Rodman & Renshaw has initiated Biostar Pharmaceuticals (BSPM) with a market outperform rating and a price target of $7, saying its hepatitis B drug Xin Aoxing could drive future growth for the Chinese Pharma company.

Biostar has established strong historical revenue growth with its flagship product Xin Aoxing targeting the world's largest hepatitis B market. The company's future growth could be driven by increasing market penetration of Xin Aoxing in addition to a pipeline of smaller marketed products, analyst Elemer Piros wrote in a note to clients.

Xin Aoxing targets the largest hepatitis B market in the world - China -- as one third of the world's hepatitis B patients reside in that country. The market for hepatitis B drugs could potentially grow multiple folds from current $700 million in China, the analyst said.

Meanwhile, China's economic growth is predicted to outpace the rest of the world in 2010 and 2011, with the pharmaceutical industry seen as a key contributor to overall growth. Based on the announced $124 billion healthcare budget for 2009-2011, the analyst believes the potential demand for pharmaceutical products could increase by six-fold in 2010.

In addition, Xin Aoxing is one of the few over-the-counter (OTC) drugs approved by State Food and Drug Administration (SFDA) in China for the treatment of hepatitis B. The OTC classification allows Biostar to conduct direct-to-consumer (DTC) advertisement campaigns and to build regional brand name.

Sales of Xin Aoxing reached $35 million in the first three quarters of 2010, contributing 67 percent of total revenue. For the recently concluded third quarter, Biostar reported 10 percent growth in profit on 30 percent rise in revenues. Sales of Xin Aoxing Capsules increased 7.9 percent to $12.9 million with a gross margin of 84.3 percent.

Though the sales of Xin Aoxing slowed during the third quarter due to the policy of strict cash collection, the order rate for Xin Aoxing started to rebound at the end of the third quarter and continued to accelerate through October.

Piros expects Xin Aoxing sales could reach $50 million in 2010 and $80 million in 2013.

ADRs of Xianyang-based Biostar closed Wednesday's regular trading session at $2.68 on the Nasdaq. For the past 52-weeks, the stock has touched a high of $5.51 and a low of $2.32.