The PowerShares Dynamic Pharmaceuticals Portfolio (Fund) is based on the Dynamic Pharmaceuticals Intellidex Index (Index). The underlying index is comprised of stocks of 30 U.S. pharmaceuticals companies engaged in the research, development, manufacture, sale or distribution of pharmaceuticals and drugs of all types.
http://www.invescopowershares.com/products/overview.aspx?ticker=pbe http://www.invescopowershares.com/products/overview.aspx?ticker=pjp
www.murphyanalytics.com
‖ http://www.tibetpharmaceuticals.com
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Updating Coverage: Tibet Pharmaceuticals, Inc.
August 22, 2011 Equity Research
PowerShares Golden Dragon Halter USX China Portfolio (Fund) and PowerShares Zacks Micro Cap Portfolio (Fund) PowerShares Golden Dragon Halter USX China Portfolio (Fund) 10
PowerShares Zacks Micro Cap Portfolio (Fund) 11
Recent 52 Week Performance:
Recent 52 Week Performance:
Recent Top Holdings:
Recent Top Holdings:
Baidu Inc. ADS 6.56% PetroChina Co. Ltd. ADS 5.59% China Mobile Ltd. ADS 5.21% China Unicom (Hong Kong) Ltd. ADS 4.68% China Telecom Corp. Ltd. ADS 4.61% China Petroleum & Chemical Corp. ADS 4.30% China Life Insurance Co. Ltd. ADS 4.29% CNOOC Ltd. ADS 4.10% Aluminum Corp. of China Ltd. ADS 4.10% Yanzhou Coal Mining Co. Ltd. ADS 4.10%
Richmont Mines Inc. 0.41% S1 Corp. 0.36% Global Traffic Network Inc. 0.36% Mistras Group Inc. 0.36% Advance America Cash Advance Centers Inc. 0.36% Walter Investment Management Corp. 0.35% Susser Holdings Corp. 0.35% Merge Healthcare Inc. 0.35% Marchex Inc. (Cl B) 0.35% Akorn Inc. 0.34%
Recent Select Metrics:
Recent Select Metrics:
Price/Earnings Multiple: 14.7 Average Market Cap: $24 billion Price/Book Multiple: 0.4x Return on Equity: 19% 1 Year Performance: 16.9% Ticker: PGJ
Price/Earnings Multiple: 14.6x Average Market Cap: $388 million Price / Book: 1.2x Return on Equity: 6.5% 1 Year Performance: 30.3% Ticker: PZI
Methodology: The PowerShares Golden Dragon Halter USX China Portfolio (Fund) is based on the Halter USX China Index (Index). The Index is composed of U.S. listed securities of companies that derive a majority of their revenue from the People’s Republic of China. The Index is designed to provide insight and access to the unique economic opportunities taking place in China.
Methodology: The PowerShares Zacks Micro Cap Portfolio (Fund) is based on the Zacks Micro Cap Index (Index). The Index is designed to identify a group of micro cap stocks with the greatest potential to outperform passive benchmark micro cap indexes and other actively managed U.S. micro cap strategies. Due to their low correlation to large, medium and small sized companies, micro caps may complement existing blended portfolios by improving risk-adjusted performance.
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http://www.invescopowershares.com/products/overview.aspx?ticker=pgj http://www.invescopowershares.com/products/overview.aspx?ticker=pzi
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‖ http://www.tibetpharmaceuticals.com
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Updating Coverage: Tibet Pharmaceuticals, Inc.
August 22, 2011 Equity Research
TBET Risks TBET operations and share performance is subject to a number of risks and uncertainties, outlined in detail in Company filings with the SEC. Murphy Analytics recommends that these filings be read in conjunction with this report. Risks include: TBET recent operating history makes it difficult to evaluate future prospects and results of operations. TBET and its operating entity in China, YSTP, are subject to a variety of risks inherent in the business of developing, manufacturing and marketing pharmaceutical products, and more particularly traditional Tibetan medicines, in China. YSTP’s ability to develop new Tibetan pharmaceutical products is uncertain. YSTP’s operations are capital-intensive, and its business could be adversely affected if it fails to maintain sufficient levels of working capital. TBET’s future capital needs are uncertain and the Company may need to raise additional funds in the future. TBET presently has a limited number of commercialized products and is dependent on two products for the vast majority of sales revenue. YSTP is dependent on access to raw materials, the availability and quality of which may vary. TBET may be unable to consistently purchase needed raw materials of high quality. TBET depends on the skill and expertise of YSTP’s and internal research and development and executive personnel. If TBET is unable to attract, train, retain and motivate salespeople, sales of products may be materially and adversely affected. YSTP operates in a highly competitive marketplace, which could adversely affect sales and financial condition. TBET may not be able to manage the expansion of operations effectively. If TBET does not keep pace with rapid technological change, the Company will be unable to capture and sustain a strong market position. YSTP’s products may prove to have side effects. If side effects associated with its current or future products, or with traditional Tibetan medicines generally, are significant, TBET may face regulatory, legal and commercial difficulties that could materially adversely affect revenues and operating results. The retail prices of YSTP’s principal products could, in the future, be subject to government price controls. YSTP may not be able to obtain manufacturing or marketing approval from SFDA (State Food and Drug Administration) for YSTP’s future products, and failure to obtain approvals for YSTP’s future products could materially harm business prospects. Adverse publicity associated with the Company or YSTP’s products could have a material adverse effect on results of operations.
