By Andrew Silver and Ken Wu
SHANGHAI/HONG KONG (Reuters) – Some of the world’s biggest drugmakers, undeterred by growing tensions between China and the United States, are looking for deals in China to revamp their drug pipelines and boost their presence in the world’s second-largest pharmaceutical market, industry executives and investment bankers said.
Several major deals have already been completed this year, including AstraZeneca’s (NASDAQ:) $1.2 billion purchase of Gracell Biotechnologies, a Chinese company specializing in developing cell therapy. Novartis (SIX:) Acquired the remaining shares of SanReno Therapeutics, a company specializing in developing treatments for kidney disease, for an undisclosed amount.
Bristol-Myers (NYSE:) Squibb and Sanofi Nasdaq:NASDAQ …
Foreign interest in Chinese pharmaceutical companies is a boon for struggling domestic firms and weary investors eager to cash in on their investments as regulators tighten IPO rules, putting pressure on companies that have struggled to raise money to support their research operations.
Acquisitions would help them cut costs, tap into innovative companies and gain exposure to China’s large consumer market, said Manas Chawla, chief executive of London Politics, a global political risk consultancy that has worked with multinational pharmaceutical clients.
But it’s not without risks, he said. “Being tough on China is a rare form of bipartisan consensus[in the United States].”
Data from the London Stock Exchange showed that the majority of buyers of Chinese healthcare companies have been domestic over the past two decades.
The data showed that total announced acquisitions of Chinese healthcare companies reached $6.8 billion through July 16 this year, the lowest level in a decade for the same period.
The data showed that among these foreign acquisitions, the value was $720 million, down 52% year-on-year.
Acquisition mode
Bristol-Myers Squibb, which is facing challenges from expiring patents, is looking for “additional opportunities,” Liang Wu, the U.S. drugmaker’s head of business development, said at a meeting of the China Biopharmaceutical Association-U.S. in Suzhou in late June.
One of her interests in China is an antibody drug, a cancer drug that combines targeted therapy and chemotherapy, she said. She currently has an agreement to develop and market an antibody drug produced by Chinese drugmaker Sichuan Biokin Pharmaceutical outside the country.
Wei Wei, Sanofi’s director of new product planning, told Reuters that buying biotech companies in China was a goal for the French drugmaker and had been discussed in meetings. He declined to provide further details.
A Sanofi spokesperson said the company is open to acquisitions and can be strategic or opportunistic when they arise, regardless of country.
AstraZeneca, Bristol-Myers Squibb and Novartis did not respond to requests for comment.
“Multinationals are looking at potential acquisition targets in biotech, innovative pharmaceuticals and top-rated companies in other sectors,” said Sophia Wu, managing director and head of China healthcare at investment bank BDA Partners.
She added that women’s health, beauty, neuroscience, and autoimmunity are also promising growth areas that could attract investor interest.
Chinese risks
South Africa’s Aspen Pharmacare (OTC:), which announced in December that it had agreed to buy Swiss group Sandoz SIX China CEO Larry Merizaldi said the company’s China unit is expanding into other markets to offset risks in China while continuing to look for Chinese assets.
China accounts for about 10% of Aspen’s global revenue, but it is just one of dozens of countries where Africa’s largest pharmaceutical company operates, Merizaldi said before the Sandoz deal was announced.
“I think there are risks in China,” Merizaldi said. “I think if there is any major conflict or any major economic slowdown, we will be affected, because any of these issues will impact the pharmaceutical market in general, so we manage those risks as a company.”
One healthcare company asked political risk consultancy Eurasia Group to assess the impact of continuing as a U.S. company manufacturing in Beijing versus entering into a joint venture or acquiring local companies “to overcome market access issues,” said Jasmine Choi, a healthcare and medical device analyst at Eurasia. She did not name the company when asked.
To complete an acquisition in China, multinationals must go through a sometimes lengthy regulatory process that includes antitrust, copyright scrutiny and intellectual property transfers, lawyers and analysts said.
Choi said pharmaceutical companies and investors have recently questioned whether restrictions on Chinese data transfers could be extended to investments amid a broader U.S. push to reduce supply chain reliance on China due to economic competition and security concerns.
She added that uncertainty and perceived risks regarding increased regulation over whether genetic and health data can be collected and stored in both China and the United States have risen significantly over the past year, and especially in the past two months.