Chinese Pharmaceutical Cross-Border Mergers and Acquisitions in 2022
The Chinese pharmaceutical market has changed dramatically over the past year. As such, here are some things to consider for companies looking to enter the Chinese pharma M&A market in 2022:
Licensing agreements will become more popular
Total licensing amount exceeded $13 billion in 2021. Notable deals included Zai Lab licensing up to four immuno-oncology molecules from MacroGenics, with a potential deal size of $1.4 billion , and Hansoh Pharma’s siRNA license for three undisclosed targets from Silence Therapeutics, with a potential deal size of $1.3 billion. From the perspective of therapeutic areas, oncology is the most popular area.
In 2021, there were a total of 53 outgoing licensing deals, far exceeding the 24 deals in 2020.1 Increasingly, Chinese R&D pipelines are being recognized by international pharmaceutical companies. We can expect more such transactions to occur this year. Major licensing deals in 2021 included BeiGene licensing up to $1 billion of its ociperlimab immunotherapy pipeline to Novartis, and Rongchang Biology licensing up to $2.6 billion of vidicizumab to SeaGen.
Embrace CROs and CMOs
Chinese pharmaceutical companies are entering the global pharmaceutical outsourcing market and increasing their presence in the market through acquisitions. In February 2021, WuXi AppTec announced that it had entered into an agreement with Bristol Myers Squibb to acquire its manufacturing facility in Couvet, Switzerland, to expand WuXi AppTec’s CDMO capability and commercial coverage in Europe. In early 2022, Pharmaron acquired a commercial API manufacturing facility in the UK from Recipharm to enhance Pharmaron’s CMC capabilities in the UK and China. These transactions are just examples of the rapid growth of the Chinese CRO and CMO market, reflected by a CAGR of 30.8% from 2016 to 2021, well above the global average of 9.5%.2
Continued capital raising in life sciences
In 2021, total investment in life sciences reached $17 billion in China, a 26% increase from 2020, in which early-stage investments (A and B cycles) account for around 40% of the total.3 Investments focus on the areas of biotechnology, R&D pipelines, synthetic microorganism technology, vaccines, precision medicine and antibodies. International life science venture capitalists, such as OrbiMed, Vivo Capital, Arch Venture Partners and Lily Ventures, are increasing their investment weight in the Chinese life science space and are deeply involved in milestones . It is expected that other targets will soon be available for acquisition, given the emergence of many life science companies and the wide range of their pipeline.
The evolution of the market strategy of international companies in China
The implementation of the centralized purchasing policy based on the volume of medicines nationwide has impacted the strategies of international pharmaceutical companies in China. In addition to innovative drugs, international pharmaceutical companies enjoyed strong competitiveness in the Chinese market for expired high-end patented and generic drugs. Under the new sourcing policy, their pricing strategies have also undergone major changes, with some even exiting the market. Mundipharma, owned by the Sackler family, has launched the sale of its China business in a deal that could raise more than $1 billion.4 BMS cut a subsidiary and suspended sales of 12 drugs in China in response to the impact of policy changes in China. Japan’s Takeda Pharmaceutical has sold five prescription products to China’s Hasten Biopharmaceutic in a $322 million deal. More and more multinational pharmaceutical companies are reviewing their market strategies in China, and we can expect more M&A activity from multinational pharmaceutical companies this year.
Less support from the underperforming Chinese capital market
China’s large-cap CSI 300 index fell around 5% for the year 2021. Hong Kong, home to many Chinese tech giants and other giants, saw its Hang Seng index plunge nearly 5%. 15% over the same period. The MSCI China Index ended the year 37% lower than the major comparable indexes.5 Without strong financial supports from the domestic capital market, Chinese pharmaceutical companies will have to consider other financing options to support their outbound M&A activities. Large pharmaceutical companies listed in multiple capital markets, such as the United States and Hong Kong, will be in an advanced position to diversify their funding resources from their local counterparts.
COVID-19 slows down the trade execution process
As China continues with its zero COVID policy, its international borders have effectively been closed, preventing almost anyone from entering or leaving. Chinese companies have missed out on opportunities, including deals in the pharmaceutical sector, simply because Chinese buyers could not conduct effective due diligence on their targets due to the difficulty of international business travel.
Geopolitics impacts the finalization of transactions
Pharmaceuticals can be linked to national security, directly or indirectly. When vaccines, antibiotics and other drugs became difficult to access during the pandemic, it was understandable that authorities paid more attention to pharmaceutical deals involving Chinese buyers. This increases the uncertainty of completing transactions by receiving approvals from authorities.
Adam Zhang YuManaging Director, EJ McKay & Co.
- PharmCube: https://www.pharmcube.com/index/news/article/8585
- Dongguan Security Report: https://pdf.dfcfw.com/pdf/H3_AP202010131421045855_1.pdf?1602599477000.pdf
- ASKCI: https://baijiahao.baidu.com/s?id=1722038694720341674&wfr=spider&for=pc
- Reuters: https://www.Reuters.com/article/us-mundipharma-china-sale-idUSKBN2CM0JO
- Barron’s: https://www.barrons.com/articles/chinas-stocks-had-a-tumultuous-year-what-to-expect-in-2022-51640960489