"China’s pharmaceutical industry is rapidly approaching mature markets, and I wouldn’t be surprised if there are 10 to 20 such large-scale mergers and acquisitions in the next year or two. Because of consistency evaluation, drug varieties will play an increasingly important role in the logic of mergers and acquisitions. " A few days ago, Lin Jianghan, a partner of Roland Berger’s pharmaceutical and medical business, said in an interview with China Business News.
In the past week, three large-scale pharmaceutical mergers and acquisitions came to an end. Behind these three mergers and acquisitions of giant pharmaceutical companies, the desire of local pharmaceutical companies for large varieties of high-quality drugs jumped to the paper, followed by the annual increase in transaction volume and the rising transaction price.
Throw out 3 billion a day
On May 21st, Shanghai Pharmaceutical (601607.SH) (hereinafter referred to as "Shanghai Pharmaceutical") announced that it had invested 144 million US dollars (equivalent to about 915 million yuan) to acquire 100% equity of Takeda Chromo Beteiligungs AG, a wholly-owned Swiss subsidiary of Takeda, thus indirectly holding 26.34% equity of Guangdong Tianpu Biochemical Pharmaceutical Co., Ltd. After the completion of this transaction, the equity of Tianpu held by Shanghai Pharmaceutical Co., Ltd. will rise from 40.80% to 67.14%, achieving absolute control. On the same day, the reorganization plan of Hainan Haiyao (000566.SZ), another pharmaceutical listed company, was officially released. The company plans to purchase 100% shares of Qili Pharmaceutical at a price of more than 2.1 billion yuan.
In just one day, 3 billion funds were thrown out and two pharmaceutical companies were merged.
In fact, since May, the number of large-scale mergers and acquisitions in the pharmaceutical industry has surged. On May 18th, China Resources Pharmaceutical (03320.HK) Group announced that it would realize the absolute control of Jiangzhong Pharmaceutical (600750.SH) by purchasing part of the equity and increasing capital by cash or assets. According to the 2017 annual report of Jiangzhong Pharmaceutical Group, Jiangzhong Pharmaceutical achieved annual revenue of 1.747 billion yuan, a year-on-year increase of 11.83%; Among them, the over-the-counter drug business revenue was 1.457 billion yuan, accounting for 83.4%. In the product layout of Jiangzhong Pharmaceutical, Jiangzhong Compound Caoshanhu Buccal Tablets, Jiangzhong Jianwei Xiaoshi Tablets and Jiangzhong Liangsheng Tablets are its fist products, and the market share of Jianwei Xiaoshi Tablets reaches 70%, ranking first in the industry. According to the analysis of insiders, China Resources will not only obtain several high-quality varieties, but also further enhance the regional advantages of self-operated products in Jiangxi.
"In the future, the pharmaceutical industry in China will be further integrated, and the window of mergers and acquisitions will be opened. Such large-scale mergers and acquisitions will continue to occur." Lin Jianghan said, "On the other hand, the strong alliance between local pharmaceutical companies is also becoming a new trend."
In his view, in this wave of mergers and acquisitions, the subject of high-quality varieties has become a hot spot for competition. An insider of Shanghai Pharmaceutical Co., Ltd. previously revealed to the First Financial Reporter that in recent years, according to Shanghai Pharmaceutical Co., Ltd.’ s current strategy of focusing on large varieties, mergers and acquisitions will still focus on varieties. "The main thing is to see how valuable this variety is in its field, such as whether it is an exclusive variety, whether there are opportunities in this field of the whole market, how much market share it occupies, and whether it is growing well." The insider revealed.
Taking the acquisition of Tianpu by Shanghai Pharmaceutical Co., Ltd. as an example, Tianpu’s two core products "Tianploan" and "Kailikang" are large varieties with sales scale exceeding 1 billion and 300 million years respectively. At present, there are 28 products with annual sales revenue exceeding 100 million, including one with sales revenue exceeding 800 million and five with sales revenue exceeding 400 million. The addition of Tianpu will directly promote the birth of over 1 billion varieties of Shanghai medicine.
On the same day, Qili Pharmaceutical, the target of Hainan Haiyao’s merger and acquisition, also has an attractive drug variety line: it includes 108 drug varieties with a total of 216 drug production approval numbers, and 184 products listed in the national or local medical insurance catalogue, including 135 products listed in the national medical insurance catalogue.
"Consistency evaluation will further promote the integration between pharmaceutical industries, and many of these integrations occur through mergers and acquisitions, resulting in stronger ones." Lin Jianghan said, "Some powerful enterprises such as China Resources, Shanghai Pharmaceutical and Sinopharm can expand their product lines through mergers and acquisitions. For example, China Resources’ acquisition of Jiangzhong can further consolidate its product line of proprietary Chinese medicines and improve its health care products."
