Embracing innovation: Chinese pharma opens arms to European technologies

Data Insight Dealspeak 29 November

Embracing innovation: Chinese pharma opens arms to European technologies

Pharma has become one of the most active sectors for China’s outbound M&A push into Europe, as the industry pursues greater innovation and globalization following significant progress in recent years.

The pharma/bio sector has contributed around 10% of both the volume and value of all Chinese outbound M&A in Europe in 2021 and 2022, according to Dealogic data.

While the year-to-date (YTD) volume and value of total deal activity has dipped from that of 2021 and even 2020, on the back of Beijing’s strict coronavirus (COVID‑19) restrictions, the pharma/bio sector been on a road to recovery since a dramatic fall in 2019.

Innovation has become a watchword in the Middle Kingdom, as medical reforms introduced in 2018 require increasingly effective therapies in a market catering for 1.3 billion people, and which was previously dominated by manufacturers of generics and now-expired drugs.

According to Dealogic, Chinese pharma/bio players sealed 18 M&A deals in Europe in 2021 and 2022 YTD, targeting niche sub-sectors including innovative therapies, specialty pharma, pharma/antibody ingredients, contract research organizations (CROs), and contract development and manufacturing organizations (CDMOs).

Strategic players are powering the buying spree in pursuit of cutting-edge technologies and therapies to adapt to fast-changing markets.

The top two largest deals have been a USD 662m takeover in 2021 by Mindray [SHE:300760] of HyTest, a Finland-based key supplier of IVD-used antibodies and antigens, and Sino Biopharmaceutical [HKG:1177] paying USD 161m in June for F-star Therapeutics [NASDAQ:FSTX], a UK-based, clinical-stage next-generation immunotherapy developer. Both deals feature technologies with high R&D barriers to entry.

Globalization is also a key factor for Chinese drug developers given their deep engagement with the global pharma supply chain. CROs and CDMOs such as Wuxi AppTec [HKG:2359; SHA:603259] and Pharmaron Beijing [HKG:3759; SHE:300759] are at the forefront of the country’s outbound expansion through active M&A.

European welcome

Europe has always been a favorable destination for Chinese buyers despite the current energy crisis and ongoing Russian invasion of Ukraine looming over the market, says Hui Zhao, a partner at King & Wood Mallesons.

Compared with strained Sino-US relations, Chinese buyers in Europe face decreased risks from regulations and policies, he adds.

Although the European Union (EU) has adopted a CFIUS-like (Committee on Foreign Investment in the US) framework, and tightened foreign and direct investment (FDI) screening, it has banned few deals on the grounds of national security in specific areas such as chips, says Zhao.

The German government in April reportedly blocked the takeover of ventilator maker Heyer Medical AG by Beijing-based Aeonmed Group on national security concerns, but this represents the only healthcare sector deal thus far prohibited under European FDI rules.

While the CFIUS risk remains, even for European companies – German group Biotest in 2018 was forced to sell off its US operations in order to gain approval for its takeover by China’s Creat Group Corporation – Europe remains a mature pharma market, featuring plenty of high-quality companies with advanced technologies and well-known brands, says Zhao.

A benign environment to innovation in pharma and biotechnology enhances its attraction to investors.

Looking forward

“China outbound M&A in Europe will recover in 2H23, when more negative elements fade away,” offers Zhao. Until then, many Chinese buyers are adopting a watching brief given uncertainties over rising yields, the war in Ukraine and China’s COVID restrictions.

China’s pharma companies are likely to continue buying up innovations through M&A, licensing partnerships and co-development programs, according to multiple reports by this news service.

Jiangsu Hengrui Medicine [SHA: 600276], one of the country’s largest biopharma groups, is to join the outbound pursuit of innovative therapies through license-ins, minority stake investments, joint ventures and acquisitions, as well as out-licensing partnerships, per reports.

Other pharmas such as GeneScience Pharmaceuticals, a subsidiary of Chinese bio-pharmaceutical company Changchun High and New Technology Industries (Group) (Chang Chun Gao Xin); [SHE:000661], and Beijing Aosaikang Pharmaceutical (Ao Sai Kang) [SHE:002755] are also on the buyer list, according to reports.

CROs and CDMOs will continue to expand services into other regions, not only to serve more global clients, but also to assist Chinese clients in gaining entry to global markets.

Hangzhou Tigermed Consulting [SHE:300347], a leading Chinese CRO, is interested in bolt-on buys in Western Europe and the US to further expand its presence and improve its service capabilities.

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