Analysis — Pharmaceutical giants eye China for deals despite rising Sino-US tensions

Authors: Andrew Silver and Kane Wu

SHANGHAI/HONG KONG (Reuters) – Some of the world’s biggest drugmakers, undeterred by rising tensions between China and the United States, are seeking deals in China to replenish their drug pipelines and expand 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 $1.2 billion purchase of Gracell Biotechnologies, a Chinese cell therapy company, and Novartis’ acquisition of the remaining shares in SanReno Therapeutics, a kidney disease therapy developer, for an undisclosed amount.

Bristol Myers Squibb and Sanofi are also looking for opportunities, even as some rivals consider pulling out of China amid COVID-related supply chain disruptions, a local economic slowdown and price cuts to get on the state insurance list, according to company officials.

Foreign interest in Chinese drugmakers is a boon for struggling local companies and weary investors eager to cash in on their investments as regulators tighten rules on initial public offerings, putting pressure on companies struggling to raise cash to support their research efforts.

Manas Chawla, chief executive of London Politica, a global political risk advisory firm that has worked with international pharmaceutical clients, said the acquisitions would help them cut costs, target innovative companies and tap into China’s large consumer market.

But it’s not without risks, he said. “The hawkish stance on China is a form of rare bipartisan consensus (in the U.S.).”

LSEG data shows that over the past two decades, most customers of Chinese healthcare companies have been domestic entrepreneurs.

As of July 16 this year, announced acquisitions of Chinese healthcare companies have reached a total of $6.8 billion, the data shows, which is the lowest result for the same period in a decade.

According to the data, the value of foreign acquisitions amounted to USD 720 million, which means a 52% decrease year-on-year.

ACQUISITION MODE

Bristol Myers Squibb, a company that has been grappling with patent expirations, is looking for “opportunities to cash in,” Liang Wu, head of business development at the U.S. drugmaker, said at a meeting of the China Biopharmaceutical Association-USA in Suzhou in late June.

She said one of her interests in China is an antibody-drug conjugate, an anticancer drug that combines targeted therapy and chemotherapy. She currently has a deal to develop and commercialize one of Chinese drugmaker Sichuan Biokin Pharmaceutical’s antibody-drug conjugates outside the country.

Wei Wei, Sanofi’s new product planning chief, 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 spokesman said the company is open to acquisitions and is able to act strategically and capitalize on opportunities regardless of the country.

AstraZeneca, Bristol Myers Squibb and Novartis did not respond to requests for comment.

“International companies are interested in potential acquisition targets in biotech, innovative medicines and leading companies in other sectors,” said Sophia Wu, managing director and head of healthcare in China at investment bank BDA Partners.

She added that women’s health, aesthetics, neurology and autoimmune diseases are also promising growth areas that could interest investors.

CHINA RISK

South African firm Aspen Pharmacare, which in December announced it had agreed to buy the Chinese unit of Swiss group Sandoz, is expanding into other markets to offset risks in China while continuing to pursue Chinese assets, said Larry Merizalde, the company’s chief executive in China.

China accounts for about 10% of Aspen’s global revenue, Merizalde said before the Sandoz deal was announced, but it is just one of dozens of countries where Africa’s largest pharmaceutical company operates.

“I think there are risks in China,” Merizalde said. “I think if there is a major conflict or a major economic crisis, we will feel the impact because any of these issues will affect the entire pharmaceutical market, so we manage these risks as a company.”

One health care company asked political risk consultancy Eurasia Group to assess the impact of continuing to produce in Beijing as a U.S. company versus entering into a joint venture or acquiring local companies to “address market access issues,” said Jasmine Choi, a health care and medical devices analyst at Eurasia. She did not name the company when asked.

To complete a takeover in China, multinationals must navigate a sometimes lengthy regulatory process that includes antitrust rules, equity controls and intellectual property transfers, lawyers and analysts say.

Recently, pharmaceutical companies and investors have begun asking about the potential expansion of China’s data transfer restrictions on investment, Choi said, given the broader U.S. push to reduce supply chain dependence on China due to economic competition and security concerns.

She added that uncertainty and perceived risks related to tightening regulations on the ability to collect and store genetic and health data in both China and the U.S. have increased significantly over the past year and especially in the past few months.

(Reporting by Andrew Silver in Shanghai and Kane Wu in Hong Kong; Editing by Jamie Freed)