In Lin Jianghan’s view, in the past two years, the competition in the domestic pharmaceutical market has been fierce, and many factors, including consistency evaluation and medical insurance price reduction, have had a serious impact on pharmaceutical companies in the short term. The days of relying on a single variety to achieve substantial profits are gone forever, so domestic pharmaceutical companies are aiming at overseas mergers and acquisitions in the hope of broadening their profit channels.
Variety competition spread overseas
In the eyes of Sun Chao, PwC’s partner in Eliot’s medical business, this case with the logic of variety competition for M&A does not only occur in the mutual M&A between local pharmaceutical companies, but also in overseas markets. Good varieties have also become the object of competition among major local pharmaceutical companies. In his view, some products that are at the back end of the product line in multinational pharmaceutical companies still have a lot of room for development when they are placed in China.
"Foreign pharmaceutical companies have products in their hands, but sometimes these products are not in key areas. For them, marketing also needs resources, and the cost of simply developing channels in the China market is not small. Local pharmaceutical companies have the ability to sell drugs in China. After the varieties are bought back, the value of these drugs can be redeveloped, and the value can be reflected. " Sun Chao said.
On May 8th, Luye Pharmaceutical (02186.HK), a Hong Kong-listed company known as the "global buyer" in the local pharmaceutical circle, announced that it had obtained the license rights of AstraZeneca and Sruikang sustained-release tablets for US$ 546 million (about RMB 3.477 billion). Sirecan and Sirecan sustained-release tablets are atypical antipsychotic drugs with antidepressant properties developed by AstraZeneca. They were first listed in Britain in July 1997, approved by FDA in the United States in September of the same year, and listed in China in 2001. According to public information, Serricone was once AstraZeneca’s second best-selling drug. At present, it has been listed in more than 80 countries around the world, with more than 10 million prescriptions.
In fact, although Sirecan was once one of AstraZeneca’s best-selling drugs with a prescription of more than 10 million, as a mature variety, its sales decline was almost inevitable after losing patent protection. However, in the view of Luye, Siruikang entered the national medical insurance catalogue in 2009, and its sustained-release tablets entered the national medical insurance catalogue through negotiations in 2017. Although the patent of Siruikang ordinary tablets has expired, the sustained-release tablets are still exclusive varieties in some areas and are still in the patent protection period in some markets. More importantly, the sustained-release tablets have barriers to preparation process and clinical data protection period, and have maintained a good market structure even in the market that has lost patent protection.
According to the data provided by AstraZeneca, the total sales of Siricon series products in 51 designated countries and regions acquired by Luye Pharmaceutical is about 148 million US dollars, and the operating profit after deducting manufacturing costs and sales expenses is about 110 million US dollars. Among them, the sales of Siruikang ordinary tablets in 2017 was about 85 million US dollars, and the sales of sustained-release tablets were about 63 million US dollars.
"Based on the operating profit of 110 million yuan last year, the transaction consideration is less than 5 times and the valuation is very reasonable." Jiang Hua, vice president of Luye Pharmaceutical, said in the subsequent investor exchange conference call, "AstraZeneca’s strategic focus shift has led to its marketing expenses in Siruikang not being active, and the potential of some markets has not been tapped. We believe that as a first-line drug for schizophrenia, Siruikang still has good growth prospects in the future. "
For Luye Pharmaceutical, the central nervous system is one of the four key areas of its business layout. At present, this area contributes more than 10% of the company’s sales. After the acquisition of Siruikang, it can further enrich the existing central nervous system product portfolio of Luye Pharmaceutical, not only occupying the China market, but also entering the broad international market, which is expected to make central nervous system drugs account for 30% of the group’s income.
In 2017, Sanpower Group made a sensation by announcing the acquisition of 100% equity of Dendreon, an American biopharmaceutical company. Dendreon is the owner of Provenge, the world’s first cellular immunotherapy for prostate cancer. Although Sanpower Group is not a pharmaceutical company, it is the first time that a China company has acquired an original American drug, and the acquisition amount of 819 million US dollars (about 5.7 billion yuan) is also a record for a China company.
"China local pharmaceutical enterprises ‘ Go to sea ’ The upsurge of product acquisition will continue, especially for those products that have passed the patent protection period. Such product acquisition can make up for the shortcomings of its own product line relatively quickly. After all, relying on its own research and development is not so effective. " Sun Chao said, "Whether it is a local enterprise or a multinational group, focusing on the core treatment field has almost become the common choice and investment logic of pharmaceutical giants in the context of the decreasing input-output ratio of innovative drugs."
