beyondbrics

By Patti Waldmeir in Shanghai and Andrew Jack in London

From fashion to pharmaceuticals, the principle is the same: if a global company does not succeed in China these days, it will increasingly struggle to succeed at all. So predictably, the past few weeks have seen a bunch of mergers and acquisitions in the Chinese pharmaceutical sector: deals that may have long been seeded, but which are finally flowering.

GlaxoSmithKline, for example, is understood to be close to buying the Chinese drug company Nanjing MeiRui: part of a “bolt-on” strategy of buying other companies’ medicines in China. That’s a strategy also favoured by other pharma multinationals that want to expand their portfolio in China, without waiting years to get new drugs through the government’s approval process.

The deal, currently still under negotiation and expected to be valued at under £100m ($150m), would allow the UK pharmaceuticals group to expand its portfolio of urology products. Nanjing MeiRui’s products include treatments for overactive bladder, complementing GSK’s Avodart for enlarged prostate.

On Monday, Cardinal Health of the US announced the completion of a $470m acquisition of privately held Zuellig Pharma China, a leading healthcare distribution business in China – highlighting increasing interest from foreign pharma in acquiring businesses in China’s highly fragmented distribution sector. Beijing has made clear it expects the distribution sector to consolidate, and MNC companies are happy to help them reach that goal.

“There is clearly a meaningful uptick in deal announcements,” says a drug industry analyst at a western consulting firm in Shanghai told beyondbrics, noting that there were no “core” drug deals last year (apart from a few vaccine deals).

Smaller companies are also getting in on the act: Nycomed, a Swiss group, recently acquired a majority stake in Guangdong Techpool Bio-Pharma, which makes protein-based biotech drugs.

It is not hard to see what is inspiring all the interest. Most drug analysts expect China to become the second largest drug market within 5 years. According to a report by Sinolink Securities released this week (pdf in Mandarin), the revenues of China’s pharmaceutical industry could increase by 20 per cent next year, with profits rising 25 per cent.

Related reading:
Nyocmed to take control of China drugs group, FT (Nov. 1)