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China Sky Medical Inc. (CSKI): Traditional Chinese Medicine, Untraditional Profits?

China Sky Medical (CSKI) is a maker and distributor of over-the-counter nutritional supplements and herb-based pharmaceutical and medicinal products, primarily in China. The company’s products fall into the genre of Traditional Chinese Medicine (TCM), a medical science that has been practiced in China for 5,000 years and is still wildly popular today. China’s multi-billion dollar pharmaceutical market is predicted to grow at a double-digit rate over the next several years and TCM is expected to have a 20-percent share of the burgeoning market.

China Sky Medical’s products include the sumei slim patch to foster weight loss and prevent weight gain; a pain killer patch used for the treatment of various ailments, including fever, headache, dysentery, diarrhea, and stiffness and pain in the neck caused by hypertension; and the anti-hypertension patch that improves circulation and reduces blood pressure. The China-based company also sells eye drops, dandruff shampoo, a kidney disease testing kit, snoring retardant, deodorants, diet tea, a cough arresting patch, and pharyngitis spray.

China Sky Medical said in April it acquired Heilongjiang Tianlong Pharmaceutical, Inc., a maker of external-use specialty drugs. The company’s balance appears robust. Second quarter sales surged to $23.7 million from $14.6 million in the prior-year quarter. Net income was $8.1 million, or $0.50 per share, an increase of 92 percent from $4.2 million, or $0.34 per share, in the year earlier period. For 2008, the company said it expects sales of $81 million to $83 million with profit of $25.9 million to $26.6 million.

One sell-side analyst follows China Sky Medical’s shares with a “buy” rating and a $24 price target. The company was founded in 1994 and most of its products are sold through Chinese chain drug stores. Shares of China Sky Medical, which has a market capitalization of $155.5 million, closed Wednesday at $10.32.

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