Take Long View

What: After reporting third quarter financials that reflect growing demand in China for its lead drug, shares in SciClone Pharmaceuticals (NASDAQ:SCLN) shot 23% higher earlier today.

So what: SciClone Pharmaceuticals' Zadaxin is an immune stimulating drug that is used to treat hepatitis B. The drug, which isn't available in the United States, is sold primarily in China, which is home to roughly one third of the globe's hepatitis B population.

Hepatitis B treatment consists primarily of antivirals, including Bristol-Myers Squibb's (NYSE:BMY) top-selling Baraclude, which is sold globally, including in China. China's big addressable hepatitis B patient population has historically been a big driver of sales for hepatitis B drugmakers, including SciClone Pharmaceuticals and Bristol-Myers.

Bmy Scientist

Source: Bristol-Myers Squibb

In the third quarter, SciClone reports that sales of Zadaxin improved 22% to $39.2 million, leading to SciClone delivering $42.9 million in total quarter sales, up 25% year-over-year.

That performance comes as Bristol-Myers faces off against generic competition in China due to uncertainty relating to China's exclusivity laws.

In Q2, overseas sales accounted for $295 million of Baraclude's $320 million in third quarter sales, and sales of all Bristol-Myers drugs in China, including Baraclude, accounted for about 4% of revenue last year. 

In addition to boosting sales, SciClone also did a better job at controlling its expenses last quarter than in previous quarters. Operating expenses dropped to 72% of product sales in Q3, down from 77% last year, and as a result, SciClone delivered non-GAAP EPS of $0.26 versus non-GAAP EPS of $0.17 for the same period in 2014.

Now what:  Demand for Zadaxin is growing, but before investors jump in and buy SciClone shares they should remember that SciClone has run amiss of U.S. regulators in the past and that an ongoing SEC investigation could result in a multimillion dollar settlement.

Also, investors should keep in mind that SciClone gets all of its revenue from overseas markets that could experience substantial reforms that could impact SciClone's future revenue.

Those risks suggest that even though SciClone is an intriguing (and profitable) company, all but the most aggressive investors hoping to capitalize on the global hepatitis B market may be better suited owning the larger and more diversified Bristol-Myers, at least until SciClone's regulatory uncertainty is resolved.

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.