China Biologic's ex-CEO throws his hat in the ring

Former chief of the Nasdaq-listed biotechnlogy firm launches a $3.9 billion bid to take it private. His consortium of backers face a potential battle to bring back ownership to China.

A consortium led by former boss David Gao has filed an all-cash $3.9 billion offer for Nasdaq-listed China Biologic Products, topping an existing bid by Citic Capital Holdings  as the battle to take the plasma treatment provider private heats up anew. 

Former chief executive and chairman Gao, who led the company for six years before stepping down after Citic's  $3.6 billion  offer in June, is backed by GL Capital Group, Bank of China Group Investment Limited and CDH Investments.

In a press release on Monday, China Biologic said the new proposal provided "immediate and significant value" to its shareholders.

Citing people familiar with the matter, a Bloomberg report on July 10 said Ping An Insurance was also contemplating a move for the Chinese pharma.  

In their proposal letter, Gao and his consortium said they could help China Biologic deal with the tougher trading conditions in China as competition intensified for plasma products such as human immunoglobulin, which are often used   during medical emergencies and  in the treatment of measles and  immune-deficiency related diseases.

“As a private company, China Biologic will have the additional operational flexibility and financial support to build on its successful track record as China’s leading plasma player while navigating the current challenges facing the country’s biopharma industry,” the consortium said in the proposal.

"We also want to partner with the current management team as we take the company forward,” the consortium said, hoping to get some buy-in from the board.

Whether that smokes out an improved offer from Citic or, even a third party like Ping An, remains to be seen. Either way shareholders are on course for some sort of windfall. 

The offer of $118 per share represents an $8 premium over the Citic offer price and has spurred a near-12% rally so far this week, with China Biologic's share price quoted at $102.70 in late-morning US trade on Tuesday.

Financing for the acquisition would comprise a mixture of debt and equity, with Goldman Sachs acting as financial adviser to the consortium and underwriting a senior secured credit facility for the deal, the company statement said.

The company set out some of these challenges in its August 3 earnings reports. Due to spending controls introduced by regional government-sponsored medical insurance programmes, an increasing number of hospitals in China are capping drug revenues to no more than 30% of a hospital's total revenue, dragging revenue down during the second quarter, China Biologic said.

At the same time, increased competition among suppliers had led to a 10% year-on-year price drop  for plasma products in China, it said.

Under Gao's stewardship the market capitalisation of China Biologic grew from $250 million to more than $3 billion in 2018.

His consortium partners all have experience of the healthcare sector too.

CDH Investments is an alternatives investment fund manager focused on China with over $17 billion of assets under management as at the end of 2017, while GL Capital is a specialised healthcare-focused investment group that took SciClone Pharmaceuticals and Shandong Luoxin Pharmacy Group private in 2017.

China's pharmaceutical market, the second largest in the world after the US, was worth an estimated $122.6 billion last year, according to data from US-based healthcare information company IQVIA, which expects it to reach $175 billion by 2022 and continue growing as its population ages. 

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