Consistency evaluation into a merger booster
"There are too few good varieties on the market. Who doesn’t want good varieties and who wants to sell them? Considering the company’s own positioning and development needs, it is more difficult to find suitable varieties. Sometimes, the more mature the company, the more difficult it is to receive good varieties, and it depends on opportunities. " Previously, the R&D director of a large pharmaceutical company complained to the First Financial Reporter.
In fact, the logic of merger and reorganization oriented by variety acquisition has been recognized by domestic pharmaceutical companies in recent years, especially in the context of slow drug review, long research and development cycle of new products, high investment and high risks. Direct acquisition of ready-made varieties has become a shortcut for enterprises to enrich their product lines and integrate industry resources. However, many insiders revealed that a few years ago, the willingness to "sell themselves" was not strong, but in the past two years, with the implementation of the new GMP certification and the continuous promotion of consistency evaluation, many small and medium-sized pharmaceutical enterprises have struggled to survive, and more and more companies with high-quality varieties have begun to waver.
In November, 2015, china food and drug administration published "Opinions on Carrying out Consistency Evaluation on the Quality and Efficacy of Generic Drugs (Draft for Comment)" (hereinafter referred to as "Opinions"), which stated that some generic drugs need to complete consistency evaluation before the end of 2018, and those who fail will be cancelled the approval number of drugs.
The vice president of a well-known domestic generic pharmaceutical company revealed to CBN that due to the consistency evaluation, the enterprise has to go through all the procedures when applying, and each drug is equivalent to reapplying for a document number. According to the current situation, the average capital consumption of each variety is not less than 3 million, which is a huge challenge for pharmaceutical companies, both in terms of manpower and financial resources.
"For some companies that are not strong but have good varieties, it is possible to choose to sell at this time." Lin Jianghan, partner of Roland Berger’s pharmaceutical and medical business, revealed.
The resulting number of pharmaceutical mergers and acquisitions is increasing year by year. According to the previous statistics of Zero2IPO Group, among the 222 M&A cases from 2011 to December 31, 2017, the number of M&A cases increased significantly after 2015, reaching a new high in 2017, with 56 M&A cases in the pharmaceutical circle. In terms of the amount of mergers and acquisitions, it also showed a significant growth trend after 2015. In 2017, the amount of mergers and acquisitions involved reached 12.709 billion yuan.
Many people in the industry said that through mergers and acquisitions, becoming bigger and stronger as a group leader, or taking the road of internationalization through import registration, "exporting to domestic sales" will become a one-time evaluation opportunity for the industry leaders such as Sinopharm, Shanghai Pharmaceutical and Fosun.
"In the domestic pharmaceutical circulation industry, Sinopharm, Shanghai Pharmaceutical Co., Ltd. and China Resources are in a three-legged position, but at present, their net profit margins are all low, so they usually act as agents for the products of some pharmaceutical companies for integrated marketing, and the best solution to improve the net profit margin is to directly expand their own product lines." Wang Xin, President of Jost Sullivan Greater China, said in an interview with China Business News.
Therefore, out of the desire for good products, consistency evaluation brings opportunities for deep cooperation between Chinese and foreign enterprises on the other hand.
"For pharmaceutical companies in China, if a foreign-funded original drug research company is willing to provide information on drug ingredients, production processes and preparations, it is equivalent to getting ‘ Secret recipe ’ . China generic drug production has been ‘ Imitate medicine only, not the process, process and crystal form ’ Difficult problems, although we know the chemical composition information of the original drug, we don’t pay enough attention to the key technical nodes such as excipients, production technology, quality control process and compound crystal form. For foreign-funded enterprises, it is not easy to sell generic drugs into hospitals in China, which requires resources accumulated by local pharmaceutical companies for a long time. " Shi Lichen, founder of Beijing Dingchen Management Consulting Co., Ltd. analyzed, "Foreign-funded original drug research enterprises can exchange data information for shares, and local enterprises are responsible for production and sales, so that foreign-funded enterprises can still share the China market, and local enterprises can also get learning and production opportunities."
"I believe that such mergers and acquisitions will rise in the order of magnitude in the future. There are 5,000 pharmaceutical companies in China, including 3,000 chemical medicine companies and 2,000 Chinese patent medicine companies, among which there is a lot of room for mergers and acquisitions. Among them, small enterprises with weak strength will face the risk of being shut down and annexed, and large-scale regional mergers and acquisitions such as China Resources’ acquisition of Jiangzhong Pharmaceutical will certainly happen in the future. " Lin Jianghan said.