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TBET may not be able to sufficiently and promptly respond to rapid changes in government regulation, treatment of diseases and customer preferences in the Chinese pharmaceutical industry, which may adversely affect business, financial condition and results of operations. TBET may incur additional environmental protection costs. The Chinese government could cancel its preferential tax policy, and subject TBET to income tax. The loss of any of YSTP’s significant customers could reduce revenues and profitability. YSTP’s products are not included in national and provincial medicine catalogs of the NMIP (National Medical Insurance Program). Failure to obtain approval from the SFDA to convert a provisional national production standard of YSTP’s principal products to a national final production standard would require YSTP to suspend or cease the production of these products. TBET does not have business interruption, litigation, product liability or other insurance. TBET may not pay dividends YSTP’s failure to protect its intellectual property rights may undermine its competitive position, and litigation to protect its intellectual property rights or defend against third-party allegations of infringement may be costly and ineffective. TBET may be exposed to infringement or misappropriation claims by third parties, which, if adversely determined against the Company, could cause the Company to pay significant damage awards. Customers may confuse YSTP’s products with products of other traditional Tibetan or Chinese medicine companies that use the Chinese characters of “Tibet” or “Shangri-La” in their company names even where such use is not intended to infringe Company trademarks. TBET’s future success depends in part on the ability to make strategic acquisitions and investments. The Company’s failure to consummate or handle the risks associated with these acquisitions and investments could have a material adverse effect on market penetration and revenue growth. Since most of TBET officers reside outside the United States, shareholders may find it difficult to enforce their rights under U.S. federal securities laws. The PRC government may determine that the Control Agreements are not in compliance with applicable PRC laws, rules and regulations. TBET’s ability to manage and operate YSTP under the Control Agreements may not be as effective as direct ownership. Affiliates of TBET and YSTP may be able to terminate the contractual relationships between WFOE and YSTP.
‖ http://www.tibetpharmaceuticals.com
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Updating Coverage: Tibet Pharmaceuticals, Inc.
August 22, 2011 Equity Research
TBET and Comparable ETF Performance Chart from quotemedia.com TBET: Tibet Pharmaceuticals, Inc.
^Compx: Nasdaq Composite
PBE: PowerShares Dynamic Biotechnology & Genome Portfolio
PJP: PowerShares Dynamic Pharmaceuticals Portfolio
PGJ: PowerShares Golden Dragon Halter USX China Portfolio
PZI: PowerShares Zacks Micro Cap Portfolio
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‖ http://www.tibetpharmaceuticals.com
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Updating Coverage: Tibet Pharmaceuticals, Inc.
August 22, 2011 Equity Research
Murphy Analytics Disclaimers
Disclosures
and
This report by Murphy Analytics LLC and the Analyst (together referred to as “MA”) on TBET (the “Company”) is to be used for informational purposes only. Nothing in this report should be construed as investment advice or as an offer to buy or sell any securities. This report is based on information assumed to be reliable and accurate, but MA does not guarantee or make any representation with regard to its reliability, accuracy or completeness. MA made no attempt to independently verify the reliability, accuracy or completeness of this information utilized in the writing of this report. The opinions expressed in this report are subject to change without notice. MA accepts no liability with regard to any loss arising from any use of this report. Past performance of the Company should not be taken as an indication or guarantee of future performance, and no representation or warranty, expressed or implied, is made by MA regarding future performance. Any security discussed in this report may be deemed speculative and therefore not appropriate or suitable for all investors. This report contains statements that are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on estimates and projections made by the Company and/or by MA. These estimates and projections are derived in part on assumptions, and are not guarantees of future performance. Because future performance is quite difficult to predict, actual outcomes and results may differ materially from what is expressed or forecasted in forward-looking statements due to numerous factors. Such factors include, but are not limited to, the Company's ability to execute effectively its business plan and acquisition strategy, failure by the Company to retain key personnel, changes in the markets in which the Company operates, the development of new products and services that compete with those offered by the Company, competitive pressures, economic and political conditions, changes in consumer behavior, the
introduction of competing products having technological and/or other advantages, and other risks not contemplated by the Company or by MA. These and other risks are described in the Company's filings with the Securities and Exchange Commission. These filings should be read in conjunction with the MA report. MA was paid $3,000 by TBET through Trilogy Capital Partners in advance of the publication of this Update Report and $8,500 in advance of the publication of an Initiation Report dated 4/19/11. MA, in its sole discretion, reserves the right to make any statement of opinion regarding the risks related to an investment in TBET. MA, in its sole discretion, reserves the right to determine an appropriate TBET price target or rating, to withhold a price target or rating, or to change a price target or rating. MA assumes no responsibility to update information concerning the Company. MA owns no shares in the Company. No part of the compensation to MA is tied to any content contained in this report or any view expressed in this report. The Analyst for this report Patrick J. Murphy, CFA, has over 15 years of investment and transaction analysis across a range of asset classes including microcap equities, commercial real estate debt and equity, municipal derivatives and public finance, venture capital, fixed income, commercial MBS and mortgage REIT's. In addition to his work with Murphy Analytics, Mr. Murphy also serves as a consultant to a municipal derivates advisory firm. Additionally, Murphy Analytics sometimes provides analytical services to various venture capital firms, privately held companies, non-profits and investor relations firms, including Trilogy Capital Partners or its affiliates. Mr. Murphy is an alumnus of the University of Notre Dame (1991), with an undergraduate degree in Economics, and earned a Masters Degree in Finance from St. Louis University in 1997. Mr. Murphy is a CFA Charterholder and a member of the CFA Society of St. Louis. I, Patrick J. Murphy, hereby certify that all views expressed in this report accurately reflect my personal views about the Company, and that no part of my compensation was or will be related to the views expressed in this report.
Analyst Contact Information: Patrick J. Murphy, CFA - Analyst Murphy Analytics - Phone 636-273-9440 www.murphyanalytics.com - [email protected]
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‖ http://www.tibetpharmaceuticals.com
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