Analysis: Drug giants eye China for deals despite growing Sino-US tensions

Aspen (Group) Holdings

23/07/2024 03:11

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      Bristol Myers Squibb, Sanofi looking at China M&A
-employees
    

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      AstraZeneca, Novartis have done China deals this year
    

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      Political risks are a consideration -analysts
    

  
    By Andrew Silver and Kane Wu
       SHANGHAI/HONG KONG, July 23 (Reuters) - Some of the
biggest global drugmakers, undeterred by mounting Sino-U.S.
tensions, are scouring for deals in China to replenish drug
pipelines and boost their presence in the world's second-biggest
pharmaceutical market, industry executives and investment
bankers said.
    Several major deals have already been completed this year,
including AstraZeneca's  AZN.L  $1.2 billion purchase of
China-based cell therapy developer Gracell Biotechnologies and
Novartis'  NOVN.S  acquisition of remaining shares of kidney
disease therapy developer SanReno Therapeutics for an
undisclosed amount. 
    Bristol Myers Squibb  BMY.N  and Sanofi  SASY.PA  are also
hunting for deals, according to company employees, even as some
rivals have looked to exit China in the wake of COVID-related
supply chain disruptions, a local economic slowdown and price
cuts to get state insurance listing.
    The foreign interest in Chinese drugmakers is a blessing for
struggling local firms and weary investors eager to cash out on
their investments as regulators tighten initial public offering
rules, putting pressure on businesses that have faced difficulty
in raising cash to support their research work.
    Manas Chawla, chief executive of global political risk
advisory firm London Politica, which has worked with
multinational pharmaceutical clients, said acquisitions would
help them bring down costs, tap into innovative companies and
get exposure to China's large consumer market.
    But it is not without risk, he said. "Hawkishness on China
is a form of rare bipartisan consensus (in the U.S.)."
    The majority of buyers of Chinese healthcare companies have
been domestic in the past two decades, LSEG data showed.
    Announced acquisitions of Chinese healthcare companies
totalled $6.8 billion as of July 16 this year, the lowest in a
decade for the same period, the data showed. 
    Among them, foreign acquisitions accounted for $720 million
in value, down 52% year-on-year, the data showed.
        
  
    ACQUISITION MODE
    Bristol Myers Squibb, which faces challenges from patent
expiries, is looking for "bolt-on opportunities", said Liang Wu,
a business development head at the U.S. drugmaker, at a meeting
of the Chinese Biopharmaceutical Association - USA in Suzhou in
late June.
    She said one of its interests in China is antibody-drug
conjugate, a cancer drug combining targeted therapy and
chemotherapy. It currently has an agreement to develop and
commercialise one of Chinese drugmaker Sichuan Biokin
Pharmaceutical's  688506.SS  antibody-drug conjugates outside
the country.
    Wei Wei, a new product planning manager at Sanofi, told
Reuters that buying biotechnology companies in China was a goal
for the French drugmaker and had been discussed in meetings. He
declined to provide more details.
    A Sanofi spokesperson said the company was open-minded about
acquisitions and could be strategic or seize opportunities when
they presented themselves, regardless of the country.
        AstraZeneca, Bristol Myers Squibb and Novartis did not
respond to requests for comment.
    "Multinational companies are keen to look at potential
acquisition targets in biotech, innovative drugs and the
top-ranked companies in other sectors," said Sophia Wu, a
managing director and head of China healthcare at investment
bank BDA Partners.
    Women's health, aesthetics, neurology, and auto-immunity
were also promising growth areas that could attract investor
interest, she added.
      
  
    CHINA RISKS
    South Africa's Aspen Pharmacare  APNJ.J , which in December
announced it agreed to buy Swiss group Sandoz's China unit, is
expanding in other markets to balance China risk while
continuing to scout for Chinese assets, said Larry Merizalde,
the firm's China CEO.
    China accounted for about 10% of Aspen's global revenue,
Merizalde said before the Sandoz deal was announced, but it is
only one of the dozens of countries where Africa's biggest
pharmaceutical company operates. 
    "I think there are risks" in China, Merizalde said. "I think
that if there is any major conflict or there is any major
economic downturn, we will be impacted, because any of those
issues will impact the overall pharmaceutical market, so we
manage those risks as a company."
    One healthcare company asked political risk advisory firm
Eurasia Group to evaluate the effect of continuing as a U.S.
company manufacturing in Beijing versus entering a joint venture
or acquiring local firms to "navigate market access issues",
said Jasmine Choi, a healthcare and medical devices analyst at
Eurasia. She did not name the company when asked.
    To complete an acquisition in China, multinational companies
have to go through a sometimes lengthy regulatory process
involving antitrust and scrutiny over equity and the transfer of
intellectual property, lawyers and analysts said. 
    More recently, pharmaceutical companies and investors have
inquired about the potential extension of China's data transfer
restrictions to investments given the broader push by U.S. to
reduce supply chain dependence on China over economic
competition and security concerns, Choi said.
    The uncertainty and perceived risk regarding increasing
regulation on whether genetic and health data can be collected
and stored in both China and U.S. has risen significantly over
the past year, particularly in the last couple of months, she
added.

 (Reporting by Andrew Silver in Shanghai and Kane Wu in Hong
Kong; Editing by Jamie Freed)
 ((Andrew.silver@thomsonreuters.com))