What happened

Shares of CASI Pharmaceuticals (NASDAQ:CASI) jumped nearly 32% today after the small-cap pharma announced a new contract drug-manufacturing pact in China. The company now will rely on Yiling Wanzhou International Pharmaceuticals for manufacturing two drugs: entecavir and cilostazol. 

The manufacturing facility has been expected by the Food and Drug Administrations of both the United States and China, which will allow CASI Pharmaceuticals to sell the products in both markets. The announcement is a good start toward generating revenue for the company, but investors are beginning to realize it's just that -- a start.

As of 3:18 p.m. EDT, the stock had settled to a 1.2% gain.

A drawing of a chart on a chalk board showing a steady climb, but erased halfway up and redrawn to show a decline.

Image source: Getty Images.

So what

CASI Pharmaceuticals is focused on developing and marketing drugs in the Chinese market. It's doing that in two ways. First, the $500 million company is developing a drug pipeline of its own, including three late-stage drug candidates in-licensed from Spectrum Pharmaceuticals. Those pipeline inhabitants are being developed specifically for China because marketing rights for other markets are not owned by the company.

The second part of the strategy only came into view in January 2018, when CASI Pharmaceuticals acquired over two dozen generic drugs from Sandoz for $18 million. Of the 29 generics brought into the portfolio, 25 are approved by the U.S. Food and Drug Administration. While the company wants to market them in China, as well, it first wants to move manufacturing from the United States to lower-cost facilities in China.

That explains today's news and also why the stock didn't hold it's amazing gains from earlier in the day. Simply, investors are realizing that the agreement only covers two of the 25 approved drugs the company needs to manufacture so it can begin generating revenue.

Now what

CASI Pharmaceuticals stock has been on an incredible run in the last year, having gained 550% in that time. However, the company still doesn't generate any revenue. And considering the basket of generics acquired from Sandoz had a purchase price of only $18 million, investors shouldn't expect them to be accompanied by significant sales potential. CASI had just $50 million in cash at the end of March and plenty of expensive investments ahead of it, so investors may want to question the current $500 million market cap.

Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.