(Yicai Global) Jan. 23 -- Chinese pharmaceutical companies closed 42 merger and acquisitions abroad last year, with a combined investment of CNY73 billion (USD11.4 billion). This year will see a further uptick in overseas M&A activities among Chinese pharma firms, Shanghai Securities Information reported today, citing market insider forecasts.
On average, 10 to 15 years is needed to develop a popular new drug and release it on the market, with the cost about USD1 billion, data from the Pharmaceutical Research and Manufacturers of America show. The rising cost of research and development, coupled with the rise of precision medicine and artificial intelligence and advances in cellular immunotherapy and other new treatment methods, has brought new challenges to the survival and development of traditional drug companies.
External asset acquisitions, especially overseas M&As, have thus formed a viable strategy for such companies to ramp up their technological competitiveness. The number of M&As Chinese pharma companies announced last year was twice as many as in 2016, and six times the 2015 tally. However, the value of most of the acquisitions was less than CNY100 million, per statistics. This because the number of high-quality target companies has dropped following extensive M&A deals in recent years, and because regulators have tightened control over M&A projects conducive to backdoor listings.
Many leading companies have started to seek suitable targets abroad to boost their competitiveness by going global.
"Going abroad is our only option. A survey shows more than 90 percent of truly valuable pharmaceutical product innovations in China were developed by companies with connections with foreign firms and collaborating with and learning from US and European companies in the general trend going forward," opined Ren Jinsheng, chairman of Simcere Pharmaceutical Group [NYSE:SCR]. The company will focus on innovation projects that are still at an early stage of development. "Chinese pharmaceutical firms need to expand into foreign markets, and bring the most advanced technologies back home," he advised.
Developing countries have enormous potential and have appeared on the radar of major Chinese pharmaceuticals looking to grow their footprint on the global market. Innovation and globalization will remain as the top strategic priorities for Shanghai Pharmaceuticals Holding Co. [HK:2607], noted Zuo Min, its president. The firm has set up active pharmaceutical ingredient factories in Africa, and the plant in Sudan alone generated over USD10 million in profits last year. It announced a plan to acquire a 100 percent stake in Malaysia Cardinal Health (L) Co. for USD557 million proposed by its wholly-owned subsidiary Century Global in November. The deal was expected to make Century Global the second-largest player in China's drug distribution sector.
"Shanghai Pharmaceuticals Holding recently started talks on several new M&A deals, and arrangements for international market expansion and international cooperation and acquisitions are currently underway," Zuo said.