China pharma M&A heats up with Luye deal

Luye Pharma Group has agreed to buy a subsidiary of Swiss counterpart Acino, becoming the latest Chinese healthcare company to look overseas for expansion.

Luye Pharma Group has agreed to buy a subsidiary of Swiss counterpart Acino, becoming the latest Chinese healthcare company to look overseas for expansion.

Luye Pharma, backed by Singapore’s sovereign wealth fund GIC, is buying a branch of Acino that makes transdermal drug delivery systems (TDS), or patches. The €245 million ($270 million) acquisition means Luye is about to control one of the largest TDS manufacturers in Europe.

The deal is Luye Pharma’s first offshore acquisition since its listing in Hong Kong in 2014. But it comes at a time when China’s healthcare industry has been undergoing widespread change, from mass-producing cheap drugs to developing innovative new products and services. These changes have driven a rising appetite for offshore M&A.

Overseas acquisitions give Chinese companies a way to quickly expand in a market without forcing them to start the research and development phase from scratch. Acino Supply, the acquired company, focuses on complex and high margin categories of the delivery business, such as the central nervous system. Among its hard-to-make and already commercialised products are Rivastigmine, Buprenorphine and Fentanyl.

Zhang Yehong, chief executive of Luye Pharma’s international arm, said the purchase of Acino’s TDS business was a “milestone” for Luye.

“The acquisition will significantly enhance Luye Pharma’s international capabilities and accelerate its penetration into broader therapeutic areas and geographies,” he said in a statement on Tuesday.

That view appears to be supported by analysts. David Li, a healthcare analyst at Bocom International, said the acquisition would strengthen Luye’s research and development capabilities, and boost its exposure in the West. This may prove particularly useful when the company’s latest neurological drug Risperidone hits the US market, presuming it receives the approval from the US Food and Drug Administration.

“The acquisition won’t help Luye’s net profit much given the deal size, but it could help Luye tap into the Western market, and help boost its new drug’s sales in the US,” Li told FinanceAsia.

More drugs, please

The acquisition is the latest to underline the growing interest from Chinese companies in healthcare assets abroad. Chinese investors have spent $3 billion on 48 foreign healthcare deals so far this year, up from 31 deals worth $859 million year-on-year, according to Dealogic data.

The list of acquirers includes one of Luye Pharma’s sister companies, Luye Medical, the medical service arm of Luye Group. It bought Australia’s third-largest private hospital operator Health Care Australia last December, paying about $700 million. (Singapore-based Luye Group owns Luye Pharma, Luye Medical and Luye Investment as its three main units, and has the majority of its operations in China.)

Chinese state-owned conglomerate China Resources Group has teamed up with Australian investment Macquarie to acquire between 50% and 74% of Australian cancer therapy provider Genesis Care, without disclosing the deal value, according to a joint statement last Friday. US private equity firm KKR is selling its 45% stake as part of the deal.

These moves only supplement a huge domestic market. With the Chinese government stepping up efforts to overhaul the healthcare sector, the country's spending on healthcare is set to hit $1 trillion in 2020, up from $357 billion in 2011, according to McKinsey. 

Healthy growth

Founded in 1994, Luye Pharma has gradually developed into a drugmaker of around 3,400 staff, including 300 R&D personnel. It runs offices in several cities in China as well as in the US, Singapore and Malaysia, according to the company.

As one of the leading pharmaceutical firms in China, it mainly targets four fast-growing therapeutic areas — oncology, cardiovascular, metabolism and the central nervous system. It has a portfolio of 30 drugs in the market and more than 20 in the pipeline in China and overseas, including five which have entered into the clinical trial stage in the US.

Luye Pharma, which delisted from the Singapore stock exchange in 2012, raised $764 million through its Hong Kong flotation in July 2014. Its stock has plunged about 40% so far this year, but advanced 8% to HK$5.26 on the news of the acquisition in Hong Kong on Tuesday.

The transaction is expected to be completed by the end of November, according to the companies. The deal is being structured as an acquisition of 100% of both Acino AG and Acino Supply AG from Acino Pharma and Acino International. The private equity owners of Acino Group are Avista Capital Partners and Nordic Capital.

Credit Suisse is the sole financial advisor to Luye Pharma. 

¬ Haymarket Media Limited. All rights reserved.
Share our publication on social media
Share our publication on social media