NEW YORK (AP) -- NeoStem Inc. said Monday it is selling its stake in Suzhou Erye Pharmaceutical Co., a Chinese company that makes low-cost generic drugs.
NeoStem owns a 51 percent stake in Suzhou Erye and said new Chinese government regulations on the pharmaceutical industry have hurt the company's profitability and cash flow. It said it will get $12.3 million for divesting its stake, and Suzhou Erye will return 1 million shares of NeoStem stock and cancel options to buy 1.2 million stock options and 640,000 common stock warrants.
The deal must be approved by NeoStem shareholders and meet other conditions. NeoStem said it expects the sale to close during the fourth quarter.
An October 2009 deal gave NeoStem a majority stake in Suzhou Erye and gave Suzhou Erye options to buy a 1.3-percent stake in NeoStem. In 2011 the Chinese government imposed new price and sales rules, including a rule that affected the generic antibiotics that Suzhou Erye makes.
NeoStem said the divestiture will allow it to focus on its other products. Its most advanced drug candidate is AMR-001, which is intended to preserve heart function in patients who have suffered a heart attack.
Shares of NeoStem rose 3 cents, or 6.5 percent, to 49 cents in morning